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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EGREETINGS NETWORK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 5947 94-3207092
(PRIOR TO REINCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
DELAWARE
(FOLLOWING REINCORPORATION)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
</TABLE>
501 SECOND STREET, SUITE 114
SAN FRANCISCO, CA 94107
(415) 536-1870
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
GORDON M. TUCKER
CHIEF EXECUTIVE OFFICER
EGREETINGS NETWORK, INC.
501 SECOND STREET, SUITE 114
SAN FRANCISCO, CA 94107
(415) 536-1870
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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KENNETH L. GUERNSEY JOSE F. MACIAS
KARYN R. SMITH BURKE F. NORTON
ANGELIQUE C. TREMBLE PABLO L. CHAVEZ
EDWARD A. KLEINHANS WILSON SONSINI GOODRICH & ROSATI
COOLEY GODWARD LLP PROFESSIONAL CORPORATION
ONE MARITIME PLAZA, 20TH FLOOR 650 PAGE MILL ROAD
SAN FRANCISCO, CA 94111 PALO ALTO, CA 94304
(415) 693-2000 (650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AGGREGATE REGISTRATION
TO BE REGISTERED OFFERING PRICE FEE
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Common Stock, $.001 par value per share..................... $75,000,000 $20,850
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) of the Securities Act of
1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 7, 1999
Shares
Egreetings Logo
Common Stock
------------------
Egreetings Network, Inc. is offering shares of common stock.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of the common stock is expected to be between
$ and $ per share. We have made application to list our common stock on
The Nasdaq Stock Market's National Market under the symbol "EGRT."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS EGREETINGS
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<S> <C> <C> <C>
Per share................................ $ $ $
Total.................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
The date of this prospectus is , 1999.
<PAGE> 3
[INSIDE FRONT COVER ARTWORK]
<PAGE> 4
[GATEFOLD ARTWORK]
<PAGE> 5
TABLE OF CONTENTS
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PROSPECTUS SUMMARY..................... 4
RISK FACTORS........................... 7
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS........................... 23
USE OF PROCEEDS........................ 24
DIVIDEND POLICY........................ 24
CAPITALIZATION......................... 25
DILUTION............................... 26
SELECTED FINANCIAL DATA................ 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................... 28
BUSINESS............................... 35
MANAGEMENT............................. 51
CERTAIN TRANSACTIONS................... 66
PRINCIPAL STOCKHOLDERS................. 70
DESCRIPTION OF CAPITAL STOCK........... 74
SHARES ELIGIBLE FOR FUTURE SALE........ 81
UNDERWRITING........................... 83
NOTICE TO CANADIAN RESIDENTS........... 86
LEGAL MATTERS.......................... 88
EXPERTS................................ 88
ADDITIONAL INFORMATION................. 88
INDEX TO FINANCIAL STATEMENTS.......... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
-------------------------
"E-greetings" is a registered trademark and service mark of Egreetings
Network, Inc. in the United States. All other trademarks or service marks
appearing in this prospectus are the property of their respective owners.
Unless otherwise indicated, all information contained in this prospectus
assumes:
- no exercise of the underwriters' over-allotment option;
- no exercise of outstanding options or warrants, except for the assumed
exercise of a warrant to purchase preferred stock convertible into
4,990,000 shares of common stock, which will expire upon the completion
of this offering;
- the conversion of all outstanding shares of our preferred stock into
shares of common stock upon the completion of this offering;
- our reincorporation from California to Delaware; and
- the filing of our restated certificate of incorporation.
-------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all the information you should consider before
buying shares in the offering. You should read the entire prospectus carefully.
EGREETINGS NETWORK, INC.
Egreetings offers consumers a simple and compelling solution to the problem
of finding and sending appropriate greetings and gifts. Our Web site contains
over 4,400 digital greetings incorporating rich media elements such as graphics,
animations and music that consumers can personalize and send for free. Because
our greetings are organized into content channels, consumers can quickly locate
appropriate greetings and we can offer consumers contextually merchandized gift
suggestions based on their greeting selections. In addition, our service is
"viral" in nature, as each greeting sent creates an opportunity for us to
acquire the recipient as a new user of our service. In September 1999, our Web
site was visited more than 9.6 million times, visitors to our Web site viewed
over 98 million Web pages and consumers used our service to send over 3.4
million digital greetings.
Consumers use our Web site to communicate for personal or business
purposes, typically related to an occasion, sentiment or emotion. We believe
these consumers are likely to be receptive to advertisements and gift
suggestions from our advertising and ecommerce partners related to the specific
occasions for which they are sending greetings. In addition, we are able to make
promotional and purchase offers through email to a large portion of our consumer
base, targeted according to their specific demographics and content affinity.
We provide benefits to both consumers and advertisers, including the
following:
- Superior Value and Enhanced Communications, enabling individuals to
convey personal, business and occasion-related communications in a
creative, entertaining and personalized manner.
- Convenient Communications and Gift-Giving, eliminating the
inconvenience associated with traditional paper-based communications
and retail gift stores.
- Targeted Online Opportunities, enabling advertisers and our ecommerce
partners to deliver their messages and promote their products to a
large and diverse group of consumers on a highly targeted basis.
- Viral Advertising, allowing advertisers and sponsors to establish and
build a brand image not only with the senders of the digital greetings
but also with the recipients.
The emergence of the Internet as a global medium and the rapid adoption of
email are changing the way people communicate and engage in commerce.
International Data Corporation estimates that the number of email messages sent
in the United States alone will grow from approximately 2.1 billion per day at
the end of 1998 to approximately 9.2 billion per day at the end of 2003.
Although text-based email is convenient, it does not allow consumers to express
themselves in a dynamic and entertaining fashion. As a result, enhanced email
services such as ours that provide consumers an opportunity to use engaging
graphics and imagery to express their emotions are gaining popularity. According
to a Jupiter Communications survey, sending electronic greetings was the sixth
most popular online activity in 1998.
The use of the Internet as a means for conducting commercial transactions
is also growing dramatically. Forrester Research estimates that the business to
consumer online sales market in the United States alone will increase from
approximately $20 billion in 1999 to approximately $184 billion in 2004 and that
global spending for online advertising will total $33 billion in 2004. We
believe our status as a leader in the distribution of digital greetings and our
ability to deliver highly targeted gift offers and advertisements to our
consumers put us in a strong position to capitalize on these expanding online
advertising and ecommerce opportunities.
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OTHER INFORMATION
We were incorporated in California in July 1994 under the name Virtual
Mall, Inc. We changed our name to E-greetings Network in October 1998 and to
Egreetings Network, Inc. in September 1999. Our principal executive offices are
located at 501 Second Street, Suite 114, San Francisco, California 94107, and
our telephone number is (415) 536-1870. Our Web site address is
www.egreetings.com. The information on our Web site is not incorporated by
reference into this prospectus.
THE OFFERING
Common stock offered............ shares
Common stock to be outstanding
after the offering............ shares
Use of proceeds................. To fund increased sales and marketing
activities, content acquisition, expansion
of our network architecture and
brand-building activities. The balance of
the proceeds shall be utilized for general
corporate purposes, including potential
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol........................ EGRT
SHARES OUTSTANDING AFTER THE OFFERING
The number of shares of common stock to be outstanding after this offering
includes 4,990,000 shares issuable upon exercise of a warrant that will expire
upon the completion of this offering, but does not include:
- shares of common stock issuable upon the exercise of other
outstanding options and warrants; or
- shares of common stock available for future issuance under our
equity incentive plans.
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
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1996 1997 1998 1998 1999
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STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 164 $ 505 $ 317 $ 97 $ 724
Costs and expenses................. 1,952 3,530 8,115 3,090 12,910
------- ------- ------- ------- --------
Loss from operations............... (1,788) (3,025) (7,798) (2,993) (12,186)
Interest income (expense), net..... 4 (68) (23) 2 (107)
Net loss........................... (1,784) (3,093) (7,821) (2,991) (12,293)
Net loss per share(1):
Basic and diluted................ $ (0.76) $ (0.67) $ (1.51) $ (0.58) $ (2.34)
======= ======= ======= ======= ========
Weighted average shares.......... 2,341 4,650 5,197 5,194 5,261
======= ======= ======= ======= ========
Pro forma net loss per share(1):
Basic and diluted................ $ (0.63) $ (0.68)
======= ========
Weighted average shares.......... 12,486 18,141
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<CAPTION>
JUNE 30, 1999
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PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
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BALANCE SHEET DATA:
Cash and cash equivalents............... $ 6,601 $ $
Working capital......................... 4,121
Total assets............................ 20,185]
Long-term liabilities................... 764
Total stockholders' equity.............. 16,557
</TABLE>
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(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
(2) Pro forma balance sheet data gives effect to the net proceeds of
approximately $ million received from the sale of our Series G preferred
stock in October 1999, the assumed exercise of a warrant to purchase
preferred stock convertible into 4,990,000 shares of common stock, which
will expire upon the completion of this offering and the conversion of all
outstanding shares of preferred stock into common stock upon the completion
of this offering.
(3) Pro forma as adjusted balance sheet data gives effect to the sale by us in
this offering of shares of common stock at an assumed initial public
offering price of $ per share.
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. If any of the following risks actually occurs,
our business could be harmed. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment. You should
also refer to the other information in this prospectus, including our financial
statements and the related notes.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS AND OUR PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE OUR OPERATING
HISTORY UNDER OUR CURRENT BUSINESS MODEL IS UNPROVEN AND WE MAY CHANGE OUR
BUSINESS MODEL IN THE FUTURE.
Though we were incorporated in and have been operating since July 1994, we
began to significantly change our business model in November 1998. The changes
to the business model include a shift from charging consumers for our digital
greetings to a free digital greeting service supported by the sale of
advertising and sponsorships and revenues derived from the sale of products
through our Web site. Our new business model is largely untested, and we cannot
be sure that it will yield the results that we expect. Because the Internet is
constantly changing, we may need to change our business model again to adapt to
those changes. Changes in our business model or organizational structure could
impose significant burdens on our management team and our employees and could
result in loss of productivity or increased employee attrition. When making your
investment decision, you should consider the risks, expenses and difficulties
that we may encounter as an early-stage company with a new and evolving business
model. To address the risks we face, we must, among other things:
- expand and enhance our product and service offerings;
- continually enhance the technology we use to deliver our products and
services;
- maintain and enhance our brand;
- increase the amount of traffic to our Web site;
- increase the value of our products and services to consumers, advertisers
and ecommerce merchants; and
- attract, integrate, retain and motivate qualified personnel.
We cannot be certain that our current and planned business strategies will
be successful or that we will successfully address these risks.
BECAUSE OUR METHODS OF GENERATING REVENUES ARE RELATIVELY NEW, LARGELY UNTESTED
AND CONTINUE TO CHANGE, WE MAY BE UNABLE TO GENERATE SUFFICIENT REVENUES.
We recently began generating a significant portion of our revenues from sales of
advertising on our Web site. These sales may not grow at the rates we expect
because Internet advertising is still a new and largely unproven method of
advertising.
In November 1998, we stopped charging consumers for our digital greetings
and shifted to the sale of advertising on our Web site as our primary source of
revenue. During
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the six-month period ended June 30, 1999, virtually all of our revenues were
derived from Internet advertising. We expect revenues from Internet advertising
to continue to comprise a significant portion of our revenues for the
foreseeable future. Our future revenues from Internet advertising are difficult
to predict because the medium is new and rapidly evolving. In addition, the
effectiveness of Internet advertising is difficult to gauge. Advertisers may
therefore be reluctant to advertise on the Internet and may allocate only
limited portions or none of their advertising budgets to Internet advertising in
the future. Our business could suffer if Internet advertising does not continue
to grow.
Even if Internet advertising and direct marketing become widely accepted, we may
be unable to generate sufficient revenues from these activities because we have
limited experience generating revenues from Internet advertising and direct
marketing.
Our business model is based on generating increased advertising and direct
marketing revenues. Even if advertising and direct marketing on the Internet
become widely accepted, the success of our business strategy will depend on the
following factors:
- our ability to provide quality content on our Web site that will attract
the numbers and types of consumers that our advertising, direct marketing
and ecommerce partners want to reach;
- our ability to provide guaranteed views of our advertisers' ads by our
consumers; and
- our ability to sell existing and future Internet advertising inventory.
If we lose significant advertising or direct marketing customers or are
forced to significantly reduce advertising or direct marketing rates in order to
retain these customers, our business will suffer.
Although we intend to offer more ecommerce services, we may not generate
significant revenues from these services because we have very limited experience
in ecommerce.
Our future success will largely depend on our ability to generate revenues
through the facilitation of ecommerce transactions, a business area in which we
have very limited experience. We intend to facilitate these transactions both by
directing consumers to our partners and by enabling consumers to purchase
products and services directly from our Web site. We also expect third parties
to fulfill these orders and deliver to consumers the goods and services that are
purchased on or through our Web site. These methods of revenue generation are
relatively new and largely untested for us. In addition, the development and
implementation of our ecommerce services will require additional management,
financial and operational resources and may strain our existing resources. Our
expansion into ecommerce may not be timely or may not generate sufficient
revenues to offset the cost of our expansion into that area.
Our Internet advertising, direct marketing and ecommerce revenues will be
negatively impacted if we are unable to collect or use data about our consumers
in ways that allow us, our advertisers, sponsors and ecommerce partners to
generate revenues.
We intend to increase advertising, direct marketing and ecommerce revenues
by offering to our advertisers, sponsors and ecommerce partners aggregate
information about our registered members that is often difficult to obtain, such
as their gender, age, location,
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interests and online activities. Our advertisers, sponsors and ecommerce
partners will, in turn, use this demographic and psychographic information to
tailor their advertising campaigns, direct marketing efforts or product
offerings to the characteristics of our registered members. The ability of our
advertisers, sponsors and ecommerce partners to properly target their
advertising and commercial offerings will depend significantly on our ability to
successfully collect and use data about our registered members.
Privacy concerns may cause consumers to resist providing personal data. For
example, we currently allow our registered members to opt out of receiving
marketing and related communications. If a majority of our registered members
make this election, the amount of the demographic data we are able to provide to
advertisers, sponsors and ecommerce partners will be reduced significantly,
which could harm our ability to retain and attract advertisers, sponsors and
ecommerce partners. In addition, in October 1999, we plan to eliminate the
requirement that consumers become registered members to use our services.
Although we offer personalization features and other benefits to our registered
members that are unavailable to unregistered consumers, our ability to collect
the data desired by advertisers, sponsors and ecommerce merchants may decrease.
This could result in less advertising, direct marketing and reduced ecommerce
activities on or through our Web site and less advertising via our digital
greetings, which would result in reduced revenues from advertising, direct
marketing and ecommerce.
WE HAVE A HISTORY OF NET LOSSES AND EXPECT TO CONTINUE TO INCUR NET LOSSES.
OUR BUSINESS WILL BE SERIOUSLY HARMED IF OUR REVENUES DO NOT GROW.
We have incurred significant net losses in each fiscal quarter since our
inception, including a net loss of approximately $6.5 million in the quarter
ended June 30, 1999. As of June 30, 1999, we had an accumulated deficit of
approximately $25.4 million. We expect to have net losses and negative operating
cash flows for the foreseeable future. The size of these net losses will depend,
in part, on the rate of growth of our revenues from our advertisers, sponsors
and ecommerce merchants and on our expenses. Through at least 2002, our reported
operating results will be negatively impacted by the amortization of deferred
expenses relating to warrants and stock options granted through September 1999.
It is critical to our success that we continue to expend financial and
management resources to develop and expand our consumer base through marketing
and promotion and enhancement and expansion of our products and services. As a
result, we expect that our operating expenses will increase significantly for
the foreseeable future. With increased expenses, we will need to generate
significant additional revenues to achieve profitability. Consequently, it is
possible that we may never achieve profitability, and even if we do achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future. If we do not achieve, sustain or increase
profitability in the future, then we will be unable to continue our operations.
SOME OF OUR CONTENT MAY BECOME UNAVAILABLE IF OUR RELATIONSHIPS WITH OUR
THIRD-PARTY CONTENT PROVIDERS, PARTICULARLY GIBSON GREETINGS, EXPIRE OR ARE
TERMINATED.
We rely on third-party content providers, such as Gibson Greetings, movie
studios, traditional card designers, cartoonists and independent artists, for a
significant portion of our content. To be successful, we will need to maintain
our existing relationships as well as establish similar relationships with new
parties who can provide us with cross-media and promotional opportunities. If we
fail to retain our existing content relationships or enter into new
relationships, the variety and quality of the content on our Web site may be
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reduced, traffic to our Web site may decrease, our advertising revenues may be
impaired and future ecommerce revenues may not materialize.
For the quarter ended June 30, 1999, 40% of all digital greetings sent from
our Web site contained content that we obtained pursuant to an exclusive license
agreement with Gibson that expires in December 2002. If we are unable to renew
this arrangement, the amount of content we are able to offer our consumers will
decrease significantly. In addition, if Gibson elects to enter the digital
greetings distribution market itself, or if following the termination or
expiration of our agreement, it enters into a licensing agreement with one of
our competitors, we may be unable to retain our existing consumers or gain new
consumers. This would affect our ability to attract advertisers, sponsors and
ecommerce merchants, and our business would suffer.
With the exception of our relationship with Gibson, our existing content
alliances are pursuant to short-term agreements. When these agreements expire or
otherwise terminate, we may be unable to renew them on favorable terms or at all
or to obtain similar agreements with other parties, in part because of our
relative size and our limited operating history under our current business
model. Additionally, our competitors may enter into agreements with existing or
prospective content partners that may be or would have been integral to our
future content and brand development.
OUR GROWTH WILL DEPEND ON OUR ABILITY TO CONTINUE TO LICENSE AND DEVELOP
INTERESTING AND COMPELLING CONTENT, INCREASE THE VARIETY OF GIFTS AVAILABLE ON
OR THROUGH OUR WEB SITE AND ENHANCE OUR OVERALL SERVICES AND FUNCTIONALITY.
To remain competitive we must continue to license and create compelling and
entertaining content, increase the variety of gifts available on or through our
Web site and enhance and improve the ease of use, responsiveness, functionality
and features of our products and services. We may be unable to anticipate,
monitor and successfully respond to rapidly changing consumer tastes so as to
attract a sufficient number of consumers to our Web site. If we are unable to
license and develop content, increase the variety of gifts available and enhance
and improve the personalized services that allow us to attract, retain and
expand a loyal consumer base, we will be unable to generate advertising revenues
or ecommerce revenues and our business will suffer. The development and
integration of new functionality and services could be expensive and
time-consuming, and the cost of the content that we license may increase in the
future. Any new content, gifts, features, functions or services that we license
or develop for consumers, advertisers or ecommerce merchants may not achieve
market acceptance.
OUR GROWTH WILL DEPEND ON OUR ABILITY TO DEVELOP OUR BRAND.
In October 1998, we changed our name to E-greetings Network and launched a
marketing campaign to establish the brand name "Egreetings." We believe that
establishing and maintaining the Egreetings brand will be an important aspect of
our efforts to retain our current consumers, attract and expand our Internet
audience, license and create new content, and appeal to advertisers and
ecommerce merchants. We believe that the importance of brand recognition will
increase due to the growing number of Internet sites and the relatively low
barriers to entry in providing Internet content. Accordingly, we intend to
continue pursuing an aggressive brand enhancement strategy, which will include
mass market and multimedia advertising, promotional programs and public
relations activities. We intend to incur significant expenditures on these
advertising
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and promotional programs and activities in the future. These expenditures may
not result in a sufficient increase in revenues. In addition, even if our brand
recognition increases, we may not acquire new consumers and even if we do, the
amount of traffic on our Web site may not increase sufficiently to justify the
expenditures. If our brand enhancement strategy is unsuccessful, we may be
unable to increase future revenues.
OUR GROWTH WILL DEPEND SIGNIFICANTLY ON THE INCREASING ACCEPTANCE OF DIGITAL
GREETINGS AS A FORM OF ONLINE COMMUNICATIONS.
Our future success is substantially dependent on the widespread acceptance
of digital greetings as a form of online communications. While email is
increasingly affecting the way people communicate for personal and business
purposes, digital greetings as a form of communication is an evolving medium. We
cannot accurately predict the future growth rate, if any, or the ultimate size
of the consumer use of digital greetings as a form of online communication. The
failure of digital greetings to gain widespread acceptance by consumers,
advertisers, sponsors and ecommerce merchants as a form of online communication
would materially harm our business.
WE FACE INTENSE COMPETITION FROM COMPANIES THAT PROVIDE SERVICES AND PRODUCTS
THAT ARE SIMILAR TO OURS, AND WE THEREFORE MAY BE UNABLE TO COMPETE EFFECTIVELY
IN THE INTERNET GREETING AND GIFTING BUSINESS.
We compete with many Internet companies for content, consumer attention and
time, advertising revenue, direct marketing revenue and ecommerce revenue. We
expect this competition to increase. We compete, in particular, with the
following types of companies:
- Companies that offer digital greetings via the Internet. Companies or
their affiliates such as Blue Mountain Arts, American Greetings, Hallmark
and 123greetings.com offer digital greetings via the Internet. In
addition, some of these companies offer ecommerce merchants' products
that can be purchased at or through their Web sites. In addition, several
of these companies offer features on their Web sites that are similar or
identical to our Web site's features.
- Internet content aggregators and other Internet companies that offer
digital greetings and gifts. Companies such as Amazon.com, America
Online, Microsoft and Yahoo! offer digital greetings as a component of
their overall product and service offerings or provide links to
electronic greeting and gift companies. The digital greetings available
on or through these Web sites often are free and may be sent with a gift
purchased via the particular Web site or via the Web sites of ecommerce
merchants that are partners or advertisers of the content aggregator or
Internet company.
- Internet companies that focus on gifts. Several Internet companies offer
gifts on their Web sites. Although these companies currently do not offer
electronic greetings, they may begin to do so in the near future. In
addition, they compete directly with our ecommerce business.
- Media, entertainment and other companies using electronic
greetings. Media, entertainment and other companies with an online
presence now offer or in the future may offer digital greetings to
consumers featuring their characters, logos, brand names and other
creative products.
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Many of our current and potential competitors in the Internet market,
including the companies named above, have significantly greater financial,
publishing, technical and marketing resources than we have. Many of these
companies also have longer operating histories, greater name recognition, more
traffic to their Web sites and more established relationships with advertisers
and advertising agencies than we have. These competitors may be able to
undertake more extensive marketing campaigns, adopt aggressive pricing policies
and devote substantially more resources to developing Internet content and
services than us.
We may be unable to compete successfully for advertisers.
The increasing number of Internet content and service providers has
resulted in increased competition for advertising dollars. Internet companies
currently sell advertisements largely based on the demographics of their
audience, the quality of their content and their ability to deliver guaranteed
impressions. Our competitors may be able to provide more desirable demographics,
higher quality content and a higher number of guaranteed impressions than we are
able to. This could make it difficult for us to obtain the advertising or direct
marketing relationships that we will need in order to generate sufficient
revenues. In addition, increased competition for advertising or direct marketing
dollars could result in price reductions, reduced margins or loss of market
share, any of which would harm our business.
We lack experience in ecommerce and we may not compete successfully for
ecommerce merchants or consumers.
Unlike many of our competitors, we have limited experience operating in the
ecommerce arena and we may not be successful in doing so. In addition, many of
our current and potential competitors are retailers with established brand names
and consumer loyalty, and we may be unable to attract consumers away from these
competitors. Our inability to compete successfully for ecommerce merchants or
consumers would harm our business significantly.
OUR FUTURE SUCCESS WILL DEPEND ON THE INCREASING USE OF THE INTERNET AND THE
GROWTH OF ECOMMERCE.
Our future success will depend heavily on the acceptance and wide use of
the Internet for ecommerce. If ecommerce does not continue to grow or grows more
slowly than expected, demand for our products and services will be reduced.
Consumers and businesses may reject the Internet as a viable commercial medium
for a number of reasons, including potentially inadequate network
infrastructure, slow development of enabling technologies, insufficient
commercial support or privacy concerns. The Internet's infrastructure may be
unable to support the demands placed on it by increased usage. Internet service
providers, online service providers and other Web site operators have already
experienced significant outages. In addition, delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity, or increased governmental regulation, could cause the
Internet to lose its viability as a commercial medium. Even if the required
infrastructure, standards, protocols and complementary products, services or
facilities are developed, we may incur substantial expenses adapting to changing
or emerging technologies.
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WE RELY ON ONLINE DISTRIBUTION CHANNELS FOR TRAFFIC TO OUR WEB SITE.
We rely on distribution relationships with high traffic Internet sites and
leading Internet portals to increase the visibility of our Web site and to
generate additional traffic. Our business could be materially harmed if any of
our distribution relationships do not result in increased Web site traffic and
visibility or are not available on commercially reasonable terms. Our
distribution relationships are based on short-term agreements and may not be as
favorable as the agreements of some of our competitors. Because there is intense
competition for online distribution relationships among Web sites, we may be
unable to maintain or renew these agreements or enter into new relationships on
commercially reasonable terms or at all. In addition, our online distribution
relationships may not generate enough additional traffic to our Web site or
create sufficient visibility to justify the costs we incur for these
relationships.
AS WE EXPAND OUR ECOMMERCE ACTIVITIES, WE WILL DEPEND ON THIRD PARTIES TO
FULFILL ORDERS AND DELIVER GOODS AND SERVICES TO OUR CONSUMERS; THEIR FAILURE TO
PERFORM ADEQUATELY WOULD HARM OUR BUSINESS.
As we expand our ecommerce activities, our success will depend in large
part on the ability of third parties to fulfill our consumers' orders and
deliver goods and services to our consumers. Failure of vendors or shippers to
fill our consumers' orders or deliver quality goods and services on time would
harm our business. In addition, strikes or other service interruptions affecting
fulfillment and delivery services would impair our ability to deliver
merchandise ordered by our consumers on a timely basis.
WE INTEND TO PURSUE STRATEGIC ACQUISITIONS, AND OUR BUSINESS COULD BE MATERIALLY
HARMED IF WE FAIL TO SUCCESSFULLY INTEGRATE, USE AND DEVELOP ANY ACQUIRED
BUSINESSES OR ASSETS.
We evaluate opportunities to acquire additional product or content
offerings or additional industry expertise and may in the future acquire
companies, divisions or assets of companies. Any future acquisition could result
in difficulties in assimilating acquired operations and products, diversion of
management's attention to acquisition matters and amortization of acquired
intangible assets. Our management has not had any experience in assimilating
acquired organizations and products into our operations. We may be unable to
integrate successfully any operations, personnel or products that we may acquire
in the future, which would harm our business.
EXPANSION OF OUR INTERNATIONAL OPERATIONS WILL REQUIRE MANAGEMENT ATTENTION AND
RESOURCES AND MAY BE UNSUCCESSFUL.
To date, we have offered content and services directed at consumers in the
United States. We plan to offer localized content and services directed at
international consumers in the future in order to increase the international
traffic to our Web site. We do not have any experience in localizing our content
and services to conform to local cultures, standards and policies. We may have
to compete with local companies that are likely to understand the local market
better than we do. In addition, to achieve satisfactory performance for
consumers, advertisers and ecommerce partners in international locations, it may
be necessary to locate physical facilities, such as facilities to host our
server computers, in the foreign market. We do not have experience establishing
facilities in foreign countries. We may not be successful in appealing to a
larger international market or in generating revenues from foreign advertising
or ecommerce activities. In addition,
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different privacy, censorship and liability standards and regulations and
different intellectual property laws in foreign countries could harm our
business.
FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY CAUSE OUR STOCK PRICE TO
DECLINE.
It is likely that our operating results in one or more future quarters may
be below the expectations of stock market analysts, if any, or our investors,
and this could cause our stock price to decline. We expect that our quarterly
operating results will continue to fluctuate significantly and be affected by
many factors, including the following:
- fluctuations in the demand for Internet advertising generally and
advertising on our Web site and via our digital greetings specifically;
- fluctuations in purchases of products via the Internet generally and
through our Web site specifically;
- seasonal trends in Internet use, ecommerce and advertising demand;
- fluctuations in traffic on our Web site generally and as the result of
special promotions or seasonal events;
- introduction of new Web sites, products and services by competitors;
- marketing expenses and technology infrastructure costs;
- expansion in our sales and customer support staff; and
- technical difficulties or system downtime affecting the Internet
generally or the operation of our Web site specifically.
We have experienced and expect to continue to experience seasonality in our
business. Consumer traffic on our Web site generally is higher during holiday
periods such as Valentine's Day, Mother's Day, Father's Day and Christmas and is
considerably slower during the summer months. In addition, sales of traditional
greeting cards and gifts tend to be lower in the third calendar quarter of each
year. Similarly, advertising sales in traditional media, such as television and
radio, generally are lower in the first calendar quarter of each year. We may
experience similar seasonality in our business. In addition, because advertising
on the Internet is an emerging market, additional seasonal and other patterns in
the usage of our products and services may emerge as the market matures.
Seasonal patterns like this may harm our business.
As a result of all of the factors discussed above, period-to-period
comparison of our operating results may not be a good indication of our future
performance.
RISKS RELATED TO OPERATIONS
TO MANAGE OUR GROWTH, WE WILL NEED TO IMPROVE OUR SYSTEMS, CONTROLS AND
PROCEDURES.
We currently are experiencing a period of rapid expansion in our Web site
traffic, personnel, facilities and infrastructure. For example, the number of
daily visits to our Web site increased approximately 123% from 112,800 for the
month of November 1998, the month we began to offer our digital greetings at no
cost, to 251,650 for the month of August 1999, and our number of employees
increased from 42 on August 31, 1998 to 131
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on August 31, 1999, with most of this growth in the areas of marketing,
engineering and operations. We expect that the number of our employees,
including management-level employees, will continue to increase for the
foreseeable future to address expected growth in our consumer base, expansion of
our product and service offerings and the pursuit of ecommerce and other
strategic opportunities. This growth and expansion have placed, and we expect
they will continue to place, a significant strain on our management, operational
and financial resources. In order to manage our growth, we must continue to
improve our operational and financial systems and managerial controls and
procedures, and we will need to continue to expand, train and manage our work
force. We cannot assure you that our systems, procedures or controls will be
adequate to support our operations or that we will be able to manage our growth
effectively. Our failure to manage growth could disrupt our operations and
ultimately prevent us from generating the revenues we expect.
SYSTEM FAILURES, SLOW DOWNS OR SECURITY BREACHES WOULD HARM OUR REPUTATION AND
THUS REDUCE OUR ATTRACTIVENESS TO OUR CURRENT AND FUTURE CONSUMERS, ADVERTISERS
AND ECOMMERCE PARTNERS.
System failures and slow downs could permanently harm our reputation and
brand, and reduce our attractiveness to consumers, advertisers and ecommerce
partners. Our ability to attract consumers, advertisers and ecommerce partners
will depend significantly on the performance of our network infrastructure. A
key element of our strategy is to generate a high volume of traffic on our Web
site. Accordingly, the satisfactory performance, reliability and availability of
our Web site and our computer infrastructure are critical to our reputation and
our ability to attract and retain consumers, advertisers and ecommerce
merchants. An increase in the volume of consumer traffic could strain the
capacity of our infrastructure. For example, during the week before Valentine's
Day 1999, we experienced a heavy increase in traffic to our Web site, which
resulted in slow response rates. We may be unable to improve our technical
infrastructure in relation to increased consumer volume generally and, in
particular, during peak capacity periods. If we experience outages, frequent or
persistent system failures or degraded response times, our reputation and brand
could be harmed permanently. In addition, we could lose advertising revenues
during these interruptions and consumer satisfaction could be negatively
impacted if our service is slow or unavailable. Furthermore, our consumers use
Internet service providers, online service providers and other Web site
operators for access to our Web site. Each of these providers has experienced
significant outages in the past and could experience outages, delays and other
difficulties due to system failures unrelated to our systems.
A fundamental requirement for the online communications products and
services we offer is the secure transmission of confidential information over
the Internet. The occurrence or perception of security breaches could harm our
business. Third parties may attempt to breach the security provided by our Web
site. If they are successful, they could obtain confidential information about
our consumers, including their passwords, financial account information, credit
card numbers or other personal information. Our consumers may file suits against
us for any breach in our Web site's security. If we are not held liable, a
security breach could still harm our reputation, as even the perception of
security risks, whether or not valid, could inhibit market acceptance of our
products and services. Despite our implementation of security measures, our
software is vulnerable to computer viruses, electronic break-ins and similar
disruptions, which could lead to interruptions, delays or loss of data. We may
be required to expend significant capital and other resources to license
encryption or other technologies to protect against security breaches or
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to alleviate problems caused by these breaches. In addition, our consumers might
decide to stop using our products and services if we experience security
breaches.
We use third-party software to manage and deliver advertisements and to
provide our advertisers with advertisement performance data. The failure of
these systems to function properly could discourage advertisers from placing
advertisements on our Web site or merchants from offering their products through
our Web site. The failure of these systems also could require us to incur
additional costs or could result in interruptions in our business during the
time spent replacing these systems. Our failure to expand and upgrade our
network system, provide consumers with access to our service or timely address
any system error or failure could materially harm our business and reputation.
The occurrence of an earthquake or other natural disaster or unanticipated
problems at our leased facility in San Francisco, California or at the servers
that host or back-up our systems could result in interruptions or delays in our
business, loss of data or could render us unable to provide services. In
addition, our systems are vulnerable to damage or interruption from fire, flood,
power loss, telecommunications failure, break-ins, and similar events. Our
general liability insurance policies may not adequately compensate us for losses
that may occur due to interruption in our service.
WE MAY BE UNABLE TO EXPAND OUR MARKETING, ENGINEERING, SALES AND CUSTOMER
SUPPORT ORGANIZATIONS BECAUSE QUALIFIED PERSONNEL ARE IN SHORT SUPPLY.
We will need to substantially expand both our consumer marketing and
corporate marketing efforts and advertising sales operations to increase market
awareness and sales of our products and services. We recently expanded our sales
forces and plan to hire additional sales personnel. Competition for highly
qualified sales personnel is intense, and we may be unable to hire the type and
number of sales personnel we are targeting. To support and enhance our
technology infrastructure, we will also need to increase the personnel in our
engineering department. In addition, we will need to increase our staff to
support new consumers and the expanding needs of our existing consumers. Hiring
highly qualified engineers, customer service and support personnel is very
competitive in our industry due to the limited number of people available with
the necessary technical skills and understanding of the Internet.
WE RECENTLY RECRUITED MOST OF OUR MANAGEMENT TEAM.
Many members of our management team have recently been hired, including our
Chief Executive Officer, Chief Financial Officer, Senior Vice President of
Sales, Vice President of Marketing and Chief Technology Officer. Many of these
individuals do not have significant experience working together or with the rest
of our management team. We cannot assure you that they will be able to work
together successfully or manage any growth we experience. The process of
integrating these individuals may detract from the operation of, and have an
adverse effect on, our business.
OUR SENIOR MANAGEMENT TEAM AND OTHER KEY EMPLOYEES ARE CRITICAL TO OUR BUSINESS
AND THEY MAY NOT REMAIN WITH US IN THE FUTURE.
Our success will be substantially dependent on the performance of our
senior management and key creative, technical, marketing and sales personnel,
many of whom joined us only recently. The loss of the services of any of our
executive officers or other
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key employees could harm our business. In addition, our employees may
voluntarily terminate their employment at any time.
WE MAY BE UNABLE TO ADAPT TO EVOLVING INTERNET TECHNOLOGIES AND CONSUMER
DEMANDS.
To be successful, we must adapt to rapidly changing Internet technologies
by continually enhancing our products and services and introducing new services
to address our consumers' changing needs. We could incur substantial development
or acquisition costs if we need to modify our services or infrastructure to
adapt to changes affecting providers of Internet services. Our business could be
harmed if we incur significant costs to adapt to these changes. If we cannot
adapt to these changes, or do not sufficiently increase the features and
functionality of our products and services, our consumers may switch to the
product and service offerings of our competition. Furthermore, our competitors
or potential competitors may develop products or services that are more
appealing to our current and potential consumers. As a result, demand for our
services may decrease.
YEAR 2000 PROBLEMS COULD LEAD TO MALFUNCTIONS OF OUR COMPUTER AND COMMUNICATIONS
SYSTEMS AND PREVENT US FROM RUNNING OUR BUSINESS.
Many existing computer programs cannot distinguish between a year beginning
with "20" and a year beginning with "19" because they use only the last two
digits to refer to a year. For example, these programs cannot tell the
difference between the year 2000 and the year 1900. As a result, these programs
may malfunction or fail completely. If we or any third parties with whom we have
a material relationship fail to achieve year 2000 readiness, our business may be
seriously harmed. In particular, year 2000 problems could temporarily prevent us
from offering our goods and services. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Year 2000 Readiness
Disclosure."
RISKS RELATED TO CONTENT, INTELLECTUAL PROPERTY AND GOVERNMENT REGULATION
LAWSUITS MAY BE BROUGHT AGAINST US RELATED TO CONTENT CREATED BY THIRD PARTIES
OR THE SERVICES WE PROVIDE.
We provide a wide variety of content that enables consumers to send digital
greetings and other communications, and we intend to offer services that will
allow consumers to conduct business and engage in various online activities. The
laws relating to the liability of providers of these online services for the
activities of their consumers is currently unsettled. Claims could be made
against us for negligence, defamation, libel, copyright or trademark
infringement, personal injury or other legal claims based on the content that we
license from third parties or based on information that may be posted online by
our consumers. In addition, we could be exposed to liability with respect to
third-party content on our Web site or with respect to the selection of
third-party Web sites that may be accessible through our Web site. These claims
might include, among others, that by providing access to third-party content or
by linking to Web sites operated by third parties, we may be liable for
copyright or trademark infringement or other unauthorized actions by third
parties through those Web sites. Furthermore, we could be exposed to liability
for content and materials that may be created by consumers in build-your-own
customized digital greetings. Investigating and defending claims like these is
expensive, even if the claims do not result in liability. Although we carry
general liability insurance, our
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insurance policy does not currently cover intellectual property infringement.
Obtaining adequate insurance coverage or implementing measures to reduce our
exposure to this type of liability may require us to spend substantial
resources.
OUR BUSINESS DEPENDS ON OUR PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS, AND
WE MAY BE UNABLE TO ADEQUATELY PROTECT THEM.
Our success will depend on the protection of and the goodwill associated
with our trademarks and other intellectual property rights to our products and
services. A substantial amount of uncertainty exists concerning the application
of copyright and trademark laws to the Internet and other digital media, and
existing laws may not provide adequate protection of our content or our Internet
addresses, commonly referred to as "domain names." We have registered the name
"Egreetings" as our trademark and service mark and the related logo as our
service mark in the United States, and we plan to file applications to register
a number of our trademarks, trade names and service marks in foreign
jurisdictions. We may be unable to obtain some or all of these foreign
registrations.
Enforcing our intellectual property rights could involve significant
expenses and could prove difficult or impossible. In addition, we may receive
claims alleging that the content published on our Web site or any software or
other intellectual property we may utilize infringes the copyright, trademark,
patent, trade secret, right of publicity, or other intellectual property,
proprietary, or contractual right of third parties. Any claims like these, with
or without merit, could be time-consuming to defend, result in costly
litigation, divert management's attention, require us to enter into costly
royalty or licensing arrangements or prevent us from using important
technologies, ideas or formats, any of which could materially harm our business.
CONSUMER PRIVACY CONCERNS AND CONSUMER PROTECTION PRIVACY REGULATIONS COULD
IMPAIR OUR ABILITY TO OBTAIN OR USE INFORMATION ABOUT OUR CONSUMERS.
Privacy concerns may cause consumers to resist providing the personal data
necessary to support our ability to collect information about our consumers. Our
Web site currently uses "cookies" to track consumer preferences in order to
tailor content to them. A "cookie" is information keyed to a specific server,
file pathway or directory location that is stored on a consumer's hard drive,
possibly without the consumer's knowledge, but generally removable by the
consumer. We also capture demographic and profile information when an individual
registers with us, and we capture and retain data based on digital greetings
sent and received by our consumers. We utilize this information to assist
advertisers in targeting their online advertising campaigns to consumers with
particular demographic characteristics. Although we currently have a policy
against providing our consumers' personal information to third parties, we may
decide in the future to provide this information to our advertising and
ecommerce partners. In the past, the Federal Trade Commission has investigated
companies that have taken actions like this without permission or in violation
of the companies' stated privacy policies. If we begin providing information
like this without permission or in violation of our privacy policy, we may face
potential liability for invasion of privacy. Even the perception of security and
privacy concerns, whether or not valid, may indirectly inhibit market acceptance
of our Web site products and services. In addition, legislative or regulatory
requirements may heighten these concerns if businesses must notify Internet
consumers that the data may be used by marketing entities to direct product
promotion and advertising to the consumer. Other countries and political
entities, such as the European Union, have adopted legislation and
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regulatory requirements like this. The United States may adopt similar
legislation or regulatory requirements. If we do not adequately address consumer
privacy concerns, our business could be materially harmed.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD RESULT IN ADDITIONAL COSTS
OF DOING BUSINESS ON THE INTERNET.
We currently are not subject to meaningful direct regulation applicable to
access to, or commerce on, the Internet by any government agency. It is possible
that in the future a number of laws and regulations may be adopted with respect
to the Internet and other digital media, covering issues such as consumer
privacy, ecommerce and the pricing, characteristics and quality of products and
services. By conducting business via the Internet, we may be subject to the laws
of foreign jurisdictions in an unpredictable manner. As a publisher and a
distributor of content on the Internet, we face potential liability for
defamation, negligence and copyright, patent, trade secret or trademark
infringement, as well as other claims based on the nature and content of the
materials that we publish or distribute. The applicability to the Internet of
existing laws governing these issues is uncertain and developing.
Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and providers
of online services in a manner similar to long distance telephone carriers and
to impose access fees on these companies. This could increase the cost of
transmitting data over the Internet. Moreover, the applicability of existing
laws relating to issues such as property ownership, defamation and personal
privacy on the Internet is uncertain. Any new laws or regulations relating to
the Internet could harm our business.
We also could be exposed to liability arising from the activities of
consumers of our content or services or with respect to the unauthorized
duplication or insertion of material (such as material deemed obscene or
inappropriate for children) accessed directly or indirectly through our
services. Several private lawsuits seeking to impose such liability upon content
providers, online services companies and Internet access providers currently are
pending. In addition, legislation has been enacted that imposes, and further
legislation may be proposed that may impose liability for, or prohibit the
transmission over the Internet of, certain types of information and content. Any
legislation or regulation like this, or the application of existing laws to the
Internet, could expose us to significant liabilities associated with our content
or services.
There is also uncertainty regarding the imposition of sales and other taxes
on ecommerce transactions, which may impair our ability to derive financial
benefits from ecommerce activities. Although the Internet Tax Freedom Act
precludes, for a period of three years ending January 2002, the imposition of
state and local taxes that discriminate against or single out the Internet, it
does not currently impact existing taxes. However, one or more states may seek
to impose sales tax collection obligations on out-of-state companies, such as
us, which engage in or facilitate online commerce. A number of proposals have
been made at the state and local level that would impose additional taxes on the
sale of goods and services through the Internet. Proposals like these, if
adopted, could substantially impair the growth of ecommerce and could adversely
affect our opportunity to derive financial benefits from ecommerce. Moreover, if
any state or foreign country were to successfully assert that we should collect
sales or other taxes on the sale of merchandise on or through our Web site, it
could affect our cost of doing business.
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CHANGES IN REGULATION COULD REDUCE THE VALUE OF OUR DOMAIN NAME.
We own the Internet domain name "Egreetings.com" in the United States.
Domain names generally are regulated by Internet regulatory bodies, and the
regulation of domain names is subject to change. Regulatory bodies could
establish new domain name systems, appoint additional domain name registrars or
modify the requirements for holding domain names. In addition, regulations
regarding foreign domain name registration vary from jurisdiction to
jurisdiction and are subject to change. As a result, we might not acquire or
maintain the "Egreetings.com" or comparable domain names in any of the countries
in which we conduct business, which could harm our business. Furthermore, the
relationship between regulations governing domain names and laws protecting
trademarks and similar proprietary rights is unclear and still evolving.
Therefore, we might be unable to prevent third parties from acquiring domain
names that infringe or otherwise decrease the value of our trademarks and other
proprietary rights. If we are unable to protect our domain names, our business
would suffer.
RISKS RELATED TO THIS OFFERING
THE PRICE OF OUR SHARES COULD BE SUBJECT TO EXTREME FLUCTUATIONS AND YOU COULD
HAVE DIFFICULTY TRADING YOUR SHARES.
The trading market price of our common stock may decline below the initial
public offering price. You may not be able to resell your shares at or above the
initial public offering price due to a number of factors, including the
following:
- actual or anticipated quarterly variations in our operating results;
- changes in market expectations of our future financial performance or
changes in the estimates of securities analysts;
- a limited public float;
- announcements by our competitors; and
- conditions affecting the Internet in general or our industry
specifically.
The trading price of our common stock may be volatile. The stock market in
general and the market for technology and Internet-related companies in
particular have experienced extreme volatility that often has been unrelated to
the operating performance of particular companies. These broad market and
industry fluctuations may adversely affect the trading price of our common
stock, regardless of our actual operating performance. In the past, following
periods of volatility in the market price of a company's securities, securities
class action litigation has often been instituted. If this were to happen to us,
litigation would be expensive and would divert management's attention from the
operation of our business.
The initial public offering price will be established by negotiation
between the underwriters and us. You should read the "Underwriters" section for
a more complete discussion of the factors to be considered in determining the
initial public offering price.
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OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND THEIR
USES MAY NOT YIELD A FAVORABLE RETURN.
Most of the net proceeds of this offering are not allocated for specific
uses. Our management will have broad discretion to spend the proceeds from this
offering in ways with which stockholders may not agree. The failure of our
management to apply these funds effectively could result in unfavorable returns.
This could have significant adverse effects on our financial condition and could
cause the price of our common stock to decline.
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS WILL CONTROL % OF
OUR COMMON STOCK AFTER THIS OFFERING.
After this offering, executive officers, directors and holders of 5% or
more of our outstanding common stock will, in the aggregate, beneficially own
% of our outstanding common stock. As a result, these stockholders would be
able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership also may
have the effect of delaying, deterring or preventing a change in control of our
company and may make some transactions more difficult or impossible to complete
without the support of these stockholders.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, WHICH COULD
DEPRESS OUR STOCK PRICE.
Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could delay, defer or prevent a change in control of our
company or our management. These provisions also could discourage proxy contests
and make it more difficult for you and other stockholders to elect directors and
take other corporate actions. As a result, these provisions could limit the
price that investors are willing to pay in the future for shares of our common
stock. These provisions do the following:
- authorize us to issue "blank check" preferred stock, which is preferred
stock that can be created and issued by the board of directors without
prior stockholder approval, with rights senior to the rights attached to
the common stock;
- provide for a staggered board of directors, so that no more than [three]
directors could be replaced each year and it would take three successive
annual meetings to replace all of our current directors;
- prohibit stockholder action by written consent; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.
IF WE FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS OR OUR INVESTORS,
THE MARKET PRICE OF OUR COMMON STOCK MAY DECREASE SIGNIFICANTLY.
Public market analysts and investors have not been able to develop
consistent financial models for the Internet market because of the unpredictable
rate of growth of Internet users, the rapidly changing models of doing business
on the Internet and the Internet's
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relatively low barriers to entry. As a result, and because of the other risks
discussed in this prospectus, our operating results may not meet the
expectations of public market analysts, if any, or our investors in future
periods. If this occurs, the price of our common stock will likely fall.
THE BOOK VALUE OF THE SHARES YOU PURCHASE WILL BE SUBSTANTIALLY LESS THAN THE
PRICE YOU PAY FOR THE SHARES.
The assumed initial public offering price is substantially higher than the
net tangible book value of each outstanding share of common stock. As a result,
purchasers of common stock in this offering will suffer immediate and
substantial dilution. This dilution will reduce the net tangible book value of
their shares, since these investments will be at a substantially higher per
share price than they were for our existing stockholders. The dilution will be
$ per share in the net tangible book value of the common stock from the
assumed initial public offering price of $ per share. If additional shares are
sold by the underwriters following exercise of their over-allotment option, or
if outstanding options or warrants to purchase shares of common stock are
exercised, there will be further dilution.
A SIGNIFICANT PERCENTAGE OF OUR STOCK MAY BE SOLD INTO THE PUBLIC MARKET IN THE
NEAR FUTURE, WHICH COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DROP
SIGNIFICANTLY, EVEN IF OUR BUSINESS IS DOING WELL.
Sales of a substantial number of shares of common stock in the public
market following this offering could cause the market price of our common stock
to decline. After this offering, we will have shares of common stock
outstanding. The shares offered for sale through the underwriters will
be freely tradable unless purchased by our affiliates or covered by a separate
lock-up agreement with the underwriters. Of the remaining shares of
common stock outstanding after this offering, shares will be eligible
for sale in the public market beginning 181 days after the date of this
prospectus. The remaining shares will become available at various times
thereafter upon the expiration of one-year holding periods. See "Shares Eligible
for Future Sale." We also intend to register up to additional shares of
our common stock after this offering for issuance under our equity incentive
plans.
22
<PAGE> 25
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements in "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
prospectus. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology including "could," "may," "will," "should," "anticipate," "predict,"
"believe," "plan," "expect," "estimate," "future," "intend," "potential" or
"continue," the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially.
In evaluating these statements, you should specifically consider various
factors, including the risks described in "Risk Factors" above and in other
parts of this prospectus. These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform them to
our actual results or to changes in our expectations.
23
<PAGE> 26
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$ million, after deducting the estimated underwriting discounts and commissions
and estimated offering expenses. If the underwriters' over-allotment option is
exercised in full, we estimate that the net proceeds will be approximately $
million.
We expect to use the net proceeds from this offering to fund increased
sales and marketing activities, content acquisition, expansion of our network
architecture and brand-building activities. We expect to utilize the balance of
the net proceeds of this offering for general corporate purposes, including
possible acquisitions. We are not currently a party to any contracts or letters
of intent with respect to any acquisitions. We have not identified specific uses
for all of the proceeds from this offering and our management will have
discretion over their use and investment. We intend to invest the net proceeds
from this offering in short-term, investment grade, interest-bearing securities
until they are used. We reserve the right to increase or decrease the size of
this offering and the price per share of the shares we are offering.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business, and we do not expect to pay any cash dividends for the foreseeable
future. In addition, our bank line of credit agreement prohibits the payment of
cash dividends.
24
<PAGE> 27
CAPITALIZATION
The following table sets forth our total capitalization as of June 30,
1999. The pro forma column reflects the sale of Series G preferred stock
completed in October 1999, the assumed exercise of a warrant to purchase
preferred stock convertible into 4,990,000 shares of common stock, which will
expire upon the completion of this offering, and the conversion of all
outstanding shares of preferred stock into common stock upon the completion of
this offering. The pro forma as adjusted column gives effect to the issuance and
sale by us in this offering of shares of common stock at an assumed initial
public offering price of $ per share. This table should be read in
conjunction with the financial statements and related notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C> <C>
Long-term liabilities....................................... $ 764 $ 764 $ 764
-------- -------- --------
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 10,000,000
shares authorized, 6,332,420 shares issued and
outstanding, actual; no shares issued and outstanding,
pro forma; and 5,000,000 shares authorized, no shares
issued and outstanding pro forma as adjusted............ $ 41,135 $ -- $ --
Common Stock, $0.001 par value; 60,000,000 shares
authorized, 8,751,568 shares issued and outstanding,
actual; 38,585,374 shares issued and outstanding, pro
forma; shares issued and outstanding, pro forma as
adjusted................................................ 8,433
Deferred stock compensation................................. (2,844)
Notes receivable from stockholders.......................... (4,805)
Accumulated deficit......................................... (25,362)
-------- -------- --------
Total stockholders' equity.............................. 16,557
-------- -------- --------
Total capitalization............................... $ 17,321 $ $
======== ======== ========
</TABLE>
The above information excludes as of June 30, 1999:
- 3,355,639 shares of common stock issuable upon exercise of options
outstanding;
- 1,646,552 shares of common stock issuable upon conversion of preferred
stock issuable upon exercise of warrants outstanding; and
- 2,766,957 additional shares of common stock reserved for future
issuance under our equity incentive plans.
25
<PAGE> 28
DILUTION
Our pro forma net tangible book value at June 30, 1999 was approximately
$ million, or $ per share. Pro forma net tangible book value per share
is determined by dividing our pro forma tangible net worth (total tangible
assets less total liabilities) by the number of shares of common stock
outstanding, after giving effect to the sale of 5,846,546 shares of Series G
preferred stock in October 1999 and the conversion of all outstanding shares of
our convertible preferred stock into common stock, which will occur
automatically upon the completion of this offering. After giving effect to our
sale in this offering of shares of common stock at an assumed initial
public offering price of $ per share, and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value at June 30, 1999 would have been
approximately $ million, or $ per share. This represents an immediate
increase in the pro forma net tangible book value per share of $ to existing
stockholders and an immediate dilution of $ per share to new investors
purchasing shares in this offering. If the initial public offering price is
higher or lower, the dilution to new investors will be greater or less,
respectively. The following table illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
offering............................................... $
Increase per share attributable to new investors..........
----
Pro forma net tangible book value per share after the
offering..................................................
----
Dilution per share to new investors......................... $
====
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999,
the number of shares of common stock purchased from us, the total consideration
provided to us and the average price per share provided by existing stockholders
and new investors. The calculation is based on an assumed initial public
offering of $ per share, before deducting the estimated underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- ------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New investors....................
--- ----- ---- ------
Total.................. 100.0% $ 100.0%
=== ===== ==== ======
</TABLE>
This discussion and table give effect to the assumed exercise of a warrant
to purchase preferred stock convertible into 4,990,000 shares of common stock,
which will expire upon the completion of this offering, but assume no exercise
of options and other warrants outstanding as of June 30, 1999. As of June 30,
1999, after giving effect to the assumed exercise described above, there were
options outstanding to purchase a total of shares of common stock at a
weighted average price of $ per share and warrants outstanding to purchase
preferred stock convertible into shares of common stock at a weighted
average exercise price of $ per share. To the extent that any of these
options or warrants are exercised, there will be further dilution to new
investors. For further information regarding options and warrants, please see
"Management -- Stock Option Plans," "-- 1996 Stock Option Plan," "-- 1999 Equity
Incentive Plan," "-- 1999 Non-Employee Directors' Plan," "-- 1999 Employee Stock
Purchase Plan," "Description of Capital Stock" and Note 5 of Notes to Financial
Statements.
26
<PAGE> 29
SELECTED FINANCIAL DATA
The statement of operations data for the three years in the period ended
December 31, 1998 and the related balance sheet data as of December 31, 1997 and
1998 are derived from our financial statements, which have been audited by Ernst
& Young LLP, independent auditors, and are included elsewhere in this
prospectus. The selected balance sheet data as of December 31, 1996 are derived
from audited financial statements not included in this prospectus. The selected
statement of operations data for the period from July 8, 1994 (inception) to
December 31, 1994 and the year ended December 31, 1995 and the selected balance
sheet data as of December 31, 1994 and 1995 are derived from unaudited financial
statements not included in this prospectus. The financial data for the six
months ended June 30, 1998 and 1999 and as of June 30, 1999 are derived from
unaudited financial statements included elsewhere in this prospectus. We have
prepared this unaudited information on the same basis as the audited financial
statements and have included all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of the
financial position and operating results for such date and periods. When you
read this selected financial data, it is important that you read the historical
financial statements and related notes included in this prospectus, as well as
the section of this prospectus related to "Management's Discussion and Analysis
of Financial Condition and Results of Operations". Historical results are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 8, 1994 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
-------------- ----- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $ 4 $ 58 $ 164 $ 505 $ 317 $ 97 $ 724
Costs and expenses:
Cost of services..................... 1 23 256 336 610 222 884
Sales and marketing.................. -- 67 366 942 3,094 1,218 5,468
Operations and development........... 14 66 552 1,422 2,628 962 3,631
General and administrative........... 11 251 778 830 1,444 519 1,925
Amortization of deferred content
costs.............................. -- -- -- -- 138 126 444
Amortization of deferred stock
compensation and warrant
valuation.......................... -- -- -- -- 201 43 558
---- ----- ------- ------- ------- ------- --------
Total costs and expenses........... 26 407 1,952 3,530 8,115 3,090 12,910
---- ----- ------- ------- ------- ------- --------
Loss from operations................... (22) (349) (1,788) (3,025) (7,798) (2,993) (12,186)
Interest income (expense), net......... -- -- 4 (68) (23) 2 (107)
---- ----- ------- ------- ------- ------- --------
Net loss............................... $(22) $(349) $(1,784) $(3,093) $(7,821) $(2,991) $(12,293)
==== ===== ======= ======= ======= ======= ========
Net loss per share:(1)
Basic and diluted.................... $ (0.76) $ (0.67) $ (1.51) $ (0.58) $ (2.34)
======= ======= ======= ======= ========
Weighted average shares.............. 2,341 4,650 5,197 5,194 5,261
======= ======= ======= ======= ========
Pro forma net loss per share:(1)
Basic and diluted.................... $ (0.63) $ (0.68)
======= ========
Weighted average shares.............. 12,486 18,141
======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
---- ---- ---- ------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 1 $101 $719 $3,524 $ 268 $ 6,601
Working capital (deficit).................................. 1 43 344 2,735 (2,838) 4,121
Total assets............................................... 3 128 998 5,203 2,968 20,185
Long-term liabilities...................................... 20 20 70 197 1,100 764
Total stockholders' equity (deficit)....................... (18) 50 547 4,185 (1,489) 16,557
</TABLE>
- -------------------------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing per share data.
27
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the related notes and the other financial information appearing
elsewhere in this prospectus. In addition to historical information, the
following discussion and other parts of this prospectus contain forward-looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by forward-looking information due to
factors discussed under "Risk Factors," "Business" and elsewhere in this
prospectus.
OVERVIEW
From our inception in July 1994 through 1996, we derived our revenues
primarily from the sale of paper greeting cards, first through CD-ROM based
catalogs and then through our Web site and our online store on America Online
(AOL). In February 1997, we implemented AOL's first digital greetings service,
and in late 1997, we launched our own digital greetings service from our Web
site. Revenues through 1997 consisted primarily of fees from AOL and, to a
lesser extent, sales of paper and digital greetings through our Web site. We
discontinued the sale of paper greeting cards through our Web site in July 1997
in order to focus on our digital greetings service. Revenues in 1998 were
derived largely from the sale of advertisements, sponsorships and digital
greetings on our Web site and from content licensing fees paid to us by AOL. Our
relationship with AOL ended in late 1998.
In November 1998, we made a significant change to our business model and
began offering our digital greetings for free. We made this change in order to
more rapidly build a large and active user base, which increases our ability to
sell advertisements and sponsorships on our Web site to third parties. Our
business model also includes ecommerce and direct marketing activities, although
we have not yet realized any significant revenues from these activities and are
still implementing the infrastructure and establishing the relationships
required to support these activities. As a result, virtually all of our revenues
since November 1998 have been derived from the sale of advertisements and
sponsorships on our Web site. For the six months ended June 30, 1999, greater
than 95% of our revenues were derived from the sale of advertisements and
sponsorships. As we develop and introduce more products and services in the
future, we anticipate that revenues from advertisements and sponsorships will
decrease as a percentage of total revenues.
Due to the significant changes we have made to our business model, most
notably the change to the free service model adopted in November 1998, we
believe that period-to-period comparisons between any period in 1999 and the
comparable periods in 1998 would not be meaningful. Accordingly, we have not
discussed these comparisons below, nor have we included a comparative discussion
of any periods prior to 1999.
28
<PAGE> 31
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
Revenues
Revenues were $724,000 in the six months ended June 30, 1999. Revenues
increased from $103,000 in the first quarter of 1999 to $621,000 in the second
quarter of 1999. The first quarter of 1999 was the first full quarter after we
changed our business model from one in which revenues were derived from the sale
of digital greetings to one in which revenues are derived from the sale of
advertisements and sponsorships. Since making this change, we have experienced
significant growth in traffic to our Web site, which has resulted in growth in
our advertising inventory.
We typically guarantee advertisers a minimum number of "impressions," or
times that an advertisement appears in pages viewed by consumers using our Web
site. We recognize revenues on the sale of advertisements based on the ratio of
the number of impressions actually delivered to the guaranteed number of
impressions. We recognize revenues on the sale of sponsorships on a
straight-line basis over the period during which the sponsor's promotional
message is displayed on our Web site. In all cases, revenues are recognized only
if we have no remaining significant obligations and the collection of the
receivable is probable.
Cost of Services
Cost of services is comprised primarily of royalties paid to content
licensors, the cost of our internal content production, Internet connectivity
charges and server co-location costs.
Cost of services was $884,000 in the six months ended June 30, 1999. Cost
of services increased from $226,000 in the first quarter of 1999 to $658,000 in
the second quarter of 1999. This increase primarily was due to increased content
royalty fees and Internet connectivity costs. To the extent we experience an
increase in our Web site traffic and the number of digital greetings sent, we
would expect our cost of services to increase. Cost of services is not
proportional to revenues and may increase or decrease as a percentage of
revenues.
Sales and Marketing
Sales and marketing expenses consist primarily of expenses related to
online and offline advertising, distribution, personnel and facilities,
promotional activities and public relations costs. Distribution costs reflect
amounts paid to online service providers, portals and other Web sites who market
and provide links to our Web site.
Sales and marketing expenses were approximately $5.5 million in the six
months ended June 30, 1999. Sales and marketing expenses decreased from
approximately $3.0 million in the first quarter of 1999 to approximately $2.4
million in the second quarter of 1999. Although we increased the size of our
sales department from three sales personnel at the end of the first quarter of
1999 to 11 at the end of the second quarter, the decrease in sales and marketing
expenses primarily was due to reduced advertising activities in the second
quarter. Specifically, we conducted an advertising campaign in the first quarter
of 1999 in anticipation of Valentine's Day as consumers tend to send a large
number of greetings for this holiday. Because consumers typically send fewer
greetings and online
29
<PAGE> 32
traffic declines during the summer months, we reduced our advertising activities
in the months preceding the summer. We anticipate that overall sales and
marketing expense will increase significantly in absolute dollars in the
foreseeable future. Sales and marketing expense as a percentage of total
revenues may fluctuate depending on the timing and type of new marketing
programs and distribution agreements and the addition of sales and marketing
personnel.
Operations and Development
Operations and development expenses consist primarily of personnel and
facilities costs for our site management, product management, business
development, engineering, site operations and site production departments.
Operations and development expenses were approximately $3.6 million in the
six months ended June 30, 1999. Operations and development expenses increased
from approximately $1.3 million in the first quarter of 1999 to approximately
$2.3 million in the second quarter of 1999. This increase was primarily due to
increased personnel costs. We anticipate that overall operations and development
expenses will increase in the foreseeable future. These expenses as a percentage
of revenues may fluctuate depending on the level of future revenues and the
timing of new personnel hires to support and expand our site infrastructure and
traffic.
General and Administrative
General and administrative expenses consist primarily of personnel and
related costs for general corporate functions, including finance, accounting,
facilities and administration, legal, human resources and fees for professional
services.
General and administrative expenses were approximately $1.9 million in the
six months ended June 30, 1999. General and administrative expenses were
$953,000 in the first quarter of 1999 and $972,000 in the second quarter of
1999. We anticipate that general and administrative expense will increase in the
foreseeable future. General and administrative expense as a percentage of
revenues may fluctuate depending on the level of future revenues and the timing
of additional investments in general and administrative infrastructure.
Amortization of Deferred Content Costs
Amortization of deferred content costs consists of the amortization of the
fair value of a warrant issued to Gibson Greetings, Inc. in December 1997 in
connection with the establishment of a relationship under which Gibson purchased
850,783 shares of Series D preferred stock for $5,437,000 and we obtained the
right to distribute Gibson's content in the form of digital greetings. The fair
value of the Gibson warrant at each quarterly valuation date is being amortized
by charges to operations over the remaining life of the Gibson agreement, which
expires on December 31, 2002. Amortization of deferred content costs was
$106,000 in the first quarter of 1999 and $338,000 in the second quarter of 1999
for a total of $444,000 for the six months ended June 30, 1999. We anticipate
that amortization of deferred content costs will be approximately $656,000 in
each quarter through 2002. We will periodically review the recoverability of the
deferred content costs and will write it down to its net realizable value if we
consider it appropriate as required by
30
<PAGE> 33
Financial Accounting Standards Board No. 121 based on expected future revenues
(and other benefits) or as a result of this amortization.
Amortization of Deferred Stock Compensation
We recorded aggregate deferred stock compensation of approximately $488,000
in 1998, approximately $3.1 million in the first six months ended June 30, 1999
and approximately $638,000 in the third quarter of 1999. These charges were
related to the grant of stock options at exercise prices less than the deemed
fair value of our common stock on the grant date. The deferred stock
compensation is being amortized over the vesting periods of the options,
generally four years, using a graded vesting method. Of the total deferred stock
compensation, $201,000 was amortized in 1998 and $558,000 was amortized in the
first six months of 1999. We expect amortization of approximately $1.3 million
for the remainder of 1999 and amortization of approximately $1.3 million in
2000, $622,000 in 2001 and $243,000 in 2002 relating to these options.
Interest Income (Expense), Net
Net interest expense was $107,000 in the six months ended June 30, 1999. We
had net interest expense of $166,000 in the first quarter of 1999 and net
interest income of $59,000 in the second quarter of 1999. The interest income in
the second quarter resulted from increased interest generated from the net
proceeds of our sale of preferred stock in March 1999.
Income Taxes
There has been no provision made for federal or state income taxes for any
period as we have incurred operating losses to date. As of December 31, 1998, we
had net operating loss carryforwards for federal income tax purposes of
approximately $11.8 million. The federal net operating loss carryforwards will
expire at various dates from 2010 through 2018 if not utilized. Due to the
"change of ownership" provisions of the Internal Revenue Code, the availability
of our net operating loss carryforwards may be subject to an annual limitation
against taxable income in future periods if a change in ownership of more than
50% of the value of our stock should occur over a three-year period. This could
substantially limit the eventual utilization of these carryforwards. For further
information regarding income taxes, see Note 5 of Notes to Financial Statements.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited quarterly results of
operations for the two quarters ended June 30, 1999. You should read the
following table in conjunction with our financial statements and related notes
included elsewhere in this prospectus. We have prepared this unaudited
information on the same basis as the audited financial statements. This table
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of our financial position and
results of operations for the quarters presented. We have experienced and expect
to continue to experience fluctuations in operating results from quarter to
quarter. We have incurred net
31
<PAGE> 34
losses in each quarter since our inception, and we expect to incur losses for
the foreseeable future.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------
MARCH 31, 1999 JUNE 30, 1999
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Revenues.......................................... $ 103 $ 621
Costs and expenses:
Cost of services................................ 226 658
Sales and marketing............................. 3,038 2,430
Operations and development...................... 1,289 2,342
General and administrative...................... 953 972
Amortization of deferred content costs.......... 106 338
Amortization of deferred stock compensation..... 153 405
------- -------
Total costs and expenses..................... (5,765) 7,145
------- -------
Loss from operations.............................. (5,662) (6,524)
Interest income (expense), net.................... (166) 59
------- -------
Net loss..................................... $(5,828) $(6,465)
======= =======
</TABLE>
Our revenues and operating results are likely to vary significantly from
quarter to quarter in the future due to a number of factors, many of which are
outside of our control. These factors include:
- our ability to sell advertisements and sponsorships;
- our ability to offer compelling, original content and value-added
services;
- our ability to attract consumers of our products and services;
- new Web sites, services or products introduced by us or our competitors;
- the timing and uncertainty of sales cycles;
- seasonal fluctuations in advertising sales;
- the level of Internet usage;
- our ability to attract and retain qualified personnel;
- our ability to successfully integrate operations and technologies added
as a result of acquisitions or other business combinations;
- technical difficulties or system downtime affecting the Internet
generally or the operation of our network; and
- general economic conditions, as well as economic conditions specific to
Internet companies.
Our revenues for the near future will be substantially dependent on our
relationships with advertisers and sponsors, many of which are short-term in
nature and subject to cancellation without penalty. In addition, we derive a
significant portion of our revenues from the sale of advertisements to a limited
number of customers. Accordingly, the loss of an important advertising
relationship or the cancellation or deferral of advertising orders could harm
our results in any one quarter. As a result of these and other factors, quarter-
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<PAGE> 35
to-quarter comparisons of our operating results should not be relied upon as an
indication of future performance.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through the sale
of preferred stock and, to a lesser degree, equipment financing facilities.
Net cash used in operating activities was approximately $5.8 million in
1998 and $12.1 million in the six months ended June 30, 1999. Net cash used in
investing activities was $786,000 in 1998 and approximately $4.9 million for the
six months ended June 30, 1999. In each period, cash used in operating
activities resulted primarily from net losses in those periods offset by changes
in working capital and non-cash operating charges. Cash used in investing
activities was primarily related to the acquisition of network hardware and
software and other equipment.
Net cash provided by financing activities was approximately $3.4 million in
1998 and $23.3 million in the six months ended June 30, 1999. The primary source
of cash provided by financing activities was the sale of preferred stock and, to
a lesser extent, borrowings under equipment facilities and stockholder notes
payable. In addition, in September 1999, we secured a $10 million equipment
financing facility.
As of June 30, 1999, we had $6.6 million of cash and cash equivalents and
$5.6 million of working capital. In October 1999, we sold shares of Series G
preferred stock for net proceeds of approximately $ million. We currently
expect that the net proceeds from this offering, together with our available
funds, will be sufficient to meet our anticipated needs for working capital and
capital expenditures for at least the next 12 months. Thereafter, we anticipate
that we will require additional funding through public or private financings or
other arrangements. Adequate funds may not be available when needed or may not
be available on favorable terms. If additional funds are raised through the
issuance of equity securities, dilution to existing stockholders will result. If
insufficient funds are available, we may be unable to enhance our Web site and
brand, make strategic investments or respond to actions by competitors, any of
which could materially harm our business.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by many companies and governmental agencies may
need to be upgraded to comply with such "Year 2000" or "Y2K" requirements or
risk system failure or miscalculations causing disruptions of normal business
activities.
State of Readiness
We have made an assessment of the Y2K readiness of our operating financial
and administrative systems, including the hardware and software that support our
systems. We believe that all of our critical systems are currently Y2K
compliant. Our engineering department, however, is testing all software and
other systems that it believes might be affected by Y2K issues in order to
ensure compliance. We plan to complete this process in the fourth quarter of
1999.
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<PAGE> 36
Costs
We have spent an insignificant amount of money on Y2K compliance to date
and ultimately do not expect to incur any substantial costs in connection with
identifying, evaluating and addressing Y2K compliance issues. Most of the
expenses that we have incurred or will incur are operating costs associated with
time spent by employees and consultants evaluating Y2K compliance matters. If
these expenses are significantly higher than anticipated, our business could be
harmed.
Risks
We are not currently aware of any Y2K compliance problems relating to our
systems that would have a material adverse effect on our business. We may
discover Y2K compliance problems in our systems that will require substantial
resources to remedy. Third-party software, hardware or services incorporated
into our systems may also need to be revised or replaced. Any revision or
replacement of our systems could be time consuming and costly.
Our failure to replace our software, hardware or services on a timely basis
could result in lost revenues, increased operating costs, the loss of customers
and other business interruptions, any of which could harm our business. In
addition, our failure to adequately address Y2K compliance issues could result
in claims of mismanagement, misrepresentation or breach of contract. The
resulting litigation could affect our financial and other resources.
We are dependent on vendors to provide significant network services and
equipment. A Y2K disruption of the network services and equipment provided by
vendors could cause our members and visitors to consider seeking alternate
providers or cause an unmanageable burden on our technical support staff.
Contingency Plan
Y2K contingency plans are being developed as part of our Y2K assessment.
Our Y2K assessment, including a contingency plan, will be completed during the
fourth quarter of 1999.
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay with respect to our various outstanding debt instruments.
The risk associated with fluctuating interest expense is limited, however, to
the exposure related to those debt instruments and credit facilities which are
tied to market rates. We do not use derivative financial instruments in our
investment portfolio. We ensure the safety and preservation of our invested
principal funds by limiting default risks, market risk and reinvestment risk. We
mitigate default risk by investing in safe and high-credit quality securities. A
hypothetical increase or decrease in market interest rates by 10% from the
market interest rates at June 30, 1999 would not cause the fair value of our
short-term investments or the expense paid with respect to our outstanding debt
instruments to change by a material amount. Declines in interest rates over time
will, however, reduce our interest income while increases in interest rates over
time will increase our interest expense.
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BUSINESS
OVERVIEW
Our online greetings and gift hub offers consumers a convenient and simple,
integrated solution to selecting and sending greetings and gifts. Through our
Web site, which offers over 4,400 digital greetings incorporating rich media
features such as graphics, animations and music, consumers can select,
personalize and send greetings free-of-charge for personal and business
occasions. Our Web site is also merchandised with a wide selection of gifts that
consumers can select and arrange to send at the same time they send a digital
greeting. In September 1999, our Web site was visited more than 9.6 million
times, visitors to our Web site viewed over 98 million Web pages and customers
used our service to send over 3.4 million digital greetings. Since consumers
often use our Web site to communicate on personal and business occasions, we
enable our advertisers and ecommerce partners to effectively reach online
consumers who are likely to be receptive to advertising messages, product
offerings and promotions related to the specific occasions for which they are
sending greetings.
INDUSTRY BACKGROUND
Online Communications
The emergence of the Internet as a global medium has enabled millions of
people worldwide to share information, communicate and conduct transactions
electronically. International Data Corporation, or IDC, estimates that the
number of individuals accessing the World Wide Web will grow from approximately
142 million at the end of 1998 to more than 502 million by the end of 2003. One
of the most important developments contributing to this dramatic growth is the
rapid adoption of electronic mail, or email, as a means of communication. IDC
projects that the number of email messages sent in the United States alone will
grow from approximately 2.1 billion per day at the end of 1998 to 9.2 billion
per day at the end of 2003. We believe that the use of email is growing so
rapidly because it is a very convenient and efficient way to communicate, is
essentially free and allows people to more effectively manage personal and
business relationships.
While text-based email is convenient and inexpensive, it often fails to
express the sentiment and individuality of the sender. Consumers increasingly
are attracted to a means of communication that will allow them to express
themselves in a dynamic and entertaining fashion, while minimizing the time and
costs associated with doing so. Digital greetings provide the convenience and
ease of use of text-based email while allowing consumers to use engaging color
and imagery to express a wide range of emotions and sentiments. As a result,
enhanced email services such as ours that leverage multimedia elements such as
graphics, sound and animation are gaining popularity with online consumers.
According to a Jupiter Communications survey, in 1998 sending electronic
greetings was the sixth most popular online activity, with 55% of online users
visiting electronic greeting and postcard Web sites regularly. We believe
consumers will be attracted to a centralized Web site that aggregates
entertaining and relevant content and allows for the easy personalization and
delivery of this content in the form of a digital greeting.
Online Commerce and Gifting
Advances in technology and functionality have resulted in the increased
popularity of the Internet as a means for both businesses and consumers to
conduct transactions. This
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has led to significant growth in the volume of Internet-based electronic
commerce, or ecommerce, and this growth is expected to continue. Forrester
Research estimates that business-to-consumer sales in the United States over the
Internet will increase from approximately $20 billion in 1999 to approximately
$184 billion by 2004. While many of these ecommerce transactions represent
purchases for an individual's personal consumption, the Internet also is gaining
acceptance as a convenient and effective means of identifying and purchasing
gifts. Because of the broad selection of products and the speed and convenience
of online shopping, we believe consumers will purchase an increasing proportion
of gifts over the Internet in the future.
Online Advertising
The Internet has emerged as an important mass medium for advertising and
direct marketing. Many companies have begun to focus significant marketing
efforts on online activities, with Forrester estimating that global spending for
online advertising will total $33 billion in 2004. The Internet represents a
cost-effective advertising alternative that is more focused and measurable than
traditional methods. The Internet enables advertisers to more accurately and
effectively target consumers through the use of demographic, psychographic and
behavioral data. We believe that advertisers continue to seek a more effective
and efficient means to capture consumer dollars, build a consistent brand image
and leverage their existing traditional campaigns through advertising on the
Internet. In order to achieve these objectives, we believe that companies will
seek to advertise on Web sites that attract a broad range of consumers, more
accurately target members of this audience and allow advertisers to deliver
contextually relevant messages to consumers at the time at which they are making
purchasing decisions. We further believe that Web sites offering an effective
combination of content and commerce will be the most desirable online
destinations for consumers and the most attractive vehicles for online
advertisers.
THE EGREETINGS SOLUTION
We are a leading provider of digital greetings, offering consumers an
integrated approach to communications and gift giving. Our easy-to-use Web site
allows consumers to send personalized, content-rich digital greetings and a wide
variety of gifts. We also provide advertisers and commerce partners with access
to a large and readily targeted group of consumers.
Benefits to Consumers
Superior Value and Enhanced Communications. We enable individuals to convey
personal, business and occasion-related communications in a creative,
entertaining and personalized manner. Through a combination of compelling
content and robust technology, our Web site allows consumers to create
personalized multimedia messages free of charge. Through these enhanced
electronic messages, which include postcards, animated greetings and multimedia
greetings, consumers can more vividly express their sentiments, emotions and
personalities than is possible with paper-based products or conventional
text-based email.
Convenient Communications and Gift Giving. Our service eliminates the
inconvenience associated with traditional paper-based communications and retail
gift stores. Our Web site offers a variety of digital greetings that are grouped
into "channels" such as holidays, life events and particular interests, as well
as a selection of appropriate gifts that
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consumers can choose to send to a recipient. Our channel format not only allows
a consumer to quickly locate and customize an appropriate communication, but
also allows us to offer gift ideas targeted to a consumer's channel selection.
Our My Egreetings service allows registered members to personalize our Web site
by saving content, email addresses and occasion reminders, with reminder emails
sent to them prior to the date of specified occasions. Our service not only
streamlines the process by which individuals can communicate and send gifts, but
also provides a more convenient way for them to acknowledge occasions and
maintain relationships than is possible through retail stores and many other Web
sites.
Benefits to Advertisers and Ecommerce Partners
Targeted Online Opportunities. We enable advertisers and ecommerce partners
to deliver their messages and promote their products to a large and diverse
group of consumers on a highly targeted basis. Our integration of communications
and gift-giving services in one site provides these partners with access to
consumers at a time when they may be acknowledging an occasion and are therefore
likely to be receptive to specific advertising and relevant gift ideas. For
example, consumers who select a congratulatory greeting from our "Bouncing
Babies" channel are offered gift options and shown advertisements relevant to
this occasion. Through their registration and their selection of specific
digital greetings and gifts, members provide us with valuable demographic and
psychographic data about themselves and their recipients. We use this data to
help advertisers and ecommerce partners selectively target appropriate consumer
subsets from our rapidly growing base of registered members and recipients
through strategically placed advertisements and product offerings in specific
content channels and through direct marketing campaigns.
Viral Advertising. Our extensive content selection combined with our
technology platform provides a new vehicle through which advertisers, sponsors
and commerce partners can increase brand awareness and expand their online
presence. Digital greetings and animations containing sponsorships, product
descriptions or pictures can be incorporated into relevant channels of our Web
site and made available for consumers to personalize and send. Through
integrated digital greetings like these, consumers can send content that can
help an advertiser establish and build a brand image not only with the consumers
sending the digital greetings but also with the recipients of the digital
greetings. As a result, our digital greetings not only enable existing
advertising and product content to be more fully utilized, but also allow
advertisers and sponsors to more effectively utilize the engaging, interactive
and dynamic nature of the Web. Examples of some of our partners who have used
our service to leverage their brand in this way include the National Football
League and the movie studios New Line Cinema and Sony TriStar in connection with
the release of the films "Austin Powers: The Spy Who Shagged Me" and "Big
Daddy."
OUR STRATEGY
Our objective is to be the destination of choice on the Web for greetings
and gift-giving and to leverage that leadership position into additional revenue
opportunities. Key elements of our strategy include the following:
Create a Highly Integrated Communications and Gift-Giving Hub. We intend to
capitalize on our leadership position in the aggregation and distribution of
digital content to
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create a highly integrated communications and gift-giving center. To create this
"one-stop" service, we intend to enter into joint sponsorship and ecommerce
relationships covering a wide range of products, services and price points. We
believe that by displaying a variety of occasion-appropriate gift-giving
alternatives at the time a consumer is preparing to send a digital greeting, we
can further simplify the gift-giving process and increase the likelihood that an
ecommerce transaction will occur.
Build Brand and Increase Traffic. We intend to increase our brand awareness
and traffic to our Web site by leveraging the viral marketing qualities inherent
in our product. Each digital greeting sent represents a free advertisement for
our product and Web site because the recipient visits our Web site to receive
the digital greeting. This allows us to promote our brand, services and products
to each recipient of one of our digital greetings at no incremental cost to us.
We also intend to achieve greater offline awareness of our brand by targeting
print, television and outdoor advertising and entering into new co-promotional
arrangements such as those we have with the National Football League and major
motion picture studios. We also are continuing to increase our online presence
through integrated distribution partnerships, banner advertising, contests,
promotions and targeted marketing activities via email.
Create an Increasingly Personalized Environment for the Consumer. We intend
to offer consumers an increasingly personal and engaging experience in order to
retain our existing consumer base and attract new consumers. We currently offer
registered members features such as a personal address book, a personal calendar
of reminders for special occasions, the advanced scheduling of delivery of
digital greetings and a personal outbox that retains greetings sent by a
registered member for 30 days. We plan to allow our registered members to
further personalize their environment by saving their favorite digital greetings
to their own My Favorites area and creating their own content. In addition, we
intend to increase the amount of customized content we offer based on consumers'
interests, gender, age and location, including the development of international
Web sites that utilize a localized interface, localized content and the local
language. We believe these features will make it easier for our consumers to
access the content most relevant to their needs and thus will drive them to our
Web site and encourage them to use our services more frequently. We also intend
to allow our registered members to maintain digital greeting and gift history
profiles and to create gift "wish lists" for both recipients and senders of
gifts, thus further simplifying the process of sending, receiving and
acknowledging communications and gifts. We believe our ability to suggest an
appropriate and personalized gift for a consumer based on the content channel,
the selected greeting and the sender's and recipient's gift histories will
increase the likelihood of a gift-giving transaction.
Enhance our Consumers' Experience by Exploiting Evolving Broadband
Technologies. We expect to leverage infrastructure improvements in broadband
technologies such as cable, satellite and high speed telephone access, including
DSL, to develop products and services that are increasingly interactive and
entertaining for our consumers. As these broadband technologies continue to
evolve, the speed and quality of transmission of data-intensive content over the
Internet will enable us to incorporate richer content and advanced
functionality, including video and increased interactivity into our range of
products and services. We believe that these enhancements will allow us to
optimize the richness of our existing content and to develop new content with
increased multimedia capabilities that will improve our consumers' experience
and increase the use of our services.
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Leverage Multiple Revenue Streams. We intend to capitalize on the breadth
and diversity of our content and our consumer community to create an
advertising- and transaction-rich environment and generate multiple revenue
streams. As of August 31, 1999, we had compiled demographic and psychographic
data on more than 7 million registered members. In addition, due to the nature
of our service, we collect significant additional data on the unregistered
recipients of the digital greetings sent by our registered members. We believe
our ability to deliver large demographically, psychographically and
geographically profiled audiences will be a valuable asset in developing
additional advertising, direct marketing and ecommerce services. We anticipate
our revenues primarily will be derived from the following activities:
- Advertising -- We intend to pursue additional advertising and sponsorship
relationships across a broad range of products and services.
- Ecommerce -- We believe our service provides ecommerce partners with a
unique, timely and contextual opportunity to reach consumers. We believe
the ease and convenience of our service will encourage individuals to use
our service to purchase products that they already intended to send and
may even encourage them to purchase products and gifts they might not
otherwise have sent. Although revenues from ecommerce activities
represented less than 5% of our revenues for the six months ended June
30, 1999, we intend to significantly expand our ecommerce initiatives to
provide our consumers with a greater variety of product offerings. For
example, we recently started offering products through our Web site from
vendors such as Godiva, Mrs. Fields, ChipShot.com and PetStore.com.
- Direct marketing -- We intend to enter into more promotional
relationships in order to engage in direct marketing activities that
capitalize on the interactive nature of our service. For example, we
intend to send emails on behalf of advertisers and sponsors promoting
their products, services or special events to our consumers who have
elected to receive communications like these.
THE EGREETINGS.COM WEB SITE
Our Web site is designed to help consumers express their sentiments,
emotions and personalities and to enhance their ability to communicate and send
gifts in a timely and effective way. Consumers can choose from thousands of
content options to convey a specific message or sentiment in a highly
personalized manner. In addition, we provide consumers with access to hundreds
of gift options appropriate for a wide range of occasions and sentiments.
The Home Page
Registered members receive a personalized welcome greeting when they visit
our home page. If a registered member has selected the automatic log-in option,
either during registration or at sign-in, she does not need to re-enter an email
address and password to send a digital greeting if she is logging in from the
same computer. From the home page, a consumer might send digital greetings,
visit our Gift Center or browse other features or promotions.
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My Egreetings
To increase the value of our service as a resource for managing personal
and business communications, we offer our registered members the following
personalization features under our My Egreetings section:
- My Address Book -- Registered members can store information on individual
recipients and they can combine these individuals into mailing lists or
"groups," such as family, friends or clients. For each recipient,
registered members can store an email address, full name and reminders of
special dates such as birthdays and anniversaries.
- My Reminders -- Our reminder service allows registered members to request
advance notification by email of special dates. In addition, registered
members can link a reminder with a unique recipient in their My Address
Book.
- Perfect Memory -- This feature allows our registered members to schedule
delivery of digital greetings on a date up to three months in the future.
For example, a registered member could pre-order and schedule future
delivery of all of her year-end holiday digital greetings in October.
- My Outbox -- This feature provides registered members with a 30-day
history of their activity on our Web site, as well as a list of all
digital greetings scheduled to be delivered through Perfect Memory. After
a digital greeting has been sent, a registered member can check the
status of a digital greeting and view or resend the digital greeting for
30 days.
- My News -- Registered members can elect to receive our biweekly
newsletter and/or special promotional offerings via email.
- My Info -- Registered members can edit their account information.
Selecting a Digital Greeting
Consumers can select content by using our channels and subchannels or by
using our search feature. Most consumers elect to locate content by using our
channels, which are categorized based on holidays, life events and interests. If
a consumer does not find the desired digital greeting among our most popular
digital greetings in a particular channel, she can elect to continue searching
in one of our subchannels, which are structured to match a consumer's
sentiments. If a consumer is unable to locate the desired content through our
channels or subchannels, she may choose to use our search feature. Our search
feature allows consumers to locate content by specifying a particular
"personality" for the message to be conveyed, the type of imagery desired and
the occasion or reason for sending the greeting.
Once a consumer selects the content for a digital greeting, the content
options are presented in thumbnail at-a-glance versions, with the most popular
greetings (representing a range of sentiments appropriate to the occasion)
presented first. Consumers can choose from postcards, animated greetings and
multimedia greetings. In addition, a selection of gifts are presented
simultaneously, as well as partners' advertisements and other value-added
content.
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Personal Message
When a consumer has selected a digital greeting, a full-size view of the
digital greeting appears on the page. At this time, the consumer can choose to
write a personal message to send with the selected digital greeting or can
select a different digital greeting. Once a consumer has decided on a digital
greeting, she is prompted to address the digital greeting to one or more
recipients, either by typing in the email address or addresses or by selecting a
name or names from the consumer's My Address Book. The consumer then is prompted
to add a personal message of her own creation. The sender's message, of any
length, is incorporated directly into the artwork of the postcard or animation,
creating a high quality image that conveys the desired sentiment or emotion for
a particular relationship or occasion.
The Preview
Once the personalized message is complete, the consumer can elect to
preview the digital greeting before sending it. This allows the consumer to see
the message exactly as it will appear to the recipient. The consumer can edit
the message here or begin again with a different digital greeting. Once the
consumer is satisfied with the look and content of the digital greeting, she can
elect to send it immediately or on any date up to three months in the future.
Confirmation Page
The consumer is shown a confirmation page on our Web site when the order
has been processed. At this time, the consumer once again is presented with gift
suggestions that are appropriate to the occasion.
Confirmation Email
When the digital greeting has been sent to the recipient, the consumer
receives a confirmation email indicating that her digital greeting has been
sent. A registered member can verify whether a particular digital greeting has
been received by viewing the status of that digital greeting in her My Outbox.
Selecting a Gift
An important benefit of our service is the opportunity to communicate by
sending a gift as well as a digital greeting. We have established relationships
with numerous vendors to offer a wide variety of gifts through our Web site. We
merchandize appropriate gifts along with our digital greetings in several areas
of our Web site:
- Gift Center -- Gift selections are organized by departments such as best
sellers, seasonal occasions, business, weddings, birthdays and other
special occasions. Consumers can browse the departments to find the right
gift or they can click to the Web site of one of our ecommerce partners
for additional shopping options. We also offer consumers the opportunity
to purchase gift certificates from Flooz, Giftcertificates.com and
Sparks.com, which can be used to purchase goods over the Internet from
hundreds of vendors.
- Greeting channels -- Throughout the greeting channels on our Web site,
gifts are merchandized to complement the occasions and sentiments
associated with those
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channels. Each greeting channel provides easy access to the related Gift
Center department for convenient browsing and shopping.
- After sending a digital greeting -- Once a digital greeting has been
sent, the sender is presented with a small selection of gift
recommendations that are appropriate for the occasion.
To further increase the value and convenience of our gift-giving services,
we intend to allow our registered members to maintain gift history profiles and
to create gift "wish lists" for both recipients and senders of gifts.
Receiving a Digital Greeting
A recipient of a digital greeting receives an email message from the sender
with the subject specified by the sender in the subject field. This email
contains an announcement that the recipient has been sent a digital greeting
that can be accessed via a link to our Web site. This link takes the recipient
directly to the Egreetings viewing center, where the recipient's digital
greeting is displayed. Also appearing on this page are links that allow the
recipient not only to reply to the sender with a digital greeting of his own,
but also send a digital greeting to someone else.
PRODUCT MANAGEMENT AND DEVELOPMENT
Content Acquisition and Creation
As of September 30, 1999, our content library included over 4,800 digital
greetings. Of these greetings, approximately 26% were produced and owned by us,
approximately 40% were wholly produced by us but contained content owned by
third parties and approximately 34% were created and owned by third parties.
Currently we have 18 people dedicated to the creation and acquisition of
content, 12 of whom are producers, artists and sound designers focused on
creating original content and six of whom are responsible for content
acquisition.
The members of our content acquisition group identify prospective content
partners, negotiate licensing arrangements, integrate content into digital
greetings and our Web site and manage ongoing relationships with our content
partners. We acquire content from a variety of sources, including traditional
greeting card publishers, entertainment companies, sports organizations and
several recognized independent artists. Our traditional greeting card publishing
partners include Gibson Greetings, Allport Editions, Ward One, Snafu and Portal.
We also obtain content from entertainment companies such as New Line Cinema,
Paramount Pictures, Sony TriStar, Fox and United Media.
The majority of our third-party content is obtained pursuant to exclusive
licensing arrangements and promotional partnerships. Under our standard
licensing contracts, the licensor grants us an exclusive right to reproduce and
distribute the licensed property in connection with digital greetings and we pay
the licensor a royalty for the use of its content. We also enter into
promotional arrangements pursuant to which a third party provides us with
content at no cost in exchange for promotional opportunities on our Web site. In
addition, in some cases, a third party will pay us to create and promote the use
of digital greetings utilizing its content.
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Product Technologies -- Future Offerings
We intend to introduce several new technologies to enhance our product
offerings and personalization features within the next 12 months, including the
following:
- My Favorites -- This service will allow registered members to select
their favorite content and gift selections and store them in a single,
easy-to-access location on our Web site.
- Address book profiles -- Registered members will be able to create
profiles to specify the types of digital greetings or gifts that they
would like to send to individuals or groups within their My Address Book.
- Photo greetings -- This feature will allow consumers to upload their
personal digital photos and integrate them with digital greetings.
- Build-your-own greetings -- Consumers will be able to create their own
digital greetings by choosing from a menu of images and elements.
- Gift "wish lists" -- To further increase the value and convenience of our
gift-giving services, we intend to allow our registered members to
maintain gift history profiles and to create gift "wish lists" for both
recipients and senders of gifts.
CONSUMER MARKETING
We engage in several different marketing activities directed at consumers.
Our consumer marketing activities are designed to do the following:
- Increase consumer traffic to our Web site. We endeavor to increase the
traffic to our Web site primarily through the following means:
- Relationships with distribution partners -- Our distribution
relationships with portals, online service providers, Web-based email
services and entertainment and other Web sites direct consumer traffic
to our Web site. These relationships provide us with exposure to a
large and diverse consumer base and allow consumers to easily reach
our Web site by clicking on links on our partners' Web sites. For
example, Microsoft Hotmail customers can link to us from the Hotmail
email composition page.
- Promotional activities -- We use promotions and engage in other types
of direct marketing activities directed at our registered members to
increase the frequency of member visits and the number of transactions
per visit. For example, in connection with our promotion with the
National Football League, consumers that sent an NFL digital greeting
were automatically entered into a sweepstakes.
- Viral marketing -- Each digital greeting sent creates an opportunity
to acquire the recipient as a new consumer because the recipient must
visit our Web site to receive the digital greeting. This allows us to
promote our brand, services and products to each recipient of one of
our digital greetings at no incremental cost to us.
- Web site functionality and appeal -- We strive to make our Web site
highly appealing to and functional for consumers. We believe that
consumers will
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return to our Web site often and use our services frequently as a
result of a positive, efficient experience. To this end, we intend to
further increase the functionality and appeal of our Web site over
time.
- Increase use of our gift service. As our consumers browse for, select and
send digital greetings, we direct products and services to them based on
the category of digital greeting they are focused on at that time. We
also direct our customer acquisition efforts to target "transactors," or
consumers who are more likely to buy products on the Internet, and we use
direct member communications and promotions to encourage consumers to
visit our Gift Center.
- Build brand recognition. Our efforts to build brand awareness include a
combination of online and offline advertising activities, including print
media, Internet trade media, outdoor media and radio advertisements. We
also have focused on building relationships with a broad range of
consumer and trade press organizations. In addition to continuing to use
a combination of online and offline marketing communications, we intend
to increase our use of broad-based mass media such as television and
radio to establish a leading brand position in the electronic greeting
and online gifting market. We also intend to use promotions that
encourage our members to market and extend our brand for us by sending
multiple digital greetings to their friends, family and business
associates.
ADVERTISING AND ECOMMERCE
Advertising and Sponsorship
We sell advertising and sponsorships through our direct advertising sales
department, with eight sales people located in San Francisco, five sales people
located in New York and one sales person located in Los Angeles as of August 31,
1999. We intend to target national advertisers that are shifting advertising
dollars from offline to online advertising. We also intend to continue to pursue
sponsorship and promotional arrangements, which generally have longer terms and
higher dollar values than typical banner advertising. Revenues from advertising,
sponsorship and promotional activities accounted for virtually all of our
revenues for the six months ended June 30, 1999.
Set forth below is a list of our advertisers from whom we had derived more
than $10,000 in revenues in 1999 as of September 30, 1999:
Ask Jeeves
Baby Center
barnesandnoble.com
Calyx & Corolla
Clinique
Crossings
eFax
Excite@Home Network
Fresh Flower Source
Godiva Chocolates
GreatFood.com
Informix
KBKids.com
National Football League
Netgrocer
Omaha Steaks
Orvis
PetStore.com
RedEnvelope
Sparks.com
ThirdAge.com
Uproar
What's Hot Now
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Ecommerce
We began offering ecommerce services in February 1999. Our revenues from
ecommerce activities have been nominal to date, although we expect to derive an
increasing percentage of our revenues from ecommerce activities in the future.
Our goal is to enter into ecommerce relationships with leading vendors in a
variety of gift categories. Currently we have ten people focused on implementing
our ecommerce initiatives, in addition to our advertising sales department,
which also devotes time to managing relationships with our ecommerce partners.
Typically, we receive a percentage of revenues derived from transactions made by
consumers that have been referred to a vendor's Web site from a link on our Web
site. During the nine months ended September 30, 1999, we had ecommerce
relationships with the following merchants:
Chipshot.com
Flooz
FTD
Godiva Chocolates
GourmetMarket.com
GraceGourmet
Healthshop.com
HLH Entertainment/Monarch
iprint
Mrs. Fields
Orvis
PetStore.com
RedEnvelope
We currently are in discussions with a third-party ecommerce partner to
provide us with a comprehensive ecommerce solution by aggregating a wide range
of gifts that will be available directly from our Web site. We expect this
partner also will coordinate the fulfillment and shipment of orders to consumers
who have purchased products through our Web site.
CUSTOMER SUPPORT
We believe that a high level of customer service and support is important
to retaining and expanding our customer base. We provide free customer support
assistance via email and telephone, and it is our policy to respond to all
customer inquiries within one business day. Our customer support team handles
general questions about how to use our Web site and serves as a clearinghouse
for feedback regarding customer satisfaction. Customer feedback is funneled to
our data warehouse system, where it is correlated with other customer
information that we use to improve our Web site, services and customer retention
and acquisition. Our customer support operations are fully integrated with our
system architecture, and customer support personnel have access through our Web
site to the transaction processing components of our service, which enables them
to easily trace individual transactions and quickly identify problems. As of
August 31, 1999, we employed nine full-time customer support representatives.
RELATIONSHIP WITH GIBSON GREETINGS
In December 1997, we entered into a content provider and distribution
agreement with Gibson Greetings, Inc., the third largest producer of paper-based
greeting cards in the United States. Pursuant to this five-year agreement, we
are the only company, other than Gibson itself, with the right to distribute
Gibson's content in the form of digital greetings. In exchange for this right,
we pay Gibson a royalty based on the number of digital greetings sent that
contain Gibson's content. In addition to the content we license, our
relationship with Gibson has provided us with access to expertise in the
development and
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marketing of content, introductions to movie studios and access to artists to
whom we may not otherwise have had access.
In addition to our content provider and distribution relationship with
Gibson, as of September 30, 1999, Gibson owned a total of 5,157,825 shares of
our stock and warrants to purchase an additional 4,511,781 shares of our stock.
These shares and warrants to purchase shares represented approximately 28.0% of
our outstanding capital stock. In addition, Frank O'Connell, the Chairman,
President and Chief Executive Officer of Gibson, is a member of our Board of
Directors. Pursuant to the terms of our agreement with Gibson, Gibson's right to
elect a Board member will terminate upon the completion of this offering.
DISTRIBUTION RELATIONSHIPS
A key element of our business model is to develop relationships with a
broad range of companies that can increase our distribution and Web site
traffic. To that end, as of September 30, 1999, we had distribution
relationships with Excite@Home Network (including Web Crawler), and the
following companies affiliated with Microsoft Corporation: Hotmail, Microsoft
Network and WebTV. For the three months ended September 30, 1999, the
Microsoft-affiliated companies accounted for less than 25% of our traffic.
TECHNOLOGY
Infrastructure
We have invested significant resources to develop the platform that is used
to support our products and services. Our system is based on an open and
extensible architecture that incorporates proprietary technology as well as
commercially available licensed technology. Our system is also designed to
provide high degrees of availability, reliability, scalability, extensibility
and performance.
- Availability and Reliability. We achieve a high degree of availability
and reliability by enforcing carefully devised operational procedures,
high quality software development procedures and stringent quality
assurance procedures. Our system is designed and built to provide a high
level of fault tolerance and maximum recoverability. Our system achieves
a fast response time by using efficient computer programming practices,
elaborate caching systems and an automatic load balancing system.
- Scalability. Our system achieves scalability by distributing the
processing load across multiple processors while efficiently managing and
recycling system resources. This enables us to increase our system's
processing capacity by adding more hardware. Our software system is
designed to be portable across different operating systems platforms,
which allows us to achieve scalability in a cost-effective manner.
- Extensibility and Performance. Our open system enables us to easily
interface with external systems. At the heart of the system is a
relational database management system hosting our customer, product and
transactional data. This database is supplemented by a sophisticated data
warehouse system that is a mirror copy of the production database. The
production database maintains customers' click streams and a number of
other data points, including member data, product data and
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purchase data. An online analytical processing tool is used to extract
reports from our data warehouse. Daily, weekly, monthly and ad hoc
reports are produced from our data warehouse system to support targeted
marketing activities. We intend to use our data warehouse information to
provide fully personalized merchandising so that cards and gifts offered
to consumers actually match their expressed interests as well as their
behavior while on our Web site. We use a merchandising tool to assign
digital greetings and gifts to appropriate channels and a content
management tool that allows us to put the appropriate components together
and to process changes to the Web site in an orderly manner.
Our system is based on a Sun/Solaris platform that is hosted at Exodus
Communications in Santa Clara, California. We manage and monitor our servers and
our local area network remotely from our Santa Clara office, where our support
engineering staff resides. Our engineering department currently consists of 28
engineers organized into the following groups: core development, ecommerce,
development support, new architecture and quality assurance. We expect to
significantly increase our hiring of engineers over the next several months.
New Architecture under Development
We are in the process of designing the next generation of our system
architecture. We expect this new system to be based on a multi-tier architecture
that utilizes component-based technologies. We believe this will allow us to
route and distribute the processing load between appropriate components and
across multiple layers of servers to achieve higher levels of flexibility,
reliability, performance and scalability. The new architecture is expected to be
in place by May 2000.
COMPETITION
We believe the principal competitive factors affecting our market include
the ability to provide the following:
- compelling and diverse content;
- value-added features, products and services;
- a wide range of ecommerce partners and products;
- a large and diverse audience; and
- demographic and psychographic data that is desirable to advertisers.
We believe that we currently compete favorably with respect to these
factors. Unlike many of our largest competitors who limit themselves to offering
consumers only their own content and products, we offer consumers digital
greeting content and gift options from a wide selection of vendors. We believe
our competitors' approach reduces the appeal of these companies to potential
distribution channels, as a broader content collection is likely to appeal to a
larger and more diverse audience, thus producing higher traffic, increased
consumer activity level and more desirable demographics. In addition, many of
our largest competitors focus primarily on social expression themes
traditionally associated with paper greeting cards. We believe that our approach
to electronic greetings and online gifting as a form of interactive
communication that extends beyond specific and mainstream occasions provides us
with a much larger potential market. In addition, we are one of the few Web
sites to integrate a broad and diverse base of digital greetings and gifts. We
believe this integration will help us to attract and retain a larger and more
diverse group of consumers,
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<PAGE> 50
which will increase our appeal to advertisers and commerce partners. Our more
than 7 million registered members have provided us with demographic data that
most of our competitors do not collect. Although we intend to change to a model
that does not require registration in order to use our service, we will continue
to offer personalization features that will be available only to registered
members. We believe that we will continue to collect a significant amount of
demographic data that most of our competitors do not collect. In addition,
unlike many of our competitors. Finally, we believe that our technology
infrastructure is superior to that of any of our competitors and allows us to
better address the needs of distribution, content and commerce partners.
Despite the fact that we believe we currently compete favorably with regard
to the factors discussed above, our market is evolving rapidly and we compete
with many Internet companies for content, consumer time and dollars, advertising
revenues and ecommerce revenues. We expect this competition to increase. We
compete, in particular, with the following types of companies:
- companies or their affiliates that offer digital greetings via the
Internet, such as Blue Mountain Arts, American Greetings, Hallmark and
123greetings.com;
- Internet content aggregators and other Internet companies that offer
digital greeting cards, such as Amazon.com, America Online, Microsoft and
Yahoo!;
- Internet companies that focus on gifts; and
- media, entertainment and other companies offering electronic greetings.
Many of our current and potential competitors in the Internet market have
significantly greater financial, editorial, technical and marketing resources
than we have. Many of them also have longer operating histories, greater name
recognition, more traffic to their Web sites and more established relationships
with advertisers and advertising agencies than we have. These competitors may be
able to undertake more extensive marketing campaigns, adopt aggressive pricing
policies and devote substantially more resources to developing Internet content
and services than us. In addition, many of our current and potential competitors
are retailers with established brand names and consumer loyalty, and we may be
unable to attract consumers away from these competitors.
GOVERNMENT REGULATION
We are subject to the same federal, state and local laws as other
businesses on the Internet. However, it is currently unclear how our business
may be affected by the application of existing laws governing issues such as
intellectual property, taxes, libel, obscenity and export or import matters,
because the vast majority of these laws were adopted prior to the advent of the
Internet. As a result, these current regulations do not fully contemplate or
address the unique issues of the Internet and related technologies. Changes in
laws intended to address these issues could create uncertainty in the Internet
marketplace which, in turn, could reduce demand for our services or increase the
cost of doing business due to increased litigation or service delivery costs.
Furthermore, due to the increasing popularity and use of the Internet and other
online services, a number of laws and regulations are likely to be adopted with
respect to the Internet or other online
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<PAGE> 51
services. The following are some of the evolving areas of law that are relevant
to our business:
- Privacy Laws. Current and proposed federal, state and foreign privacy
regulations and other laws restricting the collection, use and disclosure
of personal information could limit our ability to use the information in
our databases to generate revenues.
- Content Regulation. Both foreign and domestic governments have adopted
and proposed laws governing the content of material transmitted over the
Internet. These include laws relating to obscenity, indecency, libel and
defamation. We could be liable if content delivered by us or placed on
our Web site violates these regulations.
- Sales and Use Tax. We currently do not collect sales, use or other taxes
on the sale of goods and services through our Web site. As we engage in
increased ecommerce activities, states or foreign jurisdictions may seek
to impose tax collection obligations on us. If they do, these obligations
could limit the growth of electronic commerce in general and limit our
liability to profit from the sale of goods and services over the
Internet.
Because of the rapidly evolving and uncertain Internet regulatory
environment, we cannot predict how these laws and regulations might affect our
business. In addition, these uncertainties make it difficult to ensure
compliance with the laws and regulations governing the Internet. These laws and
regulations could harm us by subjecting us to liability or forcing us to change
how we do business.
Because our services are available over the Internet in multiple states and
foreign countries, other jurisdictions may claim that we are required to qualify
to do business in each such state or foreign country. We currently are qualified
to do business only in California and New York. Our failure to comply with
foreign laws or to qualify as a foreign corporation in a jurisdiction where we
are required to do so could subject us to taxes and penalties for the failure to
qualify and could result in the inability to enforce contracts in these
jurisdictions. Any new legislation or regulation like this, or the application
of laws or regulations from jurisdictions whose laws do not currently apply to
our business, could have a negative effect on our business.
INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our success. We rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary intellectual
property rights in our products and services. We have entered into proprietary
information and invention assignment agreements with our employees and
contractors, and nondisclosure agreements with third parties to whom we disclose
confidential information in order to limit access to and disclosure of our
proprietary information. Despite our efforts in this regard, third parties may
attempt to disclose, obtain or use our proprietary information. In addition,
third parties may infringe or misappropriate our proprietary rights, which could
harm our business. The validity, enforceability and scope of protection of
proprietary rights in Internet-related industries is uncertain and still
evolving.
We have registered the name "E-greetings" as our trademark and service mark
in the United States, and we intend to register this trademark and service mark
internationally. A
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substantial amount of uncertainty exists concerning the application of copyright
and trademark laws to the Internet and other digital media, and existing laws
may not provide adequate protection of trademarks, service marks, our content or
our Internet address, commonly referred to as a "domain name." Furthermore,
effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our services are made available online.
We have licensed in the past, and expect that we may license in the future,
certain of our proprietary rights, such as trademark or copyrighted material, to
third parties. Despite our efforts to ensure that the quality of our brand is
maintained by licensees, our current or future licensees may take actions that
might harm the value of our proprietary rights, brand or reputation, which could
harm our business.
To date, we have not been notified that our trademarks or service marks
infringe the intellectual property rights of third parties, but third parties
may claim infringement by us with respect to past, current or future
intellectual properties. Any claim like this, whether meritorious or not, could
be time consuming, result in costly litigation, cause service upgrade delays or
require us to enter into royalty or licensing agreements. Royalty or licensing
agreements might not be available on terms acceptable to us or at all.
Additionally, enforcing our intellectual property rights could entail
significant expenses and could prove difficult or impossible. As a result, the
defense of infringement claims against us and the costs associated with
enforcing our intellectual property rights could harm our business.
EMPLOYEES
As of September 30, 1999, we had 135 full-time employees. We believe that
our relations with our employees are good. None of our employees is represented
under collective bargaining agreements.
FACILITIES
We currently lease approximately 14,300 square feet of office space in San
Francisco, California pursuant to a lease that expires in October 1999. We have
leased an additional approximately 56,200 square feet of office space in San
Francisco and we currently expect to move our principal offices into these
facilities in October 1999. The lease for this facility expires in August 2009.
We also have sales offices in New York, New York and Los Angeles, California,
and technical facilities in Santa Clara, California. We believe that our
existing facilities are adequate to meet our needs for the foreseeable future
and that future growth can be accommodated by leasing additional or alternative
space near our current facilities.
LEGAL PROCEEDINGS
We are not presently involved in any legal proceedings.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information regarding our directors,
executive officers and other key employees as of September 30, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gordon M. Tucker................... 44 Chief Executive Officer and
Director
Andrew J. Moley.................... 35 Senior Vice President and Chief
Financial Officer
Behrouz Arbab, Ph.D................ 48 Senior Vice President and Chief
Technical Officer
Paul Lipman........................ 30 Senior Vice President, Business
Development
Kenneth W. Wallace................. 57 Senior Vice President, Sales
Sarah S. Anderson.................. 32 Vice President, Marketing
Donald E. Chaney................... 45 Vice President, Engineering
Joseph T. Mangione................. 49 Vice President, Sponsorship Sales
Andrew P. Missan................... 37 General Counsel
Stewart Alsop...................... 47 Director
Charles A. Holloway, Ph.D.(2)...... 63 Director
Brendon S. Kim(1).................. 32 Director
Peter Nieh(2)...................... 33 Director
Frank J. O'Connell................. 56 Director
Lee Rosenberg(1)................... 43 Director
</TABLE>
- -------------------------
(1) Member of compensation committee.
(2) Member of audit committee.
GORDON M. TUCKER -- Gordon Tucker joined Egreetings in February 1999 as our
Chief Executive Officer and as a director. From July 1994 to February 1999, Mr.
Tucker served as Chief Executive Officer and Chairman of the Board of Directors
of IdeaNet Management Company, a "virtual" management company serving
early-stage technology companies with venture capital financial support. In his
capacity as Chief Executive Officer of IdeaNet, from November 1996 to March
1998, Mr. Tucker served as acting Senior Vice President of Excite Studios,
Ecommerce and Communities at Excite, Inc. (now Excite@Home), an Internet media
company. From September 1993 to July 1994, Mr. Tucker was President, Chief
Executive Officer and a director of Micrografx, Inc., a graphics software
company. Earlier in his career, Mr. Tucker served as Brand Manager for The
Procter & Gamble Company, a leading consumer products company, and as Executive
Vice President for LoJack Corporation, a wireless communications company. Mr.
Tucker holds a B.B.A. degree from the University of Michigan School of Business
Administration.
ANDREW J. MOLEY -- Andrew Moley joined Egreetings in July 1999 as our
Senior Vice President and Chief Financial Officer. From July 1995 to July 1999,
Mr. Moley served as the Chief Financial Officer, Executive Vice President and a
director of CMC Industries, an electronic manufacturing services company. From
February 1993 to November 1994, Mr. Moley was the Chief Financial Officer of
Silicon Valley Technology, a contract manufacturing company. Mr. Moley holds a
B.S. degree in Economics from the Wharton
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School of the University of Pennsylvania and an M.B.A. degree from the Stanford
University Graduate School of Business.
BEHROUZ ARBAB, PH.D. -- Behrouz Arbab joined Egreetings in June 1999 as our
Senior Vice President and Chief Technology Officer. From May 1997 to June 1999,
Dr. Arbab served as the Vice President of Engineering at Semio Corporation, an
Internet software company. From September 1996 to May 1997, Dr. Arbab was the
Director of Server Technologies at Cisco Systems, Inc., an Internet networking
company. From January 1994 to September 1996, Dr. Arbab served as Senior
Director at Oracle Corporation, a software and information management company.
Dr. Arbab has also held management positions at Computer Power Software Group,
Database Consulting Associates and Harwell Computer Power. Dr. Arbab holds a
B.S. degree from Arya-Mehr University of Technology and a Ph.D. degree in
Computer Science from the University of Wales.
PAUL LIPMAN -- Paul Lipman joined Egreetings as our Vice President of
Business Development in June 1996, and is currently serving as our Senior Vice
President of Business Development. From September 1990 to July 1994, Mr. Lipman
was a systems analyst for Andersen Consulting, a management and technology
consulting firm, in Europe, where he designed and built trading systems and
advised financial institutions on the use and implementation of information
technology. Mr. Lipman holds a B.S. degree in Theoretical Physics from Victoria
University of Manchester, England and an M.B.A. degree from the Stanford
University Graduate School of Business.
KENNETH W. WALLACE -- Kenneth Wallace joined Egreetings in June 1999 as our
Senior Vice President of Sales. From May 1993 to June 1999, Mr. Wallace served
as Vice President and Group Publisher for Rodale Press, a magazine publishing
company. From December 1987 to March 1993, Mr. Wallace was the Vice President of
Advertising at Parade Magazine, a magazine publishing company. Mr. Wallace holds
a B.B.A. degree from St. Johns University.
SARAH S. ANDERSON -- Sarah Anderson joined Egreetings in June 1999 as our
Vice President of Marketing. From February 1997 to June 1999, Ms. Anderson was
the Vice President and General Manager of SegaSoft Inc., an interactive game
software company. From January 1996 to January 1997, Ms. Anderson was the
Director of Strategic Planning of RDA International, a multimedia group and
advertising agency. From January 1993 to December 1995, Ms. Anderson was the
Brand Manager of Sega of America, an interactive digital entertainment media
company. Ms. Anderson holds an M.B.A. degree in Marketing from the McLaren
School of Business of the University of San Francisco and a B.F.A. degree in
Graphic Design from Paier College of Art.
DONALD E. CHANEY -- Donald Chaney joined Egreetings in August 1998 as our
Vice President of Engineering. From May 1991 to August 1998, Mr. Chaney served
as a Manager, Director, and Senior Director of Applications Infrastructure and
Tools at DHL Airways, Inc., a shipping company. Mr. Chaney holds a B.S. degree
from Virginia Polytechnic Institute and State University and an M.S. degree in
Electrical Engineering from Santa Clara University.
JOSEPH T. MANGIONE -- Joseph Mangione joined Egreetings in July 1999 as our
Vice President, Sponsorship Sales. From 1993 to 1999, Mr. Mangione served as the
publisher of Integrated Marketing for Meredith Corporation, a diversified media
company involved in magazine and book publishing, television broadcasting and
integrated marketing programs. From 1991 to 1993, Mr. Mangione founded and
worked at Andrea Communications, a
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licensing firm. From 1986 to 1991, Mr. Mangione served as Vice President and
General Manager at Billboard Entertainment Marketing, an entertainment company.
From 1979 to 1985, Mr. Mangione served as Vice President of Promotion at Playboy
Enterprises, Inc., a publishing and media company. Mr. Mangione holds an M.B.A.
degree from Wagner College.
ANDREW P. MISSAN -- Andrew Missan joined Egreetings as our General Counsel
in June 1999. From August 1998 to June 1999, Mr. Missan served as Corporate
Counsel to WebTV Networks, Inc., an Internet entertainment company. From August
1997 to July 1998, Mr. Missan was the Senior Business Counsel at Seagate
Software, Inc., an information technology company. From June 1994 to July 1997,
Mr. Missan served in the Business and Legal Affairs Department at The RCA
Records Label, a unit of BMG Entertainment, an entertainment company, most
recently as Senior Director. From June 1991 to June 1994, Mr. Missan served as
Counsel, Law Department, of Sony Music Entertainment Inc., an entertainment
company. He holds a B.A. degree from Oberlin College and a J.D. degree from the
Northwestern University School of Law.
STEWART ALSOP -- Stewart Alsop has served as a director of Egreetings since
March 1999. Mr. Alsop has been a general partner of New Enterprise Associates, a
venture capital investment firm since 1998 and was a Venture Partner at New
Enterprise Associates from 1996 to 1998. From June 1991 to 1996, Mr. Alsop
served as Senior Vice President and Editor-in-Chief of InfoWorld Media Group,
Inc., which publishes InfoWorld, a weekly newspaper for information technology
professionals. Mr. Alsop also serves on the board of directors of Macromedia,
Inc., a publicly held Internet software company, Be Incorporated, a publicly
held operating systems software company, TiVo Inc., a privately held personal
television service company, and Netcentives, Inc., a privately held Internet
promotions and customer loyalty vendor. Mr. Alsop holds a B.A. degree in English
from Occidental College.
CHARLES A. HOLLOWAY, PH.D. -- Charles Holloway has served as a director of
Egreetings since October 1995. Dr. Holloway holds the Kleiner, Perkins, Caufield
& Byers Professorship in Management at the Stanford Graduate School of Business
and has been a faculty member of the Stanford Graduate School of Business since
1968. Dr. Holloway is also currently co-director of the Stanford Center for
Entrepreneurial Studies at the Graduate School of Business. Dr. Holloway was the
founding co-chair of the Stanford Integrated Manufacturing Association, a
cooperative effort between the Graduate School of Business and the School of
Engineering, which focuses on research and curriculum development in
manufacturing and technology. Dr. Holloway serves on the board of Kana
Communications, Inc., a publicly held communications software company, and
several private companies. Dr. Holloway holds a B.S. degree in Electrical
Engineering from the University of California at Berkeley and an M.S. degree in
Nuclear Engineering and Ph.D. in Business Administration from the University of
California, Los Angeles.
BRENDON S. KIM -- Brendon Kim has served as a director of Egreetings since
April 1996. Mr. Kim has been a general partner of Altos Ventures, a venture
capital investment firm since January 1996. From September 1994 to June 1996,
Mr. Kim worked at CSC Index, a consulting company, where he was an associate.
Mr. Kim also serves on the board of directors of several private companies,
including Branders.com, Blue Dot Software and Hearing Science. Mr. Kim also
serves on the board of directors of the Korean American Society of
Entrepreneurs, a not-for-profit organization to promote entrepreneurship. Mr.
Kim holds an A.B. degree from Princeton University and an M.B.A. degree from the
Stanford University Graduate School of Business.
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PETER NIEH -- Peter Nieh has served as a director of Egreetings since March
1999. Mr. Nieh has been a general partner of Weiss, Peck & Greer L.P., a
technology-focused venture capital investment firm since October 1995. From 1992
to 1995, Mr. Nieh held product marketing and business development roles at
General Magic, Inc., a communications software company. From 1990 to 1991, Mr.
Nieh managed the portable PC business in North America for Acer, Inc., a
personal computer manufacturer. Mr. Nieh is a director of several private
companies. Mr. Nieh holds a B.S. degree in Electrical Engineering and an A.B.
degree in Economics from Stanford University and an M.B.A. degree from the
Stanford University Graduate School of Business.
FRANK J. O'CONNELL -- Frank J. O'Connell has served as a director of
Egreetings since December 1997. Mr. O'Connell has served as President, Chief
Executive Officer and a director of Gibson Greetings, Inc., a greeting card
company, since August 1996, and has served as Chairman of the Board of Directors
of Gibson since April 1997. From May 1995 to August 1996, Mr. O'Connell was a
business consultant. From July 1991 to May 1995, he served as the President and
Chief Executive Officer of Skybox International, Inc., a trading card
manufacturer. Prior to joining Skybox International, Mr. O'Connell was a venture
capital consultant from February 1990 to July 1991 and served as President of
Reebok Brands, North America from 1988 to 1990. Mr. O'Connell is a director of
Moto Guzzi Corporation, a publicly traded manufacturer of motorcycles and
motorcycle parts.
LEE ROSENBERG -- Lee Rosenberg has served as a director of Egreetings since
November 1995. Mr. Rosenberg has been a general partner of Kettle Partners,
L.P., an Internet and technology-focused venture capital investment firm since
March 1998. Mr. Rosenberg also currently serves on the board of directors of
several private companies, including Ignite Sports Media, LLC, an Internet
sports media company, and ActiveUSA, a global registration site for active
sports communities. Over the past 15 years, Mr. Rosenberg has been President of
Rosenberg Capital and general partner of Rosy Partnership, entities involved in
a broad spectrum of venture capital and real estate investments. Previously, Mr.
Rosenberg served as a director of GRP Records. Mr. Rosenberg is a C.P.A. and
holds a B.B.A. degree from the University of Michigan School of Business
Administration.
BOARD COMPOSITION
Upon the completion of this offering, Egreetings will have authorized seven
directors. In accordance with the terms of our certificate of incorporation and
our bylaws, each of which will become effective upon the completion of this
offering, the board of directors will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. Upon
the completion of this offering, the members of the classes will be divided as
follows:
- Class I: Messrs. Alsop and O'Connell and Dr. Holloway
- Class II: Messrs. Kim and Nieh
- Class III: Messrs. Rosenberg and Tucker
The Class I directors, other than Mr. O'Connell, will stand for re-election
or election at the 2000 annual meeting of stockholders. The Class II directors
will stand for re-election or election at the 2001 annual meeting of
stockholders and the Class III directors will stand for re-election or election
at the 2002 annual meeting of stockholders. At each annual meeting of
stockholders after the initial classification, the successors to
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<PAGE> 57
directors whose terms will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following the election
or special meeting held in lieu thereof.
Our certificate of incorporation, which will become effective upon
completion of this offering, provides that the authorized number of directors
may be changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed between the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in the control
or management of Egreetings. Notwithstanding the foregoing, so long as
Egreetings is subject to Section 2115 of the California General Corporation Law,
all directors shall be designated of the same class, and such directors shall be
elected by cumulative voting if any stockholder requests cumulative voting.
Directors of Egreetings may be removed for cause by the affirmative vote of
the holders of a majority of our voting stock and such directors may be removed
without cause by the affirmative vote of the holders of at least two-thirds of
our voting stock. Notwithstanding the foregoing, so long as Egreetings is
subject to Section 2115 of the California General Corporation Law, unless every
director is removed, no single director may be removed without cause when the
votes cast against such director's removal would be sufficient to elect that
director if voted cumulatively.
See "Description of Capital Stock -- Section 2115" for additional
information relating to the effect of Section 2115 on Egreetings.
BOARD COMMITTEES
The audit committee of the board of directors consists of Mr. Nieh and Dr.
Holloway. The audit committee reviews our financial statements and accounting
practices, makes recommendations to the board of directors regarding the
selection of independent auditors and reviews the results and scope of the audit
and other services provided by our independent auditors.
The compensation committee of the board of directors consists of Messrs.
Kim and Rosenberg. The compensation committee makes recommendations to the board
of directors concerning salaries and incentive compensation for our officers and
employees and administers our employee benefit plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the compensation committee of the board of directors
is an officer or employee of Egreetings. None of our executive officers serves
as a member of the board of directors or compensation committee of any entity
that has one or more executive officers serving on our board of directors or
compensation committee.
DIRECTOR COMPENSATION
Our directors receive no cash compensation for their services as directors
but are reimbursed for their reasonable expenses in attending board meetings.
All directors are eligible to participate in our 1996 Stock Option Plan, 1999
Equity Incentive Plan, employee directors will be eligible to participate in our
1999 Employee Stock Purchase
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Plan and non-employee directors will be eligible to participate in our 1999
Non-Employee Directors' Stock Option Plan. See "-- Employee Benefit Plans" for
additional information relating to these plans.
In June 1998, director Charles Holloway was granted options to purchase
15,000 shares of common stock at a price of $0.42 per share and director Lee
Rosenberg was granted options to purchase 27,000 shares of common stock at a
price of $0.42 per share.
EXECUTIVE COMPENSATION
The following table shows compensation earned during fiscal year 1998 by
Egreetings' Chief Executive Officer and our other three executive officers who
earned more than $100,000 in 1998. These people are referred to as the named
executive officers. Titles shown in the table are titles held as of December 31,
1998. As of September 15, 1999, none of Messrs. Campbell, Levitan or Katin was
serving as an employee of Egreetings. The information in the table includes
salaries, bonuses, stock options granted and other miscellaneous compensation.
We have not granted stock appreciation rights or restricted stock awards and
provide no long-term compensation benefits other than stock options.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM AND
ANNUAL COMPENSATION OTHER COMPENSATION
FOR FISCAL YEAR 1998 ----------------------
----------------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- ---------- --------- ----------------------
<S> <C> <C> <C>
Fredrick L. Campbell
Chief Executive Officer(2)........ 120,000 9,000 --
Anthony Levitan
President(3)...................... 120,000 9,000 --
Neil Katin
Chief Technical Officer(4)........ 120,000 9,000 --
Paul Lipman
Senior Vice President, Business
Development.................... 120,000 -- 9,549
</TABLE>
- -------------------------
(1) In accordance with the rules of the Commission, the compensation described
in this table does not include medical, group life insurance or other
benefits received by the named executive officers that are available
generally to all our salaried employees and certain perquisites and other
personal benefits received by the named executive officers, which do not
exceed the lesser of $50,000 or 10% of any such officer's salary and bonus
disclosed in this table.
(2) Mr. Campbell left his position as our Chief Executive Officer in February
1999. Gordon M. Tucker has been our Chief Executive Officer since then. See
"Management -- Employment and Severance Arrangements" for information
regarding Mr. Tucker's salary, stock option and other compensation
arrangements.
(3) Mr. Levitan left his position as our President in February 1999.
(4) Mr. Katin left his position as our Chief Technical Officer in June 1999.
Behrouz Arbab has been our Senior Vice President and Chief Technical Officer
since then.
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OPTION GRANTS DURING 1998
The following table sets forth each grant of stock options granted during
1998 to each of the named executive officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENTAGE OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS EXERCISE STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM(4)
OPTIONS EMPLOYEES PER EXPIRATION ----------------------------
NAME GRANTED(1) DURING 1998(2) SHARE(3) DATE 5% 10%
---- ---------- -------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Fredrick L.
Campbell............ -- -- -- -- -- --
Anthony Levitan....... -- -- -- -- -- --
Neil Katin............ -- -- -- -- -- --
Paul Lipman........... 22,500 2.9% $0.42 7/16/08
</TABLE>
- -------------------------
(1) The option granted in 1998 to Paul Lipman was granted under our 1996 Stock
Option Plan. The option grant to Mr. Lipman is exercisable only as to the
vested portion of non-qualified options, to the extent permissible under
applicable IRS regulations.
(2) Based on an aggregate of 767,250 shares subject to options granted to our
employees in 1998, including named executive officers.
(3) The exercise price per share of each option granted was equal to the fair
market value of the common stock as determined by the board of directors on
the date of the grant. In determining the fair market value of the stock
granted on the grant date, our board considered, among other things, our
absolute and relative levels of revenues and other operating results and the
state of our strategic relationships.
(4) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by an assumed initial
public offering price of $ per share, (b) assuming that the aggregate
stock value derived from that calculation compounds at the annual 5% or 10%
rate shown in the table for the entire ten-year term of the option and (c)
subtracting from that result the aggregate option exercise price. The 5% and
10% assumed annual rates of stock price appreciation are mandated by the
rules of the Commission and do not represent Egreetings' estimate or
projection of future common stock prices.
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<PAGE> 60
AGGREGATE OPTION EXERCISES IN 1998 AND YEAR-END VALUES AT DECEMBER 31, 1998
The following table sets forth the number of shares of common stock
acquired and the value realized upon exercise of stock options during 1998 and
the number of shares of common stock subject to exercisable and unexercisable
stock options held as of December 31, 1998 by each of the named executive
officers. Value at fiscal year end is measured as the difference between the
exercise price and the fair market value on December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER OF UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fredrick L.
Campbell........... -- -- -- -- -- --
Anthony Levitan...... -- -- -- -- -- --
Neil Katin........... -- -- 107,999 94,501
Paul Lipman.......... -- -- 63,069 65,931
</TABLE>
- -------------------------
(1) Value of unexercised in-the-money options are based on a value of
$ per share, the initial public offering price minus the per share
exercise price, multiplied by the number of shares underlying the option.
EMPLOYEE BENEFIT PLANS
1996 Stock Option Plan
General. In January 1996, our board adopted and our stockholders approved
our 1996 Stock Option Plan. All options granted to our employees, independent
contractors, advisors, consultants and directors have been granted pursuant to
the stock option plan in accordance with the terms set forth below.
The stock option plan provides for the grant of:
- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, to our employees (including our officers); and
- nonstatutory stock options to employees, directors, independent
contractors, advisors and consultants.
Administration. The stock option plan is administered by our board of
directors, which, among other things, selects eligible participants to whom
options may be granted, determines the exercise price of the options, determines
the vesting schedule of the options and establishes the period of time during
which an optionee may exercise his or her option after the optionee no longer
provides services to Egreetings. The board may delegate the authority to
administer the stock option plan to a committee.
Option Grants. The exercise price for an incentive stock option cannot be
less than 100% of the fair market value of the common stock on the date of
grant. The exercise price for a nonstatutory stock option cannot be less than
85% of the fair market value of the common stock on the date of grant.
Generally, the optionee may not transfer a stock option other than by will or
the laws of descent or distribution unless the optionee holds a nonstatutory
stock option that provides otherwise. However, an optionee may designate a
beneficiary who may exercise the option following the optionee's death. An
optionee whose service relationship with us ceases for any reason may exercise
vested options for the term
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<PAGE> 61
provided in the option agreement. The terms of stock options granted under the
stock option plan generally may not exceed 10 years.
No incentive stock options may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Egreetings or any of its affiliates unless the
following conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of the incentive stock option award may not exceed five years
from the date of grant.
Vesting Schedule. Unless the optionee's stock option agreement otherwise
specifies, options granted under the stock option plan vest according to the
following schedule: 2.22% of the option vests per month after the six month
anniversary of the vesting commencement date, except that on the one year
anniversary of the vesting commencement date an additional 6.67% will vest, such
that a total of 20% of the option will be vested on the first anniversary of the
vesting commencement date and the option vests in full on the fourth anniversary
of the commencement date.
Right of First Refusal. We have a right of repurchase and first refusal
with respect to shares issued upon exercise of options granted under the stock
option plan.
Lock-Up Agreement. All shares of common stock issued under the stock option
plan are subject to a lock-up of 180 days after the completion of this offering
upon the request of the underwriters.
Change of Control. In the event of a change of control of Egreetings, our
board may, in its sole discretion, take any of the following actions with
respect to options outstanding as of the consummation of the change of control:
- cancel all such options effective as of the consummation of the change of
control and notify each optionee of the change of control reasonably
prior to its consummation so that the optionee may exercise any vested
options;
- require the acquiring company to assume the outstanding options or
substitute them with comparable options; or
- repurchase the outstanding options at a price per share equal to the fair
market value of the shares based on the board's good faith estimate of
the valuation of Egreetings implied by the total amount to be paid in
connection with the change of control.
As of September 30, 1999, options to purchase a total of shares of
our common stock were outstanding and shares remained available for
grant.
1999 Equity Incentive Plan
General. In September 1999, the Board adopted, subject to stockholder
approval, the 1999 Equity Incentive Plan.
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<PAGE> 62
Types of Grants and Eligibility.
This plan provides for the grant of:
- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, to employees (including officers);
- nonstatutory stock options to employees, directors and consultants;
- restricted stock purchase awards to employees, directors and consultants;
and
- stock bonuses to employees, directors and consultants.
Administration. The stock option plan is administered by the board of
directors, which determines recipients and types of options, stock bonus awards
and restricted stock awards to be granted, including the exercise price, number
of shares subject to the grant and the exercisability thereof. The board of
directors may delegate authority to administer the stock option plan to a
committee.
Option Grants. The board of directors determines the exercise price of
options granted under the stock option plan. The exercise price for an incentive
stock option cannot be less than 100% of the fair market value of the common
stock on the date of grant. The exercise price for a nonstatutory stock option
cannot be less than 85% of the fair market value of the common stock on the date
of grant. Options granted under the stock option plan vest at the rate specified
in the option agreement signed by and between us and each optionee. Generally,
the optionee may not transfer a stock option other than by will or the laws of
descent or distribution unless the optionee holds a nonstatutory stock option
that provides otherwise. However, an optionee may designate a beneficiary who
may exercise the option following the optionee's death. An optionee whose
service relationship with us or any affiliate of ours ceases for any reason may
exercise vested options for the term provided in the optionee's option
agreement. The terms of stock options granted under the stock option plan
generally may not exceed 10 years.
No stock option may be granted to any person who, at the time of the grant,
owns (or is deemed to own) stock possessing more than 10% of the total combined
voting power of Egreetings or any of parent or subsidiary of Egreetings unless
the following conditions are satisfied:
- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and
- the term of the incentive stock option award may not exceed five years
from the date of grant.
When we become subject to Section 162(m) of the Internal Revenue Code of
1986 (which denies a deduction to publicly held corporations for certain
compensation paid to specified employees in a taxable year to the extent that
the compensation exceeds $1,000,000), no person may be granted options under the
stock option plan covering more than shares of common stock in
any calendar year. Shares subject to stock options that have expired or
otherwise terminated without having been exercised in full again become
available for the grant of awards under the stock option plan. Under its general
authority to grant options, the board of directors has the implicit authority to
reprice outstanding options or to offer optionees the opportunity to replace
outstanding
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<PAGE> 63
options with new options for the same or a different number of shares. Both the
original and new options will count toward the Section 162(m) limitation.
Options granted under the stock option plan generally expire three months
after the termination of the optionee's service to Egreetings or a parent or
subsidiary of Egreetings, except in the case of death or disability, in which
case the options generally may be exercised up to 18 months following the date
of death or up to 12 months following a termination due to the optionee's
disability.
Stock Bonus Awards. The board may grant stock bonus awards for past
services rendered to Egreetings or a parent or subsidiary of Egreetings. In the
event the grantee's service to Egreetings or a parent or subsidiary of
Egreetings terminates, we may reacquire any or all of the unvested shares of
common stock held by the grantee on that date.
Restricted Stock Awards. The purchase price for each restricted stock award
granted must be at least 85% of the fair market value of the stock subject to
the option on the date of the award or at the time the purchase is consummated.
Transferability. Rights to acquire shares under a stock bonus or restricted
stock bonus agreement may not be transferred other than by will or by the laws
of descent and distribution and are exercisable during the life of the optionee
only by the optionee. Certain restricted stock awards made following the
completion of this offering may be otherwise transferable if the stock bonus
agreement so provides.
Changes in Control. In the event of the transfer of all or substantially
all of our assets or our acquisition by another company, all outstanding stock
awards under the stock option plan may either be assumed or substituted for with
similar stock awards by the acquiring company. If the acquiring company
determines not to assume or substitute for those outstanding awards, the vesting
provisions of the awards will be accelerated and exercisable in full and the
stock awards will be terminated upon the sale of assets or acquisition of
Egreetings if not previously exercised.
1999 Non-Employee Directors' Stock Option Plan
General. In September 1999, the board adopted, subject to stockholder
approval, the 1999 Non-Employee Directors' Stock Option Plan to provide for the
automatic grant of options to purchase shares of common stock to our
non-employee directors. The aggregate number of shares of Common Stock that may
be issued pursuant to options granted under the directors' plan is
shares.
Administration. The board will administer the directors' plan and may not
delegate administration to a committee.
Option Terms. Options granted under the directors' plan are generally
subject to the following terms:
- the exercise price of the options granted will be equal to the fair
market value of the common stock on the date of grant;
- no option granted under the directors' plan may be exercised after the
expiration of ten years from the date it was granted;
- options granted are not transferable other than by will or by the laws of
descent and distribution and are exercisable during the life of the
optionee only by the optionee;
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<PAGE> 64
- an optionee may designate a beneficiary who may exercise the option
following the optionee's death;
- an optionee whose service relationship with Egreetings or any parent or
subsidiary of Egreetings, whether as a non-employee director of
Egreetings or, subsequently, as an employee, director or consultant of
either Egreetings or parent or subsidiary of Egreetings, terminates for
any reason other than death or disability may exercise vested options for
three months after the termination; and
- similarly, an optionee whose service relationship with Egreetings or any
parent or subsidiary of Egreetings terminates because of the optionee's
death or disability, then the optionee or the optionee's beneficiary may
exercise the vested options for 12 months after the termination, in the
case of a disability, and 18 months after the termination, in the case of
death.
Automatic Grants. Upon the completion of this offering, each non-employee
director will automatically be granted an option to purchase
shares of common stock. Any individual who becomes a non-employee director after
this offering will automatically receive this initial grant upon being elected
to the board of directors. Any person who is a non-employee director on the day
following each annual meeting of Egreetings stockholders will be granted an
additional option to purchase shares of common stock on that day.
Any director who has not served as a non-employee director for the entire period
since the preceding annual meeting of stockholders will have his or her
automatic additional grant for that year reduced pro rata for each full quarter
prior to the date of grant during which such person did not serve as a
non-employee director.
Vesting. Initial option grants to non-employee directors will vest at a
rate of 1/5 of the shares 12 months after the date of grant and 1/60 of the
shares each month thereafter. Annual grants will vest at a rate of 1/12 per
month after the date of the grant.
1999 Employee Stock Purchase Plan
General. In September 1999, the Board adopted, subject to stockholder
approval, the 1999 Employee Stock Purchase Plan, authorizing the issuance of
shares of common stock pursuant to purchase rights granted to our
employees or to employees of any parent or subsidiary of Egreetings. The
purchase plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Code. As of the date hereof, no shares of
common stock have been purchased under the purchase plan.
Administration. The purchase plan shall be administered by the board of
directors unless and until it delegates administration to a committee. The
administrator will generally have the power to determine when and how rights to
purchase shares of common stock will be granted and the provisions of each
offering of rights, as well as the power to construe and interpret the purchase
plan.
Offering Terms. The purchase plan provides a means by which our employees
may purchase common stock through payroll deductions. The purchase plan is
implemented by offerings of rights to eligible employees. Generally, all regular
employees, including executive officers, who are employed by Egreetings or by a
parent or subsidiary of Egreetings for a required period of time that may not
exceed two years may participate in the purchase plan and may authorize payroll
deductions of up to 15% of their base compensation for the purchase of stock
under the purchase plan. Under the plan, we may
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<PAGE> 65
specify offerings with a duration of not more than 27 months, and may specify
shorter purchase periods within each offering. The first offering will begin on
the effective date of this offering and be approximately months in duration
with purchases occurring every months. Unless otherwise determined by the
plan administrator, common stock is purchased for accounts of employees
participating in the purchase plan at a price per share equal to the lower of:
- 85% of the fair market value of a share of common stock on the date of
commencement of participation in the offering; or
- 85% of the fair market value of a share of common stock on the date of
purchase.
Limitations. Eligible employees may be granted rights only if the rights
together with any other rights granted under employee stock purchase plans, do
not permit such employee's rights to purchase stock of Egreetings to accrue at a
rate which exceeds $25,000 of the fair market value of such stock for each
calendar year in which such rights are outstanding. In addition, an employee may
purchase no more than shares during any one offering. No employee
shall be eligible for the grant of any rights under the purchase plan if
immediately after such rights are granted, such employee has voting power over
5% or more of Egreetings' outstanding capital stock (measured by vote or value).
401(k) Plan
We sponsor the Egreetings Network 401(k) Plan, a defined contribution plan
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended. All employees are eligible to participate and may enter the 401(k) Plan
as of the first day of any month. Participants may make pre-tax contributions to
the 401(k) Plan of up to 15% of their eligible earnings, subject to a
statutorily prescribed annual limit. Egreetings does not make matching
contributions. Each participant's contributions, and the corresponding
investment earnings, are subject to a six-year graded vesting schedule and are
generally not taxable to the participants until withdrawn. Participant
contributions are held in trust as required by law. Individual participants may
direct the trustee to invest their accounts in authorized investment
alternatives.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
Gordon M. Tucker Employment Agreement
In February 1999, we entered into an employment agreement with Gordon M.
Tucker, our Chief Executive Officer and a director, under which Mr. Tucker is
compensated at a rate of $225,000 per year, paid on a semi-monthly basis. The
agreement also provides that Mr. Tucker's employment with us will last until the
earliest date on which any of the following events may occur:
- his death or resignation from Egreetings;
- his termination by us for cause;
- his termination by us without cause; or
- his termination due to a failure to maintain his employment conditions.
Pursuant to the employment agreement, Mr. Tucker received a non-qualified
stock option grant for the purchase of 3,401,344 shares of our common stock at
an exercise price of $1.40 per share. The option vests at a rate of 1/8 of the
total amount on the six month anniversary of the grant and 1/48 of the total
amount each month thereafter, for a total
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vesting period of four years. The employment agreement provides that, if Mr.
Tucker is terminated other than for cause, then the stock options for the month
in progress and for the twelve months thereafter shall immediately vest and
shall be exercisable for three years after his termination. In addition, Mr.
Tucker's employment agreement provides that, if Mr. Tucker is terminated other
than for cause or he terminates his employment agreement due to a failure to
maintain employment conditions and within 180 days of his termination a change
of control is announced or occurs, then all his unvested stock options will
immediately vest and will be exercisable for three years after Mr. Tucker's
termination.
If there is a change of control while Mr. Tucker is still employed by us,
the first three years of Mr. Tucker's option will accelerate, will be fully
vested and will be exercisable for three years after termination of Mr. Tucker's
employment with us. If, after a change of control, Mr. Tucker remains employed
as Chief Executive Officer and is actually or constructively terminated within
one year of the change of control or, within that period, he terminates his
employment with us, then all of his remaining unvested shares will vest fully
and will be exercisable for three years from the date of his termination.
The employment agreement also provides for an annual bonus, the target of
which is 50% of Mr. Tucker's base salary. Based on a proration for 1999, the
target bonus for Mr. Tucker is $99,554.79. We also paid Mr. Tucker a transition
allowance of $75,000 so that Mr. Tucker could be reimbursed for, or paid for the
reasonable costs and expenses of relocating from the Dallas, Texas metropolitan
area to San Francisco, California. To the extent the transition allowance was
not spent, Mr. Tucker has been paid the balance. All amounts paid under the
transition allowance will be credited against any amounts otherwise payable to
Mr. Tucker as part of his bonus for 1999. In the event Mr. Tucker is terminated
other than for cause, he is entitled to receive from us an amount equal to 12
months of his base salary and benefits.
Fredrick L. Campbell Employment and Consulting Agreement
In May 1999, we entered into an employment and consulting agreement with
Fredrick Campbell, our former Chief Executive Officer and Chief Financial
Officer. Pursuant to the agreement, Mr. Campbell agreed to serve as our Chief
Financial Officer until we hired a new Chief Financial Officer, which we did in
July 1999 when we hired Andrew J. Moley to fill that position. In addition, Mr.
Campbell agreed to provide consulting services to us until August 2000. For his
services as our Chief Financial Officer, Mr. Campbell received an annual base
salary of $175,000. For his services as a consultant, Mr. Campbell received a
one-time payment of $250,000.
Severance Arrangements for Senior Executives
In June 1999, the Egreetings board approved "double-trigger" change of
control acceleration for options granted to employees at the senior director
level and above, such as Andrew J. Moley, Behrouz Arbab, Paul Lipman, Kenneth W.
Wallace, Sarah S. Anderson, Joseph T. Margione, Allen Chin, Scott Neamand and
Andrew P. Missan. This acceleration would occur in the event that, after the
acquisition of Egreetings, any such employee is actually or constructively
terminated by the acquiring company. Upon such a termination, a senior vice
president's option would accelerate by one year, a vice president's option would
accelerate by nine months and a senior director's option would accelerate by six
months. In addition, the board resolved that, upon such a termination, a senior
vice president would receive a cash severance payment equal to six months of
such
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officer's base salary, a vice president would receive a cash severance payment
equal to three months of such officer's base salary and a senior director would
receive a cash severance payment equal to three months of such employee's base
salary.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation, which will become effective upon the
completion of this offering, includes a provision that eliminates the personal
liability of our directors for monetary damages resulting from breach of
fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; and
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our bylaws, which will become effective upon the completion of this
offering, provide that:
- we must indemnify our directors and executive officers to the fullest
extent permitted by Delaware law, subject to very limited exception;
- we may indemnify our other employees and agents to the same extent that
we indemnify our directors and executive officers, unless otherwise
required by law, our certificate of incorporation, bylaws or agreements;
and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and executive
officers to give them additional contractual assurances regarding the scope of
the indemnification provided in our certificate of incorporation and bylaws and
to provide additional procedural protections. Currently, there is no pending
litigation or proceeding involving any of our directors, executive officers or
employees for which indemnification is sought, nor are we aware of any
threatened litigation that may result in claims for indemnification.
We plan to obtain directors' and officers' liability insurance prior to the
effectiveness of this offering.
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CERTAIN TRANSACTIONS
Other than the employment agreements described in "Management -- Employment
and Severance Arrangements," and the transactions described below, since January
1996 there has not been nor is there currently proposed any transaction or
series of similar transactions to which we were or will be a party:
- in which the amount involved exceeded or will exceed $60,000; and
- in which any director, executive officer, holder of more than 5% or our
common stock or any member of their immediate family had or will have a
direct or indirect material interest.
PREFERRED STOCK FINANCINGS
In May 1996, we issued and sold an aggregate of 450,000 shares of Series B
preferred stock, each of which is presently convertible into three shares of
common stock, at a purchase price of $2.00 per share, including shares of Series
B preferred stock issued upon the conversion of convertible promissory notes
having an aggregate principal amount of $150,000 that were issued by us from
April to May 1995.
From December 1996 to October 1997, we issued and sold an aggregate of
702,763 shares of Series C preferred stock, each of which is presently
convertible into three shares of common stock, at an exercise price of $4.00 per
share, including shares of Series C preferred stock issued upon the conversion
of convertible promissory notes having an aggregate principal amount of $900,000
that were issued from October to November 1996.
From December 1997 to July 1998, we issued and sold an aggregate of 850,783
shares of Series D preferred stock, each of which is presently convertible into
three shares of common stock, at a purchase price of $6.39 per share.
From March to April 1999, we issued and sold an aggregate of 3,726,493
shares of Series F preferred stock, each of which is presently convertible into
three shares of common stock, at an exercise price of $7.00 per share, including
shares of Series F preferred stock issued upon conversion of convertible
promissory notes having an aggregate principal amount of $3,100,000 that were
issued from November 1998 to March 1999.
In October 1999, we issued and sold an aggregate of 5,846,546 shares of
Series G preferred stock, each of which is presently convertible into one share
of common stock, at a purchase price of $4.04 per share.
Purchasers of our preferred stock include, among others, the following
directors, holders of more than 5% of our outstanding stock and a trust of which
the father of one of our executive officers is the sole trustee. All of the
share numbers in the following table reflect the conversion of each outstanding
share of the Series A preferred stock, Series B preferred stock, Series C
preferred stock, Series D preferred stock and Series F preferred
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stock into three shares of common stock, and the Series G preferred stock into
one share of common stock.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
SERIES B SERIES C SERIES D SERIES F SERIES G
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
INVESTOR STOCK STOCK STOCK STOCK STOCK
-------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Lee Rosenberg(1).......................... 70,374 46,899 -- 289,287 144,307
Neil Katin................................ -- -- -- --
Entities affiliated with Altos
Ventures(2)............................. 873,261 945,621 -- 728,571 618,811
Gibson Greetings, Inc.(3)................. -- -- 2,799,492 1,752,000 618,340
New Enterprises Associates(4)............. -- -- -- 2,100,000 396,039
Vulcan Ventures, Inc...................... -- -- -- 1,671,429 217,326
Entities affiliated with Weiss, Peck &
Greer Venture Partners(5)............... -- -- -- 2,957,142 523,066
Richard M. Moley Annuity Trust U/A dated
May 12, 1998(6)......................... 250,000
</TABLE>
- -------------------------
(1) Includes 214,287 shares of Series F preferred stock and 123,762 shares of
Series G preferred stock held by Kettle Partners, L.P. for which Mr.
Rosenberg, a director of Egreetings, serves as a principal.
(2) Consists of 17,142 shares of Series F preferred stock held by Altos Partners
I and 873,261 shares of Series B preferred stock, 945,621 shares of Series C
preferred stock, 711,429 shares of Series F preferred stock, and 618,811
shares of Series G preferred stock held by Altos Ventures II, L.P. Brendon
Kim, a director of Egreetings, is affiliated with the Altos entities.
(3) Frank O'Connell, a director of Egreetings, is the Chairman of the Board,
President and Chief Executive Officer of Gibson Greetings, Inc.
(4) Stewart Alsop, a director of Egreetings, is affiliated with New Enterprise
Associates.
(5) Consists of 1,478,541 shares of Series F preferred stock and 223,364 shares
of Series G preferred stock held by Weiss, Peck & Greer Venture Associates
V, L.L.C., 634,011 shares of Series F preferred stock and 116,434 shares of
Series G preferred stock held by WPG Enterprise Fund III, L.L.C., 725,091
shares of Series F preferred stock and 133,160 shares of Series G preferred
stock held by Weiss, Peck & Greer Venture Associates, IV, L.L.C., 28,092
shares of Series F preferred stock and 5,159 shares of Series G preferred
stock held by WPG Information Sciences Entrepreneur Fund, L.P., 91,407
shares of Series F preferred stock and 16,780 shares of Series G preferred
stock held by Weiss, Peck & Greer Venture Associates IV Cayman, L.P.,
1,202,646 shares of Series F preferred stock and 1,900 shares of Series G
preferred stock held by WPG Venture Associates V-A, L.L.C., and 263,475
shares of Series F preferred stock and 46,269 shares of Series G preferred
stock held by WPG Venture Associates V, Cayman L.P. Peter Nieh, a director
of Egreetings, is a general partner of Weiss, Peck & Greer Venture Partners
and a member or a general partner of the above-named funds.
(6) Mr. Moley, the sole trustee of this trust, is the father of Andrew J. Moley,
our Chief Financial Officer.
WARRANTS
In March 1996, in connection with a loan financing, we issued warrants to
purchase an aggregate amount of 7,503 shares of Series B preferred stock, each
of which is presently
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convertible for three shares of common stock, at an exercise price of $2.00 per
share to investors including Lee Rosenberg, a director of Egreetings, who
acquired a warrant to purchase 1,821 shares of Series B preferred stock, each of
which is presently convertible for three shares of common stock, that expires on
March 19, 2003.
From October to November 1996, in connection with a loan financing, we
issued warrants to purchase an aggregate amount of 41,910 shares of Series C
preferred stock, each of which is presently convertible into three shares of
common stock, at an exercise price of $4.00 per share to investors including Lee
Rosenberg, who acquired a warrant to purchase 1,313 shares of Series C preferred
stock, and Altos Ventures, a holder of more than 5% of our common stock, which
acquired a warrant to purchase 9,781 shares of Series C preferred stock, each of
which is presently convertible into three shares of common stock. Each of Mr.
Rosenberg's and Altos Ventures' warrants expires in April 2007.
In December 1997, we issued a warrant to purchase 946,925 shares of Series
E preferred stock, at a purchase price of $9.60 per share, to Gibson Greetings,
Inc., a holder of more than 5% of our common stock. As a result of anti-dilution
adjustments in connection with sales of our Series F preferred stock and Series
G preferred stock, the number of shares of Series E preferred stock issuable
pursuant to this warrant was increased to 1,470,000 in March 1999 and 1,663,333
in October 1999. Pursuant to the terms of the warrant, there was no adjustment
to the aggregate exercise price of the warrant in connection with these
adjustments. Each share of Series E preferred stock is presently convertible
into three shares of common stock.
From November 1998 to January 1999, in connection with loan financings, we
issued warrants to purchase an aggregate amount of 67,139 shares of Series F
preferred stock, each of which is presently convertible into three shares of
common stock at an exercise price of $6.30 per share to investors including
holders of more than 5% of our outstanding stock as set forth in the table
below.
All of the share numbers in the following table reflect the conversion of
each outstanding share of Series B preferred stock, Series C preferred stock and
Series F preferred stock into three shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES
WARRANT HOLDER SUBJECT TO WARRANT EXPIRATION DATE
-------------- ------------------ ---------------
<S> <C> <C>
Gibson Greetings, Inc.(1)........ 80,355 November 2005
Gibson Greetings, Inc.(1)........ 21,426 January 2006
Altos Ventures I, L.P.(2)........ 26,784 November 2005
Altos Ventures I, L.P.(2)........ 21,426 January 2006
Kettle Partners, L.P.(3)......... 42,855 January 2006
</TABLE>
- -------------------------
(1) Frank O'Connell, a director of Egreetings, is the President, Chief Executive
Officer and Chairman of the Board of Gibson Greetings, Inc.
(2) Brendon Kim, a director of Egreetings, is a general partner of Altos
Ventures I, L.P.
(3) Lee Rosenberg, a director of Egreetings, is a principal of Kettle Partners,
L.P.
TRANSACTION WITH EXECUTIVE OFFICERS AND DIRECTORS
In February 1999, we entered into an employment agreement with Gordon M.
Tucker, our Chief Executive Officer. This agreement is discussed in more detail
in "Management -- Employment and Severance Arrangements."
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<PAGE> 71
In June 1999, Mr. Tucker exercised in full the option granted to Mr. Tucker
pursuant to his employment agreement and acquired 3,401,344 shares of common
stock. However, as of September 30, 1999, 2,905,315 shares held by Mr. Tucker
may be repurchased at $1.40 per share by Egreetings, subject to certain
acceleration provisions in Mr. Tucker's employment agreement. Mr. Tucker paid
the $1.40 exercise price per share for such shares by delivery of a promissory
note bearing a simple interest rate of 5.37% per annum. The full principal and
interest payable under the note are due in June 2003 or, if Mr. Tucker's
employment is terminated prior to that time, 60 days after the termination. The
note is secured by the shares of common stock purchased by Mr. Tucker. As of
September 30, 1999, approximately $4,761,882 in unpaid principal and interest
was outstanding in the aggregate under the note.
In July 1999, Andrew J. Moley, our Chief Financial Officer, exercised an
option grant to purchase an aggregate of 300,000 shares of common stock and
entered into an early exercise stock purchase agreement under the 1996 Stock
Option Plan regarding the shares. However, we have a right to repurchase any of
the unvested 300,000 shares within 90 days upon Mr. Moley's termination of
employment. As of September 30, 1999, all 300,000 shares held by Mr. Moley
remain subject to repurchase at $1.85 per share. Mr. Moley paid the $1.85
purchase price per share for such shares by delivery of a promissory note
bearing a simple interest rate of 6.00% per annum. The full principal and
interest payable under the note are due in July 2004 or, if Mr. Moley's
employment is terminated prior to that time, the date of Mr. Moley's
termination. The note is secured by the shares of common stock purchased by Mr.
Moley. As of September 30, 1999, approximately $555,000 in unpaid principal and
interest was outstanding in the aggregate under the note.
CONTENT PROVIDER AND DISTRIBUTION AGREEMENT WITH GIBSON GREETINGS, INC.
In December 1997, we entered into a content provider and distribution
agreement with Gibson Greetings, Inc. Pursuant to this five-year agreement, we
are the only company, other than Gibson itself, that may distribute Gibson's
content in the form of digital greetings. In exchange for this right, we pay
Gibson a royalty based on the number of digital greetings sent via our Web site
that contain Gibson's content. Gibson may terminate our rights to exclusivity if
our consumers do not send at least approximately 2.8 million Gibson digital
greetings via our Web site -- the number sent in August 1999 -- in each month
during the term of the agreement and if this minimum delivery requirement is not
exceeded in any of the three months following the month in which the shortfall
occurred.
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<PAGE> 72
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of September 30, 1999 and as advised
to reflect the sale of the common stock in this offering by:
- each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
- each of our directors;
- each of the executive officers named in the Summary Compensation Table;
and
- all current executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Unless otherwise indicated below, the persons
and entities named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. Percentage ownership is based on 28,105,693 shares of common
stock outstanding as of September 30, 1999, assuming the conversion of all
outstanding shares of preferred stock into common stock, and
shares of common stock outstanding immediately following the completion of this
offering. Shares of common stock subject to options that are currently
exercisable or exercisable within 60 days of September 30, 1999 are deemed to be
outstanding and to be beneficially owned by the person holding such options for
the purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person.
Unless otherwise indicated, the address for each stockholder named below
is: c/o Egreetings Network, Inc., 501 Second Street, Suite 114, San Francisco,
California 94107.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
---------------------------------
NAME OF BENEFICIAL OWNER SHARES BEFORE OFFERING AFTER OFFERING
------------------------ ---------- --------------- --------------
<S> <C> <C> <C>
Gibson Greetings, Inc.(1)............. 9,063,273 27.8%
2100 Section Road
Cincinnati, OH 45326
Entities Affiliated with Weiss, Peck &
Greer Venture Partners(2)............. 2,957,142 10.5
555 California St., Suite 3130
San Francisco, CA 94194
Entities Affiliated with Altos
Partners(3)........................... 2,625,006 9.3
2882 Sand Hill Road, Suite 100
Menlo Park, CA 94025
Entities Affiliated with New
Enterprises Associates(4)............. 2,100,000 7.5
2490 Sand Hill Road
Menlo Park, CA 94025
Vulcan Ventures Inc................... 1,671,429 5.9
110-110th Ave. NE, Suite 550
Bellevue, WA 98004
Anthony Levitan(5)(6)................. 2,458,750 8.7
Fredrick L. Campbell(6)............... 2,415,000 8.6
</TABLE>
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<PAGE> 73
<TABLE>
<CAPTION>
PERCENTAGE OWNED
---------------------------------
NAME OF BENEFICIAL OWNER SHARES BEFORE OFFERING AFTER OFFERING
------------------------ ---------- --------------- --------------
<S> <C> <C> <C>
Frank O'Connell(1).................... 9,063,273 27.8%
c/o Gibson Greetings, Inc.
2100 Section Road
Cincinnati, OH 45326
Peter Nieh(2)......................... 2,957,142 10.5
c/o Weiss, Peck & Greer Venture
Partners
555 California Street, Suite 3130
San Francisco, CA 94194
Brendon Kim(3)........................ 2,625,006 9.3
c/o Altos Ventures
2882 Sand Hill Road, Suite 100
Menlo Park, CA 94025
Stewart Alsop(4)...................... 2,100,000 7.5
c/o New Enterprise Associates, Inc.
2490 Sand Hill Road
Menlo Park, CA 94025
Lee Rosenberg(7)...................... 837,579 3.0
Gordon M. Tucker(8)................... 3,401,344 12.1
Charles A. Holloway(9)................ 110,375 *
Neil Katin(10)........................ 461,856 1.6
Paul S. Lipman(11).................... 116,518 *
All directors and executive officers
as a group (12 persons)(11)......... 21,321,091 64.7
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares
of our common stock.
(1) All of these shares are owned by Gibson Greetings, Inc. Includes warrants
held by Gibson Greetings, Inc. to purchase 4,511,781 shares that are
currently exercisable. Mr. O'Connell is the Chairman of the Board,
President and Chief Executive Officer of Gibson. Mr. O'Connell disclaims
beneficial ownership of these shares within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934.
(2) Consists of 634,011 shares held by WPG Enterprise Fund III, L.L.C., 725,091
shares held by Weiss, Peck & Greer Venture Associates IV, L.L.C., 28,092
shares held by WPG Information Sciences Entepreneur Fund, L.P., 91,407
shares held by Weiss, Peck & Greer Venture Associates IV Cayman, L.P.,
1,202,646 shares held by Weiss, Peck & Greer Venture Associates V, L.L.C.,
12,420 shares held by WPG Venture Associates V-A, L.L.C. and 263,475 shares
held by WPG Venture Associates V, Cayman L.P. Mr. Nieh, a director of
Egreetings, is a Managing Member of WPG VC Fund Adviser, L.L.C., the Fund
Investment Advisory Member of WPG Enterprise Fund III, L.L.C., and Weiss,
Peck & Greer Venture Associates IV, L.L.C., and the General Partner of WPG
Information Sciences Entrepreneur Fund, L.P. In addition, Mr. Nieh is a
Managing Member of WPG VC Fund Adviser II, L.L.C., the Fund Investment
Advisory Member of Weiss, Peck & Greer
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<PAGE> 74
Venture Associates V, L.L.C., Weiss Peck & Greer Venture Associates V-A,
L.L.C., and the Fund Investment Advisory Partner of Weiss, Peck & Greer
Venture Associates V Cayman, L.P. In such capacities, Mr. Nieh may be
deemed to have an indirect pecuniary interest in an indeterminate portion
of the shares beneficially owned by the Weiss Peck & Greer funds. Mr. Nieh
disclaims beneficial ownership of the shares held by the Weiss Peck & Greer
funds within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934.
(3) Includes 17,142 shares held by Altos Partners I and 2,530,311 shares held
by Altos Ventures I, L.P. Also includes warrants to purchase 77,553 shares
that are currently exercisable. Mr. Kim, a director of Egreetings, is a
general partner of Altos Partners and, as such, may be deemed to have an
indirect pecuniary interest in an indeterminate portion of the shares
beneficially owned by the Altos funds. Mr. Kim disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934.
(4) Includes 25,713 shares held by NEA Presidents Fund, L.P., 2,142 shares held
by NEA Ventures 1999, L.P., and 2,072,145 shares held by New Enterprise
Associates VIII, L.P. Mr. Alsop, a director of Egreetings, is a general
partner of New Enterprise Associates and, as such, may be deemed to have an
indirect pecuniary interest in an indeterminate portion of the shares
beneficially owned by the NEA funds. Mr. Alsop disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934.
(5) Includes 12,500 shares issuable upon exercise of options exercisable within
60 days of September 30, 1999.
(6) Included in the number of shares that Messrs. Levitan and Campbell
beneficially own in the aggregate are 240,000 shares pledged by each of
them to Information Technology Ventures II, L.P. and ITV Affiliates Fund
II, L.P. to secure a $520,000 full recourse loan made to Messrs. Levitan
and Campbell pursuant to a Loan and Pledge Agreement dated June 1999. All
of the shares pledged by Messrs. Levitan and Campbell are also subject to
an immediately exercisable call option pursuant to a Call Option Agreement
dated June 1999 among Information Technology Ventures II, L.P., ITV
Affiliates Fund II, L.P. and Messrs. Levitan and Campbell and are covered
by a put option pursuant to a Put Option Agreement dated June 1999 among
the same parties.
(7) Includes 5,400 shares issuable upon exercise of options exercisable within
60 days of September 30, 1999. Includes 214,287 shares held by Kettle
Partners L.P. Also includes warrants to purchase 52,269 shares that are
currently exercisable. Mr. Rosenberg, a director of Egreetings, is a
principal of Kettle Partners L.P. and, as such, may be deemed to have an
indirect pecuniary interest in an indeterminate portion of the shares
beneficially owned by Kettle Partners L.P. Mr. Rosenberg disclaims
beneficial ownership of these shares within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934.
(8) Includes 2,905,315 shares subject to repurchase by us as of September 30,
1999.
(9) Includes 10,625 shares issuable upon exercise of options exercisable within
60 days of September 30, 1999 and 26,907 shares subject to repurchase by us
as of September 30, 1999.
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<PAGE> 75
(10) Includes 53,999 shares issuable upon exercise of options exercisable within
60 days of September 30, 1999.
(11) Includes 116,518 shares issuable upon exercise of options exercisable
within 60 days of September 30, 1999.
(12) See footnotes 1 through 4 and 7 through 11 above, as applicable.
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<PAGE> 76
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and material provisions of
our certificate of incorporation and bylaws, which will become effective upon
the completion of this offering, is a summary only and is qualified in its
entirety by the complete provisions of the certificate of incorporation and
bylaws, which have been filed as exhibits to the registration statement, of
which this prospectus is a part.
Upon the closing of this offering, our authorized capital stock will
consist of 75,000,000 shares of common stock, $0.001 par value per share, and
5,000,000 shares of preferred stock, $0.001 par value per share.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Unless Section
2115 of the California Corporations Code is applicable to us, holders of common
stock are not entitled to cumulative voting rights with respect to the election
of directors and, as a consequence, minority stockholders will not be able to
elect directors on the basis of their votes alone. Upon a liquidation,
dissolution or winding-up of Egreetings, the assets legally available for
distribution to stockholders are distributable ratably among the holders of the
common stock and any participating preferred stock outstanding at that time
after payment of liquidation preferences, if any, on any outstanding preferred
stock and payment of other claims of creditors. Each outstanding share of common
stock is, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, the board of directors will have the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series, to establish from time to time
the number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and any
qualifications, limitations or restrictions thereon, and to increase or decrease
the number of shares of any such series (but not below the number of shares of
such series then outstanding). The board of directors may authorize the issuance
of preferred stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of the common stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change in control of
Egreetings and may adversely affect the market price of the common stock and the
voting and other rights of the holders of common stock.
WARRANTS
As of September 30, 1999, warrants to purchase an aggregate of 7,503 shares
of Series B preferred stock were outstanding at an exercise price of $2.00 per
share. Each warrant contains provisions for the adjustment of the exercise price
and the aggregate
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<PAGE> 77
number of shares issuable upon the exercise of the warrant in the event of stock
dividends, stock splits, reorganizations and reclassifications and
consolidations.
As of September 30, 1999, warrants to purchase an aggregate of 41,910
shares of Series C preferred stock were outstanding at an exercise price of
$4.00 per share. Each warrant contains provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon the exercise of
the warrant in the event of stock dividends, stock splits, reorganizations and
reclassifications and consolidations. Upon the closing of this offering, all
warrants to purchase Series C referred stock will become exercisable for common
stock at the conversion rate that the Series C preferred stock converts into
common stock.
As of September 30, 1999, a warrant to purchase an aggregate of 1,470,000
shares of Series E preferred stock was outstanding at an exercise price of $6.18
per share to Gibson Greetings, Inc. Upon closing of this offering, this warrant
will expire unless earlier exercised.
As of September 30, 1999, warrants to purchase an aggregate of 67,139
shares of Series F preferred stock were outstanding at an exercise price of
$6.30 per share. Each warrant contains provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon the exercise of
the warrant in the event of stock dividends, stock splits, reorganizations and
reclassifications and consolidations. Upon the closing of this offering, all
warrants to purchase Series F preferred stock will become exercisable for common
stock at the conversion rate that the Series F preferred stock converts into
common stock.
As of September 30, 1999, warrants to purchase an aggregate of 60,000
shares of Series F preferred stock were outstanding at an exercise price of
$9.00 per share. Each warrant contains provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon the exercise of
the warrant in the event of stock dividends, stock splits, reorganizations and
reclassifications and consolidations. Upon the closing of this offering, all
warrants to purchase Series F preferred stock will become exercisable for common
stock at the conversion rate that the Series F preferred stock converts into
common stock.
REGISTRATION RIGHTS
Holders of 30,116,319 shares of stock held by them, or subject to
acquisition upon exercise of warrants, have registration rights and can require
that we file a registration statement under the Securities Act of 1933 covering
all or a portion of the investors' registrable securities. These registration
rights are subject to our right to delay the filing of a registration statement
for a period not to exceed 180 days. We cannot delay the filing of a
registration statement more than once in a 12-month period after receiving the
registration demand. The managing underwriter, if any, of any offering pursuant
to a registration has certain rights to limit the number of the registrable
securities proposed to be included in such registration. In addition, these
registration rights are no longer effective once we have effected two
registrations pursuant to these provisions.
The investors also have certain "piggyback" registration rights. If we
propose to register any of our securities under the Securities Act of 1933
(other than pursuant to the investors' demand registration rights noted above),
the investors may require us to use our best efforts to include all or a portion
of their registrable securities in such registration.
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<PAGE> 78
The managing underwriter, if any, of any such offering will have the right to
limit or exclude registrable securities from such registration.
All registration expenses incurred in connection with the above
registrations would be borne by us, including, without limitation, all fees and
disbursements of a single counsel for the selling investors, except for expenses
incurred in connection with more than two registrations of Form S-3 per year.
Each selling investor would pay all underwriting discounts and selling
commissions applicable to the sale of his or its registrable securities, as well
as any fees and disbursements of counsel beyond those of a single counsel for
the selling investors.
All registration rights described above will terminate on the earlier of
four years after the date of this offering or the date on which an investor may
sell all of its or his shares under Rule 144(k) of the Securities Act or during
any 90-day period under Rule 144 of the Securities Act.
SECTION 2115
We currently are subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if more than 50% of its outstanding voting securities are held of record
by persons having addresses in California and the majority of the company's
operations occur in California.
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<PAGE> 79
The following table sets forth some of the effects on our corporate
governance of Section 2115:
<TABLE>
<CAPTION>
SECTION 2115 NON-SECTION 2115
------------ ----------------
<S> <C> <C>
Election of Cumulative voting is allowed No cumulative voting is
Directors which allows each shareholder allowed; accordingly a holder
to vote the number of votes of 50% or more of voting stock
equal to the number of controls election of all
candidates multiplied by the directors.
number of votes to which the
shareholders' shares are
normally entitled in favor of
one candidate. This potentially
allows minority stockholders to
elect some members of the
board.
Removal of Removal with or without cause If the Board is classified,
Directors by the affirmative vote of the removal is only allowed for
holders of a majority of cause upon the affirmative vote
outstanding voting stock is of a majority of the
allowed. outstanding voting stock
entitled to vote in the
election of directors.
Supermajority In order to institute a Simple majority may adopt
Vote supermajority provision, the amendment providing for
Requirement amendment must be approved by supermajority.
at least as large a proportion
as would be required under the
amendment.
Dividend Dividends are only payable (a) Dividends are payable out of
Distribution out of the surplus of retained either the surplus of retained
earnings and (b) if, earnings or out of its net
immediately after the profits for the year the
distribution, a company's distribution takes place, or
assets are at least equal to the preceding year.
its liabilities.
Dissenters' Generally available in any type Generally only available in a
Rights of reorganization, including a merger. No rights so long as
merger, sale of assets or our common stock is quoted on
sale/exchange of shares. If the the Nasdaq National Market or
shares are listed on an traded on an exchange.
exchange, 5% of the
stockholders must assert their
right for any stockholder to
have these rights.
</TABLE>
In addition to these differences, Section 2115 also provides for information
rights and required filings in the event a company effects a sale of assets or
completes a merger.
We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2000 annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our 2000 annual meeting of
stockholders. See "-- Common Stock" and "Management -- Board Composition" for
additional information relating to the effects of Section 2115 on Egreetings.
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DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Delaware Law
Upon our reincorporation in Delaware, we will be subject to Section 203 of
the Delaware General Corporation Law regulating corporate takeovers. Section
203, subject to exceptions, prohibits a Delaware corporation from engaging in
any "business combination" with any "interested stockholder" for a period of
three years following the date that the stockholder became an interested
stockholder unless:
- prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
Section 203 defines an "interested stockholder" as:
- any entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation; and
- any entity or person affiliated with or controlling or controlled by the
entity or person.
A Delaware corporation may "opt out" of Section 203 with an express
provision in its original certificate of incorporation or an express provision
in its certificate or incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares. We
have not "opted out" of the provisions of the Section 203. The statute could
prohibit or delay mergers or other takeover or change-in-control
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attempts with respect to Egreetings and, accordingly, may discourage attempts to
acquire Egreetings.
Charter Provisions
Our bylaws, which will become effective upon the closing of this offering,
divide the board of directors into three classes as nearly equal in size as
possible with staggered three-year terms. The classification of the board of
directors could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of Egreetings.
In addition, the bylaws provide that any action required or permitted to be
taken by our stockholders at an annual meeting or a special meeting of the
stockholders may be taken only if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The bylaws also provide
that special meetings of the stockholders may be called only by the chairman of
the board, the chief executive officer or the holders of 50% or more of our
outstanding stock. See "Management -- Board Composition" for additional
information relating to the classification of the board of directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation, which will become effective upon the
closing of this offering, contains provisions permitted under Delaware law
relating to the liability of directors. These provisions eliminate a director's
personal liability for monetary damages resulting from a breach of fiduciary
duty, except in circumstances involving wrongful acts, such as:
- any breach of the director's duty of loyalty;
- acts or omissions which involve a lack of good faith, intentional
misconduct or a knowing violation of the law;
- payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law; or
- any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws.
Our bylaws, which will become effective upon the closing of this offering,
require us to indemnify our directors and executive officers to the fullest
extent not prohibited by the Delaware law. We may limit the extent of such
indemnification by individual contracts with our directors and executive
officers. Further, we may decline to indemnify any director or executive officer
in connection with any proceeding initiated by such person or any proceeding by
such person against us or our directors, officers, employees or other agents,
unless indemnification is expressly required to be made by law or the proceeding
was authorized by our board of directors.
Prior to completion of this offering, we intend to enter into indemnity
agreements with each of our current directors and certain of our executive
officers to give such directors and officers additional contractual assurances
regarding the scope of the indemnification set
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<PAGE> 82
forth in our certificate of incorporation and bylaws and to provide additional
procedural protections. At present, there is no pending litigation or proceeding
involving any of our directors, officers or employees for which indemnification
is sought, nor are we aware of any threatened litigation that may result in
claims for indemnification.
We have the power to indemnify our other officers, employees and other
agents, as permitted by Delaware law, but we are not required to do so.
We plan to obtain directors' and officers' liability insurance prior to the
completion of this offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be
.
80
<PAGE> 83
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock may
not develop or be sustained after this offering. As described below, no shares
currently outstanding will be available for sale immediately after this offering
due to certain contractual and securities law restrictions on resale. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, all of the
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, unless these shares are purchased
by affiliates.
The remaining shares of common stock held by existing
stockholders are restricted securities. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration described below under Rules 144, 144(k) or 701 promulgated under
the Securities Act.
As a result of the lock-up agreements and the provisions of Rules 144,
144(k) and 701 described below, these restricted shares will be available for
sale in the public market as follows:
- no shares may be sold prior to 180 days from the date of this prospectus;
- shares will have been held long enough to be sold under
Rule 144 or Rule 701 beginning 181 days after the date of this
prospectus; and
- the remaining shares may be sold under Rule 144 or 144(k) once they have
been held for the required time.
Lock-Up Agreements. Most of our stockholders have agreed not to transfer or
dispose of, directly or indirectly, any shares of our common stock or any
securities convertible into or exercisable or exchangeable for shares of our
common stock, for a period of 180 days after the date the registration statement
of which this prospectus is a part is declared effective. Transfers or
dispositions can be made sooner with the prior written consent of Credit Suisse
First Boston Corporation.
Rule 144. In general, under Rule 144, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding which
will equal approximately shares immediately after this
offerings; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also limited by manner-of-sale provisions and
notice requirements and to the availability of current public information about
us.
81
<PAGE> 84
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144 discussed above.
Rule 701. In general, under Rule 701, any of our employees, consultants or
advisors who purchases or receives shares from us under a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the date of this prospectus.
Non-affiliates will be able to sell their shares subject only to the
manner-of-sale provisions of Rule 144. Affiliates will be able to sell their
shares without compliance with the holding period requirements of Rule 144.
Registration Rights. Upon completion of this offering, holders of
30,116,319 shares of our common stock will be entitled to rights with respect to
the registration of their shares under the Securities Act. See "Description of
Capital Stock -- Registration Rights." Except for shares purchased by
affiliates, registration of their shares under the Securities Act would result
in these shares becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of the registration.
Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance upon exercise of outstanding options. The
registration statement is expected to be filed and become effective as soon as
practicable after the closing of this offering. Accordingly, shares registered
under the registration statement will be available for sale in the open market
beginning 180 days after the effective date of the registrant statement of which
this prospectus is a part, except with respect to Rule 144 volume limitations
that apply to our affiliates.
82
<PAGE> 85
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , 1999, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
BancBoston Robertson Stephens Inc. and U.S. Bancorp Piper Jaffray Inc. are
acting as representatives, the following respective number of shares of common
stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
BancBoston Robertson Stephens Inc...........................
U.S. Bancorp Piper Jaffray Inc..............................
-------
Total.............................................
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and expenses we will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us..................... $ $ $ $
Expenses payable by us... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We and our officers and directors and most of our stockholders have agreed
that we and they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, or file with the Securities and Exchange
Commission a registration statement under the Securities Act relating to any
additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common
83
<PAGE> 86
stock or publicly disclose the intention to make any such offer, sale, pledge
disposition or filing without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus,
except, in our case, issuances pursuant to the exercise of employee stock
options outstanding on the date hereof.
At our request, the underwriters have reserved up to shares of
common stock offered hereby for sale at the initial public offering price to our
customers, consultants and others with whom we do business, existing
stockholders and friends of Egreetings. This group may include entities related
to that have expressed an interest in acquiring up to shares.
As a result, the number of shares available for sale to the general public will
be reduced to the extent that persons purchase these reserved shares. Any
reserved shares not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares of common stock offered
hereby.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in respect to those liabilities.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "EGRT."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
- the information set forth in this prospectus and otherwise available to
the representatives;
- market conditions for initial public offerings;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- our prospects for future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
84
<PAGE> 87
- Syndicate covering transactions involve purchases of common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member are purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.
85
<PAGE> 88
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that the purchaser is purchasing as principal and not as agent,
and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or recission or rights of action under the civil liability provisions of
the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
86
<PAGE> 89
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
87
<PAGE> 90
LEGAL MATTERS
Cooley Godward LLP, San Francisco, California, will pass for us upon the
validity of the shares of common stock offered in this prospectus. The
underwriters have been represented by Wilson Sonsini Goodrich & Rosati, Palo
Alto, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements as of December 31, 1997 and 1998, and for each of the three years in
the period ended December 31, 1998, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered by this prospectus. As permitted by the rules and regulations of the
Commission, this prospectus, which is a part of the registration statement, does
not contain all of the information, exhibits, schedules and undertakings
included in the registration statement. For further information pertaining to us
and the common stock offered by this prospectus, reference is made to the
registration statement and the attached exhibits and schedules. Although
required material information has been presented in this prospectus, statements
contained in this prospectus as to the contents or provisions of any contract or
other document referred to in this prospectus may be summary in nature, and in
each instance reference is made to the copy of this contract or other document
filed as an exhibit to the registration statement, and each statement is
qualified in all respects by this reference. A copy of the registration
statement, including all exhibits and schedules thereto, may be inspected
without charge at the office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission regional offices located at the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of all or any part of the registration statement may be obtained
from the Commission offices upon the payment of the fees prescribed by the
Commission. In addition, registration statements and certain other filings made
with the Commission through its Electronic Data Gathering, Analysis and
Retrieval system, including our registration statement and all exhibits and
amendments to our registration statement, are publicly available without charge
through the Commission's Web site at http://www.sec.gov.
After this offering, we will have to provide the information and reports
required by the Exchange Act and we will file periodic reports, proxy statements
and other information with the Securities and Exchange Commission. Upon approval
of the common stock for listing on Nasdaq, these reports, proxy and information
statements and other information may also be inspected at the offices of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
88
<PAGE> 91
EGREETINGS NETWORK, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 92
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Egreetings Network, Inc.
We have audited the accompanying balance sheets of Egreetings Network, Inc.
as of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Egreetings Network, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
Walnut Creek, California
October , 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon approval of
the certificate of incorporation in the state of Delaware as described in Note 8
to the financial statements.
/s/ ERNST & YOUNG, LLP
--------------------------------------
Walnut Creek, California
October 1, 1999
F-2
<PAGE> 93
EGREETINGS NETWORK, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................. $ 3,524 $ 268 $ 6,601
Accounts receivable....................... 10 210 116
Prepaid expenses and other current
assets.................................. 22 41 268
------- -------- --------
Total current assets............... 3,556 519 6,985
Furniture and equipment, net................ 367 845 4,640
Restricted cash deposit..................... -- -- 2,000
Deferred content costs...................... 1,259 1,566 6,297
Deposits and other assets................... 21 38 263
------- -------- --------
Total assets....................... $ 5,203 $ 2,968 $ 20,185
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..... $ 423 $ 1,518 $ 1,486
Accrued compensation and related
expenses................................ 48 205 110
Accrued royalties (including $0, $108 and
$169, respectively, payable to a related
party).................................. 3 220 271
Deferred revenue.......................... -- 86 449
Current portion of equipment term loan.... 325 374 548
Notes payable to stockholders............. 22 954 --
------- -------- --------
Total current liabilities.......... 821 3,357 2,864
Equipment term loan, less current portion... 197 586 764
Notes payable to stockholders............... -- 514 --
------- -------- --------
Total liabilities.................. 1,018 4,457 3,628
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par
value: 10,000,000 shares authorized;
2,298,741 shares issued and outstanding
in 1997; 2,523,546 in 1998 and 6,332,420
in 1999 (none pro forma)................ 9,417 11,363 41,135
Common stock, $.001 par value; 20,000,000
shares authorized in 1997 and 1998 and
60,000,000 in 1999; 5,199,000 shares
issued and outstanding in 1997 and 1998;
8,751,568 in 1999 and 27,748,828 (pro
forma).................................. 16 504 8,433 $ 49,568
Deferred stock compensation............... -- (287) (2,844) (2,844)
Notes receivable from stockholders........ -- -- (4,805) (4,805)
Accumulated deficit....................... (5,248) (13,069) (25,362) (25,362)
------- -------- -------- --------
Total stockholders' equity
(deficit)........................ 4,185 (1,489) 16,557 $ 16,557
------- -------- -------- --------
Total liabilities and stockholders'
equity (deficit)................. $ 5,203 $ 2,968 $ 20,185
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 94
EGREETINGS NETWORK, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------- -------------------------
1996 1997 1998 1998 1999
--------- --------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 164 $ 505 $ 317 $ 97 $ 724
Costs and expenses:
Cost of services................. 256 336 610 222 884
Sales and marketing.............. 366 942 3,094 1,218 5,468
Operations and development....... 552 1,422 2,628 962 3,631
General and administrative....... 778 830 1,444 519 1,925
Amortization of deferred content
costs......................... -- -- 138 126 444
Amortization of deferred stock
compensation.................. -- -- 201 43 558
--------- --------- ---------- --------- ----------
Total costs and expenses......... 1,952 3,530 8,115 3,090 12,910
--------- --------- ---------- --------- ----------
Loss from operations............... (1,788) (3,025) (7,798) (2,993) (12,186)
Interest income.................... 11 -- 42 36 122
Interest expense................... (7) (68) (65) (34) (229)
--------- --------- ---------- --------- ----------
Net loss........................... $(1,784) $(3,093) $(7,821) $(2,991) $(12,293)
========= ========= ========== ========= ==========
Net loss per share:
Basic and diluted................ $ (0.76) $ (0.67) $ (1.51) $ (0.58) $ (2.34)
========= ========= ========== ========= ==========
Pro forma basic and diluted
(unaudited)................... $ (0.63) $ (0.68)
========== ==========
Shares used in calculation of net
loss per share:
Basic and diluted............. 2,341 4,650 5,197 5,194 5,261
========= ========= ========== ========= ==========
Pro forma basic and diluted
(unaudited)................. 12,486 18,141
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 95
EGREETINGS NETWORK, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES TOTAL
PREFERRED STOCK COMMON STOCK DEFERRED RECEIVABLE STOCKHOLDERS'
-------------------- ------------------ STOCK FROM ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT COMPENSATION SHAREHOLDERS DEFICIT (DEFICIT)
---------- ------- --------- ------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1995.................... 520,000 $ 416 4,830,000 $ 5 $ -- $ -- $ (371) $ 50
Issuance of common
stock................. -- -- 369,000 11 -- -- -- 11
Issuance of Series B
preferred stock....... 450,000 900 -- -- -- -- -- 900
Issuance of warrants in
connection with debt
financing............. -- 4 -- -- -- -- -- 4
Issuance of Series C
preferred stock....... 341,753 1,367 -- -- -- -- -- 1,367
Net loss and
comprehensive loss.... -- -- -- -- -- -- (1,784) (1,784)
---------- ------- --------- ------ ------- ------- -------- --------
Balances at December 31,
1996.................... 1,311,753 2,687 5,199,000 16 -- -- (2,155) 548
Issuance of Series C
preferred stock....... 361,010 1,444 -- -- -- -- -- 1,444
Issuance of Series D
preferred stock....... 625,978 4,000 -- -- -- -- -- 4,000
Issuance of warrants in
connection with debt
financing............. -- 27 -- -- -- -- -- 27
Valuation of preferred
stock warrant in
connection with
content agreement..... -- 1,259 -- -- -- -- -- 1,259
Net loss and
comprehensive loss.... -- -- -- -- -- -- (3,093) (3,093)
---------- ------- --------- ------ ------- ------- -------- --------
Balances at December 31,
1997.................... 2,298,741 9,417 5,199,000 16 -- -- (5,248) 4,185
Issuance of Series D
preferred stock for
conversion of notes
payable............... 224,805 1,436 -- -- -- -- -- 1,436
Issuance of warrants in
connection with debt
financing............. -- 65 -- -- -- -- -- 65
Deferred stock
compensation related
to grant of stock
options............... -- -- -- 488 (488) -- -- --
Amortization of deferred
stock compensation.... -- -- -- -- 201 -- -- 201
Valuation of preferred
stock warrant in
connection with
content agreement..... -- 445 -- -- -- -- -- 445
Net loss and
comprehensive loss.... -- -- -- -- -- -- (7,821) (7,821)
---------- ------- --------- ------ ------- ------- -------- --------
Balances at December 31,
1998.................... 2,523,546 11,363 5,199,000 504 (287) -- (13,069) (1,489)
Issuance of Series D
preferred stock for
conversion of notes
payable (unaudited)... 82,381 514 -- -- -- -- -- 514
Issuance of Series F
preferred stock, net
of issuance costs
(unaudited)........... 3,283,636 20,912 -- -- -- -- -- 20,912
Issuance of Series F
preferred stock for
conversion of notes
payable (unaudited)... 442,857 3,100 -- -- -- -- -- 3,100
Issuance of common stock
under stock option
plan (unaudited)...... -- -- 3,552,568 4,814 -- (4,805) -- 9
Issuance of warrants in
connection with debt
financing
(unaudited)........... -- 71 -- -- -- -- -- 71
Deferred stock
compensation related
to grant of stock
options (unaudited)... -- -- -- 3,115 (3,115) -- -- --
Amortization of deferred
stock compensation
(unaudited)........... -- -- -- -- 558 -- -- 558
Valuation of preferred
stock warrant in
connection with
content agreement
(unaudited)........... -- 5,175 -- -- -- -- -- 5,175
Net loss and
comprehensive loss
(unaudited)........... -- -- -- -- -- -- (12,293) (12,293)
---------- ------- --------- ------ ------- ------- -------- --------
Balances at June 30, 1999
(unaudited)............. 6,332,420 $41,135 8,751,568 $8,433 $(2,844) $(4,805) $(25,362) $ 16,557
========== ======= ========= ====== ======= ======= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 96
EGREETINGS NETWORK, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------- -------------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(1,784) $(3,093) $(7,821) $(2,991) $(12,293)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 70 158 308 81 1,075
Amortization of deferred content costs.................. -- -- 138 126 444
Amortization of deferred stock compensation............. -- -- 202 43 558
Other................................................... -- 59 19 -- 118
Changes in operating assets and liabilities:
Accounts receivable................................... -- (10) (201) (42) 94
Prepaid expenses and other current assets............. (7) (16) (20) 16 (227)
Other assets.......................................... (7) (13) (18) -- (2,225)
Accounts payable and accrued liabilities.............. 373 43 1,558 471 360
------- ------- ------- ------- --------
Net cash used in operating activities..................... (1,355) (2,872) (5,835) (2,296) (12,096)
------- ------- ------- ------- --------
INVESTING ACTIVITIES
Purchases of furniture and equipment, net................. (309) (320) (786) (312) (4,870)
------- ------- ------- ------- --------
Net cash used in investing activities..................... (309) (320) (786) (312) (4,870)
------- ------- ------- ------- --------
FINANCING ACTIVITIES
Borrowings under equipment term loan...................... -- 478 763 -- 279
Payments on equipment term loan........................... -- -- (282) (216) --
Borrowings on notes payable to stockholders............... -- 22 2,950 -- 2,100
Payments on notes payable to stockholders................. -- -- (22) (22) --
Issuance of common stock.................................. 11 -- -- -- 9
Other borrowings.......................................... -- 44 (44) (44) --
Issuance of preferred stock, net.......................... 2,271 5,453 -- (27) 20,911
------- ------- ------- ------- --------
Net cash provided by financing activities................. 2,282 5,997 3,365 (309) 23,299
------- ------- ------- ------- --------
Net increase (decrease) in cash and cash equivalents...... 618 2,805 (3,256) (2,917) 6,333
Cash and cash equivalents at beginning of period.......... 101 719 3,524 3,524 268
------- ------- ------- ------- --------
Cash and cash equivalents at end of period................ $ 719 $ 3,524 $ 268 $ 607 $ 6,601
======= ======= ======= ======= ========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest.................................... $ -- $ 10 $ 13 $ 18 $ 62
======= ======= ======= ======= ========
Conversion of notes payable to stockholders to preferred
stock................................................... $ 325 $ 920 $ 2,436 $ 1,000 $ 3,614
======= ======= ======= ======= ========
Issuance of warrants in connection with debt financing.... $ 4 $ 27 $ 65 $ -- $ 71
======= ======= ======= ======= ========
Issuance of common stock for notes receivable............. $ -- $ -- $ -- $ -- $ 4,805
======= ======= ======= ======= ========
Valuation of preferred stock warrant in connection with
content agreement....................................... $ -- $ 1,259 $ 445 $(1,153) $ 5,175
======= ======= ======= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 97
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Egreetings Network, Inc. (the "Company"), formerly The Virtual Mall (dba
Greet Street), was incorporated in California in 1994. The Company offers
consumers a solution for finding and sending appropriate greetings and gifts.
The Company's Web site allows consumers to send personalized content-rich
digital greetings and a wide variety of gifts. The Company operates in one
business segment and generates revenue from corporate advertising and
sponsorships, ecommerce and direct marketing.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INTERIM FINANCIAL INFORMATION
The interim financial information as of June 30, 1999 and for the six
months ended June 30, 1998 and 1999 is unaudited, but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for a fair presentation of its financial position at such date and its
results of operations and cash flows for such periods. Operating results for the
six months ended June 30, 1999 are not necessarily indicative of results that
may be expected for any future periods.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid short-term investments
with insignificant interest rate risk and original maturities from date of
purchase of three months or less.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful life of the related asset, which
currently averages three years. Leasehold improvements are amortized over the
life of the lease.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of risk include cash and cash equivalents and accounts
receivable.
For the year ended December 31, 1998, one corporate advertising sponsor
accounted for 11% of the Company's revenues. Three corporate sponsors accounted
for 17%, 14% and
F-7
<PAGE> 98
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATIONS OF CREDIT RISK (CONTINUED)
12% of accounts receivable at December 31, 1998. An inability to demonstrate an
active and growing user base to advertisers and sponsors may result in a loss of
advertisement and sponsorship agreements and a decline in advertisement and
sponsorship revenues.
A third party accounted for approximately 80% and 90% of the Company's
revenues for the years ended December 31, 1996 and 1997, respectively. This
relationship accounted for 100% of accounts receivable at December 31, 1997.
DEPENDENCE ON THIRD PARTIES
A preferred stockholder provides a significant portion of the Company's
digital greetings content pursuant to an agreement which the Company pays
royalties. Under this agreement, the Company paid royalties of $1,000, $112,000
and $236,000 in 1997, 1998 and for the six months ended June 30, 1999,
respectively (none in 1996). In addition, the Company relies on two other
entities, one to provide a majority of support necessary to maintain the server
and transmit data; the other party serves as a channel distribution partner. The
inability of any of these parties to fulfill their obligations with the Company
could negatively impact the Company's future results.
CHANNEL DISTRIBUTION COSTS
Amounts paid to channel partners are capitalized and amortized to marketing
expense straight-line over the term of the distribution agreements.
REVENUE RECOGNITION
Revenues consist primarily of advertising and sponsorship revenues. The
duration of banner advertising and sponsorship commitments typically range from
one month to one year. The Company's advertisement obligations typically include
guarantees of a minimum number of impressions, or times that an advertisement
appears in pages viewed by consumers using the Company's Web site. The Company
recognizes revenues on sale of banner advertisements as the impression is
delivered or displayed. To the extent minimum guaranteed impressions are not
met, revenue recognition is deferred until the remaining guaranteed impressions
are delivered. The Company recognizes revenues on the sale of sponsorship
advertisements on a straight-line basis over the period in which the sponsor's
message is displayed. In each case, revenues are recognized only if the Company
has no remaining significant obligations and the collection of the receivable is
probable.
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of
F-8
<PAGE> 99
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS (CONTINUED)
Computer Software to be Sold, Leased, or Otherwise Marketed," under which
certain software development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the estimated lives
of the related products. Technological feasibility is established upon
completion of a working model. To date, costs incurred subsequent to the
establishment of technological feasibility have not been significant, and all
software development costs have been charged to product development expense in
the accompanying statements of operations.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for employee stock option grants using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25 and
has adopted the disclosure-only alternative of SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123").
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was
approximately $80,000, $134,000 and $478,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
COMPREHENSIVE INCOME
In June 1998, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which established new standards
for reporting and displaying comprehensive income and its components in a full
set of general purpose financial statements. There is no difference in the
Company's historical net losses as reported and the comprehensive net losses
under the provisions of SFAS 130 for all periods presented. Accordingly, the
adoption of SFAS 130 had no effect on the Company's reported results of
operations.
F-9
<PAGE> 100
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirement of SFAS No. 128, "Earnings per Share" ("SFAS
128"). Basic earnings per share has been computed using the weighted-average
number of common shares outstanding during the period, less shares subject to
repurchase, and excludes any dilutive effects of stock options, warrants, and
convertible securities. Potentially dilutive securities have been excluded from
the computation of diluted net loss per share as their inclusion would be
antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert upon completion of the Company's initial offering, using the
if-converted method.
The calculation of historical and pro forma basic and diluted net loss per
share is as follows (in thousands, expect share and per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical:
Net loss................................ $ (1,784) $ (3,093) $ (7,821) $ (2,991) $ (12,293)
=========== ========== =========== ========== ===========
Weighted average shares of common stock
outstanding........................... 5,070,000 5,199,000 5,199,000 5,199,000 5,505,527
Less: weighted average shares of common
stock that may be repurchased......... (2,728,919) (548,887) (2,314) (4,628) (244,295)
----------- ---------- ----------- ---------- -----------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share........ 2,341,081 4,650,113 5,196,686 5,194,372 5,261,232
=========== ========== =========== ========== ===========
Basic and diluted net loss per share.... $ (0.76) $ (0.67) $ (1.51) $ (0.58) $ (2.34)
=========== ========== =========== ========== ===========
Pro forma (unaudited):
Net loss............................ $ (7,821) $ (12,293)
=========== ===========
Weighted average shares used in
computing basic and diluted net loss
per share (from above)................ 5,196,686 5,261,232
Adjustment to reflect the effect of the
assumed conversion of preferred stock
to common stock from the date of
issuance.............................. 7,289,632 12,879,371
----------- -----------
Weighted average shares used in
computing pro forma basic and diluted
net loss per share.................... 12,486,318 18,140,603
=========== ===========
Pro forma basic and diluted net loss per
share................................. $ (0.63) $ (0.68)
=========== ===========
</TABLE>
F-10
<PAGE> 101
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE (CONTINUED)
If the Company had reported net income, the calculation of historical and
pro forma diluted earnings per share would have included approximately an
additional 334,000, 570,000, 636,000, 617,000, and 869,000 common equivalent
shares related to the outstanding stock options and warrants not included above
(determined using the treasury stock method) for the years ended December 31,
1996, 1997 and 1998, and for the six months ended June 30, 1998 and 1999,
respectively.
EFFECT OF NEW ACCOUNTING STANDARDS
Financial Accounting Standards Board Statement No. 131 ("SFAS 131"),
"Disclosure about Segments of an Enterprise and Related Information,"
establishes standards for the way public business enterprises report information
in annual statements and interim financial reports regarding operating segments,
products and services, geographic areas, and major customers. The Company
adopted SFAS 131 in the year ended December 31, 1998, and operates in one
business segment which is, providing digital greetings.
2. FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
----- ------
<S> <C> <C>
Furniture and fixtures...................................... $ 49 $ 98
Computer equipment and purchased software................... 502 1,220
Leasehold improvements...................................... 14 34
----- ------
565 1,352
Less accumulated depreciation and amortization.............. (198) (507)
----- ------
$ 367 $ 845
===== ======
</TABLE>
3. COMMITMENTS
The Company leases its office facilities and certain office equipment under
noncancelable lease agreements which require the Company to pay operating costs,
including property taxes, normal maintenance and insurance. Rent expense
amounted to approximately $35,000, $98,000, and $216,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
F-11
<PAGE> 102
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
3. COMMITMENTS (CONTINUED)
Future minimum payments under the Company's operating leases as of December
31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1999.................................................... $421
2000.................................................... 60
2001.................................................... 3
----
Total minimum lease payments.......................... $484
====
</TABLE>
In April 1999, the Company entered into a long-term noncancelable lease on
an office building which expires August 2009. Future minimum payments under the
terms of the agreement are $722,000, $2,166,000, $2,166,000, $2,166,000, and
$2,166,000 for the years ended December 31, 1999, 2000, 2001, 2002, and 2003,
respectively. Also under the terms of the agreement, the Company is required to
provide a $2,000,000 letter of credit supporting the minimum lease payments. The
letter of credit is fully collateralized with a compensating cash balance at the
issuing bank.
4. DEBT
The Company has two equipment term loans. The loans bear interest at the
prime rate plus 1% and the prime rate plus 2%, respectively and mature in June
2000 and March 2002, respectively. Principal and interest are payable monthly.
At December 31, 1998, the outstanding loan balance was $210,000 and $750,000,
respectively. In February, 1999, the Company received an additional $500,000 to
its equipment term loans. These loans are secured by a general lien against the
Company's assets and require the Company to comply with certain financial
covenants. Future payments are as follows (in thousands):
<TABLE>
<S> <C>
1999................................................... $ 441
2000................................................... 358
2001................................................... 265
2002................................................... 21
------
Total payments....................................... 1,085
Less amount representing interest.................... (125)
------
Total principal payments............................. 960
Less current portion................................. (374)
------
$ 586
======
</TABLE>
NOTE PAYABLE TO STOCKHOLDER
In October 1998, the Company entered into a subordinated promissory note
with a preferred stockholder under which it borrowed approximately $514,000. The
note bears interest at 5.6%, compounded semi-annually. In March 1999, principal
and accrued interest were converted into 82,381 shares of Series D preferred
stock at $6.39 per share.
F-12
<PAGE> 103
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. INCOME TAXES
There has been no provision for United States federal or state or foreign
income taxes for any period as the Company has incurred operating losses for all
periods and in all jurisdictions.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 1,898 $ 4,710
Other.............................................. 17 80
------- -------
Total deferred tax assets............................ 1,915 4,790
Valuation allowance.................................. (1,915) (4,790)
------- -------
Net deferred tax assets.............................. $ -- $ --
======= =======
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $1,215,000 and $2,875,000 during the years ended December
31, 1997 and 1998, respectively.
As of December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $11,776,000, which expire in
the years 2010 through 2018. The Company also had net operating loss
carryforwards for state income tax purposes of approximately $11,775,000
expiring in 2003. Utilization of the Company's net operating losses may be
subject to substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code of 1986 and similar state provisions. Such
an annual limitation could result in the expiration of the net operating losses
before utilization.
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In May 1999, the Company completed a three-for-one stock split of issued
and outstanding shares of common stock. All common share prices, conversion
rates and other amounts associated with rights, preferences and privileges in
the accompanying financial statements have been retroactively adjusted to
reflect the effect of this stock split.
F-13
<PAGE> 104
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock is as follows by series:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
-------------------------------------
DECEMBER 31, AGGREGATE LIQUIDATION
DESIGNATED ---------------------- JUNE 30, PREFERENCE AT
SERIES SHARES 1997 1998 1999 DECEMBER 31, 1998
------ ---------- --------- --------- ----------- ---------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
A.................... 520,000 520,000 520,000 520,000 $ 416,000
B.................... 457,500 450,000 450,000 450,000 900,000
C.................... 808,257 702,763 702,763 702,763 2,811,000
D.................... 933,200 625,978 850,783 933,164 5,437,000
E.................... 1,500,000 -- -- -- --
F.................... 3,800,000 -- -- 3,726,493 --
---------- --------- --------- ---------- ----------
8,018,957 2,298,741 2,523,546 6,332,420 $9,564,000
========== ========= ========= ========== ==========
</TABLE>
Each share of preferred stock is convertible at any time, at the option of
the holder, into three shares of the Company's common stock, subject to
anti-dilution provisions. Each share of preferred stock will automatically
convert into three shares of common stock upon the earlier of the completion of
an initial public offering of the Company's common stock with proceeds to the
Company of at least $7,500,000 for Series A through E and $15,000,000 for Series
F at a per share price of $2.50, $5.00, $6.00 and $15.00 for Series A, B, C and
F, respectively, or the date on which the number of shares of Series A, B, C, D,
E or F preferred stock outstanding is less than 50% of the greatest number of
Series A, B, C, D, E or F, respectively, that has been outstanding at any time
on a series-by-series basis. The holders of Series A through D and F preferred
stock are entitled to the number of votes equal to the number of shares of
common stock into which their preferred stock is convertible. The holders of
Series E do not have voting rights.
The holders of preferred stock, in preference to the holders of any other
capital stock of the Company, are entitled to receive non-cumulative dividends,
when and if the Board of Directors declares and pays a dividend on shares of
common stock, in such amount pro rata, on an as-converted basis. No dividends
had been declared as of December 31, 1998.
In the event of any liquidation, dissolution, or winding up of the Company,
the holders of Series A, Series B, Series C, Series D, Series E and Series F
preferred stock have a liquidation preference of $0.80, $2.00, $4.00, $6.39,
$9.60 and $7.00 per share, respectively, over the holders of common stock plus
any declared but unpaid dividends. To the extent that additional funds are
available after distribution to the holders of Series A through D preferred
stock and common stock, the holders of Series A, Series B and Series C preferred
stock will receive additional distributions not to exceed $1.00, $2.52 and $5.00
per share, respectively, along with the holders of common stock.
F-14
<PAGE> 105
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
BRIDGE FINANCINGS
Between November 1998 and January 1999, the Company issued subordinated
notes for an aggregate amount of $2,100,000 and an interest rate of 8% per
annum, together with warrants to purchase 67,139 shares of Series F preferred
stock. The principal amount of these notes was converted into 300,000 shares of
Series F preferred stock in March 1999.
In February and March 1999, the Company issued short-term notes payable
with an aggregate principal amount of $1,000,000 and interest rates ranging from
4.59% to 8.00% per annum. The principal amount of these notes was converted into
142,857 shares of Series F preferred stock in March 1999.
WARRANTS
The Company had the following warrants to purchase shares of stock
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PREFERRED PRICE PER EXPIRATION OF
SHARES STOCK SHARE WARRANTS
- --------- ---------- --------- -------------------
<C> <C> <C> <S>
7,503 Series B $2.00 March 2003
41,910 Series C 4.00 April - August 2007
946,925 Series E 9.60 June 2000
31,746 Series F 6.30 November 2005
- ---------
1,028,084
=========
</TABLE>
In connection with the sale of the Series D preferred stock and a content
provider and distribution agreement ("Content Agreement") which expires in
December 2002, the Company granted the purchaser of these shares the right to
purchase 946,925 shares of Series E preferred stock at a price of $9.60 per
share in December 1997. This right originally expired in September 1998, but in
September 1998, the warrant expiration date was amended to expire upon the
earlier of June 5, 2000 or the completion of an initial public offering of the
Company's common stock with proceeds to the Company of at least $7,500,000;
provided, however, that if the Company's initial public offering has not
occurred by January 5, 2000, the right expires as to one-half of the shares
subject to this warrant if the warrant has not been exercised by that date. The
number of shares subject to this warrant was increased in March 1999 pursuant to
certain anti-dilution provisions that were triggered by the Company's sale of
its Series F preferred stock. As a result, as of September 30, 1999, the warrant
was exercisable for 1,470,000 shares of Series E preferred stock at an exercise
price per share equal to the lesser of (i) $6.18 per share and (ii) the price
per share to the public in an initial public offering.
F-15
<PAGE> 106
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS (CONTINUED)
Exercise of this warrant was contingent on the preferred stockholder not
being in material violation of the Content Agreement and therefore was accounted
for as a variable warrant. The warrant was valued by management using a model
based on the Black-Scholes model at each relevant measurement date with the fair
value recorded as deferred content costs expense in the accompanying balance
sheets. On September 30, 1999, in connection with the execution of the first
amendment to the Content Agreement, the warrant became non-forfeitable, fully
exercisable and fully vested and was no longer linked to performance under the
Content Agreement. The warrant value at September 30, 1999 of $8,408,000 will be
amortized over the remaining period of the Content Agreement. Realization of the
deferred content costs is subject to the Company generating adequate revenues
and other benefits as a result of the arrangement. Should the benefits under the
Content Agreement not accrue to the Company, the carrying value of the asset may
be impaired and the Company would be required to write down the asset value to
its net realizable value at that time. The Company will evaluate the
realizability of this asset at each reporting date in the future in accordance
with FASB 121.
STOCK OPTIONS
The Company's 1996 Stock Option Plan provides for the issuance of 9,675,164
shares of common stock to employees, officers, directors and consultants and is
limited to 17.5% of fully diluted common stock equivalents as defined. Options
granted under the plan may be incentive stock options ("ISOs") or non-statutory
stock options ("NSOs") to employees, officers, directors and consultants. The
ISOs may be granted at a price per share not less than the fair market value at
the date of grant. The NSOs may be granted at a price per share not less than
85% of the fair market value at the date of grant. If at any time the Company
grants an option and the optionee directly or by attribution owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, the option price shall be at least 110% of the fair value
at that date. Options granted are exercisable over a maximum term of ten years
from the date of grant and generally vest over a period of four years.
F-16
<PAGE> 107
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (CONTINUED)
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------
WEIGHTED-
AVERAGE
EXERCISE PRICE
NUMBER OF SHARES PER SHARE
---------------- --------------
<S> <C> <C>
Outstanding at December 31, 1995.................. 622,500 $0.03
Options granted................................. 298,500 0.07
Options canceled................................ (6,000) 0.07
---------- -----
Outstanding at December 31, 1996.................. 915,000 0.04
Options granted................................. 176,250 0.15
Options canceled................................ (120,706) 0.07
---------- -----
Outstanding at December 31, 1997.................. 970,544 0.06
Options granted................................. 767,250 0.55
Options canceled................................ (489,044) 0.09
---------- -----
Outstanding at December 31, 1998.................. 1,248,750 0.34
Options granted (unaudited)..................... 6,176,963 1.32
Options exercised (unaudited)................... (3,552,568) 1.35
Options canceled (unaudited).................... (517,506) 0.73
---------- -----
Outstanding at June 30, 1999 (unaudited).......... 3,355,639 $1.02
========== =====
Exercisable at December 31, 1998.................. 313,207 $0.10
========== =====
Exercisable at June 30, 1999 (unaudited).......... 372,843 $0.39
========== =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-AVERAGE
WEIGHTED-AVERAGE REMAINING WEIGHTED-AVERAGE
EXERCISE NUMBER EXERCISE PRICE CONTRACTUAL LIFE NUMBER EXERCISE PRICE
PRICE RANGE OF SHARES PER SHARE (YEARS) OF SHARES PER SHARE
- ----------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.03-0.22 545,250 $0.07 7.4 282,788 $0.07
0.42-0.62 642,000 0.53 9.5 30,223 0.38
0.83-1.03 61,500 0.85 9.8 196 1.03
--------- -------
1,248,750 313,207
========= =======
</TABLE>
In June 1999, an officer of the Company exercised an option to purchase
3,401,344 shares of restricted common stock at an exercise price of $1.40 per
share. All unvested shares are subject to repurchase at June 30, 1999 at $1.40
per share in the event of termination. The repurchase right lapses upon vesting.
These shares were purchased with a $4.8 million promissory note payable to the
Company. This full recourse note bears interest at 5.37% per annum, with
principal and interest due February 2003.
F-17
<PAGE> 108
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
DEFERRED STOCK COMPENSATION
The Company recorded deferred stock compensation of $488,000 and $3,115,000
during the year ended December 31, 1998 and the six months ended June 30, 1999,
respectively, representing the difference between the exercise price and the
deemed fair value for financial accounting purposes of certain of the Company's
stock options granted to employees. In the absence of a public market for the
Company's common stock, the deemed fair value of the Company's common stock was
based on the price per share of recent preferred stock financings, less a
discount to give effect to the superior rights of the preferred stock. These
amounts are being amortized by charges to operations over the vesting periods of
the individual stock options using a graded vesting method. Such amortization
amounted to $201,000 and $558,000 for the year ended December 31, 1998 and the
six months ended June 30, 1999, respectively.
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION
Pro forma information regarding results of operations and net loss per
share is required by SFAS 123, which also requires that the information be
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS 123. The fair value for these options was
estimated at the date of grant using the minimum value method with the following
weighted average assumptions: a risk-free interest rate of 5.5% for the years
ended December 31, 1996, 1997 and 1998, no dividend yield or volatility factors
with respect to the expected market price of the Company's common stock, and a
weighted average expected life of the options of 4.5 years.
The option valuation models were developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected life of the option. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost for the Company's stock-based compensation plans been
determined using the fair value at the grant dates for awards under the plan
calculated using the minimal value method of SFAS 123, the Company's net loss
and pro forma basic and diluted net loss per share would have been increased to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Pro forma net loss (in thousands).................... $(1,786) $(3,096) $(7,833)
======= ======= =======
Pro forma basic and diluted net loss per share....... $ (0.76) $ (0.67) $ (1.51)
======= ======= =======
</TABLE>
F-18
<PAGE> 109
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
PRO FORMA DISCLOSURES OF THE EFFECT OF STOCK-BASED COMPENSATION (CONTINUED)
The weighted-average fair value of options granted, which is the value
assigned to the options under SFAS 123, was $0.01, $0.03, and $0.12 for options
granted during the years ended December 31, 1996, 1997, and 1998, respectively.
The pro forma impact of options on the net loss is not representative of
the effects on net income (loss) for future years, as future years will include
the effects of additional years of stock option grants.
SHARES RESERVED FOR FUTURE ISSUANCE
At December 31, 1998, the Company has reserved shares of capital stock for
future issuance as follows:
<TABLE>
<CAPTION>
COMMON PREFERRED
---------- ---------
<S> <C> <C>
Convertible preferred stock, including effect of
preferred stock warrants............................... 10,654,890 --
Stock options outstanding................................ 1,248,750 --
Stock options available for grant........................ 8,426,414 --
Warrants to purchase preferred stock..................... -- 1,028,084
---------- ---------
19,330,054 1,028,084
========== =========
</TABLE>
7. RETIREMENT PLAN
The Company has a defined contribution plan for all full-time employees
which qualifies under Section 401(k) of the Internal Revenue Code. Under the
terms of the plan, employees may contribute up to 15%, subject to Internal
Revenue Service limitations, of their annual compensation. The plan provides for
discretionary employer contributions. As of December 31, 1998, there have been
no employer contributions to the plan.
8. SUBSEQUENT EVENTS
In August 1999, the Company entered into an equipment financing agreement
with two leasing companies and a financial institution which provides for
borrowings of up to $10.0 million. Amounts due bear interest at a rate of 10.0%
per annum and are payable monthly over a 36 month period from the date of each
advance. Advances under the facility are available through July 31, 2000.
Borrowings are secured by the equipment purchased under the financing agreement.
In connection with the financing, the Company granted warrants to purchase
60,000 shares of the Company's Series F preferred stock at an exercise price of
$9.00 per share.
F-19
<PAGE> 110
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
PROPOSED PUBLIC OFFERING OF COMMON STOCK
In September 1999, the Board of Directors authorized the Company to proceed
with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, each share of outstanding preferred stock
will automatically convert into three shares of common stock. The unaudited pro
forma stockholders' equity at June 30, 1999 gives effect to the conversion of
all outstanding shares of convertible preferred stock at that date into
18,997,260 shares of common stock upon the completion of the offering.
REINCORPORATION
In connection with the Company's reincorporation in the State of Delaware,
the Board of Directors authorized an increase in the number of authorized shares
of common stock to 75,000,000 and an increase in the number of authorized shares
of preferred stock to 15,500,000 shares, subject to stockholder approval.
Effective immediately prior to the completion of the initial public offering of
its common stock, the Board of Directors authorized, subject to stockholder
approval, a decrease in the number of authorized shares of preferred stock to
5,000,000.
1999 EQUITY INCENTIVE PLAN
In September 1999, the Company's Board of Directors adopted, subject to
stockholder approval, the 1999 Equity Incentive Plan. There are
shares of common stock authorized for issuance under the plan.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
In September 1999, the Company's Board of Directors adopted, subject to
stockholder approval, the 1999 Non-Employee Directors' Stock Option Plan and
reserved an aggregate of shares of common stock for grants of stock
options under such plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
In September 1999, the Company's Board of Directors adopted, subject to
stockholder approval, the 1999 Employee Stock Purchase Plan . The Company has
reserved a total of shares of common stock for issuance under this plan.
Beginning with the date of the Company's initial public offering of its common
stock, eligible employees may purchase common stock at 85% of the lesser of the
fair market value of the Company's common stock on the first day of the
applicable six-month offering period or the fair market value of the Company's
common stock at the date of purchase.
F-20
<PAGE> 111
EGREETINGS NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
SERIES G PREFERRED STOCK
In October 1999, the Company entered into a stock purchase agreement
pursuant to which it issued to investors an aggregate of 5,846,546 shares of
Series G convertible preferred stock for gross proceeds to the Company of
approximately $23,600,000. The Company's sale of this stock resulted in a
further adjustment to the warrant to purchase Series E preferred stock described
in Note 6 such that the warrant entitled the holder to purchase an aggregate of
1,663,333 shares of Series E preferred stock at a per share price of $5.46.
F-21
<PAGE> 112
[INSIDE BACK COVER ARTWORK]
<PAGE> 113
Egreetings Logo
<PAGE> 114
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by us in
connection with the sale of the shares of common stock being registered hereby.
All amounts are estimates except for the SEC registration fee, the NASD filing
fee and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $20,850
NASD filing fee............................................. 30,500
Nasdaq National Market filing fee........................... 95,000
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving expenses............................. *
Blue sky fees and expenses.................................. 10,000
Transfer agent and registrar fees and expenses.............. 15,000
Miscellaneous............................................... *
-------
Total............................................. $ *
=======
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our amended and restated certificate of incorporation, which will become
effective upon the closing of this offering, contains provisions permitted under
Delaware law relating to the liability of directors. These provisions eliminate
a director's personal liability for monetary damages resulting from a breach of
fiduciary duty, except in circumstances involving wrongful acts, such as:
- any breach of the director's duty of loyalty
- acts or omissions which involve a lack of good faith, intentional
misconduct or a knowing violation of the law
- any transaction from which the director derives an improper personal
benefit
- payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws.
Our bylaws require us to indemnify our directors and executive officers to
the fullest extent not prohibited by the Delaware law. We may limit the extent
of such indemnification by individual contracts with our directors and executive
officers. Further, we may decline to indemnify any director or executive officer
in connection with any proceeding initiated by such person or any proceeding by
such person against Egreetings or
II-1
<PAGE> 115
its directors, officers, employees or other agents, unless such indemnification
is expressly required to be made by law or the proceeding was authorized by our
board of directors.
We intend to enter into indemnity agreements with each of our current
directors and certain of our executive officers to give such directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in our certificate of incorporation and bylaws and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of Egreetings
for which indemnification is sought, nor are we aware of any threatened
litigation that may result in claims for indemnification.
We have the power to indemnify our other officers, employees and other
agents, as permitted by Delaware law, but we are not required to do so.
Egreetings plans to obtain directors' and officers' liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth information regarding all securities sold by
the Registrant since October 1, 1996;
1. From December 1996 to October 1997, we issued and sold an aggregate of
702,763 shares of Series C preferred stock, each of which will convert
into three shares of common stock upon completion of this offering, at
$4.00 per share to eight investors, 330,840 of which were sold to three
of our executive officers and/or directors (and related entities).
2. From October to November 1996, in connection with a loan financing, we
issued warrants to purchase an aggregate of 41,910 shares of Series C
preferred stock, each of which will convert into three shares of common
stock upon completion of this offering, at an exercise price of $4.00
per share to five investors, 11,094 of which were sold to two of our
executive officers and/or directors (and related entities).
3. From December 1997 to July 1998, we issued and sold an aggregate of
850,783 shares of Series D preferred stock, each of which will convert
into three shares of common stock upon completion of this offering, at
$6.39 per share in cash to one investor, 850,783 of which were sold to
one of our executive officers and/or directors (and related entities).
4. In December 1997, we issued a warrant to purchase 946,925 shares of
Series E preferred stock, each of which will convert into three shares
of common stock upon the completion of this offering, at an exercise
price of $9.60 per share to one investor, which is an affiliate of one
of our directors. In March 1999, the number of shares of Series E
preferred stock issuable pursuant to this warrant was increased to
1,470,000 shares as an anti-dilution adjustment in connection with the
sale of our Series F preferred stock. In October 1999, the number of
shares of Series E preferred stock issuable pursuant to this warrant
was increased to 1,663,333 shares as an anti-dilution adjustment in
connection with the sale of our Series G preferred stock. There was no
additional consideration paid in connection with these adjustments, and
there was no adjustment to the aggregate exercise price of the warrant.
II-2
<PAGE> 116
5. From March to April 1999, we issued and sold an aggregate of 3,726,493
shares of Series F preferred stock at $7.00 per share to ten investors,
2,609,000 of which were sold to five of our executive officers and/or
directors (and related entities).
6. From November 1998 to January 1999, we issued warrants to purchase an
aggregate of 67,139 shares of Series F preferred stock, each of which
will convert into three shares of common stock upon completion of this
offering, at an exercise price of $6.30 per share to four investors,
all of which were sold to four of our executive officers and/or
directors (and related entities).
7. In August 1999, we issued warrants to purchase an aggregate of 60,000
shares of Series F preferred stock, each of which will convert into
three shares of common stock upon completion of this offering, at an
exercise price of $9.00 per share to three investors, none of which
were sold to our executive officers and/or directors (and related
entities).
8. In October 1999, we issued and sold an aggregate of 5,846,546 shares of
Series G preferred stock at $4.04 per share to 17 investors, 2,330,562
of which were sold to five of our executive officers and/or directors
(and related entities).
9. Between October 1, 1996 and October 1, 1999, we granted options to
purchase an aggregate of shares of common stock at
exercise prices ranging from $0.03 to $1.85 per share with a weighted
average exercise price of $ per share.
All sales of common stock made pursuant to the exercise of stock options
granted under the 1996 Stock Option Plan to our officers, directors, employees
and consultants were made in reliance on Rule 701 under the Securities Act or on
Section 4(2) of the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising. Each purchaser was a sophisticated
investor with access to all relevant information necessary to evaluate the
investment and represented to the Registrant that the shares were being acquired
for investment.
II-3
<PAGE> 117
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Amended and Restated Articles of Incorporation
3.02 Bylaws, as amended.
3.03 Form of Amended and Restated Certificate of Incorporation to
be in effect upon Egreetings' reincorporation in Delaware.
3.04 Form of Bylaws to be in effect upon Egreetings'
reincorporation in Delaware.
4.01 Reference is made to Exhibits 3.01 to 3.04
4.02* Form of Specimen Stock Certificate.
4.03 Fourth Amended and Restated Investors' Rights Agreement
dated October 1, 1999.
5.01* Opinion of Cooley Godward LLP.
10.01 Form of Indemnity Agreement.
10.02 1999 Equity Incentive Plan.
10.03* Form of Grant Notice and Stock Option Agreement under the
1999 Equity Incentive Plan.
10.04 1999 Non-Employee Directors' Stock Option Plan.
10.05* Form of Nonstatutory Stock Option Agreement under the 1999
Non-Employee Directors' Stock Option Plan.
10.06 1999 Employee Stock Purchase Plan.
10.07* Form of 1999 Employee Stock Purchase Plan Offering.
10.08 Office Lease between South Beach Development Company and
Egreetings dated October 1999.
10.09 Lease between Jonathan Parker, Thomas M. Monahan, Harold
Parker Properties, L.P., Harold A. Parker, Trustee, Gertrud
V. Parker, Trustee of the Harold A. Parker Company Trust and
Egreetings dated August 1999.
10.10* Content Provider and Distribution Agreement between
Egreetings and Gibson Greetings, Inc., as amended on
September 30, 1999.
10.11* Agreement between Hotmail Corporation and Egreetings, as
amended through August 1998.
10.12 Employment Agreement between Gordon M. Tucker and Egreetings
dated February 12, 1999 and Promissory Note and Pledge
Agreement between Gordon M. Tucker and Egreetings dated June
18, 1999.
10.13 Early Exercise Stock Purchase Agreement, Promissory Note and
Pledge Agreement between Andrew J. Moley and Egreetings
dated July 30, 1999.
10.14 1996 Stock Option Plan, as amended.
23.01* Consent of Cooley Godward LLP (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP, independent accountants.
24.01 Power of Attorney. Reference is made to page II-6.
27.01 Financial Data Schedules.
</TABLE>
- -------------------------
* To be filed by amendment
(b) No financial statement schedules are provided because the information
called for is not required or is shown either in the consolidated financial
statements or the notes thereto.
II-4
<PAGE> 118
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 119
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City and County of San Francisco,
State of California, on the 6th day of October, 1999.
Egreetings Network, Inc.
By: /s/ GORDON M. TUCKER
--------------------------------------
Gordon M. Tucker
Chief Executive Officer
POWER OF ATTORNEY
Each individual whose signature appears below constitutes and appoints
Andrew Moley and Andrew Missan, and each of them, his or her true and lawful
attorneys-in-fact and agents with full power of substitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by the Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his,
her or their substitute or substitutes, may lawfully do or cause to be done or
by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ GORDON M. TUCKER Chief Executive Officer, October 6, 1999
- ------------------------------ Principal Executive Officer
Gordon M. Tucker and Director
/s/ ANDREW J. MOLEY Senior Vice President and October 6, 1999
- ------------------------------ Chief Financial Officer,
Andrew J. Moley Principal Financial Officer
and Principal Accounting
Officer
</TABLE>
II-6
<PAGE> 120
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ STEWART ALSOP Director October 6, 1999
- ------------------------------
Stewart Alsop
/s/ CHARLES A. HOLLOWAY Director October 6, 1999
- ------------------------------
Charles A. Holloway
/s/ BRENDON S. KIM Director October 6, 1999
- ------------------------------
Brendon S. Kim
/s/ PETER NIEH Director October 6, 1999
- ------------------------------
Peter Nieh
/s/ FRANK J. O'CONNELL Director October 6, 1999
- ------------------------------
Frank J. O'Connell
/s/ LEE ROSENBERG Director October 6, 1999
- ------------------------------
Lee Rosenberg
</TABLE>
II-7
<PAGE> 121
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Amended and Restated Articles of Incorporation
3.02 Bylaws, as amended.
3.03 Form of Amended and Restated Certificate of Incorporation to
be in effect upon Egreetings' reincorporation in Delaware.
3.04 Form of Bylaws to be in effect upon Egreetings'
reincorporation in Delaware.
4.01 Reference is made to Exhibits 3.01 to 3.04
4.02* Form of Specimen Stock Certificate.
4.03 Fourth Amended and Restated Investors' Rights Agreement
dated October 1, 1999.
5.01* Opinion of Cooley Godward LLP.
10.01 Form of Indemnity Agreement.
10.02 1999 Equity Incentive Plan.
10.03* Form of Grant Notice and Stock Option Agreement under the
1999 Equity Incentive Plan.
10.04 1999 Non-Employee Directors' Stock Option Plan.
10.05* Form of Nonstatutory Stock Option Agreement under the 1999
Non-Employee Directors' Stock Option Plan.
10.06 1999 Employee Stock Purchase Plan.
10.07* Form of 1999 Employee Stock Purchase Plan Offering.
10.08 Office Lease between South Beach Development Company and
Egreetings dated October 1999.
10.09 Lease between Jonathan Parker, Thomas M. Monahan, Harold
Parker Properties, L.P., Harold A. Parker, Trustee, Gertrud
V. Parker, Trustee of the Harold A. Parker Company Trust and
Egreetings dated August 1999.
10.10* Content Provider and Distribution Agreement between
Egreetings and Gibson Greetings, Inc., as amended on
September 30, 1999.
10.11* Agreement between Hotmail Corporation and Egreetings, as
amended through August 1998.
10.12 Employment Agreement between Gordon M. Tucker and Egreetings
dated February 12, 1999 and Promissory Note and Pledge
Agreement between Gordon M. Tucker and Egreetings dated June
18, 1999.
10.13 Early Exercise Stock Purchase Agreement, Promissory Note and
Pledge Agreement between Andrew J. Moley and Egreetings
dated July 30, 1999.
10.14 1996 Stock Option Plan, as amended.
23.01* Consent of Cooley Godward LLP (included in Exhibit 5.01).
23.02 Consent of Ernst & Young LLP, independent accountants.
24.01 Power of Attorney. Reference is made to page II-6.
27.01 Financial Data Schedules.
</TABLE>
- -------------------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 3.01
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
E-GREETINGS NETWORK
Gordon M. Tucker and Andrew P. Missan certify that:
1. They are the Chief Executive Officer and Secretary, respectively, of
E-greetings Network, a California corporation (the "corporation").
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
I
The name of this corporation is Egreetings Network, Inc.
II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the tug company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
This corporation is authorized to issue two classes of shares of stock,
to be designated Common Stock and Preferred Stock, respectively. This
corporation is authorized to issue 65,000,000 shares of Common Stock and
15,500,000 shares of Preferred Stock. The shares of Preferred Stock may be
issued from time to time in series. The par value of Common Stock and Preferred
Stock is $0.001 per share.
Of the 15,500,000 shares of Preferred Stock, this corporation is
authorized to issue 520,000 shares of Series A Preferred Stock, 457,503 shares
of Series B Preferred Stock, 808,257 shares of Series C Preferred Stock, 933,200
shares of Series D Preferred Stock, 2,200,000 shares of Series E Preferred
Stock, 3,853,632 shares of Series F Preferred Stock and 6,600,000 shares of
Series G Preferred Stock.
The Board of Directors of this corporation is authorized to fix or
alter the rights, preferences, privileges, and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, including but not
limited to the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions) and the
liquidation preferences, and the number of shares constituting any such series
and the designation thereof, or any of them; and to increase or decrease the
number of shares of any series subsequent to the issue of shares of such series,
but not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased,
1.
<PAGE> 2
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
IV
The Series A Preferred Stock, the Series B Preferred Stock, the Series
C Preferred Stock, the Series D Preferred Stock the Series E Preferred Stock,
the Series F Preferred Stock and the Series G Preferred Stock (collectively, the
"Series A-G Preferred Stock") will have the applicable rights, privileges and
restrictions set forth below:
A. VOTING RIGHTS.
1. Except as otherwise provided below or as required by law,
the holders of Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Series F Preferred
Stock and the Series G Preferred Stock (such stock, collectively, the "Series
A-D, F and G Preferred Stock" and such holders, collectively, the "Series A-D, F
and G Shareholders") will be entitled to notice of any meeting of shareholders
of the corporation and to vote upon any matter submitted to shareholders of the
corporation on the following basis: each share of Series A-D, F and G Preferred
Stock will be treated as the number of shares of Common Stock into which such
share could be converted pursuant to paragraph D below on the record date fixed
for the vote or consent of shareholders. The holders of the Series E Preferred
Stock will have no vote on any matter submitted to the shareholders of the
corporation, except as required by law or as otherwise provide in paragraph E
below.
2. (i) The holders of the Series A Preferred Stock will be
entitled, voting as a separate class, to elect one (1) director, the holders of
the Series B Preferred Stock will be entitled, voting as a separate class, to
elect one (1) director, and the holders of the Series F Preferred Stock will be
entitled, voting as a separate class, to elect one (1) director, in each case on
an as converted into Common Stock basis.
(ii) The holders of the Series D Preferred Stock will be
entitled, voting as a separate class, to elect one (1) director, on an as
converted into Common Stock basis, provided that at least 931,142 shares of
Series D Preferred Stock remain issued and outstanding, provided further that
such right may be waived by the consent of the holders of a majority of the
outstanding shares of Series D Preferred Stock expressed in a written instrument
or agreement.
(iii) The holders of Common Stock (the "Common
Shareholders"), voting as a separate class, will be entitled to elect three (3)
directors.
(iv) The remaining directors shall be elected by the Series
A-D, F and G Preferred Shareholders and the Common Shareholders, voting together
as a single class (the "Combined Class"), with each share of Series A-D, F and G
Preferred Stock being treated as the number of shares of Common Stock into which
such share could be converted in the manner set forth in paragraph A(l) above.
(v) Any director elected solely by the holders of the
Series A Preferred Stock, by the holders of the Series B Preferred Stock, by the
holders of the Series D Preferred Stock, by the holders of the Series F
Preferred Stock or by the Common Shareholders, or by the
2.
<PAGE> 3
Combined Class, as the case may be, may be removed, either with or without
cause, by, and only by, the affirmative vote of the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Series D Preferred Stock, the
Series F Preferred Stock, or the Common Shareholders, or of the Combined Class,
respectively, either at a special meeting of such shareholders duly called for
that purpose or pursuant to a written consent of such shareholders, and any
vacancy thereby created or otherwise resulting may be filled by, and only by,
the holders of the Series A Preferred Stock, the holders of the Series B
Preferred Stock, the holders of the Series D Preferred Stock, the holders of the
Series F Preferred Stock, the Common Shareholders, or the Combined Class, as the
case may be.
3. Except as otherwise required by law or provided by
these Articles of Incorporation, a majority of the shares entitled to vote,
represented in person or by proxy, will constitute a quorum at a meeting of
shareholders; provided that for action upon any matter as to which holders of
shares are entitled to vote as a class or series, a majority of the shares of
such class or series, represented in person or by proxy, will constitute a
quorum.
B. DIVIDENDS. In the event that any dividend (cash or otherwise)
is declared on Common Stock, the holders of the Series A-G Preferred Stock
(together, the "Series A-G Preferred Shareholders") will be entitled to receive
dividends pari passu, out of funds legally available therefor, prior and in
preference to payment on Common Stock, in an amount per share of Series A-G
Preferred Stock as would be payable on the number of shares of Common Stock into
which each such share of Series A-G Preferred Stock would be converted pursuant
to paragraph D as of the record date for the determination of the Common
Shareholders entitled to receive such dividend. Such dividends will not be
cumulative.
C. LIQUIDATION PREFERENCE.
1. For purposes hereof, the Original Purchase Price of
the Series A Preferred Stock is Eighty Cents ($.80) per share; the Original
Purchase Price of the Series B Preferred Stock is Two Dollars ($2.00) per share;
the Original Purchase Price of the Series C Preferred Stock is Four Dollars
($4.00) per share; the Original Purchase Price of the Series D Preferred Stock
is Six Dollars and Thirty-Nine Cents ($6.39) per share; the Original Purchase
Price of the Series E Preferred Stock is the lesser of (i) Six Dollars and
Forty-Three Cents ($6.43) per share, and (ii) the amount stated as the "Exercise
Price" in that certain Warrant Rights Agreement dated effective as of March 12,
1999 between the corporation and Gibson Greetings, Inc.; the Original Purchase
Price of the Series F Preferred Stock is Seven Dollars ($7.00) per share; and
the Original Purchase Price of the Series G Preferred Stock is Four Dollars
Four Cents ($4.04) per share.
2. In the event of the liquidation, dissolution or
winding up of the corporation, either voluntary or involuntary (a "Liquidation),
the assets of the corporation legally available for distribution to the
shareholders of the corporation (the "Distributable Assets") will be distributed
in the following order:
(a) first, to the Series A-G Preferred
Shareholders, in each case prior and in preference to any distribution to the
Common Shareholders, an amount per share equal to the applicable Original
Purchase Price of such series of Preferred Stock (as appropriately
3.
<PAGE> 4
adjusted for stock splits, recapitalizations, combinations and the like) plus
all declared and paid dividends with respect thereto; and
(b) second, to the holders of the Series A
Preferred Stock, the holders of the Series B Preferred Stock, and the holders of
the Series C Preferred Stock (such stock, collectively, the "Series A-C
Preferred Stock" and such holders, collectively, the "Series A-C Shareholders")
and the Common Shareholders, based on their respective pro rata share of such
Distributable Assets (such pro rata share being an amount equal to the
percentage of the outstanding shares of Common Stock held by such shareholder,
as if all outstanding shares of Series A-C Preferred Stock had been converted
into shares of Common Stock as provided in paragraph D), provided that aggregate
distributions to the Series A-C Preferred Shareholders pursuant to paragraph
C(2)(a) above and this paragraph C(2)(b) shall not exceed $1.00 per share of
Series A Preferred Stock, $2.50 per share of Series B Preferred Stock and $5.00
per share of Series C Preferred Stock (each as appropriately adjusted for stock
splits, recapitalizations, combinations and the like).
(c) if upon the occurrence of a Liquidation the
Distributable Assets are insufficient to permit the payment to the Series A-G
Preferred Shareholders of the full preferential amounts to which they are then
entitled as provided in clause (a) of this paragraph C(2), then the
Distributable Assets will be distributed ratably among such Series A-G Preferred
Shareholders based on their respective liquidation preference amounts as set
forth in clause (a) above.
(d) If upon the occurrence of a Liquidation, the
Distributable Assets are sufficient to permit the payment to the Series A-G
Preferred Shareholders of the full preferential amounts to which they are then
entitled as provided in clause (a) above, but are insufficient to permit the
payment to the Series A-C Preferred Shareholders and the Common Shareholders of
the additional full amount to which they are then entitled as provided in clause
(b) of this paragraph C(2), then the full preferential amounts provided in
clause (a) will be paid to the Series A-G Preferred Shareholders, and the
remaining Distributable Assets will be distributed ratably among such Series A-C
Preferred Shareholders and the Common Shareholders based on the formula set
forth in clause (b) above.
(e) After payment has been made to the Series
A-G Preferred Shareholders and the Common Shareholders of the full amounts to
which they are then entitled as provided in clauses (a) and (b) of this
paragraph C(2), any remaining Distributable Assets will be distributed ratably
among the Common Shareholders.
3. A Liquidation for the purposes of this paragraph C
includes a sale of all or substantially all of the assets of the corporation and
a merger or consolidation of the corporation with or into any other corporation
or corporations, or any other corporate reorganization, where the shareholders
of the corporation immediately prior to such event do not retain more than a
fifty percent (50%) interest in the successor entity (a "Merger or Sale of
Corporation"). No later than 10 days before the consummation of any Merger or
Sale of Corporation, the corporation shall deliver a notice to each Series A-G
Preferred Shareholder setting forth the principal terms of such Merger or Sale
of Corporation. Such notice shall be delivered as provided in paragraph D.8
below.
4.
<PAGE> 5
4. Each Series A-G Preferred Shareholder shall be deemed
to have consented, for purposes of Sections 502, 503 and 506 of the California
Corporations Code, to distributions made by the corporation in connection with
the repurchase at cost (or such other price as may be agreed to by this
corporation's Board of Directors) of shares of Common Stock issued to or held by
officers, directors or employees of, or consultants, advisers and others who
provide services to, this corporation or its subsidiaries upon termination of
their employment or services pursuant to agreements (whether now existing or
hereafter entered into) providing for the right of said repurchase between the
corporation and such persons.
D. CONVERSION TO COMMON STOCK. The Series A-G Preferred Stock
shall be convertible into Common Stock of the corporation as follows:
1. OPTIONAL CONVERSION. Each Series A-G Preferred
Shareholder may, at any time, and from time to time, convert any or all of such
holder's shares of Series A-G Preferred Stock into fully-paid and non-assessable
shares of Common Stock.
2. AUTOMATIC CONVERSION.
(a) Each share of Series A Preferred Stock shall
automatically be converted into shares of Common Stock:
(i) immediately upon the closing of the
corporation's sale of its Common Stock in an underwritten public offering
registered under the Securities Act of 1933, as amended, on Form S-1, Form SB-1
or Form SB-2 (or any successor equivalent forms) at a per share public offering
price of not less than $2.50 (as appropriately adjusted for stock splits,
recapitalizations, combinations and the like) and for an aggregate public
offering price of not less than $7,500,000; or
(ii) the date on which the number of shares
of Series A Preferred Stock outstanding is less than 50% of the greatest number
of shares of Series A Preferred Stock that have been outstanding at any time (as
appropriately adjusted for stock splits, recapitalizations, combinations and the
like).
(b) Each share of Series B Preferred Stock shall
automatically be converted into shares of Common Stock:
(i) immediately upon the closing of the
corporation's sale of its Common Stock in an underwritten public offering
registered under the Securities Act of 1933, as amended, on Form S-1, Form SB-1
or Form SB-2 (or any successor equivalent forms) at a per share public offering
price of not less than $5.00 (as appropriately adjusted for stock splits,
recapitalizations, combinations and the like) and for an aggregate public
offering price of not less than $7,500,000; or
(ii) the date on which the number of shares
of Series B Preferred Stock outstanding is less than 50% of the greatest number
of shares of Series B Preferred Stock that have been outstanding at any time (as
appropriately adjusted for stock splits, recapitalizations, combinations and the
like).
5.
<PAGE> 6
(c) Each share of Series C Preferred Stock shall
automatically be converted into shares of Common Stock:
(i) immediately upon the closing of the
corporation's sale of its Common Stock in an underwritten public offering
registered under the Securities Act of 1933, as amended, on Form S-1, Form SB-1
or Form SB-2 (or any successor equivalent forms) at a per share public offering
price of not less than $6.00 (as appropriately adjusted for stock splits,
recapitalizations, combinations and the like) and for an aggregate public
offering price of not less than $7,500,000; or
(ii) the date on which the number of shares
of Series C Preferred Stock outstanding is less than 50% of the greatest number
of shares of Series C Preferred Stock that have been outstanding at any time (as
appropriately adjusted for stock splits, recapitalizations, combinations and the
like).
(d) Each share of Series D Preferred Stock shall
automatically be converted into shares of Common Stock:
(i) immediately upon the closing of the
corporation's sale of its Common Stock in an underwritten public offering
registered under the Securities Act of 1933, as amended, on Form S-1, Form SB-1
or Form SB-2 (or any successor equivalent forms) for an aggregate public
offering price of not less than $7,500,000; or
(ii) the date on which the number of shares
of Series D Preferred Stock outstanding is less than 50% of the greatest number
of shares of Series D Preferred Stock that have been outstanding at any time (as
appropriately adjusted for stock splits, recapitalizations, combinations and
the like).
(e) Each share of Series E Preferred Stock shall
automatically be converted into shares of Common Stock:
(i) immediately upon the closing of the
corporation's sale of its Common Stock in an underwritten public offering
registered under the Securities Act of 1933, as amended, on Form S-1, Form SB-l
or Form SB-2 (or any successor equivalent forms) for an aggregate public
offering price of not less than $7,500,000; or
(ii) the date on which the number of shares
of Series E Preferred Stock outstanding is less than 50% of the greatest number
of shares of Series E Preferred Stock that have been outstanding at any time (as
appropriately adjusted for stock splits, recapitalizations, combinations and the
like).
(f) Each share of Series F Preferred Stock shall
automatically be converted into shares of Common Stock:
(i) immediately upon the closing of the
corporation's sale of its Common Stock in an underwritten public offering
registered under the Securities Act of 1933, as amended, on Form S-1, Form SB-l
or Form SB-2 (or any successor equivalent forms) at a per share public offering
price of not less than $15.00 (as appropriately adjusted for stock splits,
6.
<PAGE> 7
recapitalizations, combinations and the like) for an aggregate public offering
price of not less than $15,000,000; or
(ii) upon the vote or written consent of the
holders, of at least a majority of the outstanding shares of Series F Preferred
Stock.
(g) Each share of Series G Preferred Stock shall
automatically be converted into shares of Common Stock:
(i) immediately upon the closing of the
corporation's sale of its Common Stock in an underwritten public offering
registered under the Securities Act of 1933, as amended, on Form S-1, Form SB-l
or Form SB-2 (or any successor equivalent forms) at a per share public offering
price of not less than $5.36 (as appropriately adjusted for stock splits,
recapitalizations, combinations and the like) for an aggregate public offering
price of not less than $15,000,000; or
(ii) upon the vote or written consent of the
holders, of at least a majority of the outstanding shares of Series G Preferred
Stock.
3. CONVERSION RATE.
(a) Upon conversion of the Series A Preferred
Stock, each such share shall be converted into the number of shares of Common
Stock that results from dividing the Original Purchase Price of the Series A
Preferred Stock by the Series A Conversion Price in effect at the time of
conversion. Upon conversion of the Series B Preferred Stock, each such share
shall be converted into the number of shares of Common Stock that results from
dividing the Original Purchase Price of the Series B Preferred Stock by the
Series B Conversion Price in effect at the time of conversion. Upon conversion
of the Series C Preferred Stock, each such share shall be converted into the
number of shares of Common Stock that results from dividing the Original
Purchase Price of the Series C Preferred Stock by the Series C Conversion Price
in effect at the time of conversion. Upon conversion of the Series D Preferred
Stock, each such share shall be converted into the number of shares of Common
Stock that results from dividing the Original Purchase Price of the Series D
Preferred Stock by the Series D Conversion Price in effect at the time of
conversion. Upon conversion of the Series E Preferred Stock, each such share
shall be converted into the number of shares of Common Stock that results from
dividing the Original Purchase Price of the Series E Preferred Stock by the
Series E Conversion Price in effect at the time of conversion. Upon conversion
of the Series F Preferred Stock, each such share shall be converted into the
number of shares of Common Stock that results from dividing the original
Purchase Price of the Series F Preferred Stock by the Series F Conversion Price
in effect at the time of conversion. Upon conversion of the Series G Preferred
Stock, each such share shall be converted into the number of shares of Common
Stock that results from dividing the original Purchase Price of the Series G
Preferred Stock by the Series G Conversion Price in effect at the time of
conversion.
(b) The initial Series A Conversion Price will
be the Original Purchase Price of the Series A Preferred Stock; the initial
Series B Conversion Price will be the Original Purchase Price of the Series B
Preferred Stock; the initial Series C Conversion Price will be the
7.
<PAGE> 8
Original Purchase Price of the Series C Preferred Stock; the initial Series D
Conversion Price will be the Original Purchase Price of the Series D Preferred
Stock; the initial Series E Conversion Price will be the Original Purchase Price
of the Series E Preferred Stock; the initial Series F Conversion Price will be
the Original Purchase Price of the Series F Preferred Stock; and the initial
Series G Conversion Price will be the Original Purchase Price of the Series G
Preferred Stock; each as set forth in paragraph C(l) above. (The Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price,
the Series D Conversion Price, the Series E Conversion Price, the Series F
Conversion Price and the Series G Conversion Price sometimes are referred to
hereafter, either individually or collectively as the context requires, as the
"Conversion Price.") The Conversion Price shall be subject to adjustment from
time to time in certain instances as hereinafter provided.
(c) In the case of optional conversion, before
any Series A-G Preferred Shareholder shall be entitled to convert shares of
Series A-G Preferred Stock into Common Stock, such holder shall surrender the
certificate or certificates therefor (or an affidavit certifying that such
certificate has been mutilated or apparently lost, destroyed or stolen along
with an appropriate indemnity), duly endorsed, to the office of the corporation
or any transfer agent for such series of Preferred Stock and shall give written
notice to the corporation at such office that he elects to convert the same. The
corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder, or to his nominee or nominees, certificates for the
number of full shares of Common Stock to which he shall be entitled, together
with cash in lieu of any fraction of a share as hereinafter provided, and, if
less than all of the shares represented by such certificate are converted, a
certificate representing the unconverted shares of Series A-G Preferred Stock,
as the case may be. Such conversion shall be deemed to have been made as of the
date of such surrender of the certificate for the stock to be converted, and the
person or persons entitled to receive the Common Stock deliverable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock on such date. If the conversion is in connection with an offer
of securities registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering shares of Series A-G
Preferred Stock for conversion, be conditioned upon the closing of the sale of
securities pursuant to such offering, in which event the person(s) entitled to
receive the Common Stock deliverable upon such conversion of the Series A-G
Preferred Stock shall not be deemed to have converted such Series A-G Preferred
Stock until immediately prior to the closing of such sale of securities.
(d) In the case of automatic conversion, on and
after the related conversion event, notwithstanding that any certificates for
such shares of Series A-G Preferred Stock subject to such conversion shall not
have been surrendered for conversion, the shares of Series A-G Preferred Stock
evidenced thereby shall be deemed to be no longer outstanding, and all rights
with respect thereto shall forthwith cease and terminate, except only the rights
of the holder (i) to receive the shares of Common Stock to which such holder
shall be entitled upon conversion thereof, and (ii) to receive the amount of
cash payable in respect of any fractional share of Common Stock to which such
holder shall be entitled.
4. ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price
of the Series A-G Preferred Stock in effect from time to time shall be subject
to adjustment in certain cases as follows:
8.
<PAGE> 9
(a) ADJUSTMENT FOR COMBINATIONS OR
CONSOLIDATIONS OF COMMON STOCK. In the event the corporation at any time or from
time to time after the effective date of the initial sale of Series A Preferred
Stock (the "Series A Preferred Original Issue Date"), the effective date of the
initial sale of Series B Preferred Stock (the "Series B Preferred Original Issue
Date"), the effective date of the initial sale of Series C Preferred Stock (the
"Series C Preferred Original Issue Date"), the effective date of the initial
sale of Series D Preferred Stock (the "Series D Preferred Original Issue Date"),
the effective date of the initial sale of Series E Preferred Stock (the "Series
E Preferred Original Issue Date"), the effective date of the initial sale of
Series F Preferred Stock (the "Series F Preferred Original Issue Date") or the
effective date of the initial sale of Series G Preferred Stock (the "Series G
Preferred Original Issue Date"), as the case may be, effects a subdivision or
combination of its outstanding Common Stock into a greater or lesser number of
shares without a proportionate and corresponding subdivision or combination of
its outstanding Series A-G Preferred Stock, as the case may be, then the
existing Conversion Price for each series of the Series A-G Preferred Stock will
be decreased or increased proportionately.
(b) ADJUSTMENT FOR DIVIDENDS AND DISTRIBUTIONS
OF COMMON STOCK AND COMMON STOCK EQUIVALENTS. In the event the corporation at
any time or from time to time after the applicable Original Issue Date makes or
issues, or fixes a record date for the determination of holders of Common Stock
(but not Series A-G Preferred Shareholders) entitled to receive a dividend or
other distribution payable in additional shares of Common Stock or other
securities or rights (hereinafter referred to as "Common Stock Equivalents")
convertible into or entitling the holder thereof to receive additional shares of
Common Stock without payment of any consideration for such Common Stock
Equivalents or the additional shares of Common Stock, for the purpose of
protecting the Series A-G Preferred Shareholders from any dilution in connection
therewith, then and in each such event the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable in payment of such dividend or distribution or upon conversion or
exercise of such Common Stock Equivalents will be deemed to be issued and
outstanding as of the time of such issuance or, in the event such a record date
has been fixed, as of the close of business on such record date. In each such
event, the then-existing Conversion Price for each series of the Series A-G
Preferred Stock will be decreased as of the time of such issuance or, in the
event such a record date has been fixed, as of the close of business on such
record date, by multiplying the applicable Conversion Price by a fraction:
(i) the numerator of which will be the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date; and
(ii) the denominator of which will be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date plus
that number of shares of Common Stock issuable in payment of such dividend or
distribution or upon conversion or exercise of such Common Stock Equivalents;
provided that if such record date has been fixed and such dividend is not fully
paid or if such distribution is not fully made on the date fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, then the Conversion Price for the applicable series of the
Series A-G Preferred Stock will be recomputed accordingly as of the close of
business on such record date and thereafter the Conversion Price for the
9.
<PAGE> 10
applicable series of the Series A-G Preferred Stock will be adjusted pursuant to
this paragraph D.4 as of the time of actual payment of such dividends or
distribution.
(c) RECAPITALIZATION. If at any time or from
time to time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or Merger or Sale of Corporation transaction provided
for elsewhere in this paragraph D), provision shall be made so that the Series
A-G Preferred Shareholders shall thereafter be entitled to receive upon
conversion of such Preferred Stock the number of shares of stock or other
securities or property of the corporation or otherwise, to which a holder of
Common Stock issuable upon conversion thereof would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this paragraph D with respect to the rights of
the Series A-G Preferred Shareholders after the recapitalization to the end that
the provisions of this paragraph D (including adjustment of the Conversion Price
then in effect and the number of shares purchasable upon conversion of shares of
Series A-G Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(d) ADJUSTMENT FOR SALE OF SHARES.
(i) If at any time after the Series A
Preferred Original Issue Date, the corporation issues or sells any share of its
Common Stock, other than "Excluded Shares" (as defined below), for a
consideration per share less than the Series A Conversion Price in effect on the
date of and immediately prior to such issue, then and in each such case, the
Series A Conversion Price will be reduced to a price (calculated to the nearest
cent) determined by multiplying the Series A Conversion Price by a fraction (1)
the numerator of which will be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock
which the aggregate consideration received by the corporation for such issuance
would purchase at such applicable Series A Conversion Price, and (2) the
denominator of which will be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock
issued pursuant to such issuance; provided that such fraction will in no event
be greater than one (1), such that the Series A Conversion Price will not be
increased by the adjustment provided in this clause (i).
(ii) if at any time after the Series B
Preferred Original Issue Date, the corporation issues or sells any shares of its
Common Stock other than "Excluded Shares," for a consideration per share less
than the Series B Conversion Price in effect on the date of and immediately
prior to such issue, then and in each such case, the Series B Conversion Price
will be reduced to a price (calculated to the nearest cent) determined by
multiplying such Series B Conversion Price by a fraction (1) the numerator of
which will be the number of shares of Common Stock outstanding immediately prior
to such issuance plus the number of shares of Common Stock which the aggregate
consideration received by the corporation for such issuance would purchase at
such applicable Series B Conversion Price, and (2) the denominator of which will
be the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock issued pursuant to such
issuance; provided that such fraction will in no event be greater than one (1),
such that the Series B Conversion Price will not be increased by the adjustment
provided in this clause (ii).
10.
<PAGE> 11
(iii) If at any time after the Series C
Preferred Original Issue Date, the corporation issues or sells any shares of its
Common Stock, other than "Excluded Shares," for a consideration per share less
than the Series C Conversion Price in effect on the date of and immediately
prior to such issue, then the Series C Conversion Price will be reduced to a
price (calculated to the nearest cent) determined by multiplying such Series C
Conversion Price by a fraction (1) the numerator of which will be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock which the aggregate consideration received by
the corporation for such issuance would purchase at such applicable Series C
Conversion Price, and (2) the denominator of which will be the number of shares
of Common Stock outstanding immediately prior to such issuance plus the number
of shares of Common Stock issued pursuant to such issuance; provided that such
fraction will in no event be greater than one (1) such that the Series C
Conversion Price will not be increased by the adjustment provided in this clause
(iii).
(iv) If at any time after the Series D
Preferred Original Issue Date, the corporation issues or sells any shares of its
Common Stock, other than "Excluded Shares," for a consideration per share less
than the Series D Conversion Price in effect on the date of and immediately
prior to such issue, then and in each such case, the Series D Conversion Price
will be reduced to a price (calculated to the nearest cent) determined by
multiplying such Series D Conversion Price by a fraction (1) the numerator of
which will be the number of shares of Common Stock outstanding immediately prior
to such issuance plus the number of shares of Common Stock which the aggregate
consideration received by the corporation for such issuance would purchase at
such applicable Series D Conversion Price, and (2) the denominator of which will
be the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock issued pursuant to such
issuance; provided that such fraction will in no event be greater than one (1),
such that the Series D Conversion Price will not be increased by the adjustment
provided in this clause (iv).
(v) If at any time after the Series F
Preferred Original Issue Date, the corporation issues or sells any shares of its
Common Stock, other than "Excluded Shares," for a consideration per share less
than the Series F Conversion Price in effect on the date of and immediately
prior to such issue, then and in each such case, the Series F Conversion Price
will be reduced to a price (calculated to the nearest cent) determined by
multiplying such Series F Conversion Price by a fraction (1) the numerator of
which will be the number of shares of Common Stock outstanding immediately prior
to such issuance plus the number of shares of Common Stock which the aggregate
consideration received by the corporation for such issuance would purchase at
such applicable Series F Conversion Price, and (2) the denominator of which will
be the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock issued pursuant to such
issuance; provided that such fraction will in no event be greater than one (1),
such that the Series F Conversion Price will not be increased by the adjustment
provided in this clause (v).
(vi) If at any time after the Series G
Preferred Original Issue Date, the corporation issues or sells any shares of its
Common Stock, other than "Excluded Shares," for a consideration per share less
than the Series G Conversion Price in effect on the date of and immediately
prior to such issue, then and in each such case, the Series G Conversion Price
will be reduced to a price (calculated to the nearest cent) determined by
multiplying such
11.
<PAGE> 12
Series G Conversion Price by a fraction (1) the numerator of which will be the
number of shares of Common Stock outstanding immediately prior to such issuance
plus the number of shares of Common Stock which the aggregate consideration
received by the corporation for such issuance would purchase at such applicable
Series G Conversion Price, and (2) the denominator of which will be the number
of shares of Common Stock outstanding immediately prior to such issuance plus
the number of shares of Common Stock issued pursuant to such issuance; provided
that such fraction will in no event be greater than one (1), such that the
Series G Conversion Price will not be increased by the adjustment provided in
this clause (vi).
For purposes of this paragraph D.4: the shares of Common Stock initially
issuable upon conversion of Series A-G Preferred Stock will be deemed to be
outstanding on each of the Series A Preferred Original Issue Date, the Series B
Preferred Original Issue Date, the Series C Preferred Original Issue Date, the
Series D Preferred Original Issue Date, the Series F Preferred Original Issue
Date and the Series G Preferred Original Issue Date; and the term "Excluded
Shares" will mean (A) shares of Common Stock issued on conversion of Series A-G
Preferred Stock; (B) shares of Common Stock issued either directly or upon
exercise of options or warrants to officers, directors or employees of, or
consultants, advisers and others who provide services to, the corporation and
its subsidiaries (the "Compensatory Shares") pursuant to any stock option or
purchase plan or similar arrangement approved by the Board of Directors and (C)
shares of Common Stock or Preferred Stock issued either directly or upon the
exercise or conversion of options, warrants or rights or other securities
convertible into shares of Common Stock ("Strategic Shares"), in connection with
a transaction with a third party which is determined to have as its primary
purpose the formation of a strategic business relationship, such determination
being made in good faith by the Board of Directors, provided that the number of
Strategic Shares so issued does not exceed, in the aggregate, 10% of the
Fully-Diluted Outstanding Stock, or such higher percentage of the Fully-Diluted
Outstanding Stock (as defined below) as may be approved by either the unanimous
vote of the directors present at a duly held meeting of the Board of Directors
of the corporation, or the unanimous written consent of all of the directors of
this corporation, or the vote or written consent of the holders of a majority of
the outstanding shares of Series A-D, F and G Preferred Stock, with each series
voting as a separate class. For purposes of this paragraph D.4, the term
"Fully-Diluted Outstanding Stock" means all of the outstanding shares of Common
Stock of the corporation, including the total number of shares of Common Stock
into which all outstanding shares of Preferred Stock are then convertible and
all outstanding warrants, options and rights which are then exercisable.
(vii) For the purpose of making any
adjustment in the Conversion Price as provided above, the consideration received
by the corporation for any issue or sale of Common Stock will be computed:
(A) to the extent it consists of cash,
as the amount of cash received by the corporation before deduction of any
offering expenses payable by the corporation and any underwriting or similar
commissions, compensation, or concessions paid or allowed by the corporation in
connection with such issue or sale;
(B) to the extent it consists of
property other than cash, at the fair market value of that property as
determined in good faith by the corporation's Board of Directors; and
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(C) if Common Stock is issued or
sold together with other stock or securities or other assets of the corporation
for a consideration which covers both, as the portion of the consideration so
received that may be reasonably determined in good faith by the Board of
Directors to be allocable to such Common Stock.
(viii) If the corporation (1) grants any
rights or options (other than rights or options issued in connection with the
Compensatory Shares or Strategic Shares) to subscribe for, purchase, or
otherwise acquire shares of Common Stock, or (2) issues or sells any security
ultimately convertible into shares of Common Stock, then, in each such case, the
price per share of Common Stock issuable on the exercise of the rights or
options or the conversion of the securities will be determined by dividing the
total amount, if any, received or receivable by the corporation as consideration
for the granting of the rights or options or the issue or sale of the
convertible securities, plus the minimum aggregate amount of additional
consideration payable to the corporation on exercise or conversion of the
securities, by the maximum number of shares of Common Stock issuable on the
exercise of conversion. Such granting or issue or sale will be considered to be
an issuance or sale for cash of the maximum number of shares of Common Stock
issuable on exercise or conversion at the price per share determined under this
subsection, and the Conversion Price for the Series A-G Preferred Stock will be
adjusted as above provided to reflect (on the basis of that determination) the
issuance or sale. No further adjustment of the Conversion Price will be made as
a result of the actual issuance of shares of Common Stock on the exercise of any
such rights or options or the conversion of any such b convertible securities.
(ix) Upon the redemption or repurchase of
any such securities convertible or exercisable into Common Stock, or the
expiration or termination of the right to convert into, exchange for, or
exercise with respect to, Common Stock, the Conversion Price will be readjusted
to such price as would have been obtained had the adjustment made upon their
issuance been made upon the basis of the issuance of only the number of such
securities as were actually converted into, exchanged for, or exercised with
respect to, Common Stock. If the purchase price or conversion or exchange rate
provided for in any such security changes at any time, then, upon such change
becoming effective, the Conversion Price then in effect will be readjusted
forthwith to such price as would have been obtained had the adjustment made upon
the issuance of such securities been made upon the basis of (1) the issuance of
only the number of shares of Common Stock theretofore actually delivered upon
the conversion, exchange or exercise of such securities, and the total
consideration received therefor, and (2) the granting or issuance, at the time
of such change, of any such securities then still outstanding for the
consideration, if any, received by the corporation therefor and to be received
on the basis of such changed price or rate.
(e) SUCCESSIVE CHANGE. The above provisions of
this paragraph D shall similarly apply to successive issuances, sales, dividends
or other distributions, subdivisions and combinations on or of the Common Stock
after the applicable Original Issue Date.
(f) NO IMPAIRMENT. The corporation will not, by
amendment of the corporation's Articles of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the corporation, but will at all times in good faith
assist in the
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carrying out of all the provisions of this paragraph D and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the Series A-G Preferred Shareholders against impairment.
(g) EXCLUDED EVENTS. Notwithstanding anything in
this paragraph D to the contrary, the Conversion Price shall not be adjusted by
virtue of the conversion of shares of Series A-G Preferred Stock into shares of
Common Stock.
(h) CERTIFICATE AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Conversion Price for any of
the Series A-G Preferred Stock, pursuant to this paragraph D, the corporation,
at its expense upon request by any Series A-G Preferred shareholder shall
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each such Series A-G Preferred shareholder a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. Such certificate shall set
forth (i) such adjustment and readjustment, (ii) the current Conversion Price
for the applicable series of the Series A-G Preferred Stock, at the time in
effect, (iii) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series A-G Preferred Stock, and (iv) if such adjustment is the result
of an issuance of Common Stock, the number of shares of Common Stock issued and
the consideration received therefor.
5. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
corporation at all times will reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Series A-G Preferred Stock such number of its shares
of Common Stock as from time to time will be sufficient to effect the conversion
of all then outstanding shares of Series A-G Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock is not sufficient
to effect such conversion, in addition to such other remedies as may be
available to the Series A-G Preferred shareholders for such failure, the
corporation will take such corporate action as, in the opinion of its counsel,
may be necessary to increase its authorized but unissued shares of Common Stock
to such number of shares as will be sufficient for such purpose.
6. NO FRACTIONAL SHARE. No fractional shares shall be
issued upon conversion of shares of Series A-G Preferred Stock. Whether or not
fractional shares would be issuable upon such conversion shall be determined on
the basis of the total number of shares of Series A-G Preferred Stock which the
Series A-G Preferred shareholder is at the time converting into Common Stock and
the number of shares of Common Stock issuable upon such aggregate conversion. If
the conversion would result in any fractional share, the corporation shall, in
lieu of issuing any fractional share, pay the holder an amount in cash equal to
the fair market value of such fractional share on the date of conversion (as
determined in good faith by the Board of Directors of the corporation).
7. NOTICES OF RECORD DATE. In the event of any taking by
the corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
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<PAGE> 15
class or any other securities or property, or to receive any other right, the
corporation will mail to each Series A-G Preferred shareholder at least 10 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
rights, and the amount and character of such dividend, distribution or right.
8. OTHER NOTICES. Any notices required by the provisions
of paragraph C above or this paragraph D to be given to any Series A-G Preferred
shareholder must be in writing and will be deemed given upon personal delivery,
one day after deposit with a reputable overnight courier service for overnight
delivery or after transmission by facsimile telecopier with confirmation of
successful transmission, or five days after deposit in the United States mail,
by certified mail postage prepaid, or upon actual receipt if given by any other
method, addressed to each holder of such record at his or her address appearing
on the books of the corporation.
E. COVENANTS.
1. Except as otherwise required by law, and in addition
to any other rights provided by law, the corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series A Preferred Stock voting as
a class, take any action, or permit any action to be taken, to (i) amend or
repeal any provision of, or add any provision to, the corporation's Articles of
Incorporation or by-laws if such action would alter or change the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of, the Series A Preferred Stock; (ii) increase the number of shares of
Series A Preferred Stock authorized hereby; or (iii) authorize or issue shares
of any class or series of stock having any preference or priority as to voting,
liquidation preference or dividends superior or equal to any such preferences or
priorities of the Series A Preferred Stock set forth herein.
2. Except as otherwise required by law, and in addition
to any other rights provided by law, the corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series B Preferred Stock voting as
a class, take any action, or permit any action to be taken, to (i) amend or
repeal any provision of, or add any provision to, the corporation's Articles of
Incorporation or by-laws if such action would alter or change the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of, the Series B Preferred Stock; (ii) increase the number of shares of
Series B Preferred Stock authorized hereby; or (iii) authorize or issue shares
of any class or series of stock having any preference or priority as to voting,
liquidation preference or dividends superior or equal to any such preferences or
priorities of the Series B Preferred Stock set forth herein.
3. Except as otherwise required by law, and in addition
to any other rights provided by law, the corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series C Preferred Stock voting as
a class, take any action, or permit any action to be taken, to (i) amend or
repeal any provision of, or add any provision to, the corporation's Articles of
Incorporation or by-laws if such action would alter or change the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of, the Series C Preferred Stock; (ii) increase the number of shares of
Series C Preferred Stock authorized hereby, or (iii) authorize or issue shares
of any
15.
<PAGE> 16
class or series of stock having any preference or priority as to voting,
liquidation preference or dividends superior or equal to any such preferences or
priorities of the Series C Preferred Stock set forth herein.
4. Except as otherwise required by law, and in addition
to any other rights provided by law, the corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series D Preferred Stock voting as
a class, take any action, or permit any action to be taken, to (i) amend or
repeal any provision of, or add any provision to, the corporation's Articles of
Incorporation or by-laws if such action would alter or change the rights,
preferences, privileges or powers of or the restrictions provided for the
benefit of the Series D Preferred Stock; (ii) increase the number of shares of
Series D Preferred Stock authorized hereby, or (iii) authorize or issue shares
of any class or series of stock having any preference or priority as to voting,
liquidation preference or dividends superior to any such preferences or
priorities of the Series D Preferred Stock set forth herein.
5. Except as otherwise required by law, and in addition
to any other rights provided by law, the corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series E Preferred Stock voting as
a class, take any action, or permit any action to be taken, to (i) amend or
repeal any provision of, or add any provision to, the corporation's Articles of
Incorporation or by-laws if such action would alter or change the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of the Series E Preferred Stock; (ii) increase the number of shares of
Series E Preferred Stock authorized hereby; or (iii) authorize or issue shares
of any class or series of stock having any preference or priority as to voting,
liquidation preference or dividends superior to any such preferences or
priorities of the Series E Preferred Stock set forth herein.
6. Except as otherwise required by law, and in addition
to any other rights provided by law, the corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series F Preferred Stock voting as
a class, take any action, or permit any action to be taken, to (i) amend or
repeal any provision of, or add any provision to, the corporation's Articles of
Incorporation or by-laws if such action would alter or change the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of, the Series F Preferred Stock; (ii) increase the number of shares of
Series F Preferred Stock authorized hereby; or (iii) authorize or issue shares
of any class or series of stock having any preference or priority as to voting,
liquidation preference or dividends superior or equal to any such preferences or
priorities of the Series F Preferred Stock set forth herein.
7. Except as otherwise required by law, and in addition
to any other rights provided by law, the corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the outstanding shares of Series G Preferred Stock voting as
a class, take any action, or permit any action to be taken, to (i) amend or
repeal any provision of, or add any provision to, the corporation's Articles of
Incorporation or by-laws if such action would alter or change the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of, the Series G Preferred Stock; (ii) increase the number of
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<PAGE> 17
shares of Series G Preferred Stock authorized hereby; or (iii) authorize or
issue shares of any class or series of stock having any preference or priority
as to voting, liquidation preference or dividends superior or equal to any such
preferences or priorities of the Series G Preferred Stock set forth herein.
8. Except as otherwise required by law, and in addition
to any other rights provided by law, the corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of not less
than a majority of the aggregate outstanding shares of Series A-D, F and G
Preferred Stock, voting together as a single class, take any action or permit
any action to be taken, to (i) make any distributions on equity securities other
than in connection with a Liquidation; (ii) effectuate a Merger or Sale of
Corporation, or a Liquidation; (iii) apply any of the corporation's assets to
the redemption, retirement, purchase or acquisition of any shares of capital
stock, other than pursuant to agreements which permit the corporation to
repurchase such shares upon the termination of employment or consulting services
to the corporation or in exercise of the corporation's right of first refusal or
similar right with respect to a proposed transfer of capital stock; (iv) change
the number of directors authorized in the corporation's bylaws or Articles of
Incorporation; or (v) increase the number of Compensatory Shares issued or
reserved for issue under any stock option or purchase plan (other than as a
result of a stock split or a stock dividend declared and paid on the capital
stock or as a result of any amendment to the corporation's Articles of
Incorporation); or (vi) increase the authorized number of shares of Preferred
Stock or Common Stock of the corporation.
V
The liability of the directors of this corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
VI
This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to this corporation and its shareholders.
3. The foregoing amendment and restatement of Articles
of Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of Articles
of Incorporation has been duly approved by the required vote of shareholders in
accordance with Section 902 and 903 of the Corporations Code. The total number
of outstanding shares of the corporation is 9,106,933 shares of Common Stock,
520,000 shares of Series A Preferred Stock, 450,000 shares of Series B Preferred
Stock, 702,763 shares of Series C Preferred Stock, 850,783 shares of Series D
Preferred Stock, no shares of Series E Preferred Stock and 3,726,493 shares of
Series F Preferred Stock. The number of shares of each class and each series
voting in favor of the amendment equaled or exceeded the vote required. The
percentage vote required was more than 50% of each
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of the Common Stock, the Series A Preferred Stock, the Series B Preferred Stock,
the Series C Preferred Stock, the Series D Preferred Stock and the Series F
Preferred Stock.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true of our
knowledge.
Executed at San Francisco, California on this ___ day of October 1999.
-----------------------------------
GORDON TUCKER
CHIEF EXECUTIVE OFFICER
-----------------------------------
ANDREW P. MISSAN
SECRETARY
18.
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EXHIBIT 3.02
BYLAWS
OF
THE VIRTUAL MALL, INC.
ARTICLE I
SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS.
All meetings of shareholders shall be held at the principal executive
office of the Corporation, or at any other place, within or without the State of
California, specified by the Board of Directors. The place of any meeting of
shareholders shall be specified in the notice calling such meeting.
SECTION 2. ANNUAL MEETING.
The annual meeting of the shareholders, after the year 1994, shall be
held at __________ o'clock ___________, on __________, in each year, if not a
legal Holiday, and if a legal holiday, on the next business day following. In
the event the annual meeting of shareholders shall not be held on the date above
specified, the Board of Directors shall cause a meeting in lieu thereof to be
held as soon thereafter as convenient, and any business transacted or election
held at such meeting shall be as valid as if such business were transacted or
election held at the date and time specified above. At the annual meeting,
directors shall be elected, reports of the affairs of the Corporation shall be
considered, and any other business may be transacted which is within the power
of the shareholders.
SECTION 3. SPECIAL MEETINGS.
A special meeting of the shareholders for any purpose or purposes
whatsoever may be called at any time by the Chairman of the Board, by the
President, by the Board of Directors, or by one or more shareholders holding not
less than one-tenth of the voting power of the Corporation.
Upon request in writing to the Chairman of the Board, President, Vice
President or Secretary of the corporation by any person or persons (other than
the Board of Directors) entitled to call a special meeting of shareholders, it
shall be the duty of the officer to whom such request is made forthwith to cause
notice to be given to the shareholders entitled to vote that a meeting of the
shareholders will be held at a time, requested by the person or persons calling
the meeting, which shall be not less than thirty-five nor more than sixty days
after the receipt of such request.
SECTION 4. NOTICE OF MEETINGS.
Whenever shareholders are required or permitted to take any action at a meeting,
a written notice of the meeting shall be given not less than ten nor more than
sixty days before the
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date of the meeting to each shareholder entitled to vote thereat. Such notice
shall state the place, date and hour of the meeting. In the case of a special
meeting, such notice shall specify the general nature of the business to be
transacted and no other business may be transacted at such meeting. In the case
of the annual meeting, the notice shall specify those matters which the Board of
Directors, at the time of the mailing of the notice, intends to present for
action by the shareholders. The notice of any meeting at which the directors are
to be elected shall include the names of the nominees intended at the time of
the notice to be presented by management for election.
Notice of a shareholders' meeting or any report shall be given either
personally or by mail or other means of written communication, addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the Corporation for the purpose of
notice; or if no such address appears or is given, at the place where the
principal executive office of the Corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. The notice or report shall be deemed to
have been given at the time when delivered personally or deposited in the mail
or sent by other means of written communication. If any notice or report
addressed to the shareholder at the address of such shareholder appearing on the
books of the Corporation is returned to the Corporation by the United States
Postal Service marked to indicate that the United States Postal Service is
unable to deliver the notice or report to the shareholder at such address, all
future notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available for the shareholder upon written
demand of the shareholder at the principal executive office of the Corporation
for a period of one year from the date of the giving of the notice or report to
all other shareholders.
When a shareholders' meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than
forty-five days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting.
SECTION 5. CONSENT TO SHAREHOLDERS' MEETINGS AND ACTIONS WITHOUT
MEETINGS.
The transactions of any meeting of shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy, signs a written waiver of notice or
a consent to the holding of the meeting or an approval of the minutes thereof.
All such waivers, consents, and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Attendance of a person at
a meeting shall constitute a waiver of notice of and presence at such meeting,
except when the person objects, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters required by law to be included in the
notice but not so included, if such objection is expressly made at the meeting.
Neither the business to be transacted at nor the purpose of any regular or
2.
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special meeting of shareholders need be specified in any written waiver of
notice, consent to the holding of the meeting or approval of the minutes
thereof, except that any shareholder approval at a meeting, other than unanimous
approval by those entitled to vote, pursuant to Section 310 (transactions
between the Corporation and one or more of the directors), Section 902
(amendment to Articles of Incorporation), Section 1201 (reorganization), Section
1900 (voluntary dissolution), or Section 2007 (plan of distribution upon
dissolution) of the California Corporations Code shall be valid only if the
general nature of the proposal so approved is stated in the notice of meeting or
in any written waiver of notice.
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Unless the consents
of all shareholders entitled to vote have been solicited in writing, notice of
any shareholder approval pursuant to Section 310 (transactions between the
Corporation and one or more of the directors), Section 317 (indemnification of
an officer, director or employee), Section 1201 (reorganization), or Section
2007 (plan of distribution upon dissolution) of the California Corporations Code
without a meeting by less than unanimous written consent shall be given at least
ten days before the consummation of the action authorized by such approval to
those shareholders entitled to vote who have not consented in writing. Prompt
notice also shall be given of the taking of any other corporate action approved
by shareholders without a meeting by less than unanimous written consent to
those shareholders entitled to vote who have not consented in writing. Directors
may not be elected by written consent except by unanimous written consent of all
shares entitled to vote for the election of directors, unless otherwise provided
in these Bylaws.
SECTION 6. QUORUM.
A majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of shareholders. If a quorum is
present, the affirmative vote of the majority of the shares represented at the
meeting and entitled to vote on any matter shall be the act of the shareholders.
The shareholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be adjourned
from time to time by the vote of a majority of the shares represented either in
person or by proxy, but no other business may be transacted, except as provided
hereinabove.
SECTION 7. VOTING RIGHTS.
Except as otherwise provided by law and except as may be otherwise
provided in the Articles of Incorporation, each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote of
shareholders. Any holder of shares entitled to vote on any
3.
<PAGE> 4
matter may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or vote them against the proposal, other than
elections to office, but, if the shareholder fails to specify the number of
shares such shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to all shares
such shareholder is entitled to vote.
Every person entitled to vote shares may authorize another person or
persons to act by proxy with respect to such shares. No proxy shall be valid
after the expiration of 11 months from the date thereof unless otherwise
provided in the proxy. Subject to the foregoing, every proxy shall continue in
full force and effect until revoked by the person executing it prior to the vote
pursuant thereto. Such revocation may be effected by a writing delivered to the
Corporation stating that the proxy is revoked or by a subsequent proxy executed
by the person executing the prior proxy and presented to the meeting, or by
attendance at the meeting and voting in person by, the person executing the
proxy. A proxy is not revoked by the death or incapacity of the maker unless,
before the vote is counted, written notice of such death or incapacity is
received by the Corporation.
Any form of proxy or written consent distributed to 10 or more
shareholders of the Corporation at a time when the Corporation has outstanding
shares held of record by 100 or more persons shall afford an opportunity on the
proxy or form of written consent to specify a choice between approval and
disapproval of each matter or group of related matters intended to be acted upon
at the meeting for which the proxy is solicited or by such written consent,
other than elections to office, and shall provide, subject to reasonable
specified conditions, that where the person solicited specifies a choice with
respect to any such matter the shares will be voted in accordance therewith. In
any election of directors, any form of proxy in which the directors to be voted
upon are named therein as candidates and which is marked by a shareholder
"withhold" or otherwise marked in a manner indicating that the authority to vote
for the election of directors is withheld shall not be voted either for or
against the election of a director.
Subject to the provisions of the next sentence, every shareholder
entitled to vote at any election of directors may cumulate such shareholder's
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes to which the shareholder's
shares are entitled, or distribute the shareholder's votes on the same principle
among as many candidates as the shareholder thinks fit. No shareholder shall be
entitled to cumulate votes (i.e., cast for any candidate a number of votes
greater than the number of the shareholders shares) unless such candidate or
candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination. In any election of directors, the candidates receiving
the highest number of votes of the shares entitled to be voted for them up to
the number of directors to be elected by such shares are elected. Elections for
directors need not be by ballot unless a shareholder demands election by ballot
at the meeting and before the voting begins.
4.
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SECTION 8. DETERMINATION OF SHAREHOLDERS OF RECORD.
In order that the Corporation may determine the shareholders entitled to
notice of any meeting or to vote or entitled to receive payment of any dividend
or other distribution or allotment of any rights or entitled to exercise any
rights in respect of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days prior to the date of such meeting nor more than sixty days prior to any
other action.
If no record date is fixed, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held. The record date for determining
shareholders entitled to give consent to corporate action in writing without a
meeting when no prior action by the Board of Directors has been taken, shall be
the day on which the first written consent is given. The record date for
determining shareholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto, or the sixtieth day prior to the date of such other action, whichever
is later.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five days from the date set for the original
meeting.
Shareholders at the close of business on the record date are entitled to
notice and to vote or to receive the dividend, distribution or allotment of
rights or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after the record date,
except as otherwise provided in the Articles of Incorporation or by agreement.
For the purpose of determining whether the Corporation has outstanding
shares held of record by one hundred or more persons, shares shall be deemed to
be "held of record" by each person who is identified as the owner of such shares
on the record of shareholders maintained by or on behalf of the Corporation, in
accordance with Section 605 of the California Corporations Code.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE.
The number of directors shall be not less than six (6) nor more than
eleven (11), with the exact number of directors to be fixed, within the limits
specified, by approval of the board or the shareholders in a manner provided by
these Bylaws and the Articles of Incorporation. If the number of directors shall
be five or more, a bylaw or amendment of the Articles of Incorporation reducing
the fixed or the minimum number of directors to a number less than five cannot
be adopted if the votes cast against its adoption at a meeing, or the shares not
consenting in the case
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of action by written consent, are more than 16-2/3 percent of the outstanding
shares entitled to vote.
At each annual meeting of shareholders, directors shall be elected to
hold office until the next annual meeting; but if any such annual meeting is not
held, or the directors not elected thereat, the directors may be elected at any
special meeting of shareholders held for that purpose. Each director, including
a director elected to fill a vacancy, shall hold office until the expiration of
the term for which elected and until a successor has been elected and qualified.
SECTION 2. VACANCIES.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist in the case of the death, resignation, or removal of any director in
accordance with Section 303 or Section 304 of the California Corporations Code,
or a change in the authorized number of directors by the Board of Directors or
by the shareholders, or if a vacancy is declared by the Board of Directors to
exist for one of the reasons specified in Section 302 of the California
Corporations Code.
Except for a vacancy created by the removal of a director, vacancies on
the Board of Directors may be filled by a majority of the directors then in
office, whether or not less than a quorum, or by a sole remaining director.
vacancies occurring in the Board of Directors by reason of the removal of
directors may be filled only by approval of the shareholders.
Shareholders may elect a director at any time to fill any vacancy not
filled by the directors. Any such election by written consent other than to fill
a vacancy created by removal shall require the consent of a majority of the
outstanding shares entitled to vote.
If, after the filling of any vacancy by the directors, the directors
then in office who have been elected by the shareholders shall constitute less
than a majority of the directors then in office, any holder or holders of an
aggregate of 5 percent or more of the total number of shares at the time
outstanding having the right to vote for such directors may call a special
meeting of shareholders to be held to elect the entire Board of Directors. The
term of office of any directors shall terminate upon such election of a
successor.
Any director may resign effective upon giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors of
the Corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the resignation is effective at a future time, a
successor may be elected to take office when the resignation becomes effective.
SECTION 3. MEETINGS.
The Board of Directors shall hold a regular meeting immediately after
the meeting of shareholders at which it is elected and at the place where such
meeting is held for the purpose of appointing officers of the Corporation and
otherwise organizing and for the transaction of other business, and notice of
such meeting is hereby dispensed with.
Meetings of the Board of Directors may be called by the Chairman of the
Board or the President or any Vice President or the Secretary or any two
directors. Regular meetings of the Board of Directors may be held without notice
if the time and place of such meetings are fixed
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by the Bylaws or the Board of Directors. Special meetings of the Board of
Directors may be held upon at least four days' notice by mail or at least 48
hours' notice delivered personally or by telephone or telegraph. A notice, or
waiver of notice, need not specify the purpose of any regular or special meeting
of the Board of Directors. Notice of a meeting need not be given to any director
who signs a waiver of notice or a consent to holding the meeting or an approval
or the minutes thereof, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place. If the meeting is adjourned
for more than 24 hours, notice of any adjournment to another time or place shall
be given prior to the time of the adjourned meeting to the directors who were
not present at the time of the adjournment.
Meetings of the Board of Directors may be held at any place within or
without the state which has been designated in the notice of the meeting or, if
not stated in the notice or there is no notice, designated in the Bylaws or by
resolution of the Board of Directors.
Members of the Board of Directors may participate in a meeting through
use of conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Participation in a
meeting pursuant to this section constitutes presence in person at such meeting.
SECTION 4. QUORUM.
A quorum of the Board of Directors for the transaction of business shall
be one-third of the authorized number of directors or two, whichever is larger,
unless the authorized number of directors is one, in which case one director
constitutes a quorum.
Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present is the act of the
Board of Directors, unless otherwise provided by law, or unless a greater number
be required by the Articles of Incorporation, or these Bylaws. A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for such meeting.
SECTION 5. ACTION WITHOUT A MEETING.
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, if all members of the Board shall individually
or collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board. Such
action by written consent shall have the same force and effect as a unanimous
vote of such directors.
SECTION 6. GENERAL AND SPECIFIC POWERS AND DUTIES.
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The business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors. The Board may delegate the management of the day-to-day operation of
the business of the Corporation to a management company or other person provided
that the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board of
Directors.
A director shall perform the duties of a director, including duties as a
member of any committee of the Board of Directors upon which the director may
serve, in good faith, in a manner such director believes to be in the best
interests of the Corporation and with such care, including reasonable inquiry,
as an ordinarily prudent person in a like position would use under similar
circumstances.
SECTION 7. FEES AND COMPENSATION.
Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the Board of Directors.
ARTICLE III
INDEMNIFICATION
SECTION 1. Indemnification.
This Corporation shall, to the maximum extent and in the manner
permitted by the California General Corporation Law, indemnify each of its
agents against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any such person is or was an agent of this Corporation
and the Corporation shall advance the expenses reasonably incurred by such agent
in defending such proceeding upon receipt of the undertaking specified in
Section 317(f) of the California Corporations Code. For the purposes of this
Article, (except as provided in Section 3) the term "agent" shall include only
those persons who are directors, or officers who are also directors, of the
Corporation. The terms "proceeding" and "expenses" used in this Article shall
have the same meanings as such terms in said Section 317. To the extent that an
agent of the Corporation has been successful on the merits in defense of any
proceeding or in defense of any claim, issue or matter therein, the agent shall
be indemnified against expenses actually and reasonably incurred by the agent in
connection therewith. Except as provided in the prior sentence, any
indemnification under this Section 1 shall be made only if authorized in the
specific case, upon a determination that indemnification of the agent is proper
in the circumstances because the agent has met the applicable standard of
conduct in said Section 317 by:
(a) A majority vote of a quorum consisting of directors who are
not parties to such proceeding;
(b) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion;
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(c) Approval or ratification by the affirmative vote of a
majority of the shares of this Corporation represented and voting at a duly held
meeting at which a quorum is present (which shares voting affirmatively also
constitute at least a majority of the required quorum) or by the written consent
of holders of a majority of the outstanding shares entitled to vote; for such
purpose, the shares owned by the person to be indemnified shall not be entitled
to vote thereon; or
(d) The court in which such proceeding is or was pending, upon
application made by this Corporation, or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by this
Corporation.
SECTION 2. OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION.
The indemnification provided by this Article shall not be deemed
exclusive of any other rights to which a person seeking indemnification may be
entitled under any law (common or statutory), agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding office, and shall continue as
to a person who has ceased to be an agent and shall inure to the benefit of the
estate, heirs, executors and administrators of such person. Nothing contained in
this Section 2 shall affect any right to indemnification to which persons other
than such agents may be entitled by contract or otherwise. All rights to
indemnification under this Article shall be deemed to be a contract between the
Corporation and each agent of the Corporation who serves or served in such
capacity at any time while this Article is in effect. Any repeal or modification
of this Article or any repeal or modification of relevant provisions of the
California General Corporation Law or any other applicable laws shall not in any
way diminish any rights to indemnification of such agent or the obligations of
the Corporation arising hereunder.
SECTION 3. INSURANCE.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was or has agreed to become a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person or on such person's behalf in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of this Article, provided that such insurance is available on
acceptable terms, which determination shall be made by a vote of a majority of
the entire Board of Directors. For the purpose of this Section 3, only, "agent"
shall have the same meaning as such term in Section 317 of the California
Corporations Code.
SECTION 4. PERSONAL LIABILITY.
For all purposes hereunder, a director of the Corporation shall not be
personally liable to the corporation or its shareholders for monetary damages
for failure to discharge such person's obligations as a director, except for
liability (A)(i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director
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believes to be contrary to the best interests of the Corporation or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard for
the director's duty to the Corporation or its shareholders in circumstances in
which the director was aware, or should have been aware, in the ordinary course
of performing a director's duties, of a risk of serious injury to the
Corporation or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Corporation or its shareholders, (vi) under Section 310 of the
California Corporations Code, or (vii) under Section 316 of the California
Corporations Code, (B) for any act or omission occurring prior to the date when
this provision became effective, and (C) for acts or omissions as an officer,
notwithstanding that the officer is also a director or that his or her actions,
if negligent or improper, have been ratified by the Corporation's directors. If
the California General Corporation Law is amended after approval by the
shareholders of this Article to authorize corporate action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the California General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
SECTION 5. SAVINGS CLAUSE.
If this Article or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction, then the Corporation shall nevertheless
indemnify each agent of the Corporation as to costs, charges and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any proceeding, including an action by or in the right of the
Corporation, to the full extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the full extent permitted by
applicable law.
ARTICLE IV
OFFICERS AND COMMITTEES
SECTION 1. DESIGNATION OF OFFICERS.
The officers of the Corporation shall consist of the Chairman of the Board or
the President or both, the Secretary, and the Chief Financial Officer, and each
of them shall be appointed by the Board of Directors. The Corporation may also
have such other officers as may be appointed by the Board of Directors with such
titles and duties as may be determined by the Board of Directors and as may be
necessary to enable it to sign instruments and share certificates. If the Board
shall name one or more persons as Vice Presidents, the order of their seniority
shall be in the order of their nomination, unless otherwise determined by the
Board of Directors. Any number of offices may be held by the same person. All
officers of the Corporation shall hold office from the date appointed to the
date of the next succeeding regular meeting of the Board of Directors following
the meeting of shareholders at which the Board of Directors is elected, and
until their successors are elected; provided that all officers may be
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removed at any time at the pleasure of the Board of Directors, and upon the
removal, resignation, death or incapacity of any officer, the Board of Directors
may declare such office vacant and fill such vacancy. Any officer may resign at
any time upon written notice to the Corporation without prejudice to the rights,
if any, of the Corporation under any contract to which the officer is a party.
The salary and other compensation of the officers shall be fixed from time to
time by resolution of the Board of Directors.
SECTION 2. DUTIES OF THE CHAIRMAN OF THE BOARD.
If there is a Chairman of the Board, then he shall, when present,
preside at all meetings of the Board of Directors. He shall perform such duties
as the Board of Directors may from time to time determine. If there is no
President, then the Chairman of the Board shall perform all duties of the
President.
SECTION 3. DUTIES OF THE PRESIDENT.
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the Chairman of the Board, the President shall be the general
manager and chief executive officer of the Corporation and shall perform all the
duties commonly incident to that office. The President shall preside at all
meetings of the shareholders and, in the absence of the Chairman of the Board,
or, if there be none, at all meetings of the Board of Directors, and shall
perform such other duties as the Board of Directors may from time to time
determine.
SECTION 4. DUTIES OF VICE PRESIDENTS.
If the Board of Directors shall appoint one or more Vice Presidents, the
Vice Presidents, in the order of their seniority, unless otherwise established
by the Board of Directors, may assume and perform the duties of the President in
the absence or disability of the President or whenever the office of President
is vacant. The Vice Presidents shall have such titles, perform such other
duties, and have such other powers as the Board of Directors shall designate
from time to time.
SECTION 5. DUTIES OF SECRETARY.
The Secretary shall attend all meetings of the shareholders, of the Board of
Directors, and of any committee appointed pursuant to Section 7 of this Article
and shall keep or cause to be kept at the principal executive office or such
other place as the Board of Directors may order, a minute book of all such
meetings, containing all acts and proceedings thereof, the time and place of
holding thereof, whether regular or special, and, if special, how authorized,
the notice thereof given, the names of those present at directors' or committee
meetings, and the number of shares present or represented at shareholders'
meetings. The Secretary shall give notice, in conformity with these Bylaws, of
all meetings of the shareholders, and of all meetings of the Board of Directors
or any such committee requiring notice. The Secretary shall keep or cause to be
kept at the principal executive office or at the office of the Corporation's
transfer agent, a share register, or a duplicate share register, showing the
names of the shareholders and their addresses; the number and classes of shares
held by each; the number and date of certificates issued for same; and the
number and date of cancellation of every certificate surrendered for
cancellation. The Secretary shall keep the seal of the Corporation in safe
custody and shall perform such other
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duties and have such other powers as the Board of Directors shall designate from
time to time. The President may direct any Assistant Secretary to assume and
perform the duties of the Secretary in the absence or disability of the
Secretary, and each Assistant Secretary shall perform such other duties and have
such other powers as the Board of Directors shall designate from time to time.
SECTION 6. DUTIES OF CHIEF FINANCIAL OFFICER.
The Chief Financial Officer shall keep or cause to be kept the books of
account of the Corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the Corporation in such form and as often
as required by the Board of Directors. The Chief Financial officer, subject to
the order of the Board of Directors, shall have the custody of all funds and
securities of the Corporation. The Chief Financial Officer shall perform all
other duties commonly incident to his office and shall perform such other duties
and have such other powers as the Board of Directors shall designate from time
to time. The President may direct any Deputy Financial officer to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Deputy Financial Officer shall perform
such other duties and have such other powers as the Board of Directors shall
designate from time to time.
SECTION 7. APPOINTMENT OF COMMITTEES.
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the Board of
Directors.
The Board of Directors may designate one or more directors as alternate
members of any committee, who may replace any absent member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in these Bylaws, shall have all the authority of the Board of Directors, except
with respect to: (a) the approval of any action for which shareholders' approval
or approval of the outstanding shares is required by law; (b) the filling of
vacancies on the Board of Directors or in any committee; (c) the fixing of
compensation of the directors for serving on the Board of Directors or on any
committee; (d) the amendment or repeal of Bylaws or the adoption of new Bylaws;
(e) the amendment or repeal of any resolution of the Board of Directors, which
by its express terms is not so amendable or repealable; (f) a distribution to
the shareholders of the Corporation, except at a rate or in a periodic amount or
within a price range determined by the Board of Directors; and (g) the
appointment of other committees of the Board of Directors or the members
thereof.
Unless the Board of Directors shall otherwise provide, regular meetings
of any committee appointed pursuant to this Section 7 shall be held at such
times and places as are determined by the Board of Directors, or by any such
committee, and when notice thereof has been given to each member of such
committee, no further notice of such regular meetings need be given thereafter;
special meetings of any such committee may be held at the principal executive
office of the Corporation, or at any place which has been designated from time
to time by resolution of
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such committee or by written consent of all members thereof, and may be called
by the Chairman of the Board, the President and any Vice President who is a
member of such committee, or by any two members thereof, upon written notice to
the members of such committee of the time and place of such special meeting
given in the manner provided for the giving of written notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors; and a majority of the authorized number of members of any such
committee shall constitute 10 quorum for the transaction of business.
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS,
RATIFICATION OF CONTRACTS, AND VOTING OF SHARES
OWNED BY THE CORPORATION
SECTION 1. EXECUTION OF CORPORATE INSTRUMENTS.
The Board of Directors may, in its discretion, determine the method and
designate the signatory officer or officers or other person or persons to
execute any corporate instrument or document, or to sign the corporate name
without limitation, except where otherwise provided by law, and such execution
or signature shall be binding upon the Corporation. No officer shall sign any
instrument or document unless the Board of Directors has approved the underlying
transaction.
Unless otherwise required by law, any note, mortgage, evidence of
indebtedness, contract, share certificate, conveyance or other instrument in
writing, and any assignment or endorsement thereof, executed or entered into
between the Corporation and any other person, when signed by the Chairman of the
Board, the President or any Vice President and the Secretary, any Assistant
Secretary, the Chief Financial officer or any Deputy Financial Officer of the
Corporation, is not invalidated as to the Corporation by any lack of authority
of the signing officers in the absence of actual knowledge on the part of the
other person that the signing officers had no authority to execute the same.
All checks and drafts drawn on banks or other depositories of funds to
the credit of the Corporation, or in special accounts of the Corporation, shall
be signed by such person or persons as the Board of Directors shall authorize so
to do.
SECTION 2. RATIFICATION BY SHAREHOLDERS.
The Board of Directors may, in its discretion, submit any contract or
act for approval or ratification of the shareholders at any annual meeting of
shareholders or at any special meeting of shareholders called for that purpose;
and any contract or act which shall be approved or ratified by the shareholders
or by the outstanding shares shall be as valid and binding upon the Corporation
and upon the shareholders thereof as though approved or ratified by each and
every shareholder of the Corporation, unless a greater vote is required by law
for such purpose.
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SECTION 3. VOTING OF SHARES OWNED BY CORPORATION.
All shares of other corporations owned or held by the Corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board or by the President or by any Vice President.
ARTICLE VI
SHARES OF STOCK
SECTION 1. FORM OF CERTIFICATES.
Every holder of shares in the Corporation shall be entitled to have a
certificate signed in the name of the Corporation by the Chairman or Vice
Chairman of the Board or the President or a Vice President and by the Chief
Financial Officer or a Deputy Financial Officer or the Secretary or any
Assistant Secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, the issuance of such certificate by the Corporation shall
have the same effect as if such person were an officer, transfer agent or
registrar at the date of issue.
If the shares of the corporation are classified or if any class of
shares has two or more series, there shall appear on the certificate one of the
following: (a) a statement of the rights, preferences, privileges and
restrictions granted to or imposed upon each class or series of shares
authorized to be issued and upon the holders thereof; (b) a summary of such
rights, preferences, privileges and restrictions with reference to the
provisions of the Articles of Incorporation and any Certificates of
Determination establishing the same; (c) a statement setting forth the office or
agency of the Corporation from which shareholders may obtain, upon request and
without charge, a copy of the statement referred to in (a) above.
There shall also appear on the certificate the statements required by
all of the following clauses to the extent applicable: (1) the fact that the
shares are subject to restrictions upon transfer; (2) if the shares are
assessable or are not fully paid, a statement that they are assessable or, on
partly paid shares, the total amount of the consideration to be paid therefor
and the amount paid thereon; (3) the fact that the shares are subject to a close
corporation voting agreement or an irrevocable proxy or restrictions upon voting
rights contractually imposed by the Corporation; (4) the fact that the shares
are redeemable; and (5) the fact the shares are convertible and the period for
conversion. Any such statement or reference thereto on the face of the
certificate required by this paragraph shall be conspicuous.
When the Articles of Incorporation are amended in any way affecting the
statements contained in the certificates for outstanding shares, or it becomes
desirable for any reason, in the discretion of the Board of Directors, to cancel
any outstanding certificate for shares and issue a new certificate therefor
conforming to the rights of the holder, the Board of Directors may order
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any holders of outstanding certificates for shares to surrender and exchange
them for new certificates within a reasonable time to be fixed by the Board of
Directors.
SECTION 2. TRANSFER OF SHARES.
Shares of the Corporation may be transferred in any manner permitted or
provided by law. Before any transfer of shares is entered upon the books of the
Corporation, or any new certificate issued therefor, the old certificate
properly endorsed shall be surrendered and cancelled, except when a certificate
has been lost or destroyed.
SECTION 3. LOST CERTIFICATES.
The Corporation shall issue a new share certificate or a new certificate
for any other security in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, provided that, prior to the
issuance of such new certificate the Corporation may require the owner of the
lost, stolen or destroyed certificate or the owner's legal representative to
give the Corporation a bond (or other adequate security) sufficient to indemnify
it against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 4. ELECTRONIC SECURITIES RECORDATION.
Notwithstanding the provisions of Sections 1 through 3, inclusive
hereinabove, the Corporation may adopt a system of issuance, recordation and
transfer of its shares by electronic or other means not involving any issuance
of certificates, provided the use of such system by the Corporation is permitted
by the California Corporations Code.
ARTICLE VII
ANNUAL REPORT
An annual report, meeting the requirements specified in Section 1501 of
the California Corporations Code, shall be sent to the shareholders not later
than the 120th day after the close of the fiscal year of the Corporation or the
fifteenth day preceding the annual meeting of shareholders for the next
succeeding fiscal year, whichever shall first occur; provided, however, that no
such report need be sent if the number of shareholders of record is less than
one hundred.
ARTICLE VIII
CORPORATE SEAL
The corporate seal shall consist of a circular die bearing the name of
the Corporation and the state and date of its incorporation. If and when
authorized by the Board of Directors, a duplicate of the corporate seal may be
kept and used by such officer or person as the Board of Directors may designate.
Failure to affix the corporate seal does not affect the validity of any
instrument of the Corporation.
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ARTICLE IX
AMENDMENTS
The Bylaws of the Corporation shall be subject to amendment or repeal
and new Bylaws may be adopted by the approval of the outstanding shares. After
the issuance of shares, a bylaw specifying or changing a fixed number of
directors or the maximum or minimum number or changing from a fixed to a
variable board or vice versa may only be adopted by approval of the outstanding
shares; provided, however, that a bylaw reducing the number or the minimum
number of directors to a number less than five cannot be adopted if the votes
cast against its adoption at a meeting or the shares not consenting in the case
of action by written consent are equal to more than 16-2/3 percent of the
outstanding shares entitled to vote. Subject to the right of the shareholders to
adopt, amend or repeal the Bylaws, the Bylaws (other than a Bylaw or an
amendment thereof changing the authorized number of directors) may be adopted,
amended, or repealed by the affirmative vote of a majority of the directors.
ARTICLE X
DEFINITIONS
As used in these Bylaws, the following terms shall have the meanings
indicated unless otherwise expressly provided to the contrary or unless the
context in which such terms are used indicates that a different meaning is
intended:
(a) "Meeting" and "meetings" shall include all meetings of
shareholders or directors or committees, as the case may be, whether annual,
regular, or special.
(b) "Principal executive office" shall mean that place which is
from time to time fixed by the Board of Directors as the principal executive
office for the transaction of the business of the Corporation.
(c) "Approved by (or approval of) the outstanding shares" shall
mean approved by the affirmative vote of a majority of the outstanding shares
entitled to vote. Such approval shall include the affirmative vote of a majority
of the outstanding shares of each class or series entitled, by any provisions of
the Articles of Incorporation or by law, to vote as a class or series on the
subject matter being voted upon and shall also include the affirmative vote of
such greater proportion (including all) of the outstanding shares of any class
or series if such greater proportion is required by the Articles of
Incorporation or by law.
(d) "Approved by (or approval of) the shareholders" shall mean
approved or ratified by the affirmative vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is present
(which shares voting affirmatively also constitute at least a majority of the
required quorum) or by the written consent of shareholders or by the affirmative
vote or written consent of such greater proportion (including all) of the shares
of any class or series as may be provided in the Articles of Incorporation or by
law for all or any specified shareholder action.
16.
<PAGE> 17
CERTIFICATE OF SECRETARY
I, the undersigned, the duly elected Secretary of The Virtual Mall,
Inc., a California corporation, do hereby certify:
That the within and foregoing Bylaws were adopted as the Bylaws of the
corporation by the Incorporator on July 8, 1994, and by the Directors on August
____, 1994, and the same do now constitute the Bylaws of said corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name this __________
day of August ___, 1994.
-----------------------------
Fred Campbell, Secretary
1.
<PAGE> 1
EXHIBIT 3.03
FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EGREETINGS NETWORK, INC.
EGREETINGS NETWORK, INC., a corporation organized and existing under the
laws of the state of Delaware (the "Corporation") hereby certifies that:
1. The name of the Corporation is Egreetings Network, Inc. The
Corporation was originally incorporated under the name Egreetings Merger
Corporation.
2. The date of filing of the Corporation's original Certificate of
Incorporation was _________, 1999.
3. The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance with
the provisions of Section 242 and Section 245 of the General Corporation Law of
the State of Delaware by the Board of Directors of the Corporation.
4. Pursuant to Section 245 of the Delaware General Corporation Law,
approval of the stockholders of the Corporation has been obtained.
5. The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated by reference.
IN WITNESS WHEREOF, the undersigned has signed this certificate this
____ day of ___________, 1999, and hereby affirms and acknowledges under penalty
of perjury that the filing of this Amended and Restated Certificate of
Incorporation is the act and deed of Egreetings Network, Inc.
EGREETINGS NETWORK, INC.
By:
--------------------------
Gordon M. Tucker
Chief Executive Officer
ATTEST:
- --------------------------
Andrew Missan
Secretary
<PAGE> 2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EGREETINGS NETWORK, INC.
I.
The name of this corporation is Egreetings Network, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, 19805, County of New Castle
and the name of the registered agent of the corporation in the State of Delaware
at such address is Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is eighty million
(80,000,000) shares. Seventy five million (75,000,000) shares shall be Common
Stock, each having a par value of $0.001. Five million (5,000,000) shares shall
be Preferred Stock, each having a par value of $0.001.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
1.
<PAGE> 3
V.
A. For the management of the business and for the conduct of the affairs
of the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
1. The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, and
to any restrictions or limitations of applicable law, following the closing of
the initial public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock to the public (the "Initial Public Offering"), the directors shall
be divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the Closing of the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
3. (a) Subject to the rights of the holders of any series
of Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i)
2.
<PAGE> 4
with cause by the affirmative vote of the holders of a majority of the voting
power of all the then-outstanding shares of voting stock of the corporation,
entitled to vote at an election of directors (the "Voting Stock") or (ii)
without cause by the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66 2/3%) of the voting power of all the then-outstanding
shares of the Voting Stock.
(b) Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
4. In the event that Section 2115(a) of the California
Corporations Code is applicable to this corporation, then the following shall
apply:
(a) Every stockholder entitled to vote in any election of
directors of this corporation may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit;
(b) No stockholder, however, may cumulate such
stockholder's votes for one or more candidates unless (i) the names of such
candidates have been properly placed in nomination, in accordance with the
Bylaws of the corporation, prior to the voting, (ii) the stockholder has given
advance notice to the corporation of the intention to cumulate votes pursuant to
the Bylaws, and (iii) the stockholder has given proper notice to the other
stockholders at the meeting, prior to voting, of such stockholder's intention to
cumulate such stockholder's votes; and
(c) If any stockholder has given proper notice, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. The candidates receiving the highest number of votes of
the shares entitled to be voted for them up to the number of directors to be
elected by such shares shall be declared elected.
B. 1. Subject to paragraph (h) of Section 43 of the Bylaws, the
Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock. The Board of Directors
shall also have the power to adopt, amend, or repeal Bylaws.
2. The directors of the Corporation need not be elected by
written ballot unless the Bylaws so provide.
3.
<PAGE> 5
3. No action shall be taken by the stockholders of the
Corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws and following the closing of the Initial Public
Offering no action shall be taken by the stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
VI.
A. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the Voting Stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.
4.
<PAGE> 1
EXHIBIT 3.04
FORM OF BYLAWS
OF
EGREETINGS NETWORK, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
EXHIBIT 3.04
BYLAWS
OF
EGREETINGS NETWORK, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought
1.
<PAGE> 3
before an annual meeting, business must be: (A) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (B) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or (C) otherwise properly brought before the
meeting by a stockholder. For business to be properly brought before an annual
meeting by a stockholder, (i) the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation, (ii) such business must
be a proper matter for stockholder action under the Delaware General Corporation
Law ("DGCL"), (iii) if the stockholder, or the beneficial owner on whose behalf
any such proposal or nomination is made, has provided the corporation with a
Solicitation Notice (as defined in this Section 5(b)), such stockholder or
beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the corporation's
voting shares reasonably believed by such stockholder or beneficial owner to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the
Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has
been timely provided pursuant to this section, the stockholder or beneficial
owner proposing such business or nomination must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this Section 5. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the ninetieth (90th) day nor earlier than the
close of business on the one hundred twentieth (120th) day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced more than thirty (30)
days prior to or delayed by more than thirty (30) days after the anniversary of
the preceding year's annual meeting, notice by the stockholder to be timely must
be so delivered not earlier than the close of business on the one hundred
twentieth (120th) day prior to such annual meeting and not later than the close
of business on the later of the ninetieth (90th) day prior to such annual
meeting or the tenth (10th) day following the day on which public announcement
of the date of such meeting is first made. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth: (A) as to each person whom the stockholder proposed to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "1934 Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (B) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii)
2.
<PAGE> 4
whether either such stockholder or beneficial owner intends to deliver a proxy
statement and form of proxy to holders of, in the case of the proposal, at least
the percentage of the corporation's voting shares required under applicable law
to carry the proposal or, in the case of a nomination or nominations, a
sufficient number of holders of the corporation's voting shares to elect such
nominee or nominees (an affirmative statement of such intent, a "Solicitation
Notice").
(c) Notwithstanding anything in the third sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the President or the Chief Executive Officer or (iii) the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is presented to the
Board of
3.
<PAGE> 5
Directors for adoption), and shall be held at such place, on such date, and at
such time as they, he or she shall fix.
At any time or times that the corporation is subject to Section 2115(b)
of the California General Corporation Law ("CGCL"), stockholders holding five
percent (5%) or more of the outstanding shares shall have the right to call a
special meeting of stockholders only as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not
4.
<PAGE> 6
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting, such notice to specify the
place, date and hour and purpose or purposes of the meeting. Notice of the time,
place and purpose of any meeting of stockholders may be waived in writing,
signed by the person entitled to notice thereof, either before or after such
meeting, and will be waived by any stockholder by his attendance thereat in
person or by proxy, except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Any stockholder so waiving notice of such meeting shall be bound by
the proceedings of any such meeting in all respects as if due notice thereof had
been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
5.
<PAGE> 7
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents all have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the DGCL, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a majority
or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
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(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be determined from time to time by resolution
of the Board of Directors. Directors need not be stockholders unless so required
by the Certificate of Incorporation. If for any cause, the directors shall not
have been elected at an annual meeting, they may be elected as soon thereafter
as convenient at a special meeting of the stockholders called for that purpose
in the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation. (Del. Code Ann., tit. 8, Section 141(a))
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the Initial Public Offering, the directors shall be
divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three years. At the second annual meeting of
stockholders following the Initial Public Offering, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
the Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for
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a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting. During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, this Section 17(a) shall become
effective and apply only when the corporation is a "listed" corporation within
the meaning of Section 301.5 of the CGCL.
(b) In the event that the corporation (i) is subject to Section
2115(b) of the CGCL AND (ii) is not a "listed" corporation or ceases to be a
"listed" corporation under Section 301.5 of the CGCL, Section 17(a) of these
Bylaws shall not apply and all directors shall be elected at each annual meeting
of stockholders to hold office until the next annual meeting.
(c) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the CGCL AND (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Section 18 in the
case of the death, removal or resignation of any director.
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(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors
then in office who have been elected by stockholders shall constitute less than
a majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire
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number of directors authorized at the time of such director's most recent
election were then being elected.
(b) Following any date on which the corporation is no longer
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, Section 20(a) above shall no longer apply and removal shall be as provided
in Section 141(k) of the DGCL.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an annual
meeting of the Board of Directors shall be necessary and such meeting shall be
held for the purpose of electing officers and transacting such other business as
may lawfully come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be
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present and if, either before or after the meeting, each of the directors not
present shall sign a written waiver of notice. All such waivers shall be filed
with the corporate records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the
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stockholders, any action or matter expressly required by the DGCL to be
submitted to stockholders for approval, or (ii) adopting, amending or repealing
any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
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SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform
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other duties commonly incident to his office and shall also perform such other
duties and have such other powers, as the Board of Directors shall designate
from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be
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necessary to make it effective. Any resignation shall be without prejudice to
the rights, if any, of the corporation under any contract with the resigning
officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or
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Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the DGCL.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of
16.
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Directors may fix, in advance, a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date shall, subject to applicable law,
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
17.
<PAGE> 19
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board
18.
<PAGE> 20
of Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the Board of Directors shall think conducive to the interests of the
corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the DGCL or any
other applicable law; provided, however, that the corporation may modify the
extent of such indemnification by individual contracts with its directors AND
executive officers; and, provided, further, that the corporation shall not be
required to indemnify any director or executive officer in connection with any
proceeding (or part thereof) initiated by such person unless (i) such
indemnification is expressly required to be made by law, (ii) the proceeding was
authorized by the Board of Directors of the corporation, (iii) such
indemnification is provided by the corporation, in its sole discretion, pursuant
to the powers vested in the corporation under the DGCL or any other applicable
law or (iv) such indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the DGCL or any other applicable law. The Board of Directors shall
have the power to delegate the determination of whether indemnification shall be
given to any such person to such officers or other persons as the Board of
Directors shall determine.
(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership,
19.
<PAGE> 21
joint venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director OR EXECUTIVE OFFICER in connection with such proceeding upon receipt of
an undertaking by or on behalf of such person to repay said amounts if it should
be determined ultimately that such person is not entitled to be indemnified
under this Section 43 or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Section 43 to a director or executive officer shall
be enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation, or with respect to any criminal action or proceeding that such
person acted without reasonable cause to believe that his conduct was lawful.
Neither the failure of the corporation (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the DGCL or any other applicable law, nor an actual
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct.
20.
<PAGE> 22
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or
any other applicable law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Section 43.
(h) AMENDMENTS. Any repeal or modification of this Section 43
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Section 43 that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
[EXECUTIVE] OFFICER to the full extent under any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent)
21.
<PAGE> 23
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Section 43 with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices
22.
<PAGE> 24
was or were given, and the time and method of giving the same, shall in the
absence of fraud, be prima facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the
23.
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DGCL, the certificate need not state that notice was not given to persons to
whom notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS.
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiaries, including any officer or employee who is a Director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of the corporation at common law
or under any statute.
24.
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I OFFICES....................................................................1
Section 1. Registered Office....................................................1
Section 2. Other Offices........................................................1
ARTICLE II CORPORATE SEAL.............................................................1
Section 3. Corporate Seal.......................................................1
ARTICLE III STOCKHOLDERS' MEETINGS.....................................................1
Section 4. Place of Meetings....................................................1
Section 5. Annual Meetings......................................................1
Section 6. Special Meetings.....................................................3
Section 7. Notice of Meetings...................................................4
Section 8. Quorum...............................................................5
Section 9. Adjournment and Notice of Adjourned Meetings.........................5
Section 10. Voting Rights........................................................6
Section 11. Joint Owners of Stock................................................6
Section 12. List of Stockholders.................................................6
Section 13. Action Without Meeting...............................................6
Section 14. Organization.........................................................6
ARTICLE IV DIRECTORS..................................................................7
Section 15. Number and Term of Office............................................7
Section 16. Powers...............................................................7
Section 17. Classes of Directors.................................................7
Section 18. Vacancies............................................................8
Section 19. Resignation..........................................................9
Section 20. Removal..............................................................9
Section 21. Meetings............................................................10
Section 22. Quorum and Voting...................................................11
Section 23. Action Without Meeting..............................................11
Section 24. Fees and Compensation...............................................11
Section 25. Committees..........................................................11
</TABLE>
i.
<PAGE> 27
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Section 26. Organization........................................................13
ARTICLE V OFFICERS..................................................................13
Section 27. Officers Designated.................................................13
Section 28. Tenure and Duties of Officers.......................................13
Section 29. Delegation of Authority.............................................14
Section 30. Resignations........................................................14
Section 31. Removal.............................................................15
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED
BY THE CORPORATION........................................................15
Section 32. Execution of Corporate Instruments..................................15
Section 33. Voting of Securities Owned by the Corporation.......................15
ARTICLE VII SHARES OF STOCK...........................................................15
Section 34. Form and Execution of Certificates..................................15
Section 35. Lost Certificates...................................................16
Section 36. Transfers...........................................................16
Section 37. Fixing Record Dates.................................................16
Section 38. Registered Stockholders.............................................18
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION.......................................18
Section 39. Execution of Other Securities.......................................18
ARTICLE IX DIVIDENDS.................................................................18
Section 40. Declaration of Dividends............................................18
Section 41. Dividend Reserve....................................................18
ARTICLE X FISCAL YEAR...............................................................19
Section 42. Fiscal Year.........................................................19
ARTICLE XI INDEMNIFICATION...........................................................19
Section 43. Indemnification of Directors, Executive Officers, Other
Officers, Employees And Other Agents................................19
ARTICLE XII NOTICES...................................................................22
Section 44. Notices.............................................................22
ARTICLE XIII AMENDMENTS................................................................24
</TABLE>
ii.
<PAGE> 28
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
Section 45. Amendments..........................................................24
ARTICLE XIV LOANS TO OFFICERS.........................................................24
Section 46. Loans To Officers...................................................24
</TABLE>
iii.
<PAGE> 1
EXHIBIT 4.03
EGREETINGS NETWORK, INC.
FOURTH AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
OCTOBER 1, 1999
<PAGE> 2
FOURTH AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"Agreement") is made and entered into as of September __, 1999 by and among
E-GREETINGS NETWORK, a California corporation (the "Company"), and the persons
identified on the signature page hereof (the "Investors").
RECITALS
WHEREAS, certain Investors entered into a Third Amended and Restated
Investors' Rights Agreement with the Company dated as of March 19, 1999 (the
"Rights Agreement"); and
WHEREAS, the existing Investors and the Company desire that the Company
sell shares of its Series G Preferred Stock to additional Investors, and the
existing Investors acknowledge that such sale will be conditioned upon such new
Investors being made a party to this Agreement, which amends and restates the
Rights Agreement, and the existing Investors are therefore willing to enter into
this Agreement with the Company and the new Investors in order to induce the new
Investors to make such an investment in the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, all parties hereto agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "COMMISSION" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(b) "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(c) "HOLD" shall mean any Investor who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been transferred in compliance with
Section 1.11 hereof.
(d) "INITIATING HOLDER" shall mean any Holder or Holders who
in the aggregate hold not less than thirty-three percent (33%) of the
outstanding Registrable securities. For purposes of such calculation, holders of
Shares shall be considered to hold the shares of Common Stock then issuable upon
conversion of such Shares.
1.
<PAGE> 3
(e) "OTHER STOCKHOLDER" shall mean persons other than Holders
who, by virtue of agreements with the Company, are entitled to include their
securities in certain registrations.
(f) "RESTRICTED SECURITIES" shall mean the securities of the
Company required to bear or bearing a legend stating that the shares have not
been registered under the Securities Act.
(g) "REGISTRABLE SECURITIES" shall mean (i) shares of Common
Stock issued or issuable pursuant to the conversion of the Shares and (ii) any
Common Stock issued as a dividend or other distribution with respect to or in
exchange for or in replacement of the shares referenced in (i) above, provided,
however, that Registrable Securities shall not include any shares of Common
Stock that have been sold to the public pursuant to a registration statement or
Rule 144 or sold in a private transaction in which the transferor's rights
pursuant to this Agreement have not been assigned.
(h) The terms "REGISTER," "REGISTERED" and "REGISTRATION"
shall refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement by the Commission.
(i) "REGISTRATION EXPENSES" shall mean all expenses incurred
in effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, expenses of any regular or special audits incident to or required
by any such registration, but shall not include Selling Expenses or, except as
expressly set forth in Section 1.4 of this Agreement, fees and disbursements of
counsel for the Holders (and excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).
(j) "RULE 144" shall mean Rule 144 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(k) "RULE 145" shall mean Rule 145 as promulgated by the
Commission under the Securities Act, as such Rule may be amended from time to
time, or any similar successor rule that may be promulgated by the Commission.
(l) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time, corresponding
to such act.
(m) "SELLING EXPENSES" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for any Holder except as set forth in Section
1.4 of this Agreement.
(n) "SHARES" shall mean the Company's Series A Preferred
Stock; the Company's Series B Preferred Stock; the Company's Series C Preferred
Stock; the Company's
2.
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Series D Preferred Stock; the Company's Series E Preferred Stock, including any
shares of Series E Preferred Stock issuable upon exercise of those certain
warrant rights issued by the Company to Gibson Greetings, Inc. ("Gibson") to
purchase up to 1,470,000 shares of Series E Preferred Stock of the Company,
pursuant to Section 5.1 of that certain Series D Preferred Stock Purchase
Agreement dated as of December 4, 1997 by and between the Company and Gibson;
the Company's Series F Preferred Stock; and the Company's Series G Preferred
Stock.
1.2 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company shall receive
from Initiating Holders at any time or times not earlier than the earlier of (i)
September __, 2002, or (ii) six months after the effective date of the first
registration statement filed by the Company covering an underwritten offering of
any of its securities to the general public (an "initial public offering"), a
written request specifying that it is made pursuant to this Section 1.2 and
requesting that the Company effect any registration with respect to all or a
part of the Registrable Securities having, in the case of an initial public
offering, a reasonably anticipated aggregate offering price, net of underwriting
discounts and commissions, that exceeds $15,000,000 and, in the case of a
subsequent public offering, a reasonably anticipated aggregate offering price,
net of underwriting discounts and commissions, that exceeds $5,000,000, the
Company will:
(i) promptly give written notice of the proposed
registration to all other Holders;
(ii) and as soon as practicable, use its diligent
best efforts to effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable blue sky
or other state securities laws and appropriate compliance with the Securities
Act) as would permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after such written notice from the
Company described in clause (i) above is effective.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction in which
the Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance, unless the Company
is already subject to service in such jurisdiction and except as may be required
by the Securities Act;
(B) After the Company has effected two such
registrations pursuant to this Section 1.2(a) and each such registration has
been declared or ordered effective by the Commission;
(C) During the period starting with the date
sixty (60) days prior to the Company's good faith estimate of the date of filing
of, and ending on a date one hundred eighty (180) days after the effective date
of, a registration pursuant to Section 1.3
3.
<PAGE> 5
hereof, provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(b) Subject to the foregoing clauses (A) through (C), the
Company shall prepare and file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Initiating Holders; provided, however, that if
(i) in the good faith judgment of the Board of Directors of the Company, such
registration would be seriously detrimental to the Company and the Board of
Directors of the Company concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (ii) the Company
shall furnish to such Holders a certificate signed by the president or chief
executive officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company for such registration statement to be filed in the near future and that
it is, therefore, essential to defer the filing of such registration statement,
then the Company shall have the right to defer such filing for the period during
which such registration would be seriously detrimental, provided, that the
Company may not defer the filing for a period of more than 180 days after
receipt of the request of the Initiating Holders, and, provided further, that
(except as provided in clause (C) above) the Company shall not defer its
obligation in this manner more than once in any 12-month period.
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of this Section 1.2(b) and
Section 1.12 hereof, include other securities of the Company and may include
securities of the Company being sold for the account of the Company.
(c) UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 1.2 and the Company shall include such information in
the written notice referred to in Section 1.2(a)(i) above. In such event, the
right of any Holder to registration pursuant to this Section 1.2 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder with respect to such participation and inclusion) to the extent
provided herein. A Holder may elect to include in such underwriting all or a
part of the Registrable Securities he holds.
(d) PROCEDURE. If the Company shall request inclusion in any
registration pursuant to this Section 1.2 of securities being sold for its own
account, or if persons other than Holders shall request inclusion of their
securities in any registration pursuant to this Section 1.2, the Initiating
Holders shall, on behalf of all Holders, offer to include such securities in the
underwriting and may condition such offer on their acceptance of the further
applicable provisions of this Section 1. If the Initiating Holders' intend to
distribute the Registrable Securities covered by their request pursuant to this
Section 1.2 by means of an underwriting, the Company shall (together with all
Holders and other persons proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for such underwriting
by a majority in interest of the Initiating Holders, which underwriter(s) are
reasonably acceptable to
4.
<PAGE> 6
the company. Notwithstanding any other provision of this Section 1.2, if the
representative of the underwriters advises the Initiating Holders in writing
that marketing factors require a limitation on the number of shares to be
underwritten, the number of shares to be included in the underwriting or
registration shall be allocated as set forth in Section 1.12 hereof. If the
person who has requested inclusion in such registration as provided above does
not agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating
holders. The securities so excluded shall also be withdrawn from registration.
Any Registrable Securities or other securities excluded shall also be withdrawn
from such registration. If shares are so withdrawn from the registration and if
the number of shares to be included in such registration was previously reduced
as a result of marketing factors pursuant to this Section 1.2(d), then the
Company shall offer to all Holders who have retained rights to include
securities in the registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares withdrawn,
with such shares to be allocated among such Holders requesting additional
inclusion in accordance with Section 1.12.
1.3 COMPANY REGISTRATION.
(a) If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights (other than
pursuant to Section 1.2 hereof), other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Commission Rule
145 transaction, or a registration on any registration form which does not
permit secondary sales, the Company will:
(i) promptly give to each Holder written notice
thereof, and
(ii) use its best efforts to include in such
registration (and any related qualification under blue sky laws or other
compliance), except as set forth in Section 1.3(b) below, and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made by any Holder within twenty (20) days after
the written notice from the Company described in clause (i) above is effective.
Such written request may specify all or a part of a Holder's Registrable
Securities.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 1.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the holders of other securities of the Company
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 1.3, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the
5.
<PAGE> 7
number of shares to be underwritten, the representative may (subject to the
limitations set forth below) exclude all Registrable Securities from, or limit
the number of Registrable Securities to be included in, the registration and
underwriting. The Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated first to the
Company for securities being sold for its own account and thereafter as set
forth in Section 1.12. If any person does not agree to the terms of any such
underwriting, he shall be excluded therefrom by written notice from the Company
or the underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the number of
shares of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in accordance
with Section 1.12 hereof
1.4 EXPENSES OF REGISTRATION. All Registration Expenses, together with
reasonable fees of one counsel for the selling Holders, incurred in connection
with all registrations pursuant to Section 1.3 hereof, up to two (2)
registrations per year pursuant to Section 1.5 hereof and two (2) registrations
pursuant to Section 1.2 hereof, shall be borne by the Company; provided,
however, that if the Holders bear the Registration Expenses for any registration
proceeding begun pursuant to Section 1.2 and subsequently withdrawn by the
Holders registering shares therein, such registration proceeding shall not be
counted as a requested registration pursuant to Section 1.2 hereof. In the event
that such withdrawal is based upon material adverse information relating to the
Company that is materially different from the information known or available
(upon request from the Company or otherwise) to the Holders requesting
registration at the time of their request for registration under Section 1.2,
such registration shall not be treated as a counted registration for purposes of
Section 1.2 hereof even though the Holders do not bear the Registration Expenses
for such registration. All Selling Expenses relating to securities registered
shall be borne by the holders of such securities pro rata on the basis of the
number of shares of securities so registered on their behalf.
1.5 REGISTRATION ON FORM S-3.
(a) After its initial public offering as described in Section
1.2(a) above, the Company shall use its best efforts to qualify for registration
on Form S-3 or any comparable or successor form or forms. After the Company has
qualified for the use of Form S-3, in addition to the rights contained in the
foregoing provisions of this Section 1, the Holders of Registrable Securities
shall have the right to request registrations on Form S-3 (such requests shall
be in writing and shall state the number of shares of Registrable Securities to
be disposed of and the intended methods of disposition of such shares by such
Holder or Holders), provided, however, that the Company shall not be obligated
to effect any such registration if (i) the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) on
Form S-3 at an aggregate price to the public of less than $1,000,000, or (ii) in
a given 12-month period, after the Company has effected two (2) such
registrations pursuant to this Section 1.5 in any such period.
6.
<PAGE> 8
(b) If a request complying with the requirements of Section
1.5(a) hereof is delivered to the Company, the provisions of Sections 1.2(a)(i)
and (ii) (other than Section 1.2(a)(ii)(B)) and Section 1.2(b) hereof shall
apply to such registration. The provisions of Sections 1.2(c) and 1.2(d) hereof
shall apply to all registrations pursuant to this Section 1.5.
1.6 REGISTRATION PROCEDURE. In the case of each registration effected
by the Company pursuant to this Section 1, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; provided, however that (i) such 120-day period shall be extended
for a period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Securities Act, permits an offering on a continuous or delayed basis,
and provided further that applicable rules under the Securities Act governing
the obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (i) includes any prospectus required by Section
10(a)(3) of the Securities Act or (ii) reflects facts or events representing a
material or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be included
in (i) and (ii) above to be contained in periodic reports filed pursuant to
Section 13 or 15(d) of the Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including a preliminary prospectus and any amendment of or
supplement to the prospectus, as a Holder from time to time may reasonably
request;
(d) Notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material
7.
<PAGE> 9
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or incomplete in the light of the
circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration;
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
Registration Statement.' which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act;
(h) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.2 hereof the Company will
enter into an underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests, the underwriting agreement will contain customary contribution
provision; and
(i) Furnish, at the request of a majority in interest of
Holders participating in the registration, on the date that such Registered
Securities are delivered to the underwriters for sale, or if such securities are
not being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion dated as of
such date, of the counsel representing the Company for purposes of such
registration, in a form and substance as is customarily provided to underwriters
in an underwritten public offering and reasonably satisfactory to a majority in
interest of Holders requesting registration, addressed to the underwriters, if
any, and Holders and (ii) a letter dated as of such date from the independent
public accountants of the Company in form and substance as is customarily
provided to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders, addressed to the
underwriters, if any, and, if permitted, by applicable accounting standards, the
Holders requesting registration.
1.7 INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify
each Holder, each of its officers, directors and partners, legal counsel and
accountants and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter for such Holder, if any, and each person who controls within
the meaning of Section 15 of the Securities Act any underwriter, against all
expenses, claims, losses, damages and liabilities (or actions, proceedings or
settlements in respect thereof) arising out of or based
8.
<PAGE> 10
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, preliminary or final, offering circular or other
document (including any related registration statement, notification or the
like) incident to any such registration, qualification or compliance, or based
on any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Securities Act, the Exchange Act, any
state securities laws or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
such Holder, each of its officers, directors, partners, legal counsel and
accountants and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company by
such Holder or, its agents, underwriter or persons who control such Holder and
stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Paragraph 1.7(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent has not
been unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by him
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder and Other Stockholder
and each of their officers, directors and partners, and each person controlling
such Holder or Other Stockholder, against all expenses, claims, losses, damages
and liabilities (or actions, proceedings or settlements in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
preliminary or final, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, Other Stockholders, directors, officers, partners,
legal counsel and accountants, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
its agents, underwriter or persons who control such Holder and stated to be
specifically for use in connection with such registration; provided, however,
that the obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld) and provided further
that in no event shall any indemnity under this Section 1.7(b) exceed the net
proceeds from the offering received by such Holder.
9.
<PAGE> 11
(c) Each party entitled to indemnification under this Section
1.7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1.7, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission provided that in no event shall any contribution by a
Holder hereunder exceed the net proceeds from the offering received by such
Holder.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and the Holders under this
Section 1.7 shall survive completion of any offering of Registrable Securities
and the termination of this Agreement.
1.8 INFORMATION BY HOLDER. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company or its underwriters may
reasonably request in writing and as shall be
10.
<PAGE> 12
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 1.
1.9 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to
use its best efforts to:
(a) Make and keep public information available as those terms
are understood and defined in Rule 144 under the Securities Act at all times
following the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting
requirements;
(c) So long as a Holder owns any Restricted Securities,
furnish to the Holder forthwith upon written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any
time from and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents so filed as a Holder may reasonably request in availing itself of any
rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
1.10 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register securities granted to a Holder by the Company under
Sections 1.2, 1.3 and 1.5 may be transferred or assigned by a Holder only to a
transferee or assignee who holds or will hold, subsequent to such transfer not
less than 150,000 shares of Registrable Securities (as presently constituted and
subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits and the like), or to a transferee or assignee who holds or will
hold, subsequent to such transfer not less than 45,000 shares of Registrable
Securities (as presently constituted and subject to subsequent adjustments for
stock splits, stock dividends, reverse stock splits and the like) that (i) is a
subsidiary, parent, shareholder, general partner, limited partner or retired
partner of Holder, or (ii) is a Holder's family member (or a family member of a
Holder's spouse) or trust for the benefit of such person or persons; and
provided that the Company is given written notice at the time of or within a
reasonable time after said transfer or assignment, stating the name and address
of said transferee or assignee and identifying the securities with respect to
which such registration rights are being transferred or assigned, and provided
further that the transferee or assignee of such rights agrees in writing to
assume the obligations of such Holder under this Section 1.
1.11 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, an Investor
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such an Investor (other than those included
in the registration) during the one hundred eighty
11.
<PAGE> 13
(180) day period following the effective date of a registration statement of the
Company filed under the Securities Act in connection with an initial public
offering, provided that:
(a) all Holders and officers and directors of the Company
enter into similar agreements; and
(b) such agreements shall provide that any discretionary
waiver or termination of the restrictions of such agreements by the
representatives of the underwriters shall apply to all persons subject to such
agreements pro rata based on the number of shares held.
The obligations described in this Section 1.11 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms which may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms which may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares (or other securities)
subject to the foregoing restriction until the end of said one hundred eighty
(180) day period.
1.12 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion of
shares of any currently unissued series of Preferred Stock of the Company) with
registration rights (the "Other Shares") requested to be included in a
registration on behalf of the Holders or other selling shareholders cannot be so
included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares which may be so included, the number of
shares of Registrable Securities and Other Shares which may be included shall be
allocated first to the Holders pro rata based on the number of shares of
Registrable Securities held by each, and second to holders of Other Shares
(including Holders) pro rata based on the number of shares of Other Shares held
by each (on an as converted basis); provided, however, that, if any Holder does
not request inclusion of the maximum number of shares of Registrable Securities
allocated to him pursuant to the above-described procedure, the remaining
portion of his allocation shall be reallocated first among those requesting
Holders with respect to their shares of Registrable Securities and second among
holders of Other Shares (including Holders) and this procedure shall be repeated
until all of the shares of Registrable Securities and Other Shares that may be
included in the registration on behalf of the Holders and other selling
shareholders have been so allocated. The Company shall not limit the number of
Registrable Securities to be included in a registration pursuant to this
Agreement (i) in order to include shares held by shareholders with no
registration rights or to include stock issued prior to the date of this
Agreement, other than to the Holders, or any other shares of stock issued to
employees, officers, directors or consultants pursuant to the Company's equity
incentive plans, or (ii) with respect to registrations under Sections 1.2 and
1.5 hereof, in order to include in such registration securities registered for
the Company's own account.
1.13 RESTRICTION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, the Company shall not, without prior written consent of the
Holders of a majority of the Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the Company that
would grant such Holder registration rights senior to those granted to the
Holders hereunder.
12.
<PAGE> 14
1.14 DELAY OF REGISTRATION. No Holder shall have any right to take any
action to restrain, enjoin or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.15 TERMINATION OF REGISTRATION RIGHT. The right of any Holder to
request registration or inclusion in any registration pursuant to this Section 1
shall terminate on the fourth anniversary of the closing of the Company's sale
of its Common Stock in an underwritten public offering under the Act at a per
share public offering price of at least $15.00 (as appropriately adjusted for
stock splits, recapitalizations, combinations and the like) for an aggregate
public offering price of not less than $15,000,000; provided that, with respect
to any Holder of less than two percent (2%) of the Company's outstanding stock,
the right of any such Holder to request registration or inclusion in any
registration pursuant to this Section 1 shall terminate at such earlier time as
any such Holder shall be able to sell all shares of Registrable Securities held
or entitled to be held upon conversion by such Holder under Rule 144 during any
90-day period.
1.16 LIMITATIONS ON DISPOSITION. Each Investor agrees not to make any
disposition of any Shares or Registrable Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 1.16 provided and to the extent this Section is then applicable,
and:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(b) (i) such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the
Securities Act, provided that the Company will not require opinions of counsel
for transactions made pursuant to Rule 144 except in unusual circumstances.
Notwithstanding the foregoing, no such registration statement or
opinion of counsel shall be necessary for a transfer which complies with all
applicable federal and state securities laws by an Investor (i) that is a
partnership to its partners or former partners in accordance with their
partnership interests, (ii) that is a corporation to its shareholders in
accordance with their equity interests therein or (iii) to family members of an
Investor or a trust for the benefit of an individual Investor or family member
thereof, provided in each case that the transferee agrees to be bound by this
Section 1.16.
SECTION 2
RIGHTS OF FIRST REFUSAL
2.1 RIGHTS OF FIRST REFUSAL. The Company hereby grants to each
Investor, as long as the Investor holds at least 150,000 shares of Registrable
Securities (as appropriately adjusted for
13.
<PAGE> 15
stock splits, recapitalizations, combinations and the like), the right of first
refusal to purchase, pro rata, a portion of any New Securities (as defined in
Section 2.1(a) below) that the Company, from time to time, may propose to sell
and issue. Each Investor's pro rata share of the New Securities will be the
ratio of (i) the number of shares of Common Stock issued and held, and issuable
upon the conversion of the Shares then held, by such Investor as of the date of
the Rights Notice (as defined below) to (ii) the total number of shares of
Common Stock issued and held, and issuable upon the conversion of the Shares
then held by all shareholders of the Company as of such date plus the total
number of shares of Common Stock issuable upon exercise of all then-outstanding
options, warrants and rights issued by the Company. This right of first refusal
will be subject to the following provisions:
(a) "NEW SECURITIES" will mean any shares of Common Stock or
Preferred Stock of any kind of the Company, whether now or hereafter authorized;
rights, options, or warrants to purchase said Common Stock or Preferred Stock
and securities carrying any such right, option or warrant; and securities of any
type whatsoever that are, or may become, convertible into said Common Stock or
Preferred Stock, provided that "New Securities" will not include: (i) any shares
of Common Stock or Preferred Stock of the Company that would be deemed "Excluded
Shares" for purposes of paragraph D(4) of Article IV of the Company's Amended
and Restated Articles of Incorporation; (ii) securities issued in connection
with the acquisition of another corporation by the Company by merger,
consolidation, purchase of substantially all of the assets, or other
reorganization as a result of which the Company owns more than fifty percent
(50%) of the voting power of such corporation; or (iii) shares of the Company's
Common Stock or Preferred Stock issued in connection with any stock split, stock
dividend, recapitalization, reclassification or similar event.
(b) If the Company proposes to issue New Securities, it will
give each Investor that holds at least 150,000 shares of Registrable Securities
(as appropriately adjusted for stock splits, recapitalizations, combinations and
the like) written notice (the "Rights Notice") of the Company's intention to do
so, describing the New Securities, the price, and the general terms upon which
the Company proposes to issue them. Each such Investor will have 15 days from
the date of delivery of the Rights Notice to agree to purchase its pro rata
share of such New Securities for the price and upon the general terms specified
in the Rights Notice by giving written notice to the Company setting forth the
quantity of New Securities to be purchased.
(c) If any Investor fails to exercise in full its rights of
first refusal hereunder, the Company will have 90 days after the date of
delivery of the Rights Notice to sell the New Securities that were not purchased
by the Investor, at a price and upon general terms no more favorable to the
purchasers thereof than the price and general terms specified in the Rights
Notice. If the Company does not sell the New Securities within said 90 day
period as provided in the preceding sentence, the Company will not thereafter
issue or sell any of such New Securities without complying with the provisions
of Section 2.l(b) above.
(d) TERMINATION. The rights of first refusal granted in this
Section 2 shall not apply to, and shall terminate upon the earlier of (i) the
closing of the Company's sale of its Common Stock in an underwritten public
offering with an aggregate public offering price of $15,000,000 or more, or (ii)
a sale of all or substantially all of the assets of the Company or a merger or
consolidation of the Company with or into any other corporation or corporations
in
14.
<PAGE> 16
which the shareholders of the Company immediately prior to such event retain
less than a fifty percent (50%) interest in the surviving entity.
(e) TRANSFER OF RIGHT. The rights of first refusal of each
Holder under this Section 2.1 may be transferred to the same parties subject to
the same restrictions as any transfer of registration rights pursuant to Section
1.10.
SECTION 3
COVENANTS OF THE COMPANY
The Company hereby covenants and agrees, so long as any Holder owns any
Registrable Shares as follows:
3.1 BASIC FINANCIAL INFORMATION. The Company will furnish the following
reports to each Holder:
(a) As soon as practicable after the end of each fiscal year
of the Company, and in any event within ninety (90) days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any, as at
the end of such fiscal year, and consolidated statements of income and sources
and applications of funds of the Company and its subsidiaries, if any, for such
year, prepared in accordance with generally accepted accounting principles
consistently applied, setting forth in each case in comparative form the figures
for the previous fiscal year, all in reasonable detail, and audited in each case
by independent public accountants of national standing selected by the Company,
and a Company prepared comparison to the Company's operating plan for such year.
(b) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the Company, and
in any event within forty-five (45) days thereafter, an unaudited consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of each
such quarterly period, and unaudited consolidated statements of income and
statements of cash flows of the Company and its subsidiaries, if any, for such
period and for the current fiscal year to date, prepared in accordance with
generally accepted accounting principles consistently applied and setting forth
in comparative form the figures for the corresponding periods of the previous
fiscal year and to the Company's operating plan then in effect and approved by
its Board of Directors, subject to changes resulting from normal year-end audit
adjustments, all in reasonable detail and certified by the principal financial
or accounting officer of the Company, except that such balance sheet need not
contain the notes or the end-of-period adjustments required by generally
accepted accounting principles.
(c) From the date the Company becomes subject to the reporting
requirements of the Exchange Act, and in lieu of the financial information
required pursuant to Sections 3.1(a) and (b), copies of its annual reports on
Form 10-K and its quarterly reports on Form 10-Q respectively.
15.
<PAGE> 17
3.2 ADDITIONAL INFORMATION AND RIGHTS.
(a) The Company will permit any Investor, so long as such
Investor (or its representative) owns at least 300,000 Shares, or such number of
shares of Common Stock issued upon conversion of 300,000 or more Shares, or any
combination thereof (as presently constituted and subject to subsequent
adjustment for stock splits, stock dividends, reverse stock splits,
recapitalizations and the like) (a "Significant Holder") (or a representative of
any Significant Holder) to visit and inspect any of the properties of the
Company, including its books of account and other records (and make copies
thereof and take extracts therefrom), and to discuss its affairs, finances and
accounts with the Company's officers and its independent public accountants, all
at such reasonable times and as often as any such person may reasonably request.
(b) Until the earlier to occur of (x) the date on which the
Company is subject to the reporting requirements of Sections 13(a) or 15(d) of
the Exchange Act, or (y) the date on which quotations for the Common Stock of
the Company are reported by the automated quotations systems operated by the
National Association of Securities Dealers, Inc., or by an equivalent quotations
system, the Company will deliver the reports described below in this Section 3.2
to each Significant Holder:
(i) As soon as practical after the end of each month
and in any event within thirty (30) days thereafter copies of any financial
reports or statements for the Company and for its subsidiaries, if any, that the
Company actually prepares for internal use or for other purposes, including but
not limited to any statements of income and sources and applications of funds of
the Company and its subsidiaries, together with any comparisons of such
statements to the corresponding periods of the prior fiscal year and to the
Company's operating plan then in effect and approved by its Board of Directors;
provided, however, that this Section 3.2(b)(i) shall not be construed to require
the Company to create reports that it would not otherwise create as part of its
monthly analysis of the Company's business or as otherwise required by its Board
of Directors.
(ii) Annually (but in any event at least thirty (30)
days prior to the commencement of each fiscal year of the Company) the financial
plan of the Company, in such manner and form as approved by the Board of
Directors of the Company, which financial plan shall include a projection of
income and a projected cash flow statement for such fiscal year and a projected
balance sheet as of the end of such fiscal year. Any material changes in such
financial plan shall be submitted as promptly as practicable after such changes
have been approved by the Board of Directors of the Company.
(iii) With reasonable promptness, but without unduly
interfering with the Company's business, such other information and data with
respect to the Company and its subsidiaries as any such person may from time to
time reasonably request.
(iv) As soon as practicable after transmission or
occurrence and in any event within ten (10) days thereof, copies of any reports
or communications delivered to any class of the Company's security holders or
broadly to the financial community, including any
16.
<PAGE> 18
filings by the Company with any securities exchange, the Commission or the
National Association of Securities Dealers, Inc.
(c) The provisions of Section 3.1 and this Section 3.2 shall
not be in limitation of any rights which any Holder or Significant Holder may
have with respect to the books and records of the Company and its subsidiaries,
or to inspect their properties or discuss their affairs, finances and accounts,
under the laws of the jurisdictions in which they are incorporated.
3.3 PROMPT PAYMENT OF TAXES, ETC. The Company will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company or any subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefor. The Company will promptly pay or cause to be paid when due, or in
conformance with customary trade terms or otherwise in accordance with policies
related thereto adopted by the Company's Board of Directors, all other
indebtedness incident to operations of the Company.
3.4 MAINTENANCE OF PROPERTIES AND LEASE. The Company will keep its
properties and those of its subsidiaries in good repair, working order and
condition, reasonable wear and tear excepted, and from time to time make all
needful and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company and its subsidiaries will at all times comply with each
material provision of all leases to which any of them is a party or under which
any of them occupies property if the breach of such provision might have a
material and adverse effect on the condition, financial or otherwise, or
operations of the Company.
3.5 INSURANCE. Except as otherwise decided in accordance with policies
adopted by the Company's Board of Directors, the Company will keep its assets
and those of its subsidiaries which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in the
Company's line of business, and the Company will maintain, with financially
sound and reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner customary for
companies in similar businesses similarly situated.
3.6 ACCOUNTS AND RECORDS. The Company will keep true records and books
of account in which full, true and correct entries will be made of all dealings
or transactions in relation to its business and affairs in accordance with
generally accepted accounting principles applied on a consistent basis.
3.7 INDEPENDENT ACCOUNTANTS. The Company will retain independent public
accountants of recognized national standing who shall certify the Company's
financial statements at the end of each fiscal year. In the event the services
of the independent public accountants so selected, or any firm of independent
public accountants hereafter employed by the Company are terminated, the Company
will promptly thereafter notify the Holders and will
17.
<PAGE> 19
request the firm of independent public accountants whose services are terminated
to deliver to the Holders a letter from such firm setting forth the reasons for
the termination of their services. In the event of such termination, the Company
will promptly thereafter engage another firm of independent public accountants
of recognized national standing. In its notice to the Holders the Company shall
state whether the change of accountants was recommended or approved by the Board
of Directors of the Company or any committee thereof.
3.8 COMPLIANCE WITH REQUIREMENTS OF GOVERNMENTAL AUTHORITIES. The
Company and all its subsidiaries shall duly observe and conform to all valid
requirements of governmental authorities relating to the conduct of their
businesses or to their properties or assets.
3.9 MAINTENANCE OF CORPORATE EXISTENCE, ETC. The Company shall maintain
in full force and effect its corporate existence, rights and franchises and all
licenses and other rights in or to use patents, processes, trademarks, trade
names or copyrights owned or possessed by it or any subsidiary and deemed by the
Company to be necessary to the conduct of their business.
3.10 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. The Company
will cause each person now or hereafter employed by it or any subsidiary with
access to confidential information to enter into a proprietary information and
inventions agreement substantially in the form approved by the Board of
Directors.
3.11 EMPLOYEE AND OTHER STOCK ARRANGEMENTS. The Company will not,
without the approval of the Board of Directors, issue any of its capital stock,
or grant an option or rights to subscribe for, purchase or acquire any of its
capital stock, to any employee, consultant, officer or director of the Company
or a subsidiary. Each acquisition of any shares of capital stock of the Company
or any option or right to acquire any shares of capital stock of the Company by
an employee, officer or director of the Company will be conditioned upon the
execution and delivery by the Company and such employee, officer or director of
an agreement substantially in a form approved by the Board of Directors of the
Company.
3.12 BOARD OF DIRECTORS. Immediately following the execution of this
Agreement and at all times thereafter until the time of effectiveness of its
initial public offering as defined in Section 1.2 above, the Company shall take
all appropriate actions to fix and maintain a Board of Directors of no more than
seven (7) persons. The makeup of the Board of Directors immediately following
the execution of this Agreement shall be Stewart Alsop, Charles Holloway,
Brendon Kim, Peter Nieh, Frank O'Connell, Lee Rosenberg and Gordon Tucker. The
Investors agree that upon the death or resignation of Peter Nieh, Brendon Kim or
Frank O'Connell as a Director of the Company, they will vote their Shares in
favor of a nominee to fill such vacancy or vacancies only if each nominee
therefor (i) has, in their reasonable judgment, significant business experience
and (ii) does not serve as an officer or director of, or hold a controlling
interest in, a direct competitor of the Company.
3.13 TRANSACTIONS WITH AFFILIATES. The Company shall not, without the
approval of a majority of the disinterested members of the Company's Board of
Directors, engage in any loans, leases, contracts or other transactions with any
director, officer or key employee of the Company, or any member of any such
person's immediate family, including the parents, spouse, children and other
relatives of any such person, on terms less favorable than the Company would
18.
<PAGE> 20
obtain in a transaction with an unrelated party, as determined in good faith by
the Board of Directors.
3.14 AUDITS BY INVESTORS. Investors holding a majority of the Shares
shall have the right, through independent certified public accountants retained
at their expense, to audit the books and records of the Company. At such
Investors' request the Company shall provide an employee to assist in such
audit.
3.15 RESERVATION OF COMMON STOCK. The Company will at all times reserve
and keep available, solely for issuance upon conversion of the Shares, at least
that number of shares of Common Stock issuable from time to time upon conversion
of the Shares.
3.16 QUALIFIED SMALL BUSINESS. The Company will use reasonable efforts
to comply with the reporting and record keeping requirements of Section 1202 of
the Internal Revenue Code of 1986, as amended, and any regulations promulgated
thereunder.
3.17 TERMINATION OF COVENANTS. The covenants set forth in this Section
3 shall terminate and be of no further force and effect after the time of
effectiveness of the Company's first firm commitment underwritten public
offering registered under the Securities Act.
SECTION 4
MISCELLANEOUS
4.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California, as if entered into by and between
California residents exclusively for performance entirely within California.
4.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
4.3 ENTIRE AGREEMENTS AMENDMENT; WAIVER. This Agreement (including the
Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, and is
intended to amend, restate and supersede the 1997 Rights Agreement in its
entirety. Neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated, except by a written instrument signed by the Company
and the holders of at least fifty percent (50%) of the Registrable Shares and
any such amendment, waiver, discharge or termination shall be binding on all the
holders of Registrable Securities, but in no event shall the obligation of any
holder of Registrable Securities hereunder be materially increased, except upon
the written consent of such holder of Registrable Securities.
4.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, or delivered personally addressed by hand or
special courier (a) if to a Holder, as indicated on the list of Holders attached
hereto as Exhibit A, or at such other address as such Investor or permitted
assignee shall have furnished to the Company in writing, or (b) if to the
Company, at 501 Second Street, Suite 114, San Francisco, California, 94107,
attention: Chief
19.
<PAGE> 21
Executive Officer, or at such other address as the Company shall have furnished
to each holder in writing. All such notices and other written communications
shall be effective (i) if mailed, five (5) days after mailing and (ii) if
delivered, upon delivery.
4.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement or any
waiver on the part of any Holder of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any Holder, shall be cumulative and
not alternative.
4.6 RIGHTS; SEPARABILITY. Unless otherwise expressly provided herein, a
Holder's rights hereunder are several rights, not rights jointly held with any
of the other Holders. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
4.7 INFORMATION CONFIDENTIAL. Each Holder acknowledges that the
information received by them pursuant hereto is confidential and for its use
only on behalf of the Company, and it will not use such confidential information
in violation of the Exchange Act or reproduce, disclose or disseminate such
information to any other person (other than its partners, parent, subsidiaries,
employees or agents having a need to know the contents of such information, and
its attorneys), except in connection with the exercise of rights under this
Agreement, unless the Company or some other party other than the Holder has made
such information available to the public generally, or such Holder is required
to disclose such information by a governmental body (or order thereof) or
pursuant to any law, statute, rule or regulation.
4.8 TITLES AND SUBTITLES. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
4.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
20.
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year, first above written.
COMPANY: SHAREHOLDERS:
EGREETINGS NETWORK, INC. AUSTIN VENTURES]
By: By: AV Partners VI, L.P.
-------------------------------- Its: General Partner
Gordon M. Tucker
Chief Executive Officer By:
501 Second Street, Suite 114 ------------------------------------
San Francisco, CA 94107
------------------------------------
Its: Managing Director
Address: 114 West 7th Street
Suite 1300
Austin, TX 78701
AUSTIN VENTURES VI AFFILIATES
FUND, L.P.
By: AV Partners VI, L.P.
Its: Managing Member
By:
-------------------------------------
-------------------------------------
Its: Managing Member
Address: 114 West 7th Street
Suite 1300
Austin, TX 78701
TRANS COSMOS USA, INC.
By:
-------------------------------------
Yasuki Matsumoto
President
Address: 777 10th Avenue NE, Suite 2300
Bellevue, WA 98004
<PAGE> 23
WEISS, PECK & GREER VENTURE
ASSOCIATES IV, L.L.C.
By:
------------------------------------
Peter Nieh
Its: Managing Member
Address: 555 California Street
Suite 3130
San Francisco, CA 94104
WPG INFORMATION SCIENCES
ENTREPRENEUR FUND, L.P.
By: WPG VC Fund Adviser, L.L.C.
Its: General Partner
By:
------------------------------------
Peter Nieh
Its: Managing Member
Address: 555 California Street
Suite 3130
San Francisco, CA 94104
WEISS, PECK & GREER VENTURE
ASSOCIATES IV CAYMAN, L.P.
By: WPG Venture Advisers, Ltd.
Its: General Partner
By:
------------------------------------
Peter Nieh
Its: Managing Member
Address: 555 California Street
Suite 3130
San Francisco, CA 94104
<PAGE> 24
WEISS, PECK & GREER VENTURE
ASSOCIATES V-A, L.L.C.
By: WPG VC Fund Adviser II, L.L.C.
Its: Fund Investment Advisory Member
By:
------------------------------------
Peter Nieh
Its: Managing Member
Address: 555 California Street
Suite 3130
San Francisco, CA 94104
WEISS, PECK & GREER VENTURE
ASSOCIATES V CAYMAN, L.P.
By: WPG VC Fund Adviser II, L.L.C.
Its: Fund Investment Advisory Partner
By:
------------------------------------
Peter Nieh
Its: Managing Member
Address: 555 California Street
Suite 3130
San Francisco, CA 94104
INFORMATION TECHNOLOGY VENTURES II, L.P.
By:
------------------------------------
Its: General Partner
By:
------------------------------------
Its:
------------------------------------
Address: 100 Hamilton Ave., Suite 400
Palo Alto, CA 94301
<PAGE> 25
ITV AFFILIATES FUND II, L.P.
By:
-------------------------------------
Its: General Partner
By:
-------------------------------------
Its:
------------------------------------
Address: 100 Hamilton Ave., Suite 400
Palo Alto, CA 94301
NEW ENTERPRISE ASSOCIATES VIII,
LIMITED PARTNERSHIP
By: NEA Partners VIII,
Limited Partnership
Its: General Partner
By:
-------------------------------------
Its:
------------------------------------
Address: 2490 Sand Hill Road
Menlo Park, CA 94025
VULCAN VENTURES, INC.
By:
-------------------------------------
Its:
------------------------------------
Address: 110 110th Avenue NE
Bellevue, WA 98004
ALTOS VENTURES I, L.P.
By:
-------------------------------------
Its: General Partner
By:
-------------------------------------
Its:
------------------------------------
Address: 2882 Sand Hill Road, Suite 100
Menlo Park, CA 94025
<PAGE> 26
ALTOS PARTNERS I
By:
-------------------------------------
Its: General Partner
By:
-------------------------------------
Its:
------------------------------------
Address: 2882 Sand Hill Road, Suite 100
Menlo Park, CA 94025
E-COMMERCE PARTNERS I, L.P.
By:
-------------------------------------
Its: General Partner
By:
-------------------------------------
Its:
------------------------------------
Address: Two Embarcadero Center,
Suite 2930
San Francisco, CA 94111
GIBSON GREETINGS, INC.
By:
-------------------------------------
Its:
------------------------------------
Address: 2100 Section Road
Cincinnati, OH 45326
KETTLE PARTNERS, L.P.
By:
-------------------------------------
Its: General Partner
By:
-------------------------------------
Its:
------------------------------------
Address: 350 West Hubbard Street
Suite 501
Chicago, IL 60610
<PAGE> 27
LEE ROSENBERG
Address:
-------------------------------
-------------------------------
ALTOS PARTNERS I
By:
-------------------------------------
Its: General Partner
------------------------------------
Address:
-------------------------------
-------------------------------
RICHARD M. MOLEY ANNUITY TRUST U/A
DATED 5/12/98
By:
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Richard M. Moley
Sole Trustee
Address: 19910 Robin Way
Saratoga, CA 95070
COMDISCO,INC.
By:
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Its:
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Address: Two Embarcadero Center
Suite 2300
San Francisco, CA 94111
DUFF ACKERMAN & GOODRICH, L.P.
By:
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John Duff
Its:
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Address: Two Embarcadero Center
Suite 2300
San Francisco, CA 94111
DEVON GROUP
By:
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Its:
------------------------------------
Address:
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WOLTER LINK
Address:
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<PAGE> 28
TABLE OF CONTENTS
<TABLE>
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SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS.... 1
1.1 Certain Definitions................................................... 1
1.2 Requested Registration................................................ 3
1.3 Company Registration.................................................. 5
1.4 Expenses of Registration.............................................. 6
1.5 Registration on Form S-3.............................................. 6
1.6 Registration Procedure................................................ 7
1.7 Indemnification....................................................... 8
1.8 Information by Holder................................................. 10
1.9 Rule 144 Reporting................................................... 11
1.10 Transfer or Assignment of Registration Rights........................ 11
1.11 "Market Stand-Off" Agreement......................................... 11
1.12 Allocation of Registration Opportunities............................. 12
1.13 Restriction on Subsequent Registration Rights........................ 12
1.14 Delay of Registration................................................ 13
1.15 Termination of Registration Right.................................... 13
1.16 Limitations on Disposition........................................... 13
SECTION 2 RIGHTS OF FIRST REFUSAL.............................................. 13
2.1 Rights of First Refusal.............................................. 13
SECTION 3 COVENANTS OF THE COMPANY............................................. 15
3.1 Basic Financial Information.......................................... 15
3.2 Additional Information and Rights.................................... 16
3.3 Prompt Payment of Taxes, Etc......................................... 17
3.4 Maintenance of Properties and Lease.................................. 17
3.5 Insurance............................................................ 17
3.6 Accounts and Records................................................. 17
3.7 Independent Accountants.............................................. 17
3.8 Compliance with Requirements of Governmental Authorities............. 18
3.9 Maintenance of Corporate Existence, Etc.............................. 18
</TABLE>
i.
<PAGE> 29
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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3.10 Proprietary Information and Inventions Agreements.................... 18
3.11 Employee and Other Stock Arrangements................................ 18
3.12 Board of Directors................................................... 18
3.13 Transactions with Affiliates......................................... 18
3.14 Audits by Investors.................................................. 19
3.15 Reservation of Common Stock.......................................... 19
3.16 Qualified Small Business............................................. 19
3.17 Termination of Covenants............................................. 19
SECTION 4 MISCELLANEOUS........................................................ 19
4.1 Governing Law........................................................ 19
4.2 Successors and Assigns............................................... 19
4.3 Entire Agreements Amendment; Waiver.................................. 19
4.4 Notices, Etc......................................................... 19
4.5 Delays or Omissions.................................................. 20
4.6 Rights; Separability................................................. 20
4.7 Information Confidential............................................. 20
4.8 Titles and Subtitles................................................. 20
4.9 Counterparts......................................................... 20
</TABLE>
ii.
<PAGE> 1
EXHIBIT 10.01
FORM OF INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________, 1999
by and between EGREETINGS NETWORK, INC. a Delaware corporation (the
"Corporation"), and ____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his/her
capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as ______________
of the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other fiduciary
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE> 2
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent
by the Corporation under the non-exclusivity provisions of the Code and Section
43 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent
or deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both
the Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated
by Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers
2.
<PAGE> 3
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and Agent in the conduct of the defense of such action
or (iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of Agent's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Agent shall have made
the conclusion provided for in clause (ii) above; and
3.
<PAGE> 4
(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
4.
<PAGE> 5
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
5.
<PAGE> 6
(b) If to the Corporation, to
Egreetings Network, Inc.
501 Second Street
Suite 114
San Francisco, CA 94107
or to such other address as may have been furnished to Agent by the Corporation.
6.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
EGREETINGS NETWORK, INC.
By:
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Title:
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AGENT
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Address:
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7.
<PAGE> 1
EXHIBIT 10.02
EGREETINGS NETWORK, INC.
1999 EQUITY INCENTIVE PLAN
ADOPTED SEPTEMBER 21, 1999
APPROVED BY SHAREHOLDERS _______________, ______
TERMINATION DATE: SEPTEMBER 20, 2009
This 1999 Amended and Restated Equity Incentive Plan is an amendment and
restatement of the Egreetings Network, Inc. 1996 Stock Option Plan. All
outstanding options under the 1996 Stock Option Plan shall also be amended
effective as of the adoption of this amendment and restatement.
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
1.
<PAGE> 2
(f) "COMPANY" means Egreetings Network, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
2.
<PAGE> 3
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(v) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
3.
<PAGE> 4
(w) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(x) "PLAN" means this Egreetings Network, Inc. 1999 Amended and Restated
Equity Incentive Plan.
(y) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(cc) "TEN PERCENT SHAREHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section
12.
(iv) To terminate or suspend the Plan as provided in Section 13.
4.
<PAGE> 5
(v) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan
to a Committee or Committees of one (1) or more members of the Board, and the
term "Committee" shall apply to any person or persons to whom such authority has
been delegated. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
subcommittee any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED.
At such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
(d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate
[_________________________________ (_________)] shares of Common Stock plus an
annual increase to be added on each of the first nine (9) anniversaries of the
effective date of the Plan, beginning in 2000, equal to the lesser of (i) [____]
percent ([__]%) of the total number of shares of Common Stock outstanding on
such anniversary date, or (ii) [___________________ (________________)] shares.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full,
5.
<PAGE> 6
the shares of Common Stock not acquired under such Stock Award shall revert to
and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT SHAREHOLDERS. A Ten Percent Shareholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) SECTION 162(M) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than
[______________________________ (_______)] shares of Common Stock during any
calendar year.
(d) CONSULTANTS.
(i) A Consultant shall not be eligible for the grant of a Stock
Award if, at the time of grant, a Form S-8 Registration Statement under the
Securities Act ("Form S-8") is not available to register either the offer or the
sale of the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.
(ii) Form S-8 generally is available to consultants and advisors
only if (i) they are natural persons; (ii) they provide bona fide services to
the issuer, its parents, its majority-owned subsidiaries or majority-owned
subsidiaries of the issuer's parent; and (iii) the services are not in
connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a
6.
<PAGE> 7
separate certificate or certificates will be issued for shares of Common Stock
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Shareholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Shareholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the foregoing, an Incentive Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
7.
<PAGE> 8
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his
8.
<PAGE> 9
or her Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination), but only within such period of time
ending on the earlier of (i) the date twelve (12) months following such
termination (or such longer or shorter period specified in the Option Agreement)
or (ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified herein, the Option shall terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
Option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate. The Company will not exercise its repurchase
option until at least six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes) have
elapsed following exercise of the Option unless the Board otherwise specifically
provides in the Option.
(m) RE-LOAD OPTIONS.
(i) Without in any way limiting the authority of the Board to
make or not to make grants of Options hereunder, the Board shall have the
authority (but not an obligation) to include as part of any Option Agreement a
provision entitling the Optionholder to a further Option (a "Re-Load Option") in
the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Unless otherwise specifically provided in the Option, the Optionholder shall not
surrender shares of Common Stock acquired, directly or indirectly from the
Company, unless such shares have been held for more than six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).
(ii) Any such Re-Load Option shall (1) provide for a number of
shares of Common Stock equal to the number of shares of Common Stock surrendered
as part or all of the exercise price of such Option; (2) have an expiration date
which is the same as the expiration
9.
<PAGE> 10
date of the Option the exercise of which gave rise to such Re-Load Option; and
(3) have an exercise price which is equal to one hundred percent (100%) of the
Fair Market Value of the Common Stock subject to the Re-Load Option on the date
of exercise of the original Option. Notwithstanding the foregoing, a Re-Load
Option shall be subject to the same exercise price and term provisions
heretofore described for Options under the Plan.
(iii) Any such Re-Load Option may be an Incentive Stock Option
or a Nonstatutory Stock Option, as the Board may designate at the time of the
grant of the original Option; provided, however, that the designation of any
Re-Load Option as an Incentive Stock Option shall be subject to the one hundred
thousand dollar ($100,000) annual limitation on the exercisability of Incentive
Stock Options described in subsection 9(d) and in Section 422(d) of the Code.
There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
shall be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in consideration
for past services actually rendered to the Company or an Affiliate for its
benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock
bonus agreement may, but need not, be subject to a share repurchase option in
favor of the Company in accordance with a vesting schedule to be determined by
the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.
(iv) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the stock bonus agreement shall be transferable by the Participant only
upon such terms and conditions as are set forth in the stock bonus agreement, as
the Board shall determine in its discretion, so long as Common Stock awarded
under the stock bonus agreement remains subject to the terms of the stock bonus
agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The
10.
<PAGE> 11
terms and conditions of the restricted stock purchase agreements may change from
time to time, and the terms and conditions of separate restricted stock purchase
agreements need not be identical, but each restricted stock purchase agreement
shall include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:
(i) PURCHASE PRICE. The purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the Company may repurchase
or otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares of Common Stock
under the restricted stock purchase agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock purchase
agreement remains subject to the terms of the restricted stock purchase
agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of
the Stock Awards; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Stock
Award or any Common Stock issued or
11.
<PAGE> 12
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of Common Stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell Common Stock upon exercise of such Stock
Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) SHAREHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
12.
<PAGE> 13
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Stock Awards shall terminate
immediately prior to such event.
13.
<PAGE> 14
(c) CHANGE IN CONTROL. In the event of (i) a sale, lease or other
disposition of all or substantially all of the assets of the Company, (ii) a
merger or consolidation in which the Company is not the surviving corporation or
(iii) a reverse merger in which the Company is the surviving corporation but the
shares of Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then any surviving corporation or acquiring
corporation may assume any Stock Awards outstanding under the Plan or may
substitute similar stock awards (including an award to acquire the same
consideration paid to the shareholders in the transaction described in this
subsection 11(c)) for those outstanding under the Plan. In the event any
surviving corporation or acquiring corporation does not assume such Stock Awards
or substitute similar stock awards for those outstanding under the Plan, then
with respect to Stock Awards held by Participants whose Continuous Service has
not terminated, the vesting of such Stock Awards (and, if applicable, the time
during which such Stock Awards may be exercised) shall be accelerated in full,
and the Stock Awards shall terminate if not exercised (if applicable) at or
prior to such event. With respect to any other Stock Awards outstanding under
the Plan, such Stock Awards shall terminate if not exercised (if applicable)
prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) SHAREHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for shareholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
14.
<PAGE> 15
(E) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the shareholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the shareholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state's conflict of laws rules.
15.
<PAGE> 1
EXHIBIT 10.04
EGREETINGS NETWORK, INC.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED SEPTEMBER 21, 1999
APPROVED BY SHAREHOLDERS _______________, _____
EFFECTIVE DATE: _______________, 1999
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 6(b) of the
Plan.
(c) "ANNUAL MEETING" means the annual meeting of the shareholders of the
Company.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Egreetings Network, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the
1.
<PAGE> 2
term "Consultant" shall not include either Directors of the Company who are not
compensated by the Company for their services as Directors or Directors of the
Company who are merely paid a director's fee by the Company for their services
as Directors.
(i) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in the Common Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(o) "INITIAL GRANT" means an Option granted to a Non-Employee Director
who meets the specified criteria pursuant to subsection 6(a) of the Plan.
2.
<PAGE> 3
(p) "IPO DATE" means the effective date of the initial public offering
of the Common Stock.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(s) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(w) "PLAN" means this Egreetings Network, Inc. 1999 Non-Employee
Directors' Stock Option Plan.
(x) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
3.
<PAGE> 4
(iv) To terminate or suspend the Plan as provided in Section 13.
(v) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company that are not in conflict with the provisions of the Plan.
(c) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in the Common Stock, the Common Stock that may be
issued pursuant to Options shall not exceed in the aggregate
[_________________________________ (_________)] shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such
Option shall revert to and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
The Options as set forth in section 6 automatically shall be granted
under the Plan to all Non-Employee Directors.
6. NON-DISCRETIONARY GRANTS.
(a) INITIAL GRANTS. Without any further action of the Board, each
Non-Employee Director shall be granted the following Options:
(i) On the IPO Date, each person who is then a Non-Employee
Director automatically shall be granted an Initial Grant to purchase
[_______________ (_______________)] shares of Common Stock on the terms and
conditions set forth herein.
(ii) After the IPO Date, each person who is elected or appointed
for the first time to be a Non-Employee Director automatically shall, upon the
date of his or her initial election or appointment to be a Non-Employee Director
by the Board or shareholders of the Company, be granted an Initial Grant to
purchase _______________ (_______________) shares of Common Stock on the terms
and conditions set forth herein.
(b) ANNUAL GRANTS. On the day following each Annual Meeting commencing
with the Annual Meeting in 2000, each person who is then a Non-Employee Director
automatically
4.
<PAGE> 5
shall be granted an Annual Grant to purchase ________________ (________________)
shares of Common Stock on the terms and conditions set forth herein; provided,
however, that if the person has not been serving as a Non-Employee Director for
the entire period since the preceding Annual Meeting, then the number of shares
subject to the Annual Grant shall be reduced pro rata for each full quarter
prior to the date of grant during which such person did not serve as a
Non-Employee Director.
7. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, (ii) delivery to the
Company of other Common Stock, (ii) deferred payment or (iv) any other form of
legal consideration that may be acceptable to the Board. The purchase price of
Common Stock acquired pursuant to an Option that is paid by delivery to the
Company of other Common Stock acquired, directly or indirectly from the Company,
shall be paid only by shares of the Common Stock of the Company that have been
held for more than six (6) months (or such longer or shorter period of time
required to avoid a charge to earnings for financial accounting purposes). At
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by will
or by the laws of descent and distribution and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. Notwithstanding the
foregoing, the Optionholder may, by delivering written notice to the Company, in
a form satisfactory to the Company, designate a third party
5.
<PAGE> 6
who, in the event of the death of the Optionholder, shall thereafter be entitled
to exercise the Option.
(e) VESTING GENERALLY. Options shall vest and become exercisable as
follows:
(i) [Initial Grants shall provide for vesting of 1/5th of the
shares 12 months after the date of the grant and 1/60th of the shares each month
thereafter.]
(ii) [Annual Grants shall provide for vesting of 1/12th of the
shares each month after the date of the grant.]
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionholder's Continuous Service, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate.
(g) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
7(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.
(h) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.
(i) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of
6.
<PAGE> 7
the term of such Option as set forth in the Option Agreement. If, after death,
the Option is not exercised within the time specified herein, the Option shall
terminate.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) SHAREHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
7.
<PAGE> 8
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 5, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or
liquidation of the Company, then all outstanding Options shall terminate
immediately prior to such event.
(c) CHANGE IN CONTROL. In the event of (i) a sale, lease or other
disposition of all or substantially all of the assets of the Company, (ii) a
merger or consolidation in which the Company is not the surviving corporation or
(iii) a reverse merger in which the Company is the surviving corporation but the
shares of Common Stock outstanding immediately preceding the
8.
<PAGE> 9
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, then any surviving corporation or
acquiring corporation may assume any Options outstanding under the Plan or may
substitute similar Options (including an option to acquire the same
consideration paid to the shareholders in the transaction described in this
subsection 11(c)) for those outstanding under the Plan). In the event any
surviving corporation or acquiring corporation does not assume such Options or
substitute similar Options for those outstanding under the Plan, then with
respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting of such Options (and the time during which such Options
may be exercised) shall be accelerated in full, and the Options shall terminate
if not exercised at or prior to such event. With respect to any other Options
outstanding under the Plan, such Options shall terminate if not exercised prior
to such event.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the shareholders of the Company to the extent shareholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) SHAREHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for shareholder approval.
(c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
No Options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the shareholders of the
Company.
9.
<PAGE> 10
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of Delaware, without
regard to such state's conflict of laws rules.
10.
<PAGE> 1
EXHIBIT 10.06
EGREETINGS NETWORK, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS SEPTEMBER 21, 1999
APPROVED BY STOCKHOLDERS _______________ , 1999
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase shares of the Common Stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.
(c) The Company intends that the Rights to purchase shares of the Common
Stock granted under the Plan be considered options issued under an "employee
stock purchase plan," as that term is defined in Section 423(b) of the Code.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subparagraph 3(c) of the Plan.
(e) "COMMON STOCK" means the Common Stock of Egreetings Network, Inc.
(f) "COMPANY" means Egreetings Network, Inc., a Delaware corporation.
(g) "DIRECTOR" means a member of the Board.
(h) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.
(i) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.
1.
<PAGE> 2
(j) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
trading day prior to the relevant determination date, as reported in The Wall
Street Journal or such other source as the Board deems reliable, or if such date
is not a trading day, then on the next previous trading day.
(m) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(n) "OFFERING" means the grant of Rights to purchase shares of the
Common Stock under the Plan to Eligible Employees.
(o) "OFFERING DATE" means a date selected by the Board for an Offering
to commence.
(p) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(q) "PARTICIPANT" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.
(r) "PLAN" means this Egreetings Network, Inc. 1999 Employee Stock
Purchase Plan.
2.
<PAGE> 3
(s) "PURCHASE DATE" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised and
purchases of shares of the Common Stock carried out in accordance with such
Offering.
(t) "RIGHT" means an option to purchase shares of the Common Stock
granted pursuant to the Plan.
(u) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(v) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how Rights to purchase shares of the
Common Stock shall be granted and the provisions of each Offering of such Rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 14.
(v) To terminate or suspend the Plan as provided in paragraph 16.
(vi) Generally, to exercise such powers and to perform such acts
as it deems necessary or expedient to promote the best interests of the Company
and its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.
(c) The Board may delegate administration of the Plan to a Committee of
the Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors and/or
Outside Directors. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, including the power to delegate to a
3.
<PAGE> 4
subcommittee of two (2) or more Outside Directors any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or such a subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 13 relating to adjustments
upon changes in securities, the shares of the Common Stock that may be sold
pursuant to Rights granted under the Plan shall not exceed in the aggregate
[___________________________ (_________)] shares of the Common Stock (the
"Reserved Shares"). [As of the first nine (9) anniversaries of the Effective
Date of the Plan, the number of Reserved Shares will be increased automatically
by the lesser of (i) __________ percent (____%) of the total number of shares of
the Common Stock outstanding on such anniversary date or (ii)
__________________________ (_______) shares.] If any Right granted under the
Plan shall for any reason terminate without having been exercised, the shares of
the Common Stock not purchased under such Right shall again become available for
the Plan.
(b) The shares of the Common Stock subject to the Plan may be unissued
shares of the Common Stock or shares of the Common Stock that have been bought
on the open market at prevailing market prices or otherwise.
5. GRANT OF RIGHTS; OFFERING.
The Board may from time to time grant or provide for the grant of Rights
to purchase shares of the Common Stock under the Plan to Eligible Employees in
an Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all Employees granted Rights to purchase shares of
the Common Stock under the Plan shall have the same rights and privileges. The
terms and conditions of an Offering shall be incorporated by reference into the
Plan and treated as part of the Plan. The provisions of separate Offerings need
not be identical, but each Offering shall include (through incorporation of the
provisions of this Plan by reference in the document comprising the Offering or
otherwise) the period during which the Offering shall be effective, which period
shall not exceed twenty-seven (27) months beginning with the Offering Date, and
the substance of the provisions contained in paragraphs 6 through 9, inclusive.
6. ELIGIBILITY.
(a) Rights may be granted only to Employees of the Company or, as the
Board may designate as provided in subparagraph 3(b), to Employees of an
Affiliate. Except as provided in subparagraph 6(b), an Employee shall not be
eligible to be granted Rights under the Plan unless, on the Offering Date, such
Employee has been in the employ of the Company or the Affiliate, as the case may
be, for such continuous period preceding such grant as the Board may require,
but
4.
<PAGE> 5
in no event shall the required period of continuous employment be equal to or
greater than two (2) years.
(b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Right under that
Offering, which Right shall thereafter be deemed to be a part of that Offering.
Such Right shall have the same characteristics as any Rights originally granted
under that Offering, as described herein, except that:
(i) the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of the
exercise price of such Right;
(ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.
(c) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any Employee, and stock which such Employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such Employee.
(d) An Eligible Employee may be granted Rights under the Plan only if
such Rights, together with any other Rights granted under all Employee Stock
Purchase Plans of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase
shares of the Common Stock or any Affiliate to accrue at a rate which exceeds
twenty five thousand dollars ($25,000) of the fair market value of such shares
of the Common Stock (determined at the time such Rights are granted) for each
calendar year in which such Rights are outstanding at any time.
(e) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
7. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to the
number of shares of the Common Stock purchasable either:
(i) with a percentage designated by the Board not exceeding
fifteen percent (15%) of such Employee's Earnings (as defined by the Board in
each Offering) during the period
5.
<PAGE> 6
which begins on the Offering Date (or such later date as the Board determines
for a particular Offering) and ends on the date stated in the Offering, which
date shall be no later than the end of the Offering; or
(ii) with a maximum dollar amount designated by the Board that,
as the Board determines for a particular Offering, (1) shall be withheld, in
whole or in part, from such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.
(b) The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and purchases
of shares of the Common Stock carried out in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Board may
specify a maximum number of shares of the Common Stock that may be purchased by
any Participant as well as a maximum aggregate number of shares of the Common
Stock that may be purchased by all Participants pursuant to such Offering. In
addition, in connection with each Offering that contains more than one Purchase
Date, the Board may specify a maximum aggregate number of shares of the Common
Stock which may be purchased by all Participants on any given Purchase Date
under the Offering. If the aggregate purchase of shares of the Common Stock upon
exercise of Rights granted under the Offering would exceed any such maximum
aggregate amount, the Board shall make a pro rata allocation of the shares of
the Common Stock available in as nearly a uniform manner as shall be practicable
and as it shall deem to be equitable.
(d) The purchase price of shares of the Common Stock acquired pursuant
to Rights granted under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the shares of the Common Stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the shares of the Common Stock on the Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An Eligible Employee may become a Participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's Earnings during the Offering (as
defined in each Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant under the Plan
and either may be deposited with the general funds of the Company or may be
deposited in a separate account in the name of, and for the benefit of, such
Participant with a financial institution designated by the Company. To the
extent provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A
6.
<PAGE> 7
Participant may make additional payments into his or her account only if
specifically provided for in the Offering and only if the Participant has not
already had the maximum permitted amount withheld during the Offering.
(b) At any time during an Offering, a Participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board in the Offering. Upon such withdrawal
from the Offering by a Participant, the Company shall distribute to such
Participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire shares of the Common
Stock for the Participant) under the Offering, without interest unless otherwise
specified in the Offering, and such Participant's interest in that Offering
shall be automatically terminated. A Participant's withdrawal from an Offering
will have no effect upon such Participant's eligibility to participate in any
other Offerings under the Plan but such Participant will be required to deliver
a new participation agreement in order to participate in subsequent Offerings
under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating Employee's employment
with the Company or a designated Affiliate for any reason (subject to any
post-employment participation period required by law) or other lack of
eligibility. The Company shall distribute to such terminated Employee all of his
or her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire shares of the Common Stock for the
terminated Employee) under the Offering, without interest unless otherwise
specified in the Offering. If the accumulated payroll deductions have been
deposited with the Company's general funds, then the distribution shall be made
from the general funds of the Company, without interest. If the accumulated
payroll deductions have been deposited in a separate account with a financial
institution as provided in subparagraph 8(a), then the distribution shall be
made from the separate account, without interest unless otherwise specified in
the Offering.
(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such Rights
are granted.
9. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of shares of the Common Stock up to the maximum
number of shares of the Common Stock permitted pursuant to the terms of the Plan
and the applicable Offering, at the purchase price specified in the Offering. No
fractional shares of the Common Stock shall be issued upon the exercise of
Rights granted under the Plan unless specifically provided for in the Offering.
(b) Unless otherwise specifically provided in the Offering, the amount,
if any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of
7.
<PAGE> 8
shares of the Common Stock that is equal to the amount required to purchase one
or more whole shares of the Common Stock on the final Purchase Date of the
Offering shall be distributed in full to the Participant at the end of the
Offering, without interest. If the accumulated payroll deductions have been
deposited with the Company's general funds, then the distribution shall be made
from the general funds of the Company, without interest. If the accumulated
payroll deductions have been deposited in a separate account with a financial
institution as provided in subparagraph 8(a), then the distribution shall be
made from the separate account, without interest unless otherwise specified in
the Offering. The amount of accumulated payroll deductions remaining in any
Participant's account that is less than the amount required to purchase one
whole share of Common Stock on the final Purchase Date of the Offering shall be
carried over to the next Offering or shall, if the Participant requests or does
not participate in the next Offering, be refunded.
(c) No Rights granted under the Plan may be exercised to any extent
unless the shares of the Common Stock to be issued upon such exercise under the
Plan (including Rights granted thereunder) are covered by an effective
registration statement pursuant to the Securities Act and the Plan is in
material compliance with all applicable state, foreign and other securities and
other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no Rights granted
under the Plan or any Offering shall be exercised on such Purchase Date, and the
Purchase Date shall be delayed until the Plan is subject to such an effective
registration statement and such compliance, except that the Purchase Date shall
not be delayed more than twelve (12) months and the Purchase Date shall in no
event be more than twenty-seven (27) months from the Offering Date. If, on the
Purchase Date of any Offering hereunder, as delayed to the maximum extent
permissible, the Plan is not registered and in such compliance, no Rights
granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire Shares) shall be distributed to the
Participants, without interest unless otherwise specified in the Offering. If
the accumulated payroll deductions have been deposited with the Company's
general funds, then the distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions have been
deposited in a separate account with a financial institution as provided in
subparagraph 8(a), then the distribution shall be made from the separate
account, without interest unless otherwise specified in the Offering.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the number of shares of the Common Stock required to satisfy
such Rights are available.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of the Common Stock upon
exercise of the Rights granted under the Plan. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of shares of the Common Stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell shares of the Common
Stock upon exercise of such Rights unless and until such authority is obtained.
8.
<PAGE> 9
11. USE OF PROCEEDS FROM SHARES.
Proceeds from the sale of shares of the Common Stock pursuant to Rights
granted under the Plan shall constitute general funds of the Company.
12. RIGHTS AS A STOCKHOLDER.
A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, shares of the Common Stock subject to
Rights granted under the Plan unless and until the Participant's shares of the
Common Stock acquired upon exercise of Rights under the Plan are recorded in the
books of the Company.
13. ADJUSTMENTS UPON CHANGES IN SECURITIES.
(a) If any change is made in the shares of the Common Stock subject to
the Plan, or subject to any Right, without the receipt of consideration by the
Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares of the Common Stock subject to the Plan
pursuant to subparagraph 4(a), and the outstanding Rights will be appropriately
adjusted in the class(es), number of shares of the Common Stock and purchase
limits of such outstanding Rights. The Board shall make such adjustments, and
its determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction that
does not involve the receipt of consideration by the Company.)
(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of the Common
Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then: (1) any surviving or acquiring corporation may assume Rights
outstanding under the Plan or may substitute similar rights (including a right
to acquire the same consideration paid to the Company's stockholders in the
transaction described in this subparagraph 13(b)) for those outstanding under
the Plan, or (2) in the event any surviving or acquiring corporation does not
assume such Rights or substitute similar rights for those outstanding under the
Plan, then the Participants' accumulated payroll deductions (exclusive of any
accumulated interest which cannot be applied toward the purchase of shares of
the Common Stock under the terms of the Offering) will be used to purchase
shares of the Common Stock immediately prior to the transaction described above
under the ongoing Offering and the Participants' Rights under the ongoing
Offering thereafter terminated.
14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in
9.
<PAGE> 10
legislation or to obtain or maintain favorable tax, exchange control or
regulatory treatment for Participants or the Company or any Affiliate, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary for the Plan to satisfy the
requirements of Section 423 of the Code, Rule 16b-3 under the Exchange Act and
any Nasdaq or other securities exchange listing requirements. Currently under
the Code, stockholder approval within twelve (12) months before or after the
adoption of the amendment is required where the amendment will:
(i) Increase the number of shares of the Common Stock reserved
for Rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3; or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.
(c) Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.
15. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who is
to receive any shares of the Common Stock and/or cash, if any, from the
Participant's account under the Plan in the event of such Participant's death
subsequent to the end of an Offering but prior to delivery to the Participant of
such shares of the Common Stock and cash. In addition, a Participant may file a
written designation of a beneficiary who is to receive any cash from the
Participant's account under the Plan in the event of such Participant's death
during an Offering.
(b) The Participant may change such designation of beneficiary at any
time by written notice. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such shares of the
Common Stock and/or cash to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its sole discretion, may deliver such
shares of the Common Stock and/or cash to the spouse or to any one or more
dependents or relatives of the
10.
<PAGE> 11
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the shares of the Common Stock subject to the Plan's reserve, as increased
and/or adjusted from time to time, have been issued under the terms of the Plan.
No Rights may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective simultaneously with the effectiveness of
the Company's registration statement under the Securities Act with respect to
the initial public offering of shares of the Company's Common Stock (the
"Effective Date"), but no Rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board, which date may be prior to the Effective Date.
11.
<PAGE> 1
EXHIBIT 10.08
OFFICE LEASE
BASIC LEASE INFORMATION
Lease Date: September 1, 1997
Landlord: SOUTH BEACH DEVELOPMENT COMPANY,
a California general partnership
Address of Landlord. 501 Second Street, Suite 214
San Francisco, Ca 94107
Tenant: The Virtual Mall, Inc., California corporation
dba Greet Street
Address of Tenant: 123 Townsend Street, 3rd Floor
San Francisco, Ca 94107
Building: 501 Second Street, San Francisco, California
SECTION 1.1 Floor(s) and/or Suite(s): Suite 114
Rentable Area of Premises: 8,553 square feet
SECTION 2.1 Commencement Date: October 1, 1997
Expiration Date: September 30, 1999
SECTION 3.1 Monthly Rent, 19ee Exhibits B, E and F
SECTION 3.2 Advance Rent S 17,106.00
SECTION 3.5 Security Deposit S 18,175.13
SECTION 4.1(a) Tenant's Percentage Share' 4.53%
SECTION 4.1(b) Base Year 1998 calendar year
SECTION 5.1 Tenants Share of Improvement Costs: See Exhibit C
SECTION 17.2 Insurance: $1,500,000
SECTION 24.1 Parking Spaces: five(5) spaces in the Garage and
zero spaces in the Federal Street
Parking Area
SECTION 24.2 Rentable Area of Storage Space- N/A
SECTION 26.14 Broker General Atlantic Properties, Inc.
EXHIBITS Exhibit A-Floor Plans
ATTACHED: Exhibit B-Monthly Premises Rent
Exhibit C-Tenant Improvements
Exhibit D-Rules and Regulations
Exhibit E-Monthly Parking Rent
Exhibit F-Monthly Storage Rent
ADDENDUMS
ATTACHED: None
The foregoing Basic Lease Information is hereby incorporated into and made a
part of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the respective information hereinabove set forth and
shall be construed to incorporate all of the terms provided under the particular
Lease section pertaining to such information. In the event of any conflict
between any Basic Lease Information and the Lease, the latter shall control.
1.
<PAGE> 2
STANDARD OFFICE LEASE
THIS LEASE is made and entered into this 1st day of September, 1997 by and
between SOUTH BEACH DEVELOPMENT COMPANY, a California general partnership
(herein called "landlord"), and The Virtual Mall, Inc., a California
corporation, dba Greet Street (herein called "Tenant").
WITNESSETH:
Landlord and Tenant hereby covenant and agree as follows:
1. PREMISES
1.1 Upon and subject to the terms, covenants, and conditions hereinafter
set forth, Landlord leases to Tenant and Tenant hires from Landlord, those
premises (herein called the "Premises") in the building commonly known as 501
Second Street, San Francisco, California (the "Building"), comprising the area
substantially as shown on the floor plan or plans that have been initialed by
Landlord and Tenant and are attached hereto as Exhibit A. The Premises contain
the rentable area specified in the Basic Lease Information and are located on
the floor(s) of the Building that is (are) specified in the Basic Lease
Information. The Building contains seven (7) occupied floors ("Floors 1-7") plus
one floor of storage and auxiliary use (the "Terrace") and one floor of parking
(the "Garage"). Additional parking is located along the south side of the
Building adjacent to Federal Street (the "Federal Street Parking Area"). The
Building the land upon which the Building stands, together with utilities,
facilities, drives walkways and other amenities appurtenant to or servicing the
Building are herein sometimes collectively called the "Real Property." The Real
Property and certain adjacent parcels comprise the "Complex." Covenants (the
"Complex Covenants") dealing with various shared facilities and services as well
as other matters encumber the Real Property and the other Is in the Complex.
1.2 The purpose of Exhibit A is to show the approximate location of the
Premises in the Building only, and such Exhibit is not meant to constitute an
agreement as to the construction of the Premises, the rentable area thereof, or
the specific location of the common area or the elements thereof or of the
accessways to the Premises or the Building.
2. TERM
2.1 The Premises are leased for a term (herein called the "Term") which
commences on the "Commencement Date" and terminates on the "Expiration Date,"
which dates are collectively specified in the Basic Lease Information, unless
the Term shall sooner terminate as hereinafter provided. Notwithstanding the
foregoing, if Landlord, for any reason beyond its reasonable control, is unable
to deliver possession of the Premises to Tenant on or prior to the Commencement
Date set forth in the Basic Lease Information, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, but in that event, Rent and Additional Charges (as defined
in Article 3) shall be abated for the period of time between the Commencement
Date set forth in the Basic Lease Information and the time when Landlord can
deliver possession as provided in Section 5 below. No delay in delivery of
possession shall operate to extend the Expiration Date beyond the date specified
in the Basic Lease Information.
2.2 In the event that Tenant takes occupancy of the Premises prior to
the Commencement Date, Tenant's obligations, including the obligation to pay
rent, under this Lease shall commence upon such occupancy, and shall continue
until the Expiration Date. Notwithstanding the above, following execution of
this Lease, Tenant shall have access to the Premises for purposes of installing
furniture, cabling and other equipment, provided it does not interfere with the
construction of the Tenant Improvements at the Premises. Such access shall not
obligate Tenant to pay any rent under the Lease.
2.3 Notwithstanding anything to the contrary herein contained, in the
event that possession of the Premises has not been delivered to Tenant within
two (2) months after the Commencement Date, then this Lease shall be
automatically terminated without any further act of either party hereto and both
parties hereto shall be released from all obligations hereunder, and all prepaid
rents and deposits shall be returned to Tenant.
3. RENT, ADDITIONAL CHARGES AND SECURITY DEPOSIT
3.1 Tenant shall pay to Landlord during the Term the monthly rent
specified in Exhibits B, E and F (collectively referred to herein as "Rent"),
which sums shall be payable by Tenant on or before the first day of each month,
in advance, at the address specified for Landlord in the Basic Lease
Information, or such other place as Landlord shall designate, without any prior
demand therefor and without any deductions or setoff whatsoever. If the
Commencement Date should occur on a day other than the first day of a calendar
month, or the Expiration Date should occur on a day other than the last day of a
calendar month, then the rental for such fractional month shall be prorated upon
a daily basis based upon a thirty (30) day calendar month.
3.2 Upon the execution hereof, Tenant shall pay to Landlord the sum of
"Advance Rent" specified in the Basic Lease Information. Such Advance Rent shall
be applied to the first Rent due pursuant to Section 3.1.
2.
<PAGE> 3
3.3 Tenant shall pay to Landlord all charges and other amounts specified
in this Lease (herein called "Additional Charges"), including, without
limitation, any increase in the Rent resulting from the provisions of Article 4
hereof. All such amounts and charges shall be payable to Landlord at the place
where the Rent is payable. Landlord shall have the same remedies for a default
in the payment of Additional Charges as for a default in the payment of Rent.
3.4 If Tenant shall fail to pay any Rent or Additional Charges within
ten (10) days after the date same are due and payable, such unpaid amounts shall
be subject to a late payment charge equal to five percent (5%) of such unpaid
amounts in each instance to cover Landlord's additional administrative costs
resulting from Tenant's failure. Such late payment charge shall be paid to
Landlord together with such unpaid amounts. Any payment to Landlord following
the service upon Tenant a three (3) day notice to pay Rent or quit shall be in
the form of a certified or cashier's check.
3.5 By execution of this Lease, Landlord acknowledges receipt of
Tenant's security deposit (the "Security Deposit") in the amount set forth in
the Basic Lease Information. The Security Deposit shall be held by Landlord as
security for Tenant's faithful performance of all terms, covenants and
conditions of this Lease. Tenant agrees that Landlord may, without waiving any
of Landlord's other rights and remedies under this Lease upon the occurrence of
any of the events of default described in Article 16 hereof, apply the Security
Deposit to remedy any failure by Tenant to repair or maintain the Premises or to
perform any other terms, covenants or conditions contained herein. Landlord will
within thirty (30) days following the termination hereof return said sum to
Tenant or the last permitted assignee of Tenant's interest hereunder, less any
amounts retained by Landlord to cure any default by Tenant. Should Landlord use
any portion of the Security Deposit to cure any default by Tenant hereunder,
Tenant shall within five (5) days after written demand therefor deposit cash
with Landlord sufficient to restore the Security Deposit to its original amount.
Landlord shall not be required to keep the Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest thereon.
4. TENANT'S SHARE OF INCREASED COSTS
4.1 For purposes of this Lease, the following terms shall have the
meanings hereinafter set forth
(a) "Tenants Percentage Sham" shall mean the percentage figure
so specified in the Basic Lease Information. Tenant's Percentage Share has been
computed by dividing the rentable area of the Premises by the total rentable
area of Floor 1-7 and multiplying the resulting quotient by 100. In the event
that either the rentable area of the Premises or the total rentable area of
Floors 1-7 is changed, Tenants Percentage Share will be appropriately adjusted
(b) "Base Year" shall mean the twelve-month period commencing on
January I of the year identified as the Base Year in, the Basic Lease
Information.
(c) "Real Estate Taxes" shall mean all taxes, assessments and
charges levied upon or with respect to the Real Property or any personal
property of Landlord used in the operation thereof or Landlord's interest in the
Real Property or such personal property. Real Estate Taxes shall include,
without limitation, all general real property taxes and general and special
assessments charges, fees or assessments for transit, housing, police, fire or
other governmental services or purported benefits to the Real Property, service
payments in lieu of taxes, and any tax, fee or excise on the act of entering
into this Leas or any other lease of space in the Building, or on the use or
occupancy of the Real Property or any part thereof, or on the rent payable under
any lease or in connection with the business of renting space in the Building,
that are now or hereafter levied or assessed against Landlord by the United
States of America, the State of California, or any political subdivision, public
corporation, district or other political or public entity, and shall also
include any other tax, fee or other excise, however described, that may be
levied or assessed as a substitute for, in whole or in part, any other Real
Estate Taxes, whether or not now customary or in the contemplation of the
parties on the date of this Lease. Real Estate Taxes shall not include late
charges or interest on Real Estate Taxes, franchise, transfer, inheritance,
capital stock or income taxes unless, due to a change in the method of taxation,
any of such taxes is levied or assessed against Landlord as a substitute for,
any other tax that would otherwise constitute a Real Estate Tax. Real Estate
Taxes shall also include reasonable legal fees, costs and disbursements incurred
in connection with proceedings to contest, determine or reduce Real Estate
Taxes.
4.4 As soon after the close of each calendar year as practicable,
landlord shall deliver to Tenant a statement of the actual Operating Expenses
for such calendar year. If the Actual Operating Expenses are less than the
estimated payments for such calendar year previously made by Tenant and Tenant
is not in default in the performance or observance of any of the terms,
covenants or conditions of this Lease at the time such statement is delivered,
Landlord shall credit the excess to the next payment of Rent falling due under
this Lease. If the Actual Operating Expenses are more than the estimated
payments for such calendar year previously made by Tenant, Tenant shall pay the
deficiency to Landlord within thirty (30) days after delivery of such statement
The respective obligations of Landlord and Tenant under this Section 4.4 shall
survive the expiration or other termination of the term of this Lease, and if
the term of this 1,ease shall. expire or terminate on a day other ban the last
day of the calendar year, the adjustment in Rent pursuant to this Section 4.4
for the calendar year in which the term expires or otherwise terminates shall be
prorated in the proportion that the number of days in such year preceding
expiration or termination of the lease bears to the number 365.
3.
<PAGE> 4
5. CONSTRUCTION IN THE PREMISES
5.1 Prior to the Commencement Date, Landlord will substantially complete
work in the Premises as set forth in Exhibit C attached hereto and made a part
hereof (such work being herein called "Tenant Improvements"). Substantial
completion and delivery of possession of the Premises to Tenant shall be deemed
to have occurred when Landlord delivers to Tenant (i) the Premises with all
Tenant Improvements completed except for minor items of the type typically found
on an architect's punchlist and (ii) a temporary certificate of occupancy or
similar governmental approval. It is agreed that by occupying the Premises,
Tenant acknowledges that the Premises are in the condition called for hereunder,
subject to normal punchlist items specified by Tenant to landlord in writing
within ten ( 10) days after the date of such occupancy (which Landlord will
complete within ten (10) days of receipt) and subject to Landlord's warranty
that the Tenant Improvements will be free of defects in materials and
installation for a period of one (1) year after substantial completion. The cost
of Tenant Improvements shall be paid by Landlord and Tenant as set forth in
Exhibit C.
5.2 Landlord reserves the right, at any time and from time to time, to
make alterations, additions, repairs or improvements to or in or to decrease the
size or area of all or any part of the Building and the Complex, the fixtures
and equipment therein and the arcades, plazas, and walkways outside the
Building, including without limitation the heating, ventilating, air
conditioning plumbing, electrical, fire protection, life safety, security, and
other mechanical, electrical, and communications systems of the Building (herein
called the "Building Systems"), and the common areas in all other parts of the
Building and the Complex, and to change the arrangement and/or location of
entrances or passageways, doors and doorways, corridors, elevators, stairs,
toilets and other public parts of the Building and the Complex; provided,
however, that any such alterations or additions shall not materially diminish
the quality or quantity of services being provided to the Premises or adversely
affect the functional utilization of the Premises.
6. USE AND COMPLIANCE WITH LAW
6.1 Tenant shall use the Premises for general office purposes and shall
not use or permit the premises to be used for any other purpose without the
prior written consent of Landlord. Tenant shall not do or permit anything to be
done in or about the Premises nor bring or keep anything therein which will in
any way increase the existing rate of or affect any fire or other insurance upon
the Building or any of its contents, or cause cancellation of any insurance
policy covering said Building or any part thereof of any of its contents. Tenant
shall not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with the rights of other tenants or occupants
of the Building or injure or annoy them or use or allow the Premises to be used
for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant
cause, maintain or permit any nuisance in, on or about the Premises. Tenant
shall not commit or suffer to be committed any waste in or upon the Premises.
6.2 Tenant, at Tenant's cost and expense, shall comply with (a) all
laws, orders, regulations, and directions of federal, state, county and
municipal authorities that impose any duty upon Tenant with respect to Tenant's
particular use of the Premises or the use or occupancy thereof, and (b) all
reciprocal easement agreements and declarations of conditions, covenants, and
restrictions that are recorded against and affect the Building or the Premises;
provided, however, that Tenant shall not be required to make any modifications
to the Premises in order to comply unless such modifications to the Premises
shall be necessitated or occasioned, in whole or in part, by the misconduct or
negligence of Tenant or any person claiming through or under Tenant, or any of
their servants, employees contractors, agents, visitors or licensees. Any work
or installations made or performed by or on behalf of Tenant or any person
claiming through or under Tenant pursuant to the provisions of this Article 6
shall be made in conformity with, and subject to the provisions of, Section 8.2
hereof.
7. ALTERATIONS AND ADDITIONS
7.1 Subsequent to the completion of improvements to be performed as
outlined in Exhibit C, Tenant shall not make or suffer to be made any
alterations, additions or improvements (collectively, "Alterations"), to or of
the Premises or any part thereof, or attach any fixtures or equipment thereto,
without first obtaining landlord's written consent which consent shall not be
unreasonably withheld. Any Alterations to the Premises consented to by Landlord
shall be made by Landlord or an agent or contractor designated by Landlord for
Tenants account and Tenant shall reimburse Landlord for the cost thereof
(including a reasonable charge for Landlord's overhead) within ten (10) days
after receipt of a bill therefor. All Alterations shall immediately become
Landlord's property and, at the end of the term hereof, shall remain on the
Premises without compensation to Tenant unless Landlord elects by notice to
Tenant to have Tenant remove the same, in which event Tenant shall promptly,
restore the Premises to their condition prior to the installation of such
Alterations.
7.2 All furniture, furnishings, and articles of movable personal
property installed in the Premises by or for the account of Tenant, without
expense to Landlord, and which can be removed without structural or other
material damage to the Building (all of which are herein called "Tenant's
Property") shall be and remain the property of Tenant and may be removed by it
at any time during the Term; provided, however, that any equipment or other
property for which Landlord has granted any allowance or credit to Tenant or
which is a replacement for items originally provided by Landlord at Landlord's
expense shall not be considered Tenant's Property. Upon the expiration or
earlier termination of this Lease, Tenant shall remove from the Premises all of
Tenant's Property except such items as the parties shall have agreed are to
remain and become the property of Landlord and Tenant shall repair or pay the
costs of repairing any damage to the Premises or to the Building resulting from
such
4.
<PAGE> 5
removal. Tenants obligations under this Section 7.2 shall survive the
termination of this Lease. Any items of Tenant's Property that remain in the
Premises after the expiration or earlier termination of this Lease may, at the
option of Landlord, be deemed abandoned and in such case may either be retained
by Landlord as its property or be disposed of without accountability, at
Tenant's expense in such manner as Landlord may see fit.
8. REPAIRS
8.1 Tenant shall, at all times during the term hereof and at Tenant's
sole cost and expense, keep the Premises and every part thereof in good
condition and repair, ordinary wear and tear excepted, and except as is
Landlord's obligation pursuant to Section 8.2.
Tenant shall at the end of the term hereof surrender to Landlord the
Premises and all Alterations in the same condition as when received,
ordinary wear and tear and damage by fire, earthquake, act of God or the
elements excepted. Landlord has no obligation and has made no promise to
alter, remodel, improve, repair, decorate or paint the Premises or any
part thereof, except as specifically set forth elsewhere in this Law.
8.2 Landlord shall repair and maintain the structural portions of the
Building, including the plumbing, heating, air conditioning, ventilating and
electrical systems, installed or furnished by Landlord, unless the necessity for
such maintenance and repairs is in any way caused by the neglect, fault or
omission of any duty by Tenant, its agents, servants, employees or invitees, in
which case Tenant shall pay to Landlord the reasonable cost of such maintenance
and repairs, subject to Section 17.4 hereof. Landlord shall not be liable for
any failure to make any such repairs or to perform any maintenance unless
Landlord receives written notice of the need for such repairs or maintenance
from Tenant and fails to make such repairs or perform such maintenance for a
reasonable period of time following such notice by Tenant. There shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances and/or equipment therein, provided such
repairs are being diligently pursued by Landlord.
9. LIENS
9.1 Tenant shall keep the Premises free from any liens arising out of
any work performed, material furnished, or obligations incurred by or for
Tenant or any person or entity claiming through or under Tenant. In the event
that Tenant shall not, within ten (10) days after the imposition of any such
lien, cause the same to be released of record by payment or posting of a proper
bond, Landlord shall have, in addition to all other remedies provided herein and
by law, the right but not the obligation to cause the same to be released by
such means as it shall deem proper, including payment of the claim giving rise
to such lien. All such sums paid by Landlord and all expenses incurred by it in
connection therewith shall be considered Additional Charges and shall be payable
to it by Tenant on demand. Landlord shall have the right at all times to post
and keep posted on the Premises any notices permitted or required by law, or
that Landlord shall deem proper, for the protection of Landlord, the Premises,
the Building, and any other party having an interest therein, from mechanics'
and materialmen's liens, and Tenant shall give to Landlord at least ten (10)
business days' prior notice of commencement of any construction on the Premises.
10. SUBORDINATION AND ATTORNMENT
10.1 Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination Tenant agrees that this,
Lease shall be subject and subordinate at all times to (a) all ground leases or
underlying leases that may now exist or hereafter be executed affecting the
Building or the Real Property or both, and (b) the lien of any mortgage or deed
of trust that may now exist or hereafter be executed in any amount for which the
Building, the Real Property, ground leases or underlying leases, or Landlord's
interest or estate in any of said items is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
conveyance in lieu of foreclosure is made for any reason, Tenant shall,
notwithstanding any subordination of any ground lease, underlying lease or Hen
to this Lease, attorn to and become the Tenant of the successor in interest to
Landlord; provided that such successor in interest shall recognize all of
Tenant's rights hereunder. Tenant covenants and agrees to execute and deliver,
within ten (10) days of demand by Landlord and in the form reasonably requested
by landlord, any additional documents evidencing the priority or subordination
of this Lease with respect to any such ground leases or underlying leases or the
lien of any such mortgage or deed of trust.
11. INABILITY TO PERFORM
11.1 If Landlord is unable to perform, or is delayed in performing, any
construction, installations, decorations, repairs, alterations, additions or
improvements, under this Lease, or is unable to fulfill or is delayed in
fulfilling any of Landlord's other obligations under this Lease, including the
furnishing of utilities or other services pursuant to Article 15, by reason of
acts of God, governmental actions, accidents, breakage, repairs, strikes,
lockouts, other labor disputes, limitation, curtailment, rationing or
restrictions on the use of utilities or materials, or any other reason beyond
Landlord's reasonable control, then no
5.
<PAGE> 6
such inability or delay by Landlord shall constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of Rent or Additional Charges, or relieve Tenant from any of its obligations
under this Lease, or impose any liability upon Landlord or its agents by reason
of inconvenience, annoyance, interruption, injury or loss to or interference
with Tenant's business or use and occupancy or quiet enjoyment of the Premises
or any loss or damage occasioned thereby.
12. DAMAGE OR DESTRUCTION
12.1 If (i) the Premises are damaged by fire or other casualty for which
insurance coverage is available to Landlord, (h) insurance proceeds in an amount
sufficient to repair such casualty are made available to Landlord and (iii) in
Landlord's judgment such repairs can be completed within one hundred eighty
(180) days after the date of such damage, then Landlord shall repair such damage
and this Lease shall remain in full force and effect except that Tenant shall be
entitled to a reduction of Rent and Additional Charges while such repairs are
being made in the proportion that the rentable area of the Premises rendered
untenantable (as pertains to Tenant's specific business in particular) by such
damage bears to the total rentable area of the Premises. Within thirty (30) days
after the date of such damage, Landlord shall notify Tenant whether or not such
repairs can be completed within one hundred eighty (180) days after the date of
such damage, and Landlord's determination shall be binding on Tenant. If (x)
such damage is caused by an uninsured casualty, or (y) such damage is caused by
an insured casualty for which insurance proceeds sufficient to repair such
damage are not made available to Landlord and/or W such repairs cannot be made
within one hundred eighty (ISO) days after the date of such damage, in
Landlord's judgment as determined above, then, in any such event, Landlord shall
have the option either to (a) notify Tenant of Landlord's intention to repair
such damage and diligently prosecute such repairs to completion, in which event
this Lease shall continue in full force and effect subject to Tenant's
acceptance and the Rent and Additional Charges shall be reduced as provided
herein, or (b) notify Tenant of Landlord's election to terminate this Lease by
giving such notice of termination as of a date specified in such notice, and the
Rent and Additional Charges, proportionately reduced as provided above, shall be
paid up to the date of such termination, with Landlord refunding to Tenant any
Rent and Additional Charges previously paid for any period of time subsequent to
such date. If Landlord elects or is required to repair the Premises or the
Building pursuant to this Section 12, the repairs to be made by Landlord shall
not include, and Landlord shall not be required to repair or replace any
fixtures, equipment, furniture, or other property of Tenant in the Premises, for
loss of use of all or any part of the Premises, for any damage to Tenant's
business or profits, or for any disturbance to Tenant caused by any casualty or
the restoration of the Premises following such casualty. A total destruction of
the Building shall automatically terminate this lease.
12.2 The provisions of this Lease, including this Article 12, constitute
an express agreement between Landlord and Tenant with respect to any and all
damage to, or destruction 4 all or any part of the Premises or the Building, and
any statute or regulation of the State of California, including, without
limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with
respect to any rights or obligations concerning damage or destruction in the
absence of an express agreement between the parties, and any other statute or
regulation, Dow or hereafter in effect, shall have no application to this Lease
or my damage or destruction to all or any part of the Premises or the Building.
13. EMINENT DOMAIN
13.1 If all or any part of the Premises is condemned or taken in any
manner for public or quasi-public use, including, but not limited to, a
conveyance or assignment in lieu of a condemnation or taking, this Lease shall
terminate as to the part so taken on the earlier to occur of the date of the
vesting of title or the date of dispossession of Tenant as a result of such
condemnation or taking, and either Landlord or Tenant shall have the right to
terminate this Lease as to the balance of the Premises by written notice to the
other party within thirty (30) days if the portion of the Premises taken shall
be of such extent and nature as to render the balance of the Premises
untenantable and unusable by Tenant If any part of the Building other than the
Premises is condemned or otherwise taken so as to require, in the opinion of
Landlord, a substantial alteration or reconstruction of the remaining portions
thereof, this Lease may be terminated by Landlord, as of the earlier of the date
of the vesting of title, or the date of disposition as a result of such
condemnation or taking, by written notice to Tenant within sixty (60) days
following notice to Landlord of the date on which said vesting or dispossession
will occur. If the Lease is not so terminated, Landlord shall proceed to repair
and reconstruct the remaining portion of the Building to the extent insurance
and condemnation-proceeds are available to do so.
13.2 Landlord shall be entitled to the entire award in any condemnation
proceeding or other proceeding, including, without limitation, any award made
for the value of the leasehold estate created by this Lease. No award for any
partial or entire taking shall be apportioned, and Tenant hereby assigns to
Landlord any award that may be made in such condemnation or other taking,
together with any and all rights of Tenant now or hereafter arising in or to
same or any part thereof, provided, however, that nothing contained herein shall
be deemed to give Landlord any interest in or to require Tenant to assign to
Landlord any award made to Tenant specifically for its relocation expenses or
the taking of personal property and fixtures belonging to Tenant.
13.3 In the event of a partial condemnation or other taking that does
not result in a termination of this Lease as to the entire Premises, the Rent
and Additional Charges shall abate in the proportion that the rentable area of
the Premises taken by such condemnation or other taking bears to the total
rentable area of the Premises.
6.
<PAGE> 7
13.4 If all or any portion of the Premises is condemned or otherwise
taken for public or quasi-public use for a limited period d time, this Lease
shall remain in full force and effect and Tenant shall continue to perform all
of the terms, conditions and covenants of this Lease; provided, however, that
the Rent and Additional Charges shall abate during such limited period in the
proportion that the rentable area of the Premises rendered untenantable and
unusable as a result of such condemnation or other taking bears to the total
rentable area of the Premises. Landlord shall be entitled to receive the entire
award made in connection with any such temporary condemnation or other taking.
13.5 Not Used.
14. ASSIGNMENT AND SUBLETTING
14.1 Tenant shall not sell, assign, encumber, pledge or otherwise
transfer or hypothecate all of its interest in or rights with respect to the
Premises or Tenant's leasehold estate hereunder (collectively, "Assignment"), or
permit all or any portion of the Premises to be occupied by anyone other than
Tenant or sublet all or any portion of the Premises or transfer a portion of its
interest in or rights with respect to Tenants leasehold estate hereunder
(collectively, "Sublease") without Landlord's prior written consent in each
instance, which consent shall not be unreasonably withheld.
14.2 If Tenant desires at any time to enter into an Assignment of this
Lease or a Sublease of the Premises or any portion thereof, it shall first give
written notice to Landlord of its desire to do so, which notice shall contain
(a) the name of the proposed assignee, subtenant or occupant, (b) the nature of
the proposed assignee's, subtenant's or occupant's business to be carried on in
the Premises, (c) the terms and provisions of the proposed Assignment or
Sublease, and (d) such financial information as Landlord may reasonably request
concerning the proposed assignee, subtenant or occupant. At any time within
thirty (30) days after Landlord's receipt of the notice specified in this
Section 14.2, Landlord may by written notice to Tenant either consent to the
Sublease or Assignment or disapprove the Sublease or Assignee As a condition for
granting its consent to any Assignment or Sublease, Tenant shall pay to Landlord
fifty percent (50%) of the amount by which all sums payable to Tenant in
connection with such Assignment or Sublease (after deducting leasing
commissions, tenant improvement costs and similar expenses payable in connection
with such Assignment or Sublease) exceed the Rent and Additional Charges payable
by Tenant to Landlord hereunder (or a proportionate amount thereof representing
the portion of the Premises subject to a Sublease if less than the entire
Premises is subject to a Sublease).
14.3 No consent by Landlord to any Assignment or Sublease by Tenant
shall relieve Tenant of any obligation to be performed by Tenant under this
Lease, whether arising before or after the Assignment or Sublease. The consent
by Landlord to any Assignment or Sublease shall not relieve Tenant from the
obligation to obtain Landlord's express written consent to any other Assignment
or Sublease. Any Assignment or Sublease that is not in compliance with this
Article 14 shall be void and, at the option of Landlord, shall constitute a
material default by Tenant under this Lease. The acceptance of Rent or
Additional Charges by Landlord from a proposed assignee or sublessee shall not
constitute the consent to such Assignment or Sublease by Landlord.
14.4 Any sale or other transfer, including by consolidation, merger or
reorganization, of a majority of the voting stock of Tenant, if Tenant is a
corporation or any sale or other transfer of a majority of the partnership
interests in Tenant if Tenant is a partnership, shall be an Assignment for
purposes of this Article 14.
14.5 Each assignee, sublessee, or other transferee, other than Landlord,
shall assume, as provided in this Section 14.5, all obligations of Tenant under
this Lease and shall be and remain liable jointly and severally with Tenant for
the payment of Rent and Additional Charges, and for the performance of all the
terms, covenants, conditions and agreements herein contained on Tenant's part to
be performed for the Term; provided, however, that the assignee, sublessee,
mortgagee, pledgee or other transferee shall be liable to Landlord for rent only
in the amount set forth in the Assignment or Sublease. No Assignment shall be
binding on Landlord unless the assignee of Tenant shall deliver to Landlord a
counterpart of the Assignment and an instrument in recordable form that contains
a covenant of assumption by the assignee satisfactory in substance and form to
Landlord, consistent with the requirements of this Section 14.5, but the failure
or refusal of the assignee to execute such instrument of assumption shall not
release or discharge the assignee from its liability as set forth above.
14.6 In the event Tenant shall assign this Lease or sublet the Premises
or shall request the consent of Landlord to any assignment or subletting, then
Tenant shall pay Landlord's reasonable attorney's fees incurred in connection
therewith.
14.7 Notwithstanding anything to the contrary contained in this Section
14, the following transactions shall not require the consent of Landlord: (a)
77 resale of stock by Tenant or its shareholders pursuant to a public offering,
(b) 77 resale of stock by shareholders of Tenant on a national securities
market, such as a stock exchange or NASDAQ.
15. SERVICES AND UTILITIES
15.1 Landlord shall furnish to the Premises during the period from 8 00
am. to 6 00 p.m., Monday through Friday, except for New Years Day, Washington's
Birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving, Christmas and
7.
<PAGE> 8
such other holidays as are generally recognized in San Francisco (such time
periods exclusive of holidays being referred to herein as "Normal Business
Hours"), (a) heating, air conditioning and ventilation in amounts required for
the use and occupancy of the Premises for general office purposes, (b) elevator
service, (c) electric current in amounts required for normal office lighting and
for normal fractional horsepower office machines, and (d) water for lavatory and
drinking purposes. Notwithstanding the foregoing it is understood that elevator
service, electric current and water will be available at all times, subject to
Sections 15.2, 15.3 and 15.4 hereof. Landlord shall provide five (5) days per
week janitorial service generally consistent with that furnished in other
similar office buildings and window washing as determined by Landlord.
15.2 Landlord may impose a reasonable charge for the use of any heating,
air conditioning, ventilation or lighting by Tenant at any time other than
during Normal Business Hours.
15.3 In the event any governmental entity promulgates or revises any
statute, ordinance or building, fire or other code or imposes mandatory or
voluntary controls or guidelines on Landlord or the Building or any pan thereof,
relating to the use or conservation of energy, water, gas, light or electricity,
or the reduction of automobile or other emissions, or the provision of any other
utility or service provided with respect to this Lease, or in the event Landlord
is required or elects to make alterations to the Building in order to comply
with such mandatory or voluntary controls or guidelines, Landlord may, in its
sole discretion, comply with such mandatory or voluntary controls or guidelines
or make such alterations to the Building. Such compliance and the making of such
alterations shall in no event entitle Tenant to any damages, relieve Tenant of
the obligation to pay the M Rent and Additional Charges reserved hereunder or
constitute or be construed as a constructive or other eviction of Tenant.
15.4 Without the prior written consent of Landlord, which Landlord may
refuse in its sole discretion, Tenant - shall not (i) use any apparatus; or
device in the Premises other than ordinary office machinery and equipment,
machines using current in excess of 220 volts, which will in any way increase
the amount of electricity or water usually furnished or supplied for use of the
Premises as general office space, or (ii) connect any apparatus, machine or
device with electric current except through existing electrical outlets in the
Premises. If Tenant shall utilize electric current in excess of that usually
supplied for use of the Premises as general office space, Landlord shall have
the right to install an electric current meter in the Premises to measure the
amount of electric current consumed on the Premises. The cost of any such meter
and separate conduit, wiring or panel requirements and the installation,
maintenance and repair thereof shall be paid for by Tenant, and Tenant agrees to
reimburse Landlord promptly upon demand for all electric current measured by
said meter at the rates charged for such services by the local public utility,
plus any additional expense incurred by Landlord in accounting for electric
current so consumed. If a separate meter is not installed, the amount of excess
electric consumption in the Premises and the monthly cost thereof shall be
estimated by the utility company or an electrical engineer and Tenant shall pay
such excess to Landlord on a monthly basis. If the temperature otherwise
maintained in any portion of the Premises by the heating, air conditioning or
ventilation systems is affected a result of (a) any lights, machines or
equipment (including without limitation electronic data processing machines)
used by Tenant in the Premises other than ordinary office machinery and
equipment, or (b) the occupancy of the Premises by more than one person per one
hundred (100) square feet of rentable area therein, Landlord shall have the
right to install any machinery and equipment that Landlord reasonably deems
necessary to restore temperature balance, including, without limitation,
modifications to the standard air conditioning equipment, and the cost thereof,
including the cost of installation and any additional cost of operation and
maintenance incurred thereby, shall be paid by Tenant to Landlord upon demand.
16. DEFAULT AND REMEDIES
16.1 The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant for a
continuous period in excess of ten (10) days.
(b) The failure of Tenant to make any payment of Rent or any
other sum or payment due from Tenant hereunder within ten (10) days after
delivery of a written demand from Landlord therefor.
(c) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease, other than described in
Section 16.1 (b) above, where such failure shall continue for a period of twenty
(20) days after written notice thereof by Landlord to Tenant; provided, however,
that if the nature of Tenant's default is such that more than twenty (20) days
are reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences such cure within said twenty (20) day period and
thereafter diligently prosecutes such care to completion.
(d) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or against Tenant of
a petition to have Tenant adjudged a bankrupt, or a petition of reorganization
or arrangement under any law relating to bankruptcy (unless in the case of such
petition filed against Tenant, the same is dismissed within sixty (60) days); or
the appointment of a trustee or a receiver to take possession of all or
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days or the attachment, execution or other judicial seizure of all or
substantially all of Tenant's assets located at the Premises or of
8.
<PAGE> 9
Tenant's interest in this Lease, where such seizure is not discharged in thirty
(30) days; the admission by Tenant in writing of the inability to pay its debts
as they become due.
16.2 Upon the occurrence of a default by Tenant as provided in Section
16.1, Landlord shall have the following rights and remedies in addition to all
other rights and remedies available to Landlord in law or equity:
(a) The rights and remedies provided by California Civil Code
Section 1951.2, including, but not limited to, the right to terminate Tenant's
right to possession of the Premises and to recover the worth at the time of
award of the amount by which the unpaid Rent and Additional Charges for the
balance of the Term after the time of award exceed the amount of rental loss for
the same period that the Tenant proves could be reasonably avoided, as computed
pursuant to subsection (b) of said Section 1951.2;
(b) The rights and remedies provided by California Civil Code
Section 1951.4, which allows Landlord to continue this Lease in effect and to
enforce all of its rights and remedies under this Lease, including the right to
recover Rent and Additional Charges as they become due, for so long as Landlord
does not terminate Tenant's right to possession. Acts of maintenance or
preservation, efforts to relet the Premises or the appointment of a receiver
upon Landlord's initiative to protect its interest under this Lease shall not
constitute a termination of Tenant's right to possession;
(c) The right to terminate this Lease by giving notice to Tenant
in accordance with applicable law;
(d) The right and power, as attorney-in-fact for Tenant, to
enter the Premises and remove therefrom all persons and property, to store such
property in a public warehouse or elsewhere at the cost of and for the account
of Tenant, and to sell such property and apply the proceeds therefrom pursuant
to applicable California law. Landlord, as attorney-in-fact for Tenant, may from
time to time sublet the Premises or any part thereof for such term or terms
(which may extend beyond the Term) and at such rent and such other terms as
Landlord in its sole discretion may deem advisable, with the right to make
alterations and repairs to the Premises-Upon each such subletting, (i) Tenant
shall be immediately liable for payment to Landlord of, in addition to
indebtedness other than Rent and Additional Charges due hereunder, the cost of
such subletting and such alterations and repairs incurred by Landlord and the
amount, if any, by which the Rent and Additional Charges for the period of such
subletting (to the extent such period does not exceed the Term) exceeds the
amount to be paid as Rent and Additional Charges for the Premises for such
period, or (H) at the option of Landlord, rents received from such subletting
shall be applied, first, to payment of any indebtedness other than Rent and
Additional Charges due hem-under from Tenant to Landlord, second, to the payment
of any costs of such subletting and of such alterations and repairs; third, to
payment of Rent and Additional Charges due and unpaid hereunder, and the
residue, if any, shall be held by Landlord and applied in payment of future Rent
and Additional Charges as the same become due hereunder. If Tenant has been
credited with any rent to be received by such subletting under clause (i) and
such rent shall not be promptly paid to Landlord by the subtenant(s), or if such
rentals received from such subletting under clause (ii) during any month are
less than those to be paid during that month by Tenant hereunder, Tenant shall
pay any such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. For all purposes set forth in this Section 16.2(d), Landlord is
hereby irrevocably appointed attorney-in-fact for Tenant, with power of
substitution. No taking possession of the Premises by Landlord, as
attorney-in-fact for Tenant, shall be construed as an election on its part to
terminate this Lease unless a written notice of such intention is given to
Tenant. Notwithstanding any such subletting without termination, Landlord may at
any time thereafter elect to terminate this Lease for such previous breach; and
(e) The right to have a receiver appointed for Tenant, upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and remedies
granted to Landlord as attorney-in-fact for Tenant pursuant to Section 16.2(d)
hereof.
16.3 If Tenant shall default in the performance of its obligations under
this Lease, Landlord, at any time thereafter and without notice, may remedy such
default for Tenant's account and at Tenant's expense, without thereby waiving
any other rights or remedies of Landlord with respect to such default.
16.4 If Landlord fails to perform its obligations under this Lease
within fifteen (15) days after notice by Tenant to Landlord specifying the
nature of the obligations Landlord has failed to perform, Landlord shall be in
default hereunder. If the nature of Landlord's obligations is such that more
than fifteen (15) days are required for performance, then Landlord shall not be
in default if Landlord commences performance within such fifteen (15) day period
and thereafter diligently prosecutes the same to completion. In the event of a
default by Landlord hereunder, Tenant's remedies shall be an action for damages
and/or an injunction. Tenant shall have the right to terminate this lease if
Landlord's failure to perform is a result of Landlord choosing not to diligently
pursue a cure to the stated default in good faith.
17. INDEMNITY, INSURANCE AND SUBROGATION
17.1 (a) Tenant agrees to indemnify Landlord against and save
Landlord harmless from any and all loss, cost, liability damage and expense
including, without limitation, penalties, fines and reasonable counsel fees and
disbursements, incurred in connection with or arising from (i) any default or
breach by Tenant in the observance or performance of any of the
9.
<PAGE> 10
terms, covenants or conditions of this Lease; or (ii) any negligence or willful
misconduct of Tenant or of its contractors, agents, servants, employees,
invitees or licensees of Tenant in, on or about the Premises, or all or any part
of the Real Property, either prior to during, or after the expiration of the
Term and in connection with this Lease. Tenant's obligations under this Section
17. l(a) shall survive the expiration or other termination of this Lease.
(b) Landlord agrees to indemnify Tenant against and save Tenant
harmless from any and all loss, cost, liability, damage, and expense, including
without limitation penalties, fines and reasonable counsel fees and
disbursements, incurred in connection with or arising from (i) any default or
breach by Landlord in the observance of the terms, covenants, or conditions of
this Lease; or (ii) any negligence or willful misconduct of Landlord, or its
contractors, agents, servants, employees, invitees, or licensees in, on or about
the Premises, or all or any part of the Real Property, either prior to, daring,
or after the expiration of the Term and in connection with this Lease. Landlords
obligations under this Section 17.l(b) shall survive the expiration or other
termination of this Lease.
17.2 Tenant agrees to carry and keep in force during the Term hereof, at
Tenant's sole cost and expense, the following types of insurance, in the amounts
and in the form provided for:
(a) PUBLIC LIABILITY AND PROPERTY DAMAGE. Bodily and personal
injury liability insurance with limits of not less than One Million Five Hundred
Thousand Dollars ($1,500,000) per occurrence, insuring against any and all
liability for injuries to or death of persons occurring in, on or about the
Premises or arising out of the maintenance, use or occupancy thereof (including,
for purposes of "personal injury," coverage against false arrest, detention or
imprisonment, malicious prosecution, libel, slander and wrongful entry or
eviction) and property damage liability insurance with a limit of not less than
One Million Five Hundred Thousand Dollars ($1,500,000) per accident or
occurrence. All such public liability and property damage insurance shall
specifically insure the performance by Tenant of its indemnity obligations under
Section 17.1 hereof with respect to liability for injury to or death of persons
and for damage to property, if available at commercially reasonable rates.
(b) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY. Workers'
compensation and employers' liability insurance covering employees for
California Workers' Compensation benefits, including employers' liability with
limits of at least Five Hundred Thousand Dollars ($500,000) for each accident).
(c) TENANT PROPERTY. Insurance covering all improvements made by
Tenant to the Premises, and any and all fixtures of Tenant from time to time in,
on or about the Premises, providing protection against all perils included
within a standard fire and extended coverage insurance policy ("all risk form"),
together with insurance against sprinkler damage, vandalism and malicious
mischief. Such insurance shall be in an amount not less than 90% of the full
replacement cost of the property insured without deduction for depreciation.
(d) POLICY FORM. All policies of insurance provided for herein
shall be issued by insurance companies with a general policyholders' rating of
not less than A and a financial rating of XIII as rated in the most current
available "Best's Insurance Reports," and qualified to do business in the State
of California. Except for workers' compensation and employers' liability, all
such policies shall be issued in the names of Landlord, Tenant and such other
persons or firms as Landlord specifies from time to time and shall be for the
mutual and joint benefit and protection of Landlord, Tenant and others
hereinabove mentioned. Executed copies of all such policies of insurance or
certificates thereof shall be delivered to Landlord prior to delivery of
possession of the Premises to Tenant, and thereafter within thirty (30) days
prior to the expiration of the term of each such policy. All public liability
and property damage policies shall contain a provision that Landlord, although
named as an insured, shall nevertheless be entitled to recovery under said
policies for any loss occasioned to it, its agents and employees by reason of
the negligence of Tenant. As often as any such policy shall expire or terminate,
renewal or additional policies shall be procured and maintained by the Tenant in
like manner and to like extent. All such policies of insurance shall provide
that the company writing said policy will give Landlord thirty (30) days' notice
in writing in advance of any cancellation or lapse or the effective date of any
reduction in the amounts of insurance. All public liability, property damage and
other casualty policies shall be written as primary policies, not contributing
with and not in excess of coverage which Landlord may carry.
17.3 Landlord shall not be responsible for or liable to Tenant for any
loss or damage that may be occasioned by or through the acts or omissions of
persons occupying adjoining premises or any other part of the Building or the
Complex, or for any loss or damage resulting to Tenant or its property from
burst, stopped or leaking water, gas, sewer or steam pipes or for any damage or
loss of property within the Premises from any causes whatsoever, including
theft; provided, however, that nothing set forth herein shall be deemed to
relieve Landlord of its indemnity obligations under Section 17.1(b).
17.4 Notwithstanding anything to the contrary Contained herein, to the
extent permitted by their respective policies of insurance and to the extent of
insurance proceeds received with respect to the loss, Landlord and Tenant each
hereby waive any right of recovery against the other party and against any other
party maintaining a policy of insurance with respect to the Building or any
portion thereof or the contents of any of the same for any loss or damage
sustained by such other party with respect to the building, or the Premises or
any portion of any thereof or the contents of the same or any operation therein,
whether or not such loss is caused by the fault or negligence of such other
party. If any policy of insurance relating to the Premises carried by Tenant
does not permit the foregoing waiver or if the coverage under any such policy
would be invalidated as a result of such waiver, Tenant shall, if possible,
obtain from the insurer under such policy a waiver of an rights of subrogation
the
10.
<PAGE> 11
insurer might have against Landlord or any other party maintaining a policy of
insurance covering he same loss, in connection with any claim, loss or damage
covered by such policy.
18. ENTRY BY LANDLORD
18.1 Landlord reserves and shall at all times have the right to enter
the Premises at all reasonable times upon prior notice to Tenant (except in
cases of emergency or in the provision of services under this Lease, in which ca
no prior notice need be given) to inspect the same, to supply any service to be
provided by Landlord to Tenant hereunder, to show the Premises to prospective
purchasers, mortgagees or tenants, to post notices of nonresponsibility, and to
alter, improve or repair the Premises and any portion of the Building, without
abatement of Rent or Additional Charges, and may for that purpose erect, use and
maintain scaffolding, pipes, conduits and other necessary structures in and
through the Premises where reasonably required by the character of the work to
be performed, provided that the entrance to the Premises shall not be blocked
thereby, and further provided that the business of Tenant shall not be
interfered with unreasonably. Tenant hereby waives any claim for damages for any
injury or inconvenience to or interfere with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises or any other loss occasioned
thereby. For each of the aforesaid purposes, Landlord shall at all times have
and retain a key with which to unlock all of the doors in, upon and about the
Premises, excluding Tenant's vaults and safes, or special security areas
(designated in advance), and Landlord shall have the right to use any and all
means that Landlord may deem necessary or proper to open said doors in an
emergency, in order to obtain entry to any portion of the Premises, and any
entry to the Premises or portions thereof obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into, or a detainer of, the Premises, or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.
19. NOTICES
19.1 Except as otherwise expressly provided in this Lease, any bills,
statements, notices, demands, requests or other communications given or required
to be given under this Lease shall be effective only if rendered or given in
writing, sent by registered or certified mail or delivered personally, (a) to
Tenant (i) at Tenants address set forth in the Basic Lease Information, if sent
prior to Tenant's taking possession of the Premises, or (ii) at the Building if
sent subsequent to Tenant's taking possession of the Premises, or (iii) at any
place where Tenant or any agent or employee of Tenant may be found if sent
subsequent to Tenant's vacating, deserting, abandoning or surrendering the
Premises, or (b) to Landlord at Landlord's address set forth in the Basic Lease
Information, or (c) to such other address as either Landlord or Tenant may
designate as its new address for such purpose by notice given to the other in
accordance with the provisions of this Section 19.1. Any such bill, statement,
notice, demand, request or other communication shall be deemed to have been
rendered or given three (3) days after the date when it shall have been mailed
as provided in this Section 19.1 if sent by registered or certified mail, or
upon the date personal delivery is made. If Tenant is notified of the identity
and address of Landlord's mortgagee or ground or underlying lessor, Tenant shall
give to such mortgagee or ground or underlying lessor notice of any default by
Landlord under the terms of this Lease in writing sent by registered or
certified mail, and such mortgagee or ground or underlying lessor shall be given
a reasonable opportunity to cure such default prior to Tenant exercising any
remedy available to it.
20. NO WAIVER
20.1 No failure by Landlord to insist upon the strict performance of any
obligation of Tenant under this Lease or to exercise any right, power or remedy
consequent upon a breach thereof no acceptance of full or partial Rent or
Additional Charges during the continuance of any such breach, and no acceptance
of the keys to or possession of the Premises prior to the termination of the
Term by any employee of Landlord shall constitute a waiver of any such breach or
of such term, covenant or condition or operate as a surrender of this Lease. No
payment by Tenant or receipt by Landlord of a lesser amount than the aggregate
of all Rent and Additional Charges then due under this Lease shall be deemed to
be other than on account of the first items of such Rent and Additional Charges
then accruing or becoming due, unless Landlord elects otherwise; and no
endorsement or statement on any check and no letter accompanying any check or
other payment of Rent or Additional Charges in any such lesser amount and no
acceptance of any such check or other such payment by Landlord shall constitute
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlords right to recover the balance of such Rent or
Additional Charges or to pursue any other legal remedy.
20.2 Neither this Lease nor any term or provision hereof may be changed,
waived, discharged or terminated orally, and no breach thereof shall be waived,
altered or modified, except by a written instrument signed by the party against
which the enforcement of the change, waiver, discharge or termination is sought
No waiver of any breach shall affect or alter this Lease, but each and every
term, covenant and condition of this Lease shall continue in full force and
effect with respect to any other then existing or subsequent breach thereof.
21. ESTOPPEL CERTIFICATES
21.1 Tenant, at any time and from. time to time upon not less than ten
(10) days' prior written notice from Landlord, will execute acknowledge and
deliver to Landlord and, at Landlord's request, to any prospective purchaser,
ground or
11.
<PAGE> 12
underlying lessor or mortgagee of any part of the Real Property, a certificate
of Tenant stating (a) that Tenant has accepted the Premises (or, if Tenant has
not done so, that Tenant has not accepted the Premises and specifying the
reasons therefor), (b) the Commencement and Expiration Dates of this Lease, (c)
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that same is in full force and effect as modified and
stating the modifications), (d) whether or not there are then existing any
defenses against the enforcement of any of the obligations of Tenant under this
Lease (and, if so, specifying same), (e) whether or not there are then existing
any defaults by Landlord in the performance of its obligations under this Lease
(and, i f so, specifying same), (f) the dates, if any, to which the Rent and
Additional Charges and other charges under this Lease have been paid, and (g)
any other information that may reasonably be required by any of such persons. It
is intended that any such certificate of Tenant delivered pursuant to this
Section 21.1 may be relied upon by Landlord and any prospective purchaser,
ground or underlying lessor or mortgagee of any part of the Real Property.
22. RULES AND REGULATIONS
22.1 Tenant shall faithfully observe and comply with the rules and
regulations attached to this Lease as Exhibit D and all modifications thereof
and additions thereto from time to time put into effect by Landlord. Landlord
shall not be responsible for the nonperformance by any other tenant or occupant
of the Building or the Complex of any of said rules and regulations. In the
event of an express and direct conflict between the terms, covenants, agreements
and conditions of this Lease and the terms, covenants, agreements and conditions
of such rules and regulations, as modified and amended from time to time by
Landlord, this Lease shall control.
23. TAX ON TENANT'S PERSONAL PROPERTY
23.1 At least ten (10) days prior to delinquency Tenant shall pay all
taxes levied or assessed upon Tenant's equipment, furniture, fixtures and other
personal property located in or about the Premises. If the assessed value of
Landlord's property is increased by the inclusion therein of a value placed upon
Tenant's equipment, furniture, fixtures or other personal property, Tenant shall
pay to Landlord, upon written demand, the taxes so levied against Landlord, or
the proportion thereof resulting from said increase in assessment. The portion
of real estate taxes payable by Tenant pursuant to this Section 23.1 and by
other tenants of the Building pursuant to similar provisions in their leases
shall be excluded from Real Estate Taxes for purposes of computing the
Additional Charges to be paid pursuant to Article 4 hereof.
24. PARKING AND STORAGE
24.1 Landlord shall make available for use by Tenant during the Term the
number of parking spaces in the locations set forth in the Basic Lease
Information. Throughout the Term, and upon no less than forty five (45) days
written notice (except in the calendar year 1997 whereby only twenty (20) days
written notice shall be required), Tenant shall notify Landlord on a calendar
year basis the number of such spaces Tenant intends to use and Tenant shall pay
to Landlord monthly rent in respect of such parking spaces as set forth in
Exhibit E. Tenant shall not be assigned specific spaces in the Garage or the
Federal Street Parking Area. The rules and regulations promulgated by Landlord
shall govern access to the Garage, parking procedures and other matters related
to the use and operation of the Garage and the Federal Street Parking Area.
Landlord may in its sole discretion implement such rules, regulations, parking
configurations, equipment or methods, and procedures as it deems advisable,
including a valet parking system.
24.2 Landlord shall make available for use by Tenant during the Term a
storage space (the "Storage Space") on the Terrace having the rentable area set
forth in the Basic Lease Information. Tenant shall pay monthly rent to Landlord
in respect of the Storage Space as set forth in Exhibit F. The Storage Space
shall be in a location on the Terrace determined by landlord and landlord shall
have the right, upon thirty (30) days' written notice to Tenant, to relocate the
Storage Space to another location on the Terrace. In the event that Landlord
relocates the Storage Space, (i) Landlord shall arrange for moving the contents
thereof and pay all moving costs; and (ii) all applicable terms and covenants
and conditions hereof shall remain in full force and effect and thereupon be
deemed applicable to such new Storage Space. Should Tenant refuse to permit
landlord to relocate the Storage Space at the end of said thirty (30) day
period, Landlord shall have the right to terminate Tenant's right to use the
Storage Space and obligation to pay rent thereon by notice given to Tenant in
writing within ten (10) days following the end of said thirty (30) day period,
which termination shall be effective sixty (60) days after the date of the
original notice of relocation by the Landlord.
25. AUTHORITY
25.1 Each of the persons executing this Lease on behalf of Tenant and
Landlord does hereby covenant and wan-ant that the party for which they are
executing this Lease is a duly authorized and existing entity, that the party
for which they are executing this Lease has and is qualified to do business in
California, that the party for which they are executing this Lease has full
right and authority to enter into this Lease, and that any such person signing
on behalf of such party is authorized to do so. Upon either party's request, the
other party shall provide the requesting party with evidence reasonably
satisfactory to such party confirming the foregoing covenants and warranties.
12.
<PAGE> 13
26. MISCELLANEOUS
26.1 The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. The words used in the neuter gender include the
masculine and feminine. If there is more than one Tenant, the obligations under
this Lease imposed on Tenant shall be joint and several. The captions preceding
the articles of this Lease have been inserted solely as a matter of convenience
and such captions in no way define or limit the scope or intent of any provision
of this Lease.
26.2 The terms, covenants and conditions contained in this Lease shall
bind and inure to the benefit of Landlord and Tenant and except as otherwise
provided herein, their respective personal representatives and successors and
assigns; provided, however upon the sale, assignment or transfer by the Landlord
named herein (or by any subsequent landlord) of its interest in the Building as
owner or lessee, including any transfer by operation of law, the Landlord (or
subsequent landlord) shall be relieved from all subsequent obligations or
liabilities under this Lease, and all obligations subsequent to such sale,
assignment or transfer (but not any obligations or liabilities that have accrued
prior to the date of such sale, assignment or transfer) shall be binding upon
the grantee, assignee or other transferee of such interest, and any such
grantee, assignee or transferee, by accepting such interest, shall be deemed to
have assumed such subsequent obligations and liabilities. A lease of the entire
Building to a person other than for occupancy thereof shall be deemed a transfer
within the meaning of this Section 26.2.
26.3 If any provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable, shall
not be affected thereby, and each provision of this Lease shall be valid and be
enforced to the full extent permitted by law.
26.4 This Lease shall be construed and enforced in accordance with the
lam of the State of California.
26.5 Submission of this instrument for examination or signature by
Tenant does not constitute a reservation of or an option for lease, and it is
not effective as a lease or otherwise until execution and delivery by both
Landlord and Tenant.
26.6 This instrument, including the Exhibits hereto, which are made a
part of this Lease, contains the entire agreement between the parties and all
prior negotiations and agreements are superceded by this Lease. Neither Landlord
nor Landlord's gents have made any representations or warranties with respect to
the Premises, the Building, the Real Property or this Lease except as expressly
set forth herein, and no rights, easements, or licenses are or shall be acquired
by Tenant by implication or otherwise unless expressly set forth herein.
26.7 The review, approval, inspection or examination by Landlord of any
item to be reviewed, approved, inspected or examined by Landlord under the terms
of this Lease or the exhibits attached hereto shall not constitute the
assumption of any responsibility by Landlord for either the accuracy or
sufficiency of any such item or the quality or suitability of such item for its
intended use. Any such review, approval inspection or examination by Landlord is
for the sole purpose of protecting Landlord's interests in the Building and the
Complex and under this Lease, and no third parties, including, without
limitation, Tenant or any person or entity claiming through or under Tenant, or
the contractors, agents, servants, employees, visitors or licensees of Tenant or
any such person or entity, shall have any rights hereunder.
26.8 In the event of any action or proceeding brought by either party
against the other under this Lease, the prevailing party shall be entitled to
recover all costs and expenses, including its reasonable attorneys' fees, in
such action or proceeding n such amount as the court may adjudge reasonable. The
prevailing party shall be determined by the court based upon an assessment of
which party's major arguments made or positions taken in the proceedings could
fairly be said to have prevailed over the other party's major arguments or
positions on major disputed issues in the court's or arbitrator's decision. If
Landlord is named as a defendant in any suit brought against Tenant in
connection with or in any way arising out of this Lease or Tenant's use or
occupancy of the Premises, Tenant shall pay Landlord's costs and expenses,
including, without limitation, reasonable attorneys' fees, incurred in such suit
or action.
26.9 Upon the expiration or sooner termination of the Term, Tenant will
quietly and peacefully surrender to Landlord the Premises in the condition in
which they are required to be kept as provided in Article 8 hereof ordinary wear
and tear and the provisions of Article 12 excepted.
26.10 Upon Tenant paying the Rent and Additional Charges and performing
all of Tenants obligations under this Lease, Tenant may peacefully and quietly
enjoy the Premises during the Term as against all persons or entities lawfully
claiming by or through Landlord, subject, however, to the provisions of this
Lease and to any mortgages or ground or underlying leases referred to in Article
10 hereof.
26.11 Tenant covenants and agrees that no diminution of light, air or
view by any structure that may hereafter be erected (whether or not by Landlord)
shall entitle Tenant to any reduction of Rent or Additional Charges under this
Lease, result in any liability of Landlord to Tenant, or in any other way affect
this Lease or Tenant's obligations hereunder.
13.
<PAGE> 14
26.12 Any holding over by Tenant after the expiration or other
termination of the Term with the written consent of Landlord shall be construed
to be a tenancy from month-to-month at one hundred fifty percent (150%) of the
Rent in effect on the date of such expiration or termination and shall otherwise
be on the terms and conditions herein specified so far as applicable. Any
holding over without Landlord's consent shall constitute a default by Tenant and
entitle Landlord to reenter the Premises as provided in Article 16 hereof.
26.13 Time is of the essence with respect to all provisions of this
Lease in which a definite time for performance is specified.
26.14 Tenant warrants that it has had no dealings with any red broker or
agents in connection with the negotiation of this Lease other than the party
identified as "Broker" in the Basic Lease Information and it knows of no other
real estate broker or agent who is entitled to a commission in connection with
this Lease . Tenant agrees to indemnify Landlord and hold Landlord harmless from
and against any and all claims, demands losses, liabilities, lawsuits,
judgments, costs and expenses (including reasonable attorneys' fees) with
respect to any leasing commission or equivalent compensation alleged to be owing
on account of Tenant's dealings with any real estate broker or agent other than
Broker.
26.15 The following Exhibits and Addenda are attached hereto and
incorporated herein by this reference (a) Exhibits A, B, C, D, E and F.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day
and year first above written.
SOUTH BEACH DEVELOPMENT COMPANY, The Virtual Mall, Inc., a California
a California general Partnership corporation, dba Greet Street
By: By:
-------------------------------- --------------------------------
Its: Its:
-------------------------------- --------------------------------
By:
--------------------------------
Its:
--------------------------------
"Landlord" "Tenant"
14.
<PAGE> 15
EXHIBIT B
MONTHLY PREMISES RENT
The following monthly rent shall be paid by Tenant in respect of the Premises
during each month of the Term
<TABLE>
<CAPTION>
MONTH MONTHLY RENT
----- ------------
<S> <C>
1-12 $ 17,106.00
13-24 $ 18,175.13
</TABLE>
15.
<PAGE> 16
EXHIBIT C
TENANT IMPROVEMENTS
Landlord shall install improvements in the Premises in accordance with
the plans and specifications and pricing notes (the "Plans") attached hereto.
The cost of such improvements shall be paid by Landlord. In addition to the
Tenant Improvements set forth on the Plans, Tenant shall have the right to
require additional electrical improvements to the Premises to be installed by
Landlord. The initial $5,000 of the cost of such additional electrical
improvements shall be paid by Landlord and any additional costs shall be paid by
Tenant. In addition, Tenant shall pay for any other improvements it may require
at the Premises.
16.
<PAGE> 17
EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building without the written consent of Landlord, and Landlord
shall have the right to remove any such sign, placard, picture, advertisement
name or notice without notice to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense Of Tenant by a person approved of by
Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass or any window, door, partition or wall which may appear unsightly from
outside the Premises. Landlord shall furnish and install a Building standard
window covering at all exterior windows which shall not be modified by Tenant
without the prior written consent of Landlord.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by any of the tenants or used by them for any
purpose other than for ingress and egress from their respective premises.
3. Tenant shall not alter any lock or install any new or additional
locks to any bolts on any doors or windows of the Premises.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from the violation of this rule shall
be borne by the Tenant who, or whose employees or invitees, shall have caused
it.
5. Tenant shall not overload the floor of the Premises or in any way
deface the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into
the Building without the prior notice to Landlord and all moving of the same
into or out of the Building shall be done at such time and in such manner as
Landlord shall designate. Landlord shall have the right to prescribe the weight,
size and position of all safes and other heavy equipment brought into the
Building and also the times and manner of moving the same in and out of the
Building. Safes or other heavy objects shall, if considered necessary by
Landlord, stand on supports of such thickness as is necessary to properly
distribute the weight Landlord will not be responsible for loss of or damage to
any such safe or property from any cause and all damage done to the Building by
moving or maintaining any such safe or other property shall be repaired at the
expense of Tenant. Tenant -shall pay for any damage to halls, doors, walls,
paint, elevator cabs or other items caused by Tenant's movers.
7. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
8. No cooking shall be done or permitted by the Tenant on the Premises,
nor shall the Premises be used for the storage of merchandise, for washing
clothes, for lodging, or for any improper, objectionable or immoral purposes.
9. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Landlord, if
any.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the prior consent of the Landlord. The location of telephones,
call boxes and other office equipment affixed to the Premises shall be subject
to the prior approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6 00 p.m. and 8 00 am. k following day, access to the Building; or
to the halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to the person
or employee of the Building in charge and has a pass r is properly identified.
The Landlord shall in no ca be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement, or other commotion, the Landlord
reserves the right to prevent access to the Building during the continuance of
the same by closing of the doors or otherwise, for the safety of the tenants and
protection of property in the Building and the Building.
17.
<PAGE> 18
12. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and 5"tions of the Building.
13. No vending machines or machines of any description shall be
installed, maintained or operated upon the Premises without the written consent
of the Landlord.
14. Tenant shall not disturb, solicit, or canvas any occupant of the
Building and shall cooperate to prevent same.
15. Without the prior written consent of Landlord, Tenant shall not use
the name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenants address.
16. Landlord shall have the right to control and operate the public
portions of the Building and the public facilities, as well as facilities
furnished for the common use of the tenants, in such manner as it deems best for
the benefit of he tenants generally .
17. All entrance doors in the Premises shall be left locked when the
Premises are not in use, and all doors opening to public corridors shall be kept
closed except for normal ingress and egress from the Premises.
18.
<PAGE> 19
EXHIBIT E
MONTHLY PARKING RENT
The following monthly rent shall be paid by Tenant in respect of the
parking spaces described in the Basic Lease Information during each month of the
term, which Tenant determines to use in accordance with Section 24.1:
<TABLE>
<CAPTION>
MONTH MONTHLY PARKING RENT
----- --------------------
<S> <C>
1-12 $150.00 per space per month
thereafter Fair Market Value
</TABLE>
19.
<PAGE> 20
EXHIBIT F
MONTHLY STORAGE RENT
The following monthly rent shall be paid by Tenant in respect of the
Storage Space described in the Basic Lease Information during each month of the
Term:
<TABLE>
<CAPTION>
MONTH MONTHLY RENT
----- ------------
<S> <C>
N/A
</TABLE>
20.
<PAGE> 21
<TABLE>
<CAPTION>
ARTICLES DESCRIPTION PAGE NUMBER
- -------- ----------- -----------
<S> <C> <C>
1. Premises.............................................................................2
2. Term.................................................................................2
3. Rent, Additional Charges and Security Deposit........................................2
6. Use and Compliance with Law..........................................................4
7. Alterations and Additions............................................................4
8. Repairs..............................................................................5
9. Liens................................................................................5
10. Subordination and Attornment.........................................................5
11. Inability to Perform.................................................................5
12. Damage or Destruction................................................................6
13. Eminent Domain.......................................................................6
14. Assignment and Subletting............................................................7
15. Services and Utilities...............................................................7
16. Default and Remedies.................................................................8
17. Indemnity, Insurance and Subrogation.................................................9
18. Entry by Landlord...................................................................11
19. Notices.............................................................................11
20. No Waiver...........................................................................11
21. Estoppel Certificates...............................................................11
22. Rules and Regulations...............................................................12
23. Tax on Tenant's Personal Property...................................................12
24. Parking and Storage.................................................................12
25. Authority...........................................................................12
26. Miscellaneous.......................................................................13
</TABLE>
Exhibit A - Floorplans
Exhibit B - Monthly Premises Rent
Exhibit C - Tenant Improvements
Exhibit D - Rules and Regulations
Exhibit E - Monthly Parking Rent
Exhibit F - Monthly Storage Rent
i.
<PAGE> 22
An extra section break has been inserted above this paragraph. Do not delete
this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.
1.
<PAGE> 23
First Amendment To Standard Office Building Lease
This First Amendment To Standard Office Building Lease ("First Amendment") is
dated, for reference purposes only, as of September 15, 1998, and shall
constitute part of that certain Lease dated September 1, 1997 ("Lease") between
Rosenberg SOMA Investments I, LLC ("Landlord"), successor in interest to SOUTH
BEACH DEVELOPMENT COMPANY, and The Virtual Mall, Inc., a California corporation,
dba Greet Street ("Tenant").
Whereas, Tenant has entered into a lease from Landlord of those certain Premises
in the office building ("Building") commonly known as 501 Second Street in the
City and County of San Francisco pursuant to that certain Standard Office
Building Lease dates as of September 1, 1997, (herein collectively called the
"Lease");
Whereas Tenant and Landlord now desire to amend the Lease to expand the premises
and to adjust the rent and to provide for the installation of improvements;
Now, therefore, for valuable consideration, the receipt of which is hereby
acknowledged, and consideration of the mutual covenants herein contained,
Landlord and Tenant hereby agree as follows:
1. Expansion Space. Effective November 1, 1997, and running conterminous with
the Lease through October 17, 1999, Tenant shall lease the 5,773 net rentable
square feet shown in Exhibit A hereto. The space shall be taken in "as-is"
condition, subject to paragraph 4 below. The total square footage under Lease to
Tenant, including the Expansion Space, becomes 14,326 net rentable square feet.
2. Base Rent. The Base Rent shall be as listed below per month throughout the
term for the Expansion Space only.
Period 11-1-98 through 10-17-99 $15,875.75
If Landlord, for any reason whatsoever, is unable to deliver possession of the
Expansion Space premises by November 1, 1998, Base Rent and Additional Charges
shall be abated until the Expansion Space premises are available for occupancy.
No delay in delivery of possession shall operate to extend the Expiration Date
beyond 10-17-1999. If Landlord is not able to deliver possession of the
expansion space on or before December 31, 1998, Tenant may cancel this First
Amendment with no further obligation whatsoever.
3. Base Year. The base year for operating expense pass through purposes shall be
the calendar year 1999, adjusted if necessary to reflect 95% occupancy, for the
Expansion Space only. The additional net rentable square footage will add an
additional 3.06% to Tenant's Percentage Share.
4. Tenant Improvements. Landlord shall provide Tenant with $7,500 in Tenant
Improvement Allowance, which Tenant may use at its sole discretion to pay for
the installation of its improvements.
<PAGE> 24
5. Parking. Landlord shall provide Tenant with four(4) additional covered
parking spaces for the full term of this Lease, as extended, at $165.00 per
month.
6. Security Deposit and Advance Rent. Tenant shall increase its security deposit
("Security Deposit") by an additional $15,875.75 concurrent with its execution
of this First Amendment as well as paying advance rent for the month of
November, 1998 in the same amount of $15,875.75, also with the execution of this
First Amendment.
7. Early Termination. Landlord shall grant to Tenant a right to terminate the
Lease early, including the entire 14,326 net rentable square foot Premises, upon
satisfaction of all of the below listed conditions:
o Tenant shall be required to give no less than six(6) months prior
written notice of its desire to terminate early.
o Tenant must move to one of the following buildings: 625 Second Street,
410 Townsend Street, or 670 Second Street ("Replacement Buildings").
o Tenant must rent at least 15,000 net rentable square feet in one of the
above listed Replacement Buildings at a mutually agreeable fair market
rental rate.
8. No Other Provisions Changed. Except for the changes made herein, no changes
or amendments to the Standard Office Building Lease have been made as of the
date of this First Amendment, and all provisions in the Lease, except as
amended, supplemented, or supplanted herein, are hereby ratified and affirmed
and shall remain in full force and effect.
This First Amendment shall be for all purposes considered part of the Lease.
LANDLORD
ROSENBERG SOMA INVESTMENTS, INC., a California limited liability company
By:
--------------------------------------
Michael Karasik, Manager
Date:
------------------------------------
TENANT
The Virtual Mall, Inc., a California Corporation, dba Greet Street
By:
--------------------------------------
Date:
------------------------------------
<PAGE> 1
EXHIBIT 10.9
LEASE
This Lease, which includes the preceding Summary of Basic Lease
Information (the "Summary") attached hereto and incorporated herein by this
reference (the Lease and Summary to be known sometimes collectively hereafter as
the "Lease"), dated as of the date set forth in Section 1 of the Summary, is
made by and between JONATHAN PARKER, a married man as his sole and separate
property; THOMAS M. MONAHAN, a married man as his sole and separate property;
HAROLD PARKER PROPERTIES, L.P., a California limited partnership; and HAROLD A.
PARKER, TRUSTEE, and GERTRUD V. PARKER, TRUSTEE of the HAROLD A. PARKER COMPANY
TRUST dated May 11, 1988; all as Tenants in Common (collectively, "Landlord"),
and E-GREETINGS NETWORK, a California corporation ("Tenant").
1. REAL PROPERTY, BUILDING AND PREMISES Upon and subject to the terms, covenants
and conditions hereinafter set forth in this Lease, Landlord hereby leases to
Tenant and Tenant hereby leases from Landlord the premises set forth in Section
6 of the Summary (the "Premises"), which Premises are located in and are a part
of that certain building (the "Building") located at 149 New Montgomery Street,
San Francisco, California. The Building, any outside plaza areas, the land and
other improvements surrounding the Building which are designated from time to
time by Landlord as "Common Areas," as that term is defined below, appurtenant
to or servicing the Building, and the land upon which any of the foregoing are
situated, are herein sometimes collectively referred to as the "Real Property."
Tenant shall have the non-exclusive right to use and enjoy in common with other
tenants in the Building those portions of the Real Property which are provided
for use in common by Tenant and any other tenants of the Real Property (the
"Common Areas"). Subject to Landlord's reasonable rules and regulations and
access control procedures, Tenant shall have the right of access to the Premises
twenty-four (24) hours per day, seven (7) days per week during the "Lease Term,"
as that term is defined in Article 2 of this Lease. Except as specifically set
forth in this Lease and in the Tenant Work Letter attached hereto as Exhibit B,
Landlord shall not be obligated to provide or pay for any improvement work or
services related to the improvement of the Premises. Tenant also acknowledges
that Landlord has made no representation or warranty regarding the condition of
the Premises or the Building except as specifically set forth in this Lease and
the Tenant Work Letter. Landlord hereby represents and warrants that the
renovation work done on the Building has included or will include refurbishment
of the mechanical systems in the Building, installation of two (2) new
elevators, new restrooms, new heating, ventilation and air conditioning and
electrical systems, pursuant to Section 1.1. of the Tenant Work Letter and a
renovated or new roof.
2. LEASE TERM The terms and provisions of this Lease shall be effective as of
the date of this Lease except for the provisions of this Lease relating to the
payment of Rent. The term of this Lease (the "Lease Term") shall be as set forth
in Section 7.1 of the Summary and shall commence on the date (the "Lease
Commencement Date") set forth in Section 7.2 of the Summary (subject to the
terms of the Tenant Work Letter) and shall terminate on the date (the "Lease
Expiration Date") set forth in Section 7.3 of the Summary, unless sooner
terminated or extended as hereinafter provided. At any time during the Lease
Term, Landlord may deliver to Tenant a notice of Lease Term dates in the form as
set forth in Exhibit C, attached hereto, which notice Tenant shall execute and
return to Landlord within five (5) days of receipt thereof. Notwithstanding the
foregoing, if Landlord has not delivered the Base Building to Tenant, as
provided in Section 1.1 of the Tenant Work Letter, by March 1, 2000 (the
"Outside Date"), then Tenant shall have the right to terminate this Lease upon
thirty (30) days prior written notice to Landlord.
3. BASE RENT Tenant shall pay, without notice or demand, except as otherwise set
forth in this Lease, to Landlord at its office in the Building, in lawful money
of the United States of America, base rent ("Base Rent") as set forth in Section
8 of the Summary, payable in equal monthly installments as set forth in Section
8 of the Summary in advance on or before the first day of each month during the
Lease Term, without any setoff or deduction whatsoever, except as otherwise set
forth in this Lease. The Base Rent for the first full month of the Lease Term,
which occurs after the expiration of any free rent period, shall be paid at the
time of Tenant's execution of this Lease. If any rental payment date (including
the Lease Commencement Date) falls on a day of the month other than the first
day of such month or if any rental payment is for a period which is shorter than
one month, then the rental for any such fractional month shall be a
proportionate amount of a full calendar month's rental. All other payments or
adjustments required to be made under the terms of this Lease that require
proration on a time basis shall be prorated on the same basis. Notwithstanding
the foregoing, to the extent that Tenant is conducting business in only a
portion of the Premises before September 1, 1999, Tenant shall only be obligated
to pay Base Rent on that portion of the Premises which Tenant is so using,
determined on a floor by floor basis, in the amount of Thirty-Eight and 50/100
Dollars per rentable square foot per year of each floor of the Premises Tenant
is so using.
-1-
<PAGE> 2
4. ADDITIONAL RENT
4.1 Additional Rent. In addition to paying the Base Rent specified in
Article 3 of this Lease, Tenant shall pay as additional rent (i) Tenant's Share
of the annual Operating Expenses, which are in excess of Operating Expenses
incurred in the "Operating Expense Base Year," as that term is defined in
Section 4.2.1 of this Lease, and (ii) Tenant's Share of the annual Tax Expenses,
which are in excess of Tax Expenses incurred in the "Tax Base Year," as that
term is defined in Section 4.2.2 of this Lease. Such additional rent, together
with any and all other amounts payable by Tenant to Landlord pursuant to the
terms of this Lease, shall be hereinafter collectively referred to as the
"Additional Rent." The Base Rent and Additional Rent are herein collectively
referred to as the "Rent." Without limitation on other obligations of Tenant
which shall survive the expiration of the Lease Term, the obligations of Tenant
to pay the Additional Rent provided for in this Article 4 shall survive the
expiration of the Lease Term.
4.2 Definitions. As used in this Article 4, the following terms shall
have the meanings hereinafter set forth:
4.2.1 "Operating Expense Base Year" shall be the period set forth in
Section 9.1 of the Summary.
4.2.2 "Tax Base Year" shall be the period set forth in Section 9.2
of the Summary.
4.2.3 "Expense Year" shall mean each calendar year in which any
portion of the Lease Term falls, through and including the calendar year in
which the Lease Term expires, provided that Landlord, upon notice to Tenant, may
change the Expense Year from time to time to any other twelve (12) consecutive
month period, and in the event of any such change, Tenant's Share of Operating
Expenses and Tax Expenses shall be equitably adjusted for any Expense Year
involved in any such change.
4.2.4 "Operating Expenses" shall mean all expenses, costs and
amounts of every kind and nature which Landlord shall pay during any Expense
Year because of or in connection with the ownership, management, maintenance,
repair, replacement, restoration or operation of the Real Property, including,
without limitation, any amounts paid for (i) the cost of supplying all utilities
to the Common Areas, the cost of operating, maintaining, repairing, renovating
and managing the utility systems serving the Building, mechanical systems,
sanitary and storm drainage systems, and any escalator and/or elevator systems,
and the cost of supplies and equipment and maintenance and service contracts in
connection therewith; (ii) the cost of licenses, certificates, permits and
inspections and the cost of contesting the validity or applicability of any
governmental enactments which may affect Operating Expenses, and the costs
incurred in connection with the implementation and operation of a transportation
system management program or similar program; (iii) the cost of insurance
carried by Landlord, in such amounts as Landlord may reasonably determine or as
may be required by any mortgagees or the lessor of any underlying or ground
lease affecting the Real Property and/or the Building; (iv) the cost of
landscaping, relamping, and all supplies, tools, equipment and materials used in
the operation, repair and maintenance of the Building; (v) fees, charges and
other costs, including consulting fees, legal fees and accounting fees, of all
contractors engaged by Landlord or otherwise reasonably incurred by Landlord in
connection with the management, operation, maintenance and repair of the
Building and Real Property; (vi) any equipment rental agreements or management
agreements (including the cost of any management fee and the fair rental value
of any office space provided thereunder); (vii) wages, salaries and other
compensation and benefits of all persons engaged in the operation, management,
maintenance or security of the Building, and employer's Social Security taxes,
unemployment taxes or insurance, and any other taxes which may be levied on such
wages, salaries, compensation and benefits; provided, that if any employees of
Landlord provide services for more than one building of Landlord, then a
prorated portion of such employees' wages, benefits and taxes shall be included
in Operating Expenses based on the portion of their working time devoted to the
Building; (viii) payments under any easement, license, operating agreement,
declaration, restrictive covenant, underlying or ground lease (excluding rent),
or instrument pertaining to the sharing of costs by the Building; (ix)
operation, repair, maintenance and replacement of all "Systems and Equipment,"
as that term is defined in Section 4.2.6 of this Lease, and components thereof;
(x) the cost of janitorial service to the Common Areas, alarm and security
service, window cleaning, trash removal from the Common Areas, replacement of
wall and floor coverings, ceiling tiles and fixtures in lobbies, corridors,
restrooms and other common or public areas or facilities, maintenance and
replacement of curbs and walkways, repair to roofs and re-roofing; (xi)
amortization (including interest on the unamortized cost) of the cost of
acquiring or the rental expense of personal property used in the maintenance,
operation and repair of the Building and Real Property; and (xii) the cost of
any capital improvements or other costs (I) which are intended as a labor-saving
device or to effect other economies in the operation or maintenance of the
Building, (II) made to the Building that are required under any governmental law
or
-2-
<PAGE> 3
regulation not in effect as of the date of this Lease, or (III) which are
reasonably determined by Landlord to be in the best interest of the Building
and/or Real Property; provided, however, that if any such cost described in (I),
(II) or (III), above, is a capital expenditure, such cost shall be amortized
(including interest on the unamortized cost) over its useful life as Landlord
shall reasonably determine. If Landlord is not furnishing any particular work or
service (the cost of which, if performed by Landlord, would be included in
Operating Expenses) to a tenant who has undertaken to perform such work or
service in lieu of the performance thereof by Landlord, Operating Expenses shall
be deemed to be increased by an amount equal to the additional Operating
Expenses which would reasonably have been incurred during such period by
Landlord if it had at its own expense furnished such work or service to such
tenant. If the Building is not at least ninety-five percent (95%) occupied
during all or a portion of any Expense Year, Landlord shall make an appropriate
adjustment to the variable components of Operating Expenses for such year or
applicable portion thereof, employing sound accounting and management
principles, to determine the amount of Operating Expenses that would have been
paid had the Building been at least ninety-five percent (95%) occupied; and the
amount so determined shall be deemed to have been the amount of Operating
Expenses for such year, or applicable portion thereof. Landlord shall have the
right, from time to time, to equitably allocate some or all of the Operating
Expenses among different tenants of the Building (the "Cost Pools"). Such Cost
Pools may include, but shall not be limited to, the office space tenants of the
Building and the retail space tenants of the Building. Notwithstanding anything
to the contrary set forth in this Article 4, when calculating Operating Expenses
for any Expense Year, including the Operating Expense Base Year, Operating
Expenses shall exclude market-wide labor-rate increases due to extraordinary
circumstances, including, but not limited to, boycotts and strikes, and utility
rate increases due to extraordinary circumstances including, but not limited to,
conservation surcharges, boycotts, embargoes or other shortages. Notwithstanding
the foregoing, the following charges are expressly excluded from Operating
Expenses: (a) costs of leasing incurred with respect to a specific tenant of the
Building or costs of procuring new tenants for the Building (including leasing
commissions and attorney's fees), (b) costs of renovating, painting and/or
decorating the premises of any new tenant or vacated by any prior tenant, (c)
compensation of personnel above the grade of Building Manager, (d) except for
any deductibles payable by Landlord, costs of repair to the Building or Premises
where the costs of such repairs are reimbursed by insurance (or which would be
reimbursable under insurance which Landlord is required to maintain under this
Lease), (e) costs of utilities, services, and other items that exclusively
benefit particular tenants of the Building, except to the extent such costs are
recoverable from such tenants and are credited to Operating Expenses upon
Landlord's receipt of payment therefor, (f) Building depreciation, (g) interest
on debt or rental under any ground lease, (h) capital expenditures except as
permitted above, (i) costs incurred to correct defects in the initial
construction or current renovation of the Building, (j) late charges or other
penalties, including tax penalties, incurred as a result of Landlord's gross
negligence or inability or unwillingness to make payments when due, except to
the extent caused by Tenant's failure to timely make any payment in accordance
with the terms of this Lease, (k) costs resulting directly from the gross
negligence or willful misconduct of Landlord, its employees, agents or
contractors, (l) advertising and promotional expenses, (m) Landlord's charitable
or political contributions, and (n) Tax Expenses.
4.2.5 "Tax Expenses" shall mean all federal, state, county, or
local governmental or municipal taxes, fees, charges or other impositions of
every kind and nature, whether general, special, ordinary or extraordinary
(including, without limitation, real estate taxes, general and special
assessments, special assessment district payments, transit taxes, leasehold
taxes or taxes based upon the receipt of rent, including gross receipts or sales
taxes applicable to the receipt of rent, unless required to be paid by Tenant,
personal property taxes imposed upon the fixtures, machinery, equipment,
apparatus, systems and equipment, appurtenances, furniture and other personal
property used in connection with the Building), which Landlord shall pay because
of or in connection with the ownership, leasing and operation of the Real
Property or Landlord's interest therein. Tax Expenses shall include, without
limitation: (i) any tax on Landlord's rent, right to rent or other income from
the Real Property or as against Landlord's business of leasing any of the Real
Property; (ii) any assessment, tax, fee, levy or charge in addition to, or in
substitution, partially or totally, of any assessment, tax, fee, levy or charge
previously included within the definition of real property tax, it being
acknowledged by Tenant and Landlord that Proposition 13 was adopted by the
voters of the State of California in the June 1978 election ("Proposition 13")
and that assessments, taxes, fees, levies and charges may be imposed by
governmental agencies for such services as fire protection, street, sidewalk and
road maintenance, refuse removal and for other governmental services formerly
provided without charge to property owners or occupants. It is the intention of
Tenant and Landlord that all such new and increased assessments, taxes, fees,
levies, and charges and all similar assessments, taxes, fees, levies and charges
be included within the definition of Tax Expenses for purposes of this Lease;
(iii) any assessment, tax, fee, levy, or charge allocable to or measured by the
area of the Premises or the rent payable hereunder, including, without
limitation, any gross income tax with respect to the receipt of such rent, or
upon or with respect to the possession, leasing, operating, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or
any portion thereof; and (iv) any assessment, tax, fee, levy or charge, upon
this transaction or any document to which Tenant is a party, creating or
transferring an interest or an estate in the Premises.
-3-
<PAGE> 4
Notwithstanding the foregoing, Tax Expenses shall not include any fines,
penalties or interest charged to Landlord; or franchise, estate or income taxes
of Landlord.
4.2.6 "Tenant's Share" shall mean the percentage set forth in
Section 9.3 of the Summary.
4.3 Calculation and Payment of Additional Rent.
4.3.1 Calculation of Excess and Underage. If for any Expense Year
ending or commencing within the Lease Term, (i) Tenant's Share of Operating
Expenses for such Expense Year exceeds Tenant's Share of Operating Expenses for
the Operating Expense Base Year and/or (ii) Tenant's Share of Tax Expenses for
such Expense Year exceeds Tenant's Share of Tax Expenses for the Tax Base Year,
then Tenant shall pay to Landlord, in the manner set forth in Section 4.3.2
below, and as Additional Rent, an amount equal to the excess (the "Excess").
4.3.2 Statement of Actual Operating Expenses and Tax Expenses and
Payment by Tenant. Following the end of each Expense Year, Landlord shall give
to Tenant a statement (the "Statement") which Statement shall state the actual
Operating Expenses and Tax Expenses incurred or accrued for such preceding
Expense Year, and which shall indicate the amount, if any, of any Excess or
underage. Upon receipt of the Statement for each Expense Year ending during the
Lease Term, if an Excess is present, Tenant shall pay, with its next installment
of Base Rent, the full amount of the Excess for such Expense Year, less the
amounts, if any, paid during such Expense Year as "Estimated Excess," as that
term is defined in Section 4.3.3 below. Even though the Lease Term has expired
and Tenant has vacated the Premises, when the final determination is made of
Tenant's Share of the Operating Expenses and the Tax Expenses for the Expense
Year in which this Lease terminates, if an Excess is present, Tenant shall,
within thirty (30) days of receipt of a Statement setting forth the Excess, pay
to Landlord an amount as calculated pursuant to the provisions of Section 4.3.1
of this Lease. The provisions of this Section 4.3.2 shall survive the expiration
or earlier termination of the Lease Term.
4.3.3 Statement of Estimated Operating Expenses and Tax Expenses.
Landlord, at Landlord's option, may elect to give Tenant a yearly expense
estimate statement (the "Estimate Statement") which Estimate Statement shall set
forth Landlord's reasonable estimate (the "Estimate") of what the total amount
of Operating Expenses and Tax Expenses for the then-current Expense Year shall
be and the estimated Excess (the "Estimated Excess") as calculated by comparing
Tenant's Share of Operating Expenses, which shall be based upon the Estimate, to
Tenant's Share of Operating Expenses for the Operating Expense Base Year and
comparing Tenant's Share of Tax Expenses, which shall be based upon the
Estimate, to Tenant's Share of Tax Expenses for the Tax Base Year. The failure
of Landlord to timely furnish the Estimate Statement for any Expense Year shall
not preclude Landlord from enforcing its rights to collect any Estimated Excess
under this Article 4. If pursuant to the Estimate Statement an Estimated Excess
is calculated for the then-current Expense Year, Tenant shall pay, with its next
installment of Base Rent, a fraction of the Estimated Excess for the
then-current Expense Year (reduced by any amounts paid pursuant to the last
sentence of this Section 4.3.3). Such fraction shall have as its numerator the
number of months which have elapsed in such current Expense Year to the month of
such payment, both months inclusive, and shall have twelve (12) as its
denominator. Until a new Estimate Statement is furnished, Tenant shall pay
monthly, with the monthly Base Rent installments, an amount equal to one-twelfth
(1/12) of the total Estimated Excess set forth in the previous Estimate
Statement delivered by Landlord to Tenant.
4.4 Taxes and Other Charges for Which Tenant Is Directly Responsible.
Tenant shall reimburse Landlord upon demand for any and all taxes or assessments
required to be paid by Landlord (except to the extent included in Tax Expenses
by Landlord), excluding state, local and federal personal or corporate income
taxes measured by the net income of Landlord from all sources and estate and
inheritance taxes, whether or not now customary or within the contemplation of
the parties hereto, when:
4.4.1 Said taxes are measured by or reasonably attributable to
the cost or value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, to the extent the cost
or value of such leasehold improvements exceeds the Tenant Improvement
Allowance, as defined in Section 2.1 of the Tenant Work Letter,
4.4.2 Said taxes are assessed upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises or any portion of the Real Property;
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4.4.3 Said taxes are assessed upon this transaction or any
document to which Tenant is a party creating or transferring an interest or an
estate in the Premises; or
4.4.4 Said assessments are levied or assessed upon the Real
Property or any part thereof or upon Landlord and/or by any governmental
authority or entity, and relate to the construction, operation, management, use,
alteration or repair of mass transit improvements.
4.5 Landlord's Books and Records. Within forty-five (45) days after
receipt of a Statement by Tenant, if Tenant disputes the amount of Additional
Rent set forth in the Statement, an independent certified public accountant
(which accountant shall be a member of a nationally recognized accounting firm),
designated by Tenant, may, after reasonable notice to Landlord and at reasonable
times, inspect Landlord's records with respect to the applicable Expense Year at
Landlord's offices, provided that Tenant is not then in default, past the
expiration of any applicable cure period, under this Lease, and provided further
that Tenant has paid all amounts required to be paid under the Statement. If
after such inspection, Tenant still disputes such Additional Rent, a
certification as to the proper amount shall be made, at Tenant's expense, by an
independent certified public accountant selected by Landlord, which
certification shall be final and conclusive on Landlord and Tenant; provided,
however, that if such certification demonstrates that Landlord overstated total
Operating Expenses for the applicable Expense Year by more than seven percent
(7%), then Landlord shall pay the costs associated with such certification. If
it is determined pursuant to this Section 4.5 that an error has been made in the
Statement, Tenant's sole remedy shall be for the parties to make such
appropriate payments or reimbursements, as the case may be, to each other as are
determined to be owing, provided that any reimbursements payable by Landlord to
Tenant may, at Landlord's option, instead be credited against the Base Rent next
coming due under this Lease unless the Lease Term has expired, in which event
Landlord shall refund the appropriate amount to Tenant. Tenant shall keep any
information gained from its review of Landlord's records confidential and shall
not disclose such information to any other party, except as required by law.
5. USE OF PREMISES Tenant shall use the Premises only for the purpose as set
forth in Section 10 of the Summary (the "Permitted Use") and for no other use or
purpose, unless first approved in writing by Landlord, which approval Landlord
may withhold in its sole discretion. Tenant agrees that it shall not use, or
permit any person to use, the Premises or any part thereof for any use or
purpose contrary to the provisions of the Rules and Regulations set forth in
Exhibit D, attached hereto, or in violation of the laws of the United States of
America, the State of California, or the ordinances, regulations or requirements
of any local, municipal or county governing body or other lawful authorities
having jurisdiction over the Building. Tenant shall not use or allow another
person or entity to use any part of the Premises for the storage, use,
treatment, manufacture or sale of hazardous materials or hazardous substances
(as defined under applicable laws), except for the use in compliance with all
applicable laws and regulations of small quantities of hazardous materials of
the type commonly found in ordinary office supplies and equipment.
6. SERVICES AND UTILITIES
6.1 Standard Tenant Services. Landlord shall provide the following
services and utilities twenty-four (24) hours per day on every day during the
Lease Term, unless otherwise stated below.
6.1.1 Landlord shall at all times provide heating and air
conditioning ("HVAC"), as provided in Section 1.1 of the Tenant Work Letter.
6.1.2 Landlord shall at all times provide electricity to the
Premises for lighting and power, as provided in Section 1.1 of the Tenant Work
Letter. Landlord shall also provide (i) city water for use in connection with
any plumbing fixtures now or hereafter installed in the Premises and the
Building in accordance with this Lease, and (ii) nonexclusive automatic
passenger elevator service at all times.
6.1.3 Tenant shall pay to Landlord, upon billing, the cost of all
utilities provided to the Premises, based on submeters or separate meters,
including the cost for utilties to run the elevators.
6.2 Tenant's Responsibility. Tenant shall arrange for regular janitorial
service to the Premises and the lobbies of the Building, at Tenant's sole
expense.
6.3 Interruption of Use. Tenant agrees that Landlord shall not be liable
for damages, by abatement of rent or otherwise, for failure to furnish or delay
in furnishing any service (including telephone and telecommunication
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services), or for any diminution in the quality or quantity thereof, when such
failure or delay or diminution is occasioned, in whole or in part, by repairs,
replacements, or improvements, by any strike, lockout or other labor trouble, by
inability to secure electricity, gas, water, or other fuel at the Building after
reasonable effort to do so, by any accident or casualty whatsoever, by act or
default of Tenant or other parties, or by any other cause beyond Landlord's
reasonable control; and such failures or delays or diminution shall never be
deemed to constitute an eviction or disturbance of Tenant's use and possession
of the Premises or relieve Tenant from paying rent or performing any of its
obligations under this Lease. Furthermore, Landlord shall not be liable under
any circumstances for a loss of, or injury to, property or for injury to, or
interference with, Tenant's business, including, without limitation, loss of
profits, however occurring, through or in connection with or incidental to a
failure to furnish any services or utilities. Notwithstanding anything to the
contrary contained in this Section 6.3, to the extent any failure to furnish or
delay in furnishing any service is caused by the gross negligence or willful
misconduct of Landlord, its agents, employees or contractors, Tenant shall be
entitled to an abatement of Rent if and to the extent such failure or delay
prevents Tenant from using all or a portion of the Premises (and Tenant in fact
does not use the Premises or such portion thereof), and if such failure or delay
continues for more than ten (10) consecutive days. Rent shall so abate, in
proportion to the percentage of the Premises rendered unusable by Tenant (and in
fact not used), retroactively to the first (1st) day of such failure or delay
and shall continue thereafter until such failure or delay is remedied.
6.4 Access. Except as specifically set forth in this Lease, Tenant shall
have access to the Premises twenty-four (24) hours per day, three hundred
sixty-five (365) days per year.
7. REPAIRS Tenant shall, at Tenant's own expense, keep the Premises, including
all improvements, equipment that exclusively services the Premises, fixtures and
furnishings therein, in good order, repair and condition at all times during the
Lease Term, ordinary wear and tear excepted. In addition, Tenant shall, at
Tenant's own expense but under the supervision and subject to the prior approval
of Landlord, and within any reasonable period of time specified by Landlord,
promptly and adequately repair all damage to the Premises and replace or repair
all damaged or broken fixtures and appurtenances; provided however, that, at
Landlord's option, or if Tenant fails to make such repairs, Landlord may, but
need not, make such repairs and replacements, and Tenant shall pay Landlord the
cost thereof, including a percentage of the cost thereof (to be uniformly
established for the Building) sufficient to reimburse Landlord for all overhead,
general conditions, fees and other costs or expenses arising from Landlord's
involvement with such repairs and replacements forthwith upon being billed for
same. Landlord may, but shall not be required to, enter the Premises at all
reasonable times to make such repairs, alterations, improvements and additions
to the Premises or to the Building or to any equipment located in the Building
as Landlord shall desire or deem necessary or as Landlord may be required to do
by governmental or quasi-governmental authority or court order or decree.
Notwithstanding the foregoing, Landlord shall be responsible for maintaining in
good order, repair and condition the Common Areas, the exterior walls,
foundation and roof of the Building, the structural portions of the Building,
and the systems and equipment of the Building installed by Landlord pursuant to
Sections 1.1.1, 1.1.2, 1.1.7 and 1.1.8 of the Tenant Work Letter and the
elevators, except to the extent that such repairs are required due to the
negligence or willful misconduct of Tenant; provided, however, that if such
repairs are due to the negligence or willful misconduct of Tenant, Landlord
shall nevertheless make such repairs at Tenant's expense. Tenant hereby waives
and releases its right to make repairs at Landlord's expense under Subsection 1
of Section 1932 and Sections 1941 and 1942 of the California Civil Code, or
under any similar law, statute, or ordinance now or hereafter in effect.
8. ADDITIONS AND ALTERATIONS
8.1 Landlord's Consent to Alterations. Tenant may not make any
improvements, alterations, additions or changes to the Premises (collectively,
the "Alterations") without first procuring the prior written consent of Landlord
to such Alterations, which consent shall be requested by Tenant not less than
thirty (30) days prior to the commencement thereof, and which consent shall not
be unreasonably withheld or delayed by Landlord. The construction of the initial
improvements to the Premises shall be governed by the terms of the Tenant Work
Letter attached hereto as Exhibit B, and not the terms of this Article 8.
Notwithstanding the foregoing, Tenant shall have the right without Landlord's
prior consent to make Alterations costing, in aggregate, less than Ten Thousand
Dollars ($10,000) in any twelve-month period; provided that such Alterations do
not affect the Building's structure or systems and equipment, and provided
further that Tenant provides Landlord with prior written notice at least ten
(10) days before commencing such work (the "Alteration Notice").
8.2 Manner of Construction. Landlord may impose, as a condition of its
consent to all Alterations or repairs of the Premises or about the Premises,
such requirements as Landlord in its sole discretion may deem desirable,
including, but not limited to, the requirement that Tenant shall, at Tenant's
expense, remove such
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Alterations upon the expiration or any early termination of the Lease Term,
and/or the requirement that Tenant utilize for such purposes only contractors,
materials, mechanics and materialmen reasonably approved by Landlord. All work
with respect to any Alterations must be done in a good and workmanlike manner in
compliance with all applicable laws and with Landlord's construction rules and
regulations, and diligently prosecuted to completion to the end that the
Premises shall at all times be a complete unit except during the period of work.
In performing the work of any such Alterations, Tenant shall have the work
performed in such manner as not to obstruct access to the Building or the common
areas for any other tenant of the Building, and as not to obstruct the business
of Landlord or other tenants in the Building, or interfere with the labor force
working in the Building. In the event that Tenant makes any Alterations, Tenant
agrees to carry "Builder's All Risk" insurance in an amount approved by Landlord
covering the construction of such Alterations, and such other insurance as
Landlord may require, it being understood and agreed that all of such
Alterations shall be insured by Tenant pursuant to Article 10 of this Lease
immediately upon completion thereof. In addition, Landlord may, in its
discretion, require Tenant to obtain a lien and completion bond or some
alternative form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of such Alterations and naming Landlord as a
co-obligee. Upon completion of any Alterations, Tenant agrees to cause a Notice
of Completion to be recorded in the office of the Recorder of the county in
which the Building is located in accordance with Section 3093 of the Civil Code
of the State of California or any successor statute, and Tenant shall deliver to
the Building management office a reproducible copy of the "as built" drawings of
the Alterations.
8.3 Payment for Improvements. In the event Tenant orders any Alteration
or repair work directly from Landlord, the charges for such work shall be deemed
Additional Rent under this Lease, payable upon billing therefor, either
periodically during construction or upon the substantial completion of such
work, at Landlord's option. Upon completion of such work, Tenant shall deliver
to Landlord, if payment is made directly to contractors, evidence of payment,
contractors' affidavits and full and final waivers of all liens for labor,
services or materials. Whether or not Tenant orders any work directly from
Landlord, Tenant shall pay to Landlord a percentage of the cost of such work
(such percentage, which shall vary depending upon whether or not Tenant orders
the work directly from Landlord, to be established on a uniform basis for the
Building) sufficient to compensate Landlord for all overhead, general
conditions, fees and other costs and expenses arising from Landlord's
involvement with such work.
8.4 Landlord's Property. All Alterations, improvements, fixtures and/or
permanently affixed equipment which may be installed or placed in or about the
Premises, and all signs installed in, on or about the Premises, from time to
time, shall be at the sole cost of Tenant and shall be and become the property
of Landlord. Furthermore, as a condition to Landlord's approval of any
Alteration, Landlord may, by written notice to Tenant at the time Landlord so
approves the Alteration, require Tenant at Tenant's expense to remove such
Alteration, and to repair any damage to the Premises and Building caused by such
removal, upon expiration of the Lease Term or upon any earlier termination of
this Lease. If Tenant fails to complete such removal and/or to repair any damage
caused by the removal of any Alterations, Landlord may do so and may charge the
cost thereof to Tenant. Tenant hereby indemnifies and holds Landlord harmless
from any liability, cost, obligation, expense or claim of lien in any manner
relating to the installation, placement, removal or financing of any such
Alterations, improvements, fixtures and/or equipment in, on or about the
Premises.
9. COVENANT AGAINST LIENS Tenant has no authority or power to cause or permit
any lien or encumbrance of any kind whatsoever, whether created by act of
Tenant, operation of law or otherwise, to attach to or be placed upon the Real
Property, Building or Premises, and any and all liens and encumbrances created
by Tenant shall attach to Tenant's interest only. Landlord shall have the right
at all times to post and keep posted on the Premises any notice which it deems
necessary for protection from such liens. Tenant covenants and agrees not to
suffer or permit any lien of mechanics or materialmen or others to be placed
against the Real Property, the Building or the Premises with respect to work or
services claimed to have been performed for or materials claimed to have been
furnished to Tenant or the Premises, and, in case of any such lien attaching or
notice of any lien, Tenant covenants and agrees to cause it to be immediately
released and removed of record. Notwithstanding anything to the contrary set
forth in this Lease, in the event that such lien is not released and removed on
or before the date notice of such lien is delivered by Landlord to Tenant,
Landlord, at its sole option, may immediately take all action necessary to
release and remove such lien, without any duty to investigate the validity
thereof, and all sums, costs and expenses, including reasonable attorneys' fees
and costs, incurred by Landlord in connection with such lien shall be deemed
Additional Rent under this Lease and shall immediately be due and payable by
Tenant.
10. INSURANCE
10.1 Indemnification and Waiver. To the extent not prohibited by law,
Landlord, its partners and their respective officers, agents, servants,
employees, and independent contractors (collectively, "Landlord Parties") shall
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not be liable for any damage either to person or property or resulting from the
loss of use thereof, which damage is sustained by Tenant or by other persons
claiming through Tenant. Tenant shall indemnify, defend, protect, and hold
harmless Landlord Parties from any and all loss, cost, damage, expense and
liability (including without limitation court costs and reasonable attorneys'
fees) incurred in connection with or arising from any cause in, on or about the
Premises during Tenant's occupancy of the Premises, including during
construction of the Tenant Improvements, as defined in the Tenant Work Letter,
provided that the terms of the foregoing indemnity shall not apply to the gross
negligence or willful misconduct of Landlord. Landlord shall indemnify, defend,
protect and hold harmless Tenant, its officers, contractors, agents and
employees, from any and all loss, cost, damage, expense and liability (including
without limitation court costs and reasonable attorneys' fees) to the extent
incurred in connection with or arising from the gross negligence or willful
misconduct of Landlord, its agents, employees or contractors. The provisions of
this Section 10.1 shall survive the expiration or sooner termination of this
Lease with respect to any claims or liability occurring prior to such expiration
or termination.
10.2 Tenant's Compliance with Landlord's Fire and Casualty Insurance.
Tenant shall, at Tenant's expense, comply as to the Premises with all insurance
company requirements pertaining to the use of the Premises. If Tenant's conduct
or use of the Premises causes any increase in the premium for such insurance
policies, then Tenant shall reimburse Landlord for any such increase. Tenant, at
Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and with any similar body.
10.3 Tenant's Insurance. Tenant shall maintain Commercial General
Liability Insurance covering the insured against claims of bodily injury,
personal injury and property damage arising out of Tenant's operations, assumed
liabilities or use of the Premises, including a Broad Form Commercial General
Liability endorsement covering the insuring provisions of this Lease and the
performance by Tenant of the indemnity agreements set forth in Section 10.1 of
this Lease, for limits of liability not less than $2,000,000.00 for each
occurrence and $2,000,000.00 annual aggregate, with 0% Insured's participation.
In addition, Tenant shall carry Physical Damage Insurance covering (i) all
office furniture, trade fixtures, office equipment, merchandise and all other
items of Tenant's property on the Premises installed by, for, or at the expense
of Tenant, and (ii) all other improvements, alterations and additions to the
Premises, including any improvements, alterations or additions installed at
Tenant's request above the ceiling of the Premises or below the floor of the
Premises, but only to the extent that the cost of the same is in excess of the
Tenant Improvement Allowance. Such insurance shall be written on an "all risks"
of physical loss or damage basis, for the full replacement cost value new
without deduction for depreciation of the covered items and in amounts that meet
any co-insurance clauses of the policies of insurance and shall include a
vandalism and malicious mischief endorsement, sprinkler leakage coverage and
earthquake sprinkler leakage coverage.
10.4 Form of Policies. The minimum limits of policies of insurance
required of Tenant under this Lease shall in no event limit the liability of
Tenant under this Lease. Such insurance shall (i) name Landlord, and any other
party it so specifies, as an additional insured; (ii) specifically cover the
liability assumed by Tenant under this Lease, including, but not limited to,
Tenant's obligations under Section 10.1 of this Lease; (iii) be issued by an
insurance company having a rating of not less than A-VIII in Best's Insurance
Guide or which is otherwise acceptable to Landlord and licensed to do business
in the state in which the Building is located; (iv) be primary insurance as to
all claims thereunder and provide that any insurance carried by Landlord is
excess and is non-contributing with any insurance requirement of Tenant; (v)
provide that said insurance shall not be canceled or coverage changed unless
thirty (30) days' prior written notice shall have been given to Landlord and any
mortgagee or ground or underlying lessor of Landlord. Tenant shall deliver said
policy or policies or certificates thereof to Landlord on or before the Lease
Commencement Date and at least thirty (30) days before the expiration dates
thereof. In the event Tenant shall fail to procure such insurance, or to deliver
such policies or certificate, Landlord may, at its option, procure such policies
for the account of Tenant, and the cost thereof shall be paid to Landlord as
Additional Rent within five (5) days after delivery to Tenant of bills therefor.
10.5 Subrogation. Landlord and Tenant agree to have their respective
insurance companies issuing property damage insurance waive any rights of
subrogation that such companies may have against Landlord or Tenant, as the case
may be, so long as the insurance carried by Landlord and Tenant, respectively,
is not invalidated thereby. As long as such waivers of subrogation are contained
in their respective insurance policies, Landlord and Tenant hereby waive any
right that either may have against the other on account of any loss or damage to
their respective property to the extent such loss or damage is insurable under
policies of insurance for fire and all risk coverage, theft, public liability,
or other similar insurance.
10.6 Additional Insurance Obligations. Tenant shall carry and maintain
during the entire Lease Term, at Tenant's sole cost and expense, increased
amounts of the insurance required to be carried by Tenant pursuant to
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this Article 10, and such other reasonable types of insurance coverage and in
such reasonable amounts covering the Premises and Tenant's operations therein,
as may be reasonably requested by Landlord.
10.7 Landlord's Insurance. Landlord shall maintain commercial property
insurance on the Real Property. Such insurance shall be maintained with an
insurance company in good standing in the state where the Real Property is
located, in amounts determined by Landlord or required by any holder of a
mortgage or other security instrument or the lessor of any ground lease, but at
least in such amounts and with such coverage as is typical for buildings of a
similar type and use in the downtown/media gulch area of San Francisco,
California.
11. DAMAGE AND DESTRUCTION
11.1 Repair of Damage to Premises by Landlord. If the Premises or any
common areas of the Building serving or providing access to the Premises shall
be damaged by fire or other casualty, Landlord shall promptly and diligently,
subject to reasonable delays for insurance adjustment or other matters beyond
Landlord's reasonable control, and subject to all other terms of this Article
11, restore the base, shell and core of the Premises and such common areas. Such
restoration shall be to substantially the same condition of the base, shell and
core of the Premises and common areas prior to the casualty, except for
modifications required by zoning and building codes and other laws or by the
holder of a mortgage on the Building, or the lessor of a ground or underlying
lease with respect to the Real Property and/or the Building, or any other
modifications to the common areas deemed desirable by Landlord, provided access
to the Premises and any common restrooms serving the Premises shall not be
materially impaired. Notwithstanding any other provision of this Lease, upon the
occurrence of any damage to the Premises, Tenant shall assign to Landlord (or to
any party designated by Landlord) all insurance proceeds payable to Tenant under
Tenant's insurance carried under Section 10.3 of this Lease (other than Tenant's
personal property), and Landlord shall repair any injury or damage to the Tenant
Improvements installed in the Premises and shall return such Tenant Improvements
to their original condition; provided that if the cost of such repair by
Landlord exceeds the amount of insurance proceeds received by Landlord from
Tenant's insurance carrier, as assigned by Tenant, the cost of such repairs
shall be paid by Tenant to Landlord prior to Landlord's repair of the damage. In
connection with such repairs and replacements, Tenant shall, prior to the
commencement of construction, submit to Landlord, for Landlord's review and
approval, all plans, specifications and working drawings relating thereto, and
Landlord shall select the contractors to perform such improvement work. Landlord
shall not be liable for any inconvenience or annoyance to Tenant or its
visitors, or injury to Tenant's business resulting in any way from such damage
or the repair thereof; provided however, that if such fire or other casualty
shall have damaged the Premises or common areas necessary to Tenant's occupancy,
and if such damage is not the result of the willful misconduct of Tenant or
Tenant's employees, contractors, licensees, or invitees, Landlord shall allow
Tenant a proportionate abatement of Rent, during the time and to the extent the
Premises are unfit for occupancy for the purposes permitted under this Lease,
and not occupied by Tenant as a result thereof. Notwithstanding anything to the
contrary contained herein, if (i) Landlord fails to deliver to Tenant a written
estimate within forty-five (45) days from the date of discovery of the damage
that the repairs required to be made are reasonably estimated to take more no
more than one hundred eighty (180) days from such date of discovery to complete,
or (ii) the repairs have not been completed (aside from minor, punch-list items)
within one hundred eighty (180) days from the date of discovery of the damage,
then, in either such event, Tenant may elect to terminate this Lease, by
notifying Landlord in writing of such termination (a) within thirty (30) days of
receipt of Landlord's estimate (or the lapse of the 45-day response period, as
applicable); or (b) within thirty (30) days after the lapse of the 180-day
repair period (unless the repairs have been completed by the date of Tenant's
termination notice, in which event the termination shall be void). In such
event, this Lease shall terminate as of the date of Tenant's termination notice,
and the respective rights and obligations of the parties shall be as specified
in the final sentence of Section 11.2 below. Landlord agrees to use commercially
reasonable efforts to timely discover damage to the Premises or the Building
caused by fire or other casualty.
11.2 Landlord's Option to Repair. Notwithstanding the terms of Section
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises and/or Building and instead terminate this Lease by notifying Tenant in
writing of such termination within forty-five (45) days after the date of
discovery of such damage, such notice to include a termination date giving
Tenant ninety (90) days to vacate the Premises, but Landlord may so elect only
if the Building shall be damaged by fire or other casualty or cause, whether or
not the Premises are affected, and one or more of the following conditions is
present: (i) repairs cannot reasonably be completed within one hundred eighty
(180) days of the date of discovery of damage (when such repairs are made
without the payment of overtime or other premiums); (ii) the holder of any
mortgage on the Building or ground or underlying lessor with respect to the Real
Property and/or the Building shall require that the insurance proceeds or any
portion thereof be used to retire the mortgage debt, or shall terminate the
ground or underlying lease, as the case may be; or (iii) the damage is not fully
covered, except for deductible amounts, by Landlord's insurance policies, where
such uncovered damage would cost more than One Hundred Thousand Dollars
($100,000) to repair. In addition, in the event that the
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Premises or the Building is destroyed or damaged to any substantial extent
during the last twelve (12) months of the Lease Term, then notwithstanding
anything contained in this Article 11, Landlord shall have the option to
terminate this Lease by giving written notice to Tenant of the exercise of such
option within thirty (30) days after the date of such damage or destruction, in
which event this Lease shall cease and terminate as of the date of such notice.
Upon any such termination of this Lease pursuant to this Section 11.2, Tenant
shall pay the Base Rent and Additional Rent, properly apportioned up to such
date of termination, and both parties hereto shall thereafter be freed and
discharged of all further obligations hereunder, except as provided for in
provisions of this Lease which by their terms survive the expiration or earlier
termination of the Lease Term.
11.3 Waiver of Statutory Provisions. The provisions of this Lease,
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or any other portion of the Real Property, and any
statute or regulation of the state in which the Building is located, including,
without limitation, Sections 1932(2) and 1933(4) of the California Civil Code,
with respect to any rights or obligations concerning damage or destruction in
the absence of an express agreement between the parties, and any other statute
or regulation, now or hereafter in effect, shall have no application to this
Lease or any damage or destruction to all or any part of the Premises, the
Building or any other portion of the Real Property.
12. NONWAIVER No waiver of any provision of this Lease shall be implied by (i)
any failure of either party to insist in any instance on the strict keeping,
observance or performance of any covenant or agreement contained in this Lease
or exercise any election contained in this Lease, or (ii) any failure of either
party to enforce any remedy on account of the violation of such provision, even
if such violation shall continue or be repeated subsequently. Any waiver by
either party of any provision of this Lease may only be in writing, and no
express waiver shall affect any provision other than the one specified in such
waiver and that one only for the time and in the manner specifically stated.
13. CONDEMNATION If the whole or any part of the Premises or Building shall be
taken by power of eminent domain or condemned by any competent authority for any
public or quasi-public use or purpose, or if any adjacent property or street
shall be so taken or condemned, or reconfigured or vacated by such authority in
such manner as to require the use, reconstruction or remodeling of any part of
the Premises or Building, or if Landlord shall grant a deed or other instrument
in lieu of such taking by eminent domain or condemnation, Landlord shall have
the option to terminate this Lease upon ninety (90) days' notice, provided such
notice is given no later than one hundred eighty (180) days after the date of
such taking, condemnation, reconfiguration, vacation, deed or other instrument.
If more than twenty-five percent (25%) of the rentable square feet of the
Premises is taken, or if access to or Tenant's use of the Premises is
substantially impaired, Tenant shall have the option to terminate this Lease
upon ninety (90) days' notice, provided such notice is given no later than one
hundred eighty (180) days after the date of such taking. Landlord shall be
entitled to receive the entire award or payment in connection therewith, except
that Tenant shall have the right to file any separate claim available to Tenant
for any taking of Tenant's personal property and fixtures belonging to Tenant
and removable by Tenant upon expiration of the Lease Term pursuant to the terms
of this Lease, and for moving expenses, so long as such claim does not diminish
the award available to Landlord, its ground lessor with respect to the Real
Property or its mortgagee, and such claim is payable separately to Tenant. All
Rent shall be apportioned as of the date of such termination, or the date of
such taking, whichever shall first occur. If any part of the Premises shall be
taken, and this Lease shall not be so terminated, the Rent shall be
proportionately abated. Tenant hereby waives any and all rights it might
otherwise have pursuant to Section 1265.130 of the California Code of Civil
Procedure.
14. ASSIGNMENT AND SUBLETTING
14.1 Transfers. Except as provided in Section 14.7 below, Tenant shall
not, without the prior written consent of Landlord which consent shall not be
unreasonably withheld or delayed, assign, mortgage, pledge, encumber or
otherwise transfer, this Lease or any interest hereunder, permit any assignment
or other such foregoing transfer of this Lease or any interest hereunder by
operation of law, or sublet the Premises or any part thereof (all of the
foregoing are hereinafter sometimes referred to collectively as "Transfers" and
any person to whom any Transfer is made or sought to be made is hereinafter
sometimes referred to as a "Transferee"). To request Landlord's consent to any
Transfer, Tenant shall notify Landlord in writing, which notice (the "Transfer
Notice") shall include (i) the proposed effective date of the Transfer, which
shall not be less than forty-five (45) days after the date of delivery of the
Transfer Notice, (ii) a description of the portion of the Premises to be
transferred (the "Subject Space"), (iii) all of the terms of the proposed
Transfer and the consideration therefor, including a calculation of the
"Transfer Premium," as that term is defined in Section 14.3 below, in connection
with such Transfer, the name and address of the proposed Transferee, and a copy
of all existing and/or proposed documentation pertaining to the
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proposed Transfer, including all existing operative documents to be executed to
evidence such Transfer or the agreements incidental or related to such Transfer,
and (iv) current financial statements of the proposed Transferee certified by an
officer, partner or owner thereof, and any other information required by
Landlord, which will enable Landlord to determine the financial responsibility,
character, and reputation of the proposed Transferee, nature of such
Transferee's business and proposed use of the Subject Space, and such other
information as Landlord may reasonably require. Any Transfer made without
Landlord's prior written consent shall, at Landlord's option, be null, void and
of no effect, and shall, at Landlord's option, constitute a default by Tenant
under this Lease. Whether or not Landlord shall grant consent, Tenant shall pay
Landlord's review and processing fees, as well as any reasonable legal fees
incurred by Landlord, within thirty (30) days after written request by Landlord.
14.2 Landlord's Consent. Landlord shall respond to a Transfer request
within fifteen (15) business days following receipt of the Transfer Notice
(including all items specified in clauses (i) through (iv) of Section 14.1
above). Landlord shall not unreasonably withhold its consent to any proposed
Transfer of the Subject Space to the Transferee on the terms specified in the
Transfer Notice. The parties hereby agree that it shall be reasonable under this
Lease and under any applicable law for Landlord to withhold consent to any
proposed Transfer where one or more of the following apply, without limitation
as to other reasonable grounds for withholding consent:
14.2.1 The Transferee is of a character or reputation or engaged
in a business which is not consistent with the quality of the Building;
14.2.2 The Transferee intends to use the Subject Space for
purposes which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or
instrumentality thereof;
14.2.4 The Transferee is not a party of reasonable financial
worth and/or financial stability in light of the responsibilities involved under
the Lease which are assumed pursuant to the terms of the Transfer on the date
consent is requested; or
14.2.5 The proposed Transfer would cause Landlord to be in
violation of another lease or agreement to which Landlord is a party, or would
give an occupant of the Building a right to cancel its lease;
14.2.6 The terms of the proposed Transfer will allow the
Transferee to exercise a right of renewal, right of expansion, right of first
offer, or other similar right held by Tenant (or will allow the Transferee to
occupy space leased by Tenant pursuant to any such right);
14.2.7 Either the proposed Transferee, or any person or entity
which directly or indirectly, controls, is controlled by, or is under common
control with, the proposed Transferee, (i) occupies space in the Building at the
time of the request for consent, (ii) is negotiating with Landlord to lease
space in the Building at such time, or (iii) has negotiated with Landlord during
the twelve (12)-month period immediately preceding the Transfer Notice.
If Landlord consents to any Transfer pursuant to the terms of this
Section 14.2 (and does not exercise any recapture rights Landlord may have under
Section 14.4 of this Lease), Tenant may within six (6) months after Landlord's
consent, but not later than the expiration of said six-month period, enter into
such Transfer of the Premises or portion thereof, upon substantially the same
terms and conditions as are set forth in the Transfer Notice furnished by Tenant
to Landlord pursuant to Section 14.1 of this Lease. Notwithstanding the
foregoing, Landlord hereby approves Tessera Enterprise Systems, a Massachusetts
corporation, and Brigade Solutions, Inc., a California corporation, as
Transferees; provided, however, that the applicable sublease is executed by or
before January 1, 2000.
14.3 Transfer Premium. If Landlord consents to a Transfer, as a
condition thereto which the parties hereby agree is reasonable, Tenant shall pay
to Landlord seventy-five percent (75%) of any "Transfer Premium," as that term
is defined in this Section 14.3, received by Tenant from such Transferee.
"Transfer Premium" shall mean all rent, additional rent or other consideration
payable by such Transferee in excess of the Rent and Additional Rent payable by
Tenant under this Lease on a per rentable square foot basis if less than all of
the Premises is transferred, after deducting the reasonable expenses incurred by
Tenant for (i) any changes, alterations and improvements to the Premises in
connection with the Transfer, and (ii) attorneys' fees and brokerage commissions
in connection with the Transfer. "Transfer Premium" shall also include, but not
be limited to, key money and bonus money paid by
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Transferee to Tenant in connection with such Transfer, and any payment in excess
of fair market value for services rendered by Tenant to Transferee or for
assets, fixtures, inventory, equipment, or furniture transferred by Tenant to
Transferee in connection with such Transfer. Notwithstanding the foregoing, no
Transfer Premium shall be due in connection with any Transfer to an Affiliate
pursuant to Section 14.7 below.
14.4 Landlord's Option as to Subject Space. Notwithstanding anything to
the contrary contained in this Article 14, if Tenant desires to sublease or
assign the entire Premises (other than pursuant to Section 14.7 below), then
Landlord shall have the option, by giving written notice to Tenant within
fifteen (15) business days after receipt of any Transfer Notice (including all
items specified in clauses (i) through (iv) of Section 14.1 above), to recapture
the Subject Space. Such recapture notice shall cancel and terminate this Lease
with respect to the Subject Space as of the effective date of the proposed
Transfer.
14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the
terms and conditions of this Lease shall in no way be deemed to have been waived
or modified, (ii) such consent shall not be deemed consent to any further
Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to
Landlord, promptly after execution, an original executed copy of all
documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, (iv) Tenant shall furnish upon Landlord's request a complete
statement, certified by an independent certified public accountant, or Tenant's
chief financial officer, setting forth in detail the computation of any Transfer
Premium Tenant has derived and shall derive from such Transfer, and (v) no
Transfer relating to this Lease or agreement entered into with respect thereto,
whether with or without Landlord's consent, shall relieve Tenant or any
guarantor of the Lease from liability under this Lease. Landlord or its
authorized representatives shall have the right at all reasonable times to audit
the books, records and papers of Tenant relating to any Transfer, and shall have
the right to make copies thereof. If the Transfer Premium respecting any
Transfer shall be found understated, Tenant shall, within thirty (30) days after
demand, pay the deficiency and Landlord's costs of such audit, and if
understated by more than ten percent (10%), Landlord shall have the right to
cancel this Lease upon thirty (30) days' notice to Tenant.
14.6 Additional Transfers. Except as provided in Section 14.7 below, for
purposes of this Lease, the term "Transfer" shall also include (i) if Tenant is
a partnership, the withdrawal or change, voluntary, involuntary or by operation
of law, of twenty-five percent (25%) or more of the partners, or transfer of
twenty-five percent or more of partnership interests, within a twelve (12)-month
period, or the dissolution of the partnership without immediate reconstitution
thereof, and (ii) if Tenant is a closely held corporation (i.e., whose stock is
not publicly held and not traded through an exchange or over the counter), (A)
the dissolution, merger, consolidation or other reorganization of Tenant, (B)
the sale or other transfer of more than an aggregate of twenty-five percent
(25%) of the voting shares of Tenant (other than to immediate family members by
reason of gift or death), within a twelve (12)-month period, or (C) the sale,
mortgage, hypothecation or pledge of more than an aggregate of twenty-five
percent (25%) of the value of the unencumbered assets of Tenant within a twelve
(12) month period.
14.7 Non-Transfers. Notwithstanding anything to the contrary contained
in this Article 14, an assignment of this Lease or subletting by Tenant of all
or a portion of the Premises to (i) a parent or subsidiary of Tenant, or (ii)
any person or entity which controls, is controlled by or under common control
with Tenant, or (iii) any entity which purchases all or substantially all of the
assets or stock of Tenant, or (iv) any entity into which Tenant is merged or
consolidated or which merges into Tenant (all such persons or entities described
in (i), (ii), (iii) and (iv) being sometimes hereinafter referred to as
"Affiliates"), shall not require Landlord's consent and shall not be deemed a
Transfer under this Article 14, provided that (a) any such Affiliate was not
formed as a subterfuge to avoid the obligations of this Article 14; (b) Tenant
gives Landlord at least thirty (30) days' prior written notice of any such
assignment or sublease to an Affiliate; (c) the successor of Tenant has, as of
the effective date of any such assignment or sublease, a tangible net worth,
computed in accordance with generally accepted accounting principles (but
excluding goodwill as an asset), which is equal to or greater than the net worth
of Tenant as of the date of execution of this Lease; (d) any such assignment or
sublease shall be subject and subordinate to all of the terms and provisions of
this Lease, and such Affiliate shall assume, in a written document reasonably
satisfactory to Landlord and, if commercially practicable, delivered to Landlord
upon or prior to the effective date of such assignment or sublease (but, in any
event, delivered to Landlord no later than thirty (30) days following the
effective date of such assignment or sublease), all the obligations of Tenant
under this Lease; and (e) Tenant and any guarantor shall remain fully liable for
all obligations to be performed by Tenant under this Lease. The sale of stock
pursuant to a public offering shall not constitute a Transfer under this Section
14.
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15. OWNERSHIP AND REMOVAL OF TRADE FIXTURES
15.1 Surrender of Premises. No act or thing done by Landlord or any
agent or employee of Landlord during the Lease Term shall be deemed to
constitute an acceptance by Landlord of a surrender of the Premises unless such
intent is specifically acknowledged in a writing signed by Landlord. The
delivery of keys to the Premises to Landlord or any agent or employee of
Landlord shall not constitute a surrender of the Premises or effect a
termination of this Lease, whether or not the keys are thereafter retained by
Landlord, and notwithstanding such delivery Tenant shall be entitled to the
return of such keys at any reasonable time upon request until this Lease shall
have been properly terminated.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15 and Section 8.4 above, quit and surrender
possession of the Premises to Landlord in as good order and condition as when
Tenant took possession and as thereafter improved by Landlord and/or Tenant,
reasonable wear and tear and damage by casualty excepted. Upon such expiration
or termination, Tenant shall, without expense to Landlord, remove or cause to be
removed from the Premises all debris and rubbish, and such items of furniture,
equipment, free-standing cabinet work, and other articles of personal property
owned by Tenant or installed or placed by Tenant at its expense in the Premises,
and such similar articles of any other persons claiming under Tenant, as
Landlord may, in its sole discretion, require to be removed, and Tenant shall
repair at its own expense all damage to the Premises and Building resulting from
such removal.
16. HOLDING OVER If Tenant holds over after the expiration of the Lease Term
hereof, with or without the express or implied consent of Landlord, such tenancy
shall be from month-to-month only, and shall not constitute a renewal hereof or
an extension for any further term, and in such case Base Rent shall be payable
at a monthly rate equal to one hundred fifty percent (150%) of the Base Rent
applicable during the last rental period of the Lease Term under this Lease.
Such month-to-month tenancy shall be subject to every other term, covenant and
agreement contained herein. Nothing contained in this Article 16 shall be
construed as consent by Landlord to any holding over by Tenant, and Landlord
expressly reserves the right to require Tenant to surrender possession of the
Premises to Landlord as provided in this Lease upon the expiration or other
termination of this Lease. The provisions of this Article 16 shall not be deemed
to limit or constitute a waiver of any other rights or remedies of Landlord
provided herein or at law. If Tenant fails to surrender the Premises upon the
termination or expiration of this Lease, in addition to any other liabilities to
Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold
Landlord harmless from all loss, costs (including reasonable attorneys' fees)
and liability resulting from such failure, including, without limiting the
generality of the foregoing, any claims made by any succeeding tenant founded
upon such failure to surrender, and any lost profits to Landlord resulting
therefrom.
17. ESTOPPEL CERTIFICATES Within ten (10) business days following a request in
writing by Landlord, Tenant shall execute and deliver to Landlord an estoppel
certificate, which, as submitted by Landlord, shall be substantially in the form
of Exhibit E, attached hereto (or such other form as may be required by any
prospective mortgagee or purchaser of the Real Property, or any portion
thereof), indicating therein any exceptions thereto that may exist at that time,
and shall also contain any other information reasonably requested by Landlord or
Landlord's mortgagee or prospective mortgagee. Tenant shall execute and deliver
whatever other instruments may be reasonably required for such purposes. Failure
of Tenant to timely execute and deliver such estoppel certificate or other
instruments shall constitute an acceptance of the Premises and an acknowledgment
by Tenant that statements included in the estoppel certificate are true and
correct, without exception. Within ten (10) business days following a request in
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writing by Tenant, Landlord shall execute and deliver to Tenant an estoppel
certificate in a form reasonably acceptable to Landlord.
18. SUBORDINATION This Lease is subject and subordinate to all present and
future ground or underlying leases of the Real Property and to the lien of any
mortgages or trust deeds, now or hereafter in force against the Real Property
and the Building, if any, and to all renewals, extensions, modifications,
consolidations and replacements thereof, and to all advances made or hereafter
to be made upon the security of such mortgages or trust deeds, unless the
holders of such mortgages or trust deeds, or the lessors under such ground lease
or underlying leases, require in writing that this Lease be superior thereto.
Notwithstanding the foregoing, the subordination of this Lease to any mortgage,
trust deed or other encumbrance or any ground or underlying lease is subject to
Tenant's receipt of a commercially reasonable non-disturbance agreement from the
holder of such mortgage or other instrument or such ground or underlying lease
in a form reasonably satisfactory to Tenant. Tenant covenants and agrees in the
event any proceedings are brought for the foreclosure of any such mortgage, or
if any ground or underlying lease is terminated, to attorn, without any
deductions or set-offs whatsoever, to the purchaser upon any such foreclosure
sale, or to the lessor of such ground or underlying lease, as the case may be,
if so requested to do so by such purchaser or lessor, and to recognize such
purchaser or lessor as the lessor under this Lease, provided that such purchaser
or lessor agrees that Tenant's use and possession of the Premises pursuant to
the terms of this Lease shall not be disturbed so long as Tenant is not in
default under this Lease. Tenant shall, within ten (10) business days of request
by Landlord, execute such further instruments or assurances as Landlord may
reasonably deem necessary to evidence or confirm the subordination or
superiority of this Lease to any such mortgages, trust deeds, ground leases or
underlying leases. Tenant hereby irrevocably authorizes Landlord to execute and
deliver in the name of Tenant any such instrument or instruments if Tenant fails
to do so, provided that such authorization shall in no way relieve Tenant from
the obligation of executing such instruments of subordination or superiority.
Tenant waives the provisions of any current or future statute, rule or law which
may give or purport to give Tenant any right or election to terminate or
otherwise adversely affect this Lease and the obligations of the Tenant
hereunder in the event of any foreclosure proceeding or sale. Within sixty (60)
days after the Lease Commencement Date, Landlord shall provide to Tenant a
commercially reasonable non-disturbance agreement from the holder of the then
existing deed of trust on the Real Property, provided that Tenant executes such
subordination, non-disturbance and attornment agreement as may be required by
such lender.
19. DEFAULTS; REMEDIES
19.1 Events of Default. The occurrence of any of the following shall
constitute a default under this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due; provided,
however, that Tenant shall have a grace period of three (3) days from the date
of receipt of written notice from Landlord within which to cure any failure in
the payment of Rent, except that Landlord shall not be required to provide such
notice, and such 3-day grace period shall not apply, more than twice during any
twelve (12) month period;
19.1.2 Any failure by Tenant to respond to Landlord's request
under Article 17 or 18 within the time permitted therein for such response; or
19.1.3 Any failure by Tenant to observe or perform any other
provision, covenant or condition of this Lease to be observed or performed by
Tenant where such failure continues for thirty (30) days after written notice
thereof from Landlord to Tenant; provided however, that any such notice shall be
in lieu of, and not in addition to, any notice required under California Code of
Civil Procedure Section 1161 or any similar or successor law; and provided
further that if the nature of such default is such that the same cannot
reasonably be cured within a thirty (30)-day period, Tenant shall not be deemed
to be in default if it diligently commences such cure within such period and
thereafter diligently proceeds to rectify and cure said default as soon as
possible; or
19.1.4 Abandonment (for a period in excess of thirty (30) days),
vacation or surrender of the Premises by Tenant.
19.2 Remedies Upon Default. Upon the occurrence of any event of default
by Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity, the option to pursue any one or more of the
following remedies, each and all of which shall be cumulative and nonexclusive,
without any notice or demand whatsoever.
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19.2.1 Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession or arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or damages therefor; and Landlord may recover from Tenant the following: (i) the
worth at the time of award of any unpaid rent which has been earned at the time
of such termination; plus (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; plus (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the Lease Term after the time
of award exceeds the amount of such rental loss that Tenant proves could have
been reasonably avoided; plus (iv) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom, specifically including but not limited to,
brokerage commissions and advertising expenses incurred, expenses of remodeling
the Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and (v)
at Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others. As used in Paragraphs 19.2.1(i)
and (ii), above, the "worth at the time of award" shall be computed by allowing
interest at the rate set forth in Article 25 of this Lease, but in no case
greater than the maximum amount of such interest permitted by law. As used in
Paragraph 19.2.1(iii) above, the "worth at the time of award" shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California
Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's
breach and abandonment and recover rent as it becomes due, if lessee has the
right to sublet or assign, subject only to reasonable limitations). Accordingly,
if Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.3 Sublessees of Tenant. Whether or not Landlord elects to terminate
this Lease on account of any default by Tenant, as set forth in this Article 19,
Landlord shall have the right to terminate any and all subleases, licenses,
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or arrangements.
In the event of Landlord's election to succeed to Tenant's interest in any such
subleases, licenses, concessions or arrangements, Tenant shall, as of the date
of notice by Landlord of such election, have no further right to or interest in
the rent or other consideration receivable thereunder.
19.4 Waiver of Default. No waiver by Landlord or Tenant of any violation
or breach of any of the terms, provisions and covenants herein contained shall
be deemed or construed to constitute a waiver of any other or later violation or
breach of the same or any other of the terms, provisions, and covenants herein
contained. Forbearance by Landlord in enforcement of one or more of the remedies
herein provided upon an event of default shall not be deemed or construed to
constitute a waiver of such default. The acceptance of any Rent hereunder by
Landlord following the occurrence of any default, whether or not known to
Landlord, shall not be deemed a waiver of any such default, except only a
default in the payment of the Rent so accepted.
19.5 Landlord Default. Any failure by Landlord to observe or perform any
provision, covenant or condition of this Lease to be observed or performed by
Landlord, where such failure continues for thirty (30) days after written notice
thereof from Tenant to Landlord, shall constitute a default under this Lease by
Landlord; provided, however, if the nature of such default is such that the same
cannot reasonably be cured within a thirty (30) day period, Landlord shall not
be deemed to be in default if it diligently commences such cure within such
period and thereafter diligently proceeds to rectify and cure said default as
soon as possible.
20. FORCE MAJEURE Any prevention, delay or stoppage due to strikes, lockouts,
labor disputes, acts of God, inability to obtain services, labor, or materials
or reasonable substitutes therefor, governmental actions, civil commotions, fire
or other casualty, and other causes beyond the reasonable control of the party
obligated to perform, except with respect to the obligations imposed with regard
to Rent and other charges to be paid by Tenant
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pursuant to this Lease (collectively, the "Force Majeure"), notwithstanding
anything to the contrary contained in this Lease, shall excuse the performance
of such party for a period equal to any such prevention, delay or stoppage and,
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
21. LETTER OF CREDIT Within fifteen (15) business days after execution of this
Lease by both Landlord and Tenant, Tenant shall deliver to Landlord an
irrevocable standby letter of credit in the amount of Two Million Dollars
($2,000,000.00) (the "Letter of Credit") as security for the faithful
performance by Tenant of its obligations under this Lease. The Letter of Credit
shall be upon the terms and subject to the following provisions of this Section
21.
21.1 Application of Letter of Credit. If Tenant fails to pay Rent or
other charges due hereunder (and such failure constitutes a default under this
Lease), or otherwise defaults with respect to any provision of this Lease, in
addition to any other rights held by Landlord, Landlord may draw upon and apply
such portion of the Letter of Credit as is necessary to satisfy the payment of
any Rent or other charge in default, or for the payment of any other sum to
which Landlord may become obligated by reason of Tenant's default, or to
compensate Landlord for any loss or damage which Landlord may suffer thereby. If
any portion of the Letter of Credit is so applied, Tenant shall, within fifteen
(15) business days after written demand therefor, provide a replacement or
supplemental letter of credit to bring the face amount of the then available
letter of credit to its then required amount, and Tenant's failure to do so
shall be a non-curable default under this Lease.
21.2 Terms of Letter of Credit. The Letter of Credit shall commence
within fifteen (15) business days of the date of execution of this Lease and
Tenant shall renew the Letter of Credit from time to time through the Lease
Term, at least thirty (30) days prior to the expiration thereof and deliver to
Landlord a new Letter of Credit or an endorsement to the Letter of Credit and
any other evidence required by Landlord that the Letter of Credit has been
renewed. If Tenant has not provided to Landlord evidence of such renewal thirty
(30) days prior to the expiration thereof, then Landlord shall have the right to
draw on the Letter of Credit pursuant to this Section 21 and hold such amount as
a security deposit, pursuant to Section 22 below. The Letter of Credit shall be
(i) issued by a bank reasonably approved by Landlord ("Bank") and "callable" by
Landlord through a branch office of the Bank located in San Francisco,
California, and (ii) in a form containing the required provisions set forth in
Sections 21.2.1 through 21.2.4 below. The premium or purchase price of, or any
other Bank fees associated with, such Letter of Credit shall be paid by Tenant.
The Letter of Credit shall, without limiting the foregoing, provide that:
21.2.1 Such Letter of Credit shall expressly permit partial draws
and shall be transferable, irrevocable and unconditional, so that Landlord, or
its successor(s) in interest, may at any time "call" for any portion of the then
uncalled upon amount thereof without regard to and without the Bank inquiring as
to the right or lack of right of the holder of the Letter of Credit to effect
such calls or the existence or lack of existence of any defenses by Tenant with
respect thereto;
21.2.2 Landlord agrees not to draw upon the Letter of Credit
unless Landlord claims default by Tenant under the Lease after giving notice
thereof to Tenant in accordance with the terms of this Lease and the expiration
of any applicable cure period set forth in this Lease, and if Landlord does
effect such a "draw," such "draw" amount shall be such amount (partial or full)
as necessary to compensate Landlord for such default.
21.2.3 Any failure or delay of Landlord to "draw" any portion of
the Letter of Credit shall not act as a waiver of Landlord's right to do so at
any time thereafter or constitute a waiver of any default with respect to the
Lease.
21.2.4 Tenant agrees not to interfere in any way with payment to
Landlord of the proceeds of the Letter of Credit, either prior to or following a
"draw" by Landlord of any portion of the Letter of Credit, regardless of whether
any dispute exists between Tenant and Landlord as to Landlord's right to "draw"
from the Letter of Credit. No condition or term of this Lease shall be deemed to
render the Letter of Credit conditional upon this Lease or to justify the issuer
of the Letter of Credit in failing to honor a draw upon such Letter of Credit in
a timely manner. In the event Landlord is determined through any dispute
resolution procedure agreed upon by the parties or by a court of competent
jurisdiction to have improperly drawn on the Letter of Credit, then Tenant shall
be entitled to receive a prompt refund of such amount from Landlord. Tenant
hereby waives the provisions of Section 1950.7 of the California Civil Code, and
all other provisions of law, now or hereafter in force, which provide that
Landlord may claim from a security deposit (including the Letter of Credit) only
those sums reasonably necessary to remedy defaults in the payment of rent, to
repair damage caused by Tenant or to clean the Premises, it being agreed that
Landlord may, in addition, claim those sums reasonably necessary to compensate
Landlord for any other loss or
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damage, foreseeable or unforeseeable, caused by the act or omission of Tenant or
any officer, employee, agent or invitee of Tenant.
21.3 Reduction of Letter of Credit. Notwithstanding the foregoing,
commencing on the second (2nd) anniversary of the Lease Commencement Date and on
each anniversary of the Lease Commencement Date thereafter through and including
the fifth (5th) anniversary of the Lease Commencement Date, Tenant shall have
the right to have the amount of the Letter of Credit reduced by One Hundred
Thousand Dollars ($100,000.00), provided that Tenant is not in default under the
terms of this Lease at the time of the applicable reduction. Commencing on the
sixth (6th) anniversary of the Lease Commencement Date and on each anniversary
of the Lease Commencement Date thereafter, Tenant shall have the right to have
the amount of the Letter of Credit reduced by Two Hundred Thousand Dollars
($200,000.00), provided that Tenant is not in default under the terms of this
Lease at the time of the applicable reduction.
21.4 Termination of Letter of Credit. Notwithstanding the foregoing, in
the event that Tenant has a net worth of at least Fifty Million Dollars
($50,000,000.00), then Tenant shall have the right to have the Letter of Credit
terminated, provided that Tenant is not in default under the terms of this Lease
at the time of such termination. If at any time thereafter Tenant's net worth
drops below Twenty-Five Million Dollars ($25,000,000.00), Tenant shall be
required to deliver to Landlord a new Letter of Credit in the amount of Two
Million Dollars ($2,000,000.00), to be held or applied by Landlord in accordance
with the provisions of this Section 21. As used in this Section 21.4, the "net
worth" of Tenant shall not include the value, if any, of this Lease.
22. SECURITY DEPOSIT Concurrent with Tenant's execution of this Lease, Tenant
shall deposit with Landlord a security deposit (the "Security Deposit") in the
amount set forth in Section 11 of the Summary. The Security Deposit shall be
held by Landlord as security for the faithful performance by Tenant of all the
terms, covenants, and conditions of this Lease to be kept and performed by
Tenant during the Lease Term. If Tenant defaults with respect to any provisions
of this Lease, including, but not limited to, the provisions relating to the
payment of Rent, Landlord may, but shall not be required to, use, apply or
retain all or any part of the Security Deposit for the payment of any Rent or
any other sum in default, or for the payment of any amount that Landlord may
spend or become obligated to spend by reason of Tenant's default, or to
compensate Landlord for any other loss or damage that Landlord may suffer by
reason of Tenant's default. If any portion of the Security Deposit is so used or
applied, Tenant shall, within ten (10) business days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its original amount, and Tenant's failure to do so shall be
a default under this Lease. If Tenant shall fully and faithfully perform every
provision of this Lease to be performed by it, the Security Deposit, or any
balance thereof, shall be returned to Tenant, or, at Landlord's option, to the
last assignee of Tenant's interest hereunder, within sixty (60) days following
the expiration of the Lease Term. Tenant shall not be entitled to any interest
on the Security Deposit.
23. SIGNS
23.1 In General. Tenant shall be entitled, at its sole cost and expense,
to the following signage: (a) identification signage outside of the Building in
the form of a plaque at the ground floor entry to the Building, (ii) a prominent
exterior sign in keeping with the scope and scale of the Building on the face of
the Building. (iii) signage in the main lobby, and (iv) signage at the entrance
to Premises. The location, quality, design, style, lighting and size of such
signage shall be consistent with any applicable governmental codes or
regulations and shall be subject to Landlord's prior written approval, not to be
unreasonably withheld. Upon the expiration or earlier termination of this Lease,
Tenant shall be responsible, at its sole cost and expense, for the removal of
such signage and the repair of all damage to the Building caused by such
removal.
23.2 Prohibited Signage and Other Items. Any signs, notices, logos,
pictures, names or advertisements which are installed and that have not been
individually approved by Landlord may be removed without notice by Landlord at
the sole expense of Tenant. Except as expressly provided in this Section 23,
Tenant may not install any signs on the exterior or roof of the Building or the
common areas of the Building or the Real Property Any signs, window coverings,
or blinds (even if the same are located behind the Landlord approved window
coverings for the Building), or other items visible from the exterior of the
Premises or Building are subject to the prior written approval of Landlord, not
to be unreasonably withheld.
23.3 Building Directory. A building directory will be located in the
lobby of the Building. Tenant shall have the right, at Landlord's cost and
expense, to a certain number of name strips pursuant to the Landlord's Building
standard signage program to be displayed under Tenant's entry in such directory.
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24. COMPLIANCE WITH LAW Tenant shall not do anything or suffer anything to be
done in or about the Premises which will in any way conflict with any law,
statute, ordinance or other governmental rule, regulation or requirement now in
force or which may hereafter be enacted or promulgated. At its sole cost and
expense, Tenant shall promptly comply with all such governmental measures, other
than the making of structural changes or changes to the Building's life safety
system. Should any standard or regulation now or hereafter be imposed on
Landlord or Tenant by a state, federal or local governmental body charged with
the establishment, regulation and enforcement of occupational, health or safety
standards for employers, employees, landlords or tenants, then Tenant agrees, at
its sole cost and expense, to comply promptly with such standards or
regulations. The judgment of any court of competent jurisdiction or the
admission of Tenant in any judicial action, regardless of whether Landlord is a
party thereto, that Tenant has violated any of said governmental measures, shall
be conclusive of that fact as between Landlord and Tenant.
25. LATE CHARGES If any installment of Rent or any other sum due from Tenant
shall not be received by Landlord or Landlord's designee within five (5) days
after said amount is due, or if any check delivered to Landlord by Tenant shall
be returned for insufficient funds, then Tenant shall pay to Landlord a late
charge equal to five percent (5%) of the amount due. In addition to the late
charge, in the event any check is returned for insufficient funds, Tenant shall
pay to Landlord, as additional rent, the sum of $25.00. The late charge shall be
deemed Additional Rent and the right to require it shall be in addition to all
of Landlord's other rights and remedies hereunder or at law and shall not be
construed as liquidated damages or as limiting Landlord's remedies in any
manner. In addition to the late charge described above, any Rent or other
amounts owing hereunder which are not paid when due shall thereafter bear
interest until paid at a rate equal to ten percent (10%) per annum, provided
that in no case shall such rate be higher than the highest rate permitted by
applicable law. In the event that more than one (1) check of Tenant is returned
for insufficient funds in any twelve (12) month period, Landlord shall have the
right to require that any or all subsequent payments by Tenant to Landlord be in
the form of cash, money order, cashier's or certified check drawn on an
institution acceptable to Landlord, notwithstanding any prior practice of
accepting payments in any different form.
26. LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 Landlord's Cure. All covenants and agreements to be kept or
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any reduction of Rent. If Tenant shall fail to
perform any of its obligations under this Lease, within a reasonable time after
such performance is required by the terms of this Lease, Landlord may, but shall
not be obligated to, after reasonable prior notice to Tenant, make any such
payment or perform any such act on Tenant's part without waiving its right based
upon any default of Tenant and without releasing Tenant from any obligations
hereunder.
26.2 Tenant's Reimbursement. Except as may be specifically provided to
the contrary in this Lease, Tenant shall pay to Landlord, within fifteen (15)
days after delivery by Landlord to Tenant of statements therefor: (i) sums equal
to expenditures reasonably made and obligations incurred by Landlord in
connection with the remedying by Landlord of Tenant's defaults pursuant to the
provisions of Section 26.1; (ii) sums equal to all losses, costs, liabilities,
damages and expenses referred to in Article 10 of this Lease; and (iii) sums
equal to all expenditures made and obligations incurred by Landlord in
collecting or attempting to collect the Rent or in enforcing or attempting to
enforce any rights of Landlord under this Lease or pursuant to law, including,
without limitation, all legal fees and other amounts so expended. Tenant's
obligations under this Section 26.2 shall survive the expiration or sooner
termination of the Lease Term.
27. ENTRY BY LANDLORD Landlord reserves the right at all reasonable times and
upon reasonable notice to the Tenant to enter the Premises to (i) inspect them;
(ii) show the Premises to prospective purchasers, mortgagees or tenants, or to
the ground or underlying lessors; (iii) post notices of nonresponsibility; or
(iv) alter, improve or repair the Premises or the Building if necessary to
comply with current building codes or other applicable laws, or for structural
alterations, repairs or improvements to the Building. Notwithstanding anything
to the contrary contained in this Article 27, Landlord may enter the Premises at
any time to (A) perform services required of Landlord; (B) take possession due
to any default by Tenant under this Lease in the manner provided herein; and (C)
perform any covenants of Tenant which Tenant fails to perform. Any such entries
shall be without the abatement of Rent and shall include the right to take such
reasonable steps as required to accomplish the stated purposes. Tenant hereby
waives any claims for damages or for any injuries or inconvenience to or
interference with Tenant's business, lost profits, any loss of occupancy or
quiet enjoyment of the Premises, and any other loss occasioned thereby. For each
of the above purposes, Landlord shall at all times have a key with which to
unlock all the doors in the Premises. In an emergency, Landlord shall have the
right to use any means that Landlord may deem proper to open the doors in and to
the Premises. Any entry into the Premises in the manner hereinbefore described
shall not be deemed to be a
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forcible or unlawful entry into, or a detainer of, the Premises, or an actual or
constructive eviction of Tenant from any portion of the Premises.
28. MISCELLANEOUS PROVISIONS
28.1 Binding Effect. Each of the provisions of this Lease shall extend
to and shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Article 14 of this Lease.
28.2 No Air Rights. No rights to any view or to light or air over any
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease. If at any time any windows of the Premises are temporarily
darkened or the light or view therefrom is obstructed by reason of any repairs,
improvements, maintenance or cleaning in or about the Building, the same shall
be without liability to Landlord and without any reduction or diminution of
Tenant's obligations under this Lease.
28.3 Modification of Lease. Should any current or prospective mortgagee
or ground lessor for the Building require a modification or modifications of
this Lease, which modification or modifications will not cause any increased
cost or expense to Tenant or in any other way materially and adversely change
the rights and obligations of Tenant hereunder, then and in such event, Tenant
agrees that this Lease may be so modified and agrees to execute whatever
documents are required therefor and deliver the same to Landlord within ten (10)
business days following the request therefor. Should Landlord or any such
current or prospective mortgagee or ground lessor require execution of a short
form of Lease for recording, containing, among other customary provisions, the
names of the parties, a description of the Premises and the Lease Term, Tenant
agrees to execute such short form of Lease and to deliver the same to Landlord
within ten (10) days following the request therefor.
28.4 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
has the right to transfer all or any portion of its interest in the Real
Property and Building and in this Lease, and Tenant agrees that in the event of
any such transfer, Landlord shall automatically be released from all liability
under this Lease accruing after the date of such transfer and Tenant agrees to
look solely to such transferee for the performance of Landlord's obligations
hereunder after the date of transfer. The liability of any transferee of
Landlord shall be limited to the interest of such transferee in the Real
Property and Building and such transferee shall be without personal liability
under this Lease, and Tenant hereby expressly waives and releases such personal
liability on behalf of itself and all persons claiming by, through or under
Tenant. Tenant further acknowledges that Landlord may assign its interest in
this Lease to a mortgage lender as additional security and agrees that such an
assignment shall not release Landlord from its obligations hereunder and that
Tenant shall continue to look to Landlord for the performance of its obligations
hereunder.
28.5 Prohibition Against Recording. Except as provided in Section 28.3
of this Lease, neither this Lease, nor any memorandum, affidavit or other
writing with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on behalf of Tenant, and the recording thereof in violation of
this provision shall make this Lease null and void at Landlord's election.
28.6 Relationship of Parties. Nothing contained in this Lease shall be
deemed or construed by the parties hereto or by any third party to create the
relationship of principal and agent, partnership, joint venturer or any
association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of Rent nor any act of the parties
hereto shall be deemed to create any relationship between Landlord and Tenant
other than the relationship of landlord and tenant.
28.7 Application of Payments. Landlord shall have the right to apply
payments received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant hereunder, in
such order and amounts as Landlord, in its sole discretion, may elect.
28.8 Time of Essence. Time is of the essence of this Lease and each of
its provisions.
28.9 Partial Invalidity. If any term, provision or condition contained
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease, or the application of such term, provision or condition to
persons or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected
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thereby, and each and every other term, provision and condition of this Lease
shall be valid and enforceable to the fullest extent possible permitted by law.
28.10 No Warranty. In executing and delivering this Lease, Tenant has
not relied on any representation, including, but not limited to, any
representation whatsoever as to the amount of any item comprising Additional
Rent or the amount of the Additional Rent in the aggregate or that Landlord is
furnishing the same services to other tenants, at all, on the same level or on
the same basis, or any warranty or any statement of Landlord which is not set
forth herein or in one or more of the exhibits attached hereto.
28.11 Entire Agreement. It is understood and acknowledged that there are
no oral agreements between the parties hereto affecting this Lease and this
Lease supersedes and cancels any and all previous negotiations, arrangements,
brochures, agreements and understandings, if any, between the parties hereto or
displayed by Landlord to Tenant with respect to the subject matter thereof, and
none thereof shall be used to interpret or construe this Lease.
28.12 Right to Lease. Landlord reserves the absolute right to effect
such other tenancies in the Building as Landlord in the exercise of its sole
business judgment shall determine to best promote the interests of the Building.
Tenant does not rely on the fact, nor does Landlord represent, that any specific
tenant or type or number of tenants shall, during the Lease Term, occupy any
space in the Building.
28.13 Waiver of Redemption by Tenant. Tenant hereby waives for Tenant
and for all those claiming under Tenant all right now or hereafter existing to
redeem by order or judgment of any court or by any legal process or writ,
Tenant's right of occupancy of the Premises after any termination of this Lease.
28.14 Notices. All notices, demands, statements or communications
(collectively, "Notices") given or required to be given by either party to the
other hereunder shall be in writing, shall be sent by United States certified or
registered mail, postage prepaid, return receipt requested, or delivered
personally (i) to Tenant at the appropriate address set forth in Section 5 of
the Summary, or to such other place as Tenant may from time to time designate in
a Notice to Landlord; or (ii) to Landlord at the addresses set forth in Section
3 of the Summary, or to such other firm or to such other place as Landlord may
from time to time designate in a Notice to Tenant. Any Notice will be deemed
given on the date it is mailed as provided in this Section 28.19 or upon the
date personal delivery is made. If Tenant is notified of the identity and
address of Landlord's mortgagee or ground or underlying lessor, Tenant shall
give to such mortgagee or ground or underlying lessor written notice of any
default by Landlord under the terms of this Lease by registered or certified
mail, and such mortgagee or ground or underlying lessor shall be given a
reasonable opportunity to cure such default prior to Tenant's exercising any
remedy available to Tenant.
28.15 Landlord Exculpation. It is expressly understood and agreed that
notwithstanding anything in this Lease to the contrary, and notwithstanding any
applicable law to the contrary, the liability of Landlord and the Landlord
Parties hereunder (including any successor landlord) and any recourse by Tenant
against Landlord or the Landlord Parties shall be limited solely and exclusively
to an amount which is equal to the interest of Landlord in the Building, and
neither Landlord, nor any of the Landlord Parties shall have any personal
liability therefor, and Tenant hereby expressly waives and releases such
personal liability on behalf of itself and all persons claiming by, through or
under Tenant.
28.16 Joint and Several. If there is more than one Tenant, the
obligations imposed upon Tenant under this Lease shall be joint and several.
28.17 Authority. If Tenant is a corporation or partnership, each
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in the state in which the Building is located and that Tenant has full
right and authority to execute and deliver this Lease and that each person
signing on behalf of Tenant is authorized to do so. The undersigned Landlord
signatories, by their execution hereof, each hereby represents and warrants to
Tenant that Landlord has full right and authority to execute and deliver this
Lease and that each person signing on behalf of Landlord is authorized to do so.
28.18 Attorneys' Fees. If either party commences litigation against the
other for the specific performance of this Lease, for damages for the breach
hereof or otherwise for enforcement of any remedy hereunder, the parties hereto
agree to and hereby do waive any right to a trial by jury and, in the event of
any such commencement of litigation, the prevailing party shall be entitled to
recover from the other party such costs and reasonable attorneys'
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fees as may have been incurred, including any and all costs incurred in
enforcing, perfecting and executing such judgment.
28.19 Governing Law. This Lease shall be construed and enforced in
accordance with the laws of the State of California.
28.20 Submission of Lease. Submission of this instrument for examination
or signature by Tenant does not constitute a reservation of or an option for
lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
28.21 Brokers. Landlord and Tenant hereby warrant to each other that
they have had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease, and that they know of no other real estate
broker or agent who is entitled to a commission in connection with this Lease,
excepting only the real estate brokers or agents specified in Section 13 of the
Summary (the "Brokers"). Each party agrees to indemnify and defend the other
party against and hold the other party harmless from any and all claims,
demands, losses, liabilities, lawsuits, judgments, and costs and expenses
(including without limitation reasonable attorneys' fees) with respect to any
leasing commission or equivalent compensation alleged to be owing on account of
the indemnifying party's dealings with any real estate broker or agent, other
than the Brokers.
28.22 Independent Covenants. This Lease shall be construed as though the
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense or to any setoff of the Rent or other amounts owing
hereunder against Landlord.
28.23 Building Name and Signage. Landlord shall have the right at any
time to change the name of the Building and to install, affix and maintain any
and all signs on the exterior and on the interior of the Building as Landlord
may, in Landlord's sole discretion, desire.
28.24 Transportation Management. Tenant shall fully comply with all
present or future programs intended to manage parking, transportation or traffic
in and around the Building, and in connection therewith, Tenant shall take
responsible action for the transportation planning and management of all
employees located at the Premises by working directly with Landlord, any
governmental transportation management organization or any other
transportation-related committees or entities.
28.25 Hazardous Material. As used herein, the term "Hazardous Material"
means any hazardous or toxic substance, material or waste (including, without
limitation, asbestos-containing material) which is or becomes regulated by any
local governmental authority, the state in which the Building is located or the
United States Government. Tenant acknowledges that Landlord may incur costs (A)
for complying with laws, codes, regulations or ordinances relating to Hazardous
Material, or (B) otherwise in connection with Hazardous Material. Tenant agrees
that the costs incurred by Landlord with respect to, or in connection with,
complying with laws, codes, regulations or ordinances relating to Hazardous
Material shall be an Operating Expense (but only to the extent permitted
pursuant to the terms of Section 4.2.4 above), unless the cost of such
compliance, as between Landlord and Tenant, is made the responsibility of Tenant
under this Lease.
28.26 Confidentiality. Tenant acknowledges that the content of this
Lease and any related documents are confidential information. Tenant shall keep
such confidential information strictly confidential and shall not disclose such
confidential information to any person or entity other than Tenant's financial,
legal, and space planning consultants.
28.27 Landlord Renovations. It is specifically understood and agreed
that Landlord has no obligation and has made no promises to alter, remodel,
improve, renovate, repair or decorate the Premises, Building, or any part
thereof and that no representations respecting the condition of the Premises or
the Building have been made by Landlord to Tenant except as specifically set
forth herein or in the Tenant Work Letter. However, Tenant acknowledges that
Landlord is currently renovating or may during the Lease Term renovate, improve,
alter, or modify (collectively, the "Renovations") the Building, Premises,
and/or Real Property, including without limitation the common areas, systems and
equipment, roof, and structural portions of the same. In connection with such
Renovations, Landlord may, among other things, erect scaffolding or other
necessary structures in the Building, limit or eliminate access to portions of
the Real Property, including portions of the common areas, or perform work in
the
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Building, which work may create noise, dust or leave debris in the Building.
Tenant hereby agrees that such Renovations and Landlord's actions in connection
with such Renovations shall in no way constitute a constructive eviction of
Tenant nor entitle Tenant to any abatement of Rent. Landlord shall have no
responsibility or for any reason be liable to Tenant for any direct or indirect
injury to or interference with Tenant's business arising from the Renovations,
nor shall Tenant be entitled to any compensation or damages from Landlord for
loss of the use of the whole or any part of the Premises or of Tenant's personal
property or improvements resulting from the Renovations or Landlord's actions in
connection with such Renovations, or for any inconvenience or annoyance
occasioned by such Renovations or Landlord's actions in connection with such
Renovations unless due to the gross negligence or willful misconduct of Landlord
or any party under Landlord's direction and control. Notwithstanding the
foregoing, Landlord agrees to use all commercially reasonable efforts to
minimize any disruption to Tenant's use and occupancy of the Premises caused by
Landlord's activities, and at all times, to the fullest extent possible, to
maintain the main entrances, lobbies and elevators of the Building, and access
to the Premises, clear of construction and other work materials, and without
noise, dust and debris.
28.28 Asbestos Disclosures. Tenant specifically acknowledges that Tenant
has been advised that asbestos-containing materials were used in the initial
construction of the Building, and may have been used in connection with various
additions and improvements made thereafter from time to time. Landlord shall
comply with applicable laws, from time to time in effect, which require the
abatement, removal, encapsulation or other remediation of Hazardous Material in
the Building. The cost of such compliance by Landlord shall be includable in
Operating Expenses only to the extent permitted pursuant to the terms of Section
4.2.4, above.
28.29 Landlord Liability. None of the shareholders, partners, directors
or officers of Landlord (collectively, the "Landlord Parties") shall be liable
for the performance of Landlord's obligations under this Lease. Tenant shall
look solely to Landlord to enforce Landlord's obligations hereunder and shall
not seek any damages against any of the Landlord Parties. The liability of
Landlord for Landlord's obligations under this Lease shall not exceed and shall
be limited to Landlord's interest in the Real Property and Tenant shall not look
to the property or assets of any of the Landlord Parties in seeking either to
enforce Landlord's obligations under this Lease or to satisfy a judgment for
Landlord's failure to perform such obligations.
28.30 Landlord's Consent. Whenever Landlord's consent or approval is
required under this Lease or the Tenant Work Letter, such consent or approval
shall be in writing.
28.31 Early Occupancy. Tenant's early occupancy of the Premises for any
purpose shall be subject to all the terms and conditions of this Lease, other
than the obligation to pay Base Rent, subject to Section 3 of this Lease, and
utilities.
29. OPTION TERM
29.1 Option Right. So long as Tenant has not subleased more than one (1)
floor of the Premises to another tenant, Landlord hereby grants the originally
named Tenant herein (or any Affiliate to whom this Lease has been assigned
pursuant to Section 14.7 above (a "Permitted Assignee")), one (1) option to
extend the Lease Term for a period of five (5) years (the "Option Term"), which
option shall be exercisable only by written notice delivered by Tenant to
Landlord as provided below, provided that, as of the date of delivery of such
notice, Tenant is not in default under this Lease and Tenant has not previously
been in default under this Lease more than once in the prior twenty-four (24)
months. Upon the proper exercise of such option to extend, and provided that, as
of the end of the initial Lease Term, Tenant is not in default under this Lease
and Tenant has not previously been in default under this Lease more than once in
the prior twenty-four (24) months, the Lease Term, as it applies to the
Premises, shall be extended for a period of five (5) years. The rights contained
in this Section 29 shall be personal to Tenant or a Permitted Assignee and may
only be exercised by Tenant or a Permitted Assignee (and not any other assignee,
sublessee or other transferee of Tenant's interest in this Lease) if Tenant or
such Permitted Assignee occupies at least four (4) floors of the Premises.
29.2 Option Rent. The rent payable by Tenant during the Option Term (the
"Option Rent") shall be equal to rent at which tenants, as of the commencement
of the Option Term, will be leasing non-sublease space comparable in size,
location and quality to the Premises taking into consideration seismic braced,
exposed brick and timber construction with air-conditioning and operable windows
for a comparable term and the fact that the Premises are in a building with
single-tenant identity, which comparable space is located in other comparable
mid-rise office buildings in the downtown/media gulch area of San Francisco,
California (making appropriate adjustments for otherwise comparable buildings
that do not have all of the foregoing characteristics); provided, however, that
in no
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event will Option Rent be less than the Base Rent payable by Tenant for the last
year of the initial term of the Lease. All other terms and conditions of the
Lease shall apply throughout the Option Term; however, any obligation of
Landlord to construct tenant improvements or provide an allowance (if
applicable) shall not apply during the Option Term and Tenant shall, in no
event, have the option to extend the Lease Term beyond the Option Term described
in Section 29.1 above.
29.3 Exercise of Option. The option contained in this Section 29 shall
be exercised by Tenant, if at all, and only in the following manner: (i) Tenant
shall deliver written notice to Landlord not more than three hundred (300) days
nor less than two hundred seventy (270) days prior to the expiration of the
initial Lease Term, stating that Tenant is exercising its option; (ii) Landlord,
after receipt of Tenant's notice, shall deliver notice (the "Option Rent
Notice") to Tenant not less than two hundred ten (210) days prior to the
expiration of the initial Lease Term, setting forth the Option Rent; and (iii)
if Tenant wishes to object to the Option Rent, Tenant shall, on or before the
earlier of (A) the date occurring one hundred eighty prior to the expiration of
the initial Lease Term, and (B) the date occurring thirty (30) days after
Tenant's receipt of the Option Rent Notice deliver written notice thereof to
Landlord, in which case the parties shall follow the procedure, and the Option
Rent shall be determined, as set forth in Section 29.4 below.
29.4 Determination of Option Rent. In the event Tenant timely and
appropriately objects to the Option Rent, Landlord and Tenant shall attempt to
agree upon the Option Rent using their best good-faith efforts. If Landlord and
Tenant fail to reach agreement within ten (10) days following Tenant's objection
to the Option Rent, (the "Outside Agreement Date"), then each party shall make a
separate determination of the Option Rent, as the case may be, within five (5)
days, and such determinations shall be submitted to arbitration in accordance
with Sections 29.4.1 through 29.4.7 below.
29.4.1 Landlord and Tenant shall each appoint one arbitrator who
shall by profession be a real estate broker or appraiser who shall have been
active over the five (5) year period ending on the date of such appointment in
the leasing (or appraisal, as the case may be) of commercial mid-rise properties
in the San Francisco area. The determination of the arbitrators shall be limited
solely to the issue area of whether Landlord's or Tenant's submitted Option
Rent, is the closest to the actual Option Rent as determined by the arbitrators,
taking into account the requirements of Section 29.2 above. Each such arbitrator
shall be appointed within fifteen (15) days after the applicable Outside
Agreement Date.
29.4.2 The two arbitrators so appointed shall within ten (10)
days of the date of the appointment of the last appointed arbitrator agree upon
and appoint a third arbitrator who shall be qualified under the same criteria
set forth hereinabove for qualification of the initial two arbitrators.
29.4.3 The three arbitrators shall within thirty (30) days of the
appointment of the third arbitrator reach a decision as to whether the parties
shall use Landlord's or Tenant's submitted Option Rent, and shall notify
Landlord and Tenant thereof.
29.4.4 The decision of the majority of the three arbitrators
shall be binding upon Landlord and Tenant.
29.4.5 If either Landlord or Tenant fails to appoint an
arbitrator within fifteen (15) days after the applicable Outside Agreement Date,
the arbitrator appointed by one of them shall reach a decision, notify Landlord
and Tenant thereof, and such arbitrator's decision shall be binding upon
Landlord and Tenant.
29.4.6 If the two arbitrators fail to agree upon and appoint a
third arbitrator, or both parties fail to appoint an arbitrator, then the
appointment of the third arbitrator or any arbitrator shall be dismissed and the
matter to be decided shall be forthwith submitted to arbitration under the
provisions of the American Arbitration Association, but subject to the
instruction set forth in this Section 29.4.
29.4.7 The cost of arbitration shall be paid by the
non-prevailing party.
-23-
<PAGE> 24
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
--------------------------------------
JONATHAN PARKER
--------------------------------------
THOMAS M. MONAHAN
HAROLD PARKER PROPERTIES, a California
limited partnership
By:
-----------------------------------
Name
-------------------------------
Its:
-------------------------------
--------------------------------------
HAROLD A. PARKER, as trustee for the HAROLD
A. PARKER COMPANY TRUST dated May 11, 1988
--------------------------------------
GERTRUD V. PARKER, as trustee for the HAROLD
A. PARKER COMPANY TRUST dated May 11, 1988
"Tenant":
E-GREETINGS NETWORK,
a California corporation
By:
-----------------------------------
Its:
-------------------------------
By:
-----------------------------------
Its:
-------------------------------
-24-
<PAGE> 25
EXHIBIT A
149 NEW MONTGOMERY
OUTLINE OF PREMISES
[SEE ATTACHED]
EXHIBIT A-Page 1
<PAGE> 26
EXHIBIT B
149 NEW MONTGOMERY
TENANT WORK LETTER
This Tenant Work Letter (this "Tenant Work Letter"), which is attached
as Exhibit B to that certain Lease (the "Lease") dated April 13, 1999, between
JONATHAN PARKER, a married man as his sole and separate property; THOMAS M.
MONAHAN, a married man as his sole and separate property; HAROLD PARKER
PROPERTIES, L.P., a California limited partnership; and HAROLD A. PARKER,
TRUSTEE, and GERTRUD V. PARKER, TRUSTEE, of the HAROLD A. PARKER COMPANY TRUST
dated May 11, 1988; all as Tenants in Common, (collectively, "Landlord"), and
E-GREETINGS NETWORK, a California corporation ("Tenant"), sets forth the terms
and conditions relating to the construction of the tenant improvements in the
Premises. This Tenant Work Letter is essentially organized chronologically and
addresses the issues of the construction of the Premises, in sequence, as such
issues will arise during the actual construction of the Premises.
SECTION 1
DELIVERY OF THE PREMISES
1.1 Base Building as Constructed by Landlord. At such time as Tenant
shall have delivered to Landlord the Security Deposit, pursuant to Section 22 of
the Lease, and the Letter of Credit, pursuant to Section 21 of the Lease,
Landlord shall deliver the Premises to Tenant, and Tenant shall accept the
Premises from Landlord in their then existing, "as-is" condition, subject to
Landlord's obligations hereunder, for the purposes of Tenant's construction of
the Tenant Improvements pursuant to this Work Letter. Landlord agrees to use
commercially reasonable efforts to complete the following items by September 1,
1999:
1.1.1 Electrical utilities are provided at the individual floors
of the Building, with a main tenant electrical panel providing a single 400 amp
service. Secondary raceways and distribution wiring for power and lighting shall
be paid for by Tenant.
1.1.2 Installation of a base building sprinkler system, including
sprinkler heads for minimum coverage as required by code. Additional costs for
sprinkler relocation due to tenant reflected ceiling design shall be paid for by
Tenant.
1.1.3 New men's and women's restrooms on each floor of the
Premises, which shall be in compliance with the Americans with Disabilities Act
(the "ADA").
1.1.4 All interior perimeter brick walls shall be sandblasted.
1.1.5 The ceiling shall be sheetrocked and firetaped only within
the Premises and finish painted within the core corridor and lobby.
1.1.6 All core walls shall be sheetrocked, taped and painted at
the core side and firetaped only on the Tenant side.
1.1.7 All life safety systems required by code within the core
area shall be provided by Landlord.
1.1.8 Landlord shall provide the heating and cooling condenser
water service stubbed to each floor of the Building. The Tenant heating,
ventilating and air-conditioning ("HVAC") system shall be a heat pump system.
The exact distribution of the system shall be designed and paid for by Tenant
(including the cost of heat pumps) as part of the Tenant Improvements, as
defined in Section 2.1 below.
1.2 Exterior Painting. Landlord agrees to consult with Tenant concerning
the painting scheme for the exterior of the Building, provided that Landlord
shall retain the right to make the final decision.
EXHIBIT B- Page 1
<PAGE> 27
SECTION 2
TENANT IMPROVEMENTS
2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time
tenant improvement allowance (the "Tenant Improvement Allowance") in the amount
of $35.00 per rentable square foot of the Premises for the costs relating to the
initial design and construction of Tenant's improvements, which are permanently
affixed to the Premises (the "Tenant Improvements"). In no event shall Landlord
be obligated to make disbursements pursuant to this Tenant Work Letter in a
total amount which exceeds the Tenant Improvement Allowance.
2.2 Disbursement of the Tenant Improvement Allowance.
2.2.1 Tenant Improvement Allowance Items. Except as otherwise set
forth in this Tenant Work Letter, the Tenant Improvement Allowance shall be
disbursed by Landlord only for the following items and costs (collectively the
"Tenant Improvement Allowance Items"):
2.2.1.1 Payment of the fees of the "Architect" and the
"Engineers," as those terms are defined in Section 3.1 of this Tenant Work
Letter, which fees shall, notwithstanding anything to the contrary contained in
this Tenant Work Letter, not exceed an aggregate amount equal to $3.50 per
usable square foot of the Premises, and payment of the reasonable fees incurred
by Landlord and Landlord's consultants in connection with the review of the
"Construction Drawings," as that term is defined in Section 3.1 of this Tenant
Work Letter;
2.2.1.2 The payment of plan check, permit and license fees
relating to construction of the Tenant Improvements;
2.2.1.3 The cost of construction of the Tenant
Improvements, including, without limitation, testing and inspection costs,
hoisting and trash removal costs, and contractors' fees and general conditions;
2.2.1.4 The cost of any changes in the Base Building when
such changes are required by the Construction Drawings (including if such
changes are due to the fact that such work is prepared on an unoccupied basis),
such cost to include all direct architectural and/or engineering fees and
expenses incurred in connection therewith;
2.2.1.5 The cost of any changes to the Construction
Drawings or Tenant Improvements required by all applicable building codes (the
"Code");
2.2.1.6 The cost of the "Coordination Fee," as that term
is defined in Section 4.2.2 of this Tenant Work Letter; and
2.2.1.7 Sales and use taxes and Title 24 fees.
2.2.2 Disbursement of Tenant Improvement Allowance. During the
construction of the Tenant Improvements, Landlord shall make monthly
disbursements of the Tenant Improvement Allowance for Tenant Improvement
Allowance Items for the benefit of Tenant and shall authorize the release of
monies for the benefit of Tenant as follows.
2.2.2.1 Monthly Disbursements. On or before the day of
each calendar month, as determined by Landlord, during the construction of the
Tenant Improvements (or such other date as Landlord may designate), Tenant shall
deliver to Landlord: (i) a request for payment to Contractor, as that term is
defined in Section 4.1 below, approved by Tenant, in a form to be provided by
Landlord, showing the schedule, by trade, of percentage of completion of the
Tenant Improvements in the Premises, detailing the portion of the work completed
and the portion not completed; (ii) invoices from all of "Tenant's Agents," as
that term is defined in Section 4.1.2 of this Tenant Work Letter, for labor
rendered and materials delivered to the Premises; (iii) executed mechanic's lien
releases from all of Tenant's Agents which shall comply with the appropriate
provisions, as reasonably determined by Landlord, of California Civil Code
Section 3262(d); and (iv) all other information reasonably requested by
Landlord. Tenant's request for payment shall be deemed Tenant's acceptance and
approval of the work furnished
EXHIBIT B - Page 2
<PAGE> 28
and/or the materials supplied as set forth in Tenant's payment request.
Thereafter, Landlord shall deliver a check to Tenant made jointly payable to
Contractor and Tenant in payment of the lesser of: (A) the amounts so requested
by Tenant, as set forth in this Section 2.2.2.1, above, less a ten percent (10%)
retention (the aggregate amount of such retentions to be known as the "Final
Retention"), except there shall be no retention to the extent the relevant
contract already provides for a retention, and (B) the balance of any remaining
available portion of the Tenant Improvement Allowance (not including the Final
Retention), provided that Landlord does not dispute any request for payment
based on non-compliance of any work with the "Approved Working Drawings," as
that term is defined in Section 3.4 of this Tenant Work Letter, below, or due to
any substandard work, or for any other reason. Landlord's payment of such
amounts shall not be deemed Landlord's approval or acceptance of the work
furnished or materials supplied as set forth in Tenant's payment request.
2.2.2.2 Final Retention. Subject to the provisions of this
Tenant Work Letter, a check for the Final Retention payable jointly to Tenant
and Contractor shall be delivered by Landlord to Tenant following the completion
of construction of the Premises, provided that (i) Tenant delivers to Landlord
properly executed mechanics lien releases in compliance with both California
Civil Code Section 3262(d)(2) and either Section 3262(d)(3) or Section
3262(d)(4), (ii) Landlord has determined that no substandard work exists which
adversely affects the mechanical, electrical, plumbing, heating, ventilating and
air conditioning, life-safety or other systems of the Building, the curtain wall
of the Building, the structure or exterior appearance of the Building, or any
other tenant's use of such other tenant's leased premises in the Building and
(iii) Architect delivers to Landlord a certificate, in a form reasonably
acceptable to Landlord, certifying that the construction of the Tenant
Improvements in the Premises has been substantially completed.
2.2.2.3 Other Terms. Landlord shall only be obligated to
make disbursements from the Tenant Improvement Allowance to the extent costs are
incurred by Tenant for Tenant Improvement Allowance Items. All Tenant
Improvement Allowance Items for which the Tenant Improvement Allowance has been
made available shall be deemed Landlord's property under the terms of this
Lease.
SECTION 3
CONSTRUCTION DRAWINGS
3.1 Selection of Architect/Construction Drawings. Tenant shall retain
Hooks Design (the "Architect") to prepare the "Construction Drawings," as that
term is defined in this Section 3.1. Tenant shall retain the engineering
consultants, as reasonably approved by Landlord, (the "Engineers") to prepare
all plans and engineering working drawings relating to the structural,
mechanical, electrical, plumbing, HVAC, lifesafety, and sprinkler work in the
Premises, which work is not part of the Base Building. The plans and drawings to
be prepared by Architect and the Engineers hereunder shall be known collectively
as the "Construction Drawings." All Construction Drawings shall comply with the
drawing format and specifications determined by Landlord, and shall be subject
to Landlord's approval. Tenant and Architect shall verify, in the field, the
dimensions and conditions as shown on the relevant portions of the base building
plans, and Tenant and Architect shall be solely responsible for the same, and
Landlord shall have no responsibility in connection therewith. Landlord's review
of the Construction Drawings as set forth in this Section 3, shall be for its
sole purpose and shall not imply Landlord's review of the same, or obligate
Landlord to review the same, for quality, design, Code compliance or other like
matters. Accordingly, notwithstanding that any Construction Drawings are
reviewed by Landlord or its space planner, architect, engineers and consultants,
and notwithstanding any advice or assistance which may be rendered to Tenant by
Landlord or Landlord's space planner, architect, engineers, and consultants,
Landlord shall have no liability whatsoever in connection therewith and shall
not be responsible for any omissions or errors contained in the Construction
Drawings, and Tenant's waiver and indemnity set forth in this Lease shall
specifically apply to the Construction Drawings.
3.2 Final Space Plan. Tenant shall supply Landlord with two (2) copies
signed by Tenant of its final space plan for the Premises before any
architectural working drawings or engineering drawings have been commenced. The
final space plan (the "Final Space Plan") shall include a layout and designation
of all offices, rooms and other partitioning, their intended use, and equipment
to be contained therein. Landlord may request clarification or more specific
drawings for special use items not included in the Final Space Plan. Landlord
shall advise Tenant within five (5) business days after Landlord's receipt of
the Final Space Plan for the Premises if the same is unsatisfactory or
incomplete in any respect. If Tenant is so advised, Tenant shall promptly cause
the Final Space Plan to be revised to correct any deficiencies or other matters
Landlord may reasonably require.
EXHIBIT B - Page 3
<PAGE> 29
3.3 Final Working Drawings. After the Final Space Plan has been approved
by Landlord, Tenant shall supply the Engineers with a complete listing of
standard and non-standard equipment and specifications, including, without
limitation, B.T.U. calculations, electrical requirements and special electrical
receptacle requirements for the Premises, to enable the Engineers and the
Architect to complete the "Final Working Drawings" (as that term is defined
below) in the manner as set forth below. Upon the approval of the Final Space
Plan by Landlord and Tenant, Tenant shall promptly cause the Architect and the
Engineers to complete the architectural and engineering drawings for the
Premises, and Architect shall compile a fully coordinated set of architectural,
structural, mechanical, electrical and plumbing working drawings in a form which
is complete to allow subcontractors to bid on the work and to obtain all
applicable permits (collectively, the "Final Working Drawings") and shall submit
the same to Landlord for Landlord's approval. Tenant shall supply Landlord with
two (2) copies signed by Tenant of such Final Working Drawings. Landlord shall
advise Tenant within five (5) business days after Landlord's receipt of the
Final Working Drawings for the Premises if the same is unsatisfactory or
incomplete in any respect. If Tenant is so advised, Tenant shall immediately
revise the Final Working Drawings in accordance with such review and any
disapproval of Landlord in connection therewith.
3.4 Approved Working Drawings. The Final Working Drawings shall be
approved by Landlord (the "Approved Working Drawings") prior to the commencement
of construction of the Premises by Tenant. After approval by Landlord of the
Final Working Drawings, Tenant may submit the same to the appropriate municipal
authorities for all applicable building permits. Tenant hereby agrees that
neither Landlord nor Landlord's consultants shall be responsible for obtaining
any building permit or certificate of occupancy for the Premises and that
obtaining the same shall be Tenant's responsibility; provided, however, that
Landlord shall cooperate with Tenant in executing permit applications and
performing other ministerial acts reasonably necessary to enable Tenant to
obtain any such permit or certificate of occupancy. No changes, modifications or
alterations in the Approved Working Drawings may be made without the prior
written consent of Landlord, which consent may not be unreasonably withheld.
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 Tenant's Selection of Contractors.
4.1.1 The Contractor. Tenant shall retain Morse Diesel as the
general contractor to construct the Tenant Improvements ("Contractor").
4.1.2 Tenant's Agents. All subcontractors, laborers, materialmen,
and suppliers used by Tenant (such subcontractors, laborers, materialmen, and
suppliers, and the Contractor to be known collectively as "Tenant's Agents")
must be approved in writing by Landlord, which approval shall not be
unreasonably withheld or delayed. If Landlord does not approve any of Tenant's
proposed subcontractors, laborers, materialmen or suppliers, Tenant shall submit
other proposed subcontractors, laborers, materialmen or suppliers for Landlord's
written approval.
4.2 Construction of Tenant Improvements by Tenant's Agents.
4.2.1 Construction Contract; Cost Budget. Tenant shall submit the
construction contract (the "Contract") to Landlord for its approval, which
approval shall not be unreasonably withheld or delayed. Prior to the
commencement of the construction of the Tenant Improvements, and after Tenant
has accepted all bids for the Tenant Improvements, Tenant shall provide Landlord
with a detailed breakdown, by trade, of the final costs to be incurred or which
have been incurred, as set forth more particularly in Sections 2.2.1.1 through
2.2.1.8 of this Tenant Work Letter, above, in connection with the design and
construction of the Tenant Improvements to be performed by or at the direction
of Tenant or the Contractor, which costs form a basis for the amount of the
Contract (the "Final Costs"). Prior to the commencement of construction of the
Tenant Improvements, Tenant shall supply Landlord with cash in an amount (the
"Over-Allowance Amount") equal to the difference between the amount of the Final
Costs and the amount of the Tenant Improvement Allowance (less any portion
thereof already disbursed by Landlord, or in the process of being disbursed by
Landlord, on or before the commencement of construction of the Tenant
Improvements). The Over-Allowance Amount shall be disbursed by Landlord prior to
the disbursement of any of the then remaining portion of the Tenant Improvement
Allowance, and such disbursement shall be pursuant to the same procedure as the
Tenant Improvement Allowance. In the event that, after the Final Costs have been
delivered by
EXHIBIT B - Page 4
<PAGE> 30
Tenant to Landlord, the costs relating to the design and construction of the
Tenant Improvements shall change, any additional costs necessary to such design
and construction in excess of the Final Costs, shall be paid by Tenant to
Landlord immediately as an addition to the Over-Allowance Amount or at
Landlord's option, Tenant shall make payments for such additional costs out of
its own funds, but Tenant shall continue to provide Landlord with the documents
described in Sections 2.2.2.1 (i), (ii), (iii) and (iv) of this Tenant Work
Letter, above, for Landlord's approval, prior to Tenant paying such costs.
4.2.2 Tenant's Agents.
4.2.2.1 Landlord's General Conditions for Tenant, Tenant's
Agents and Tenant Improvement Work. Tenant's and Tenant's Agent's construction
of the Tenant Improvements shall comply with the following: (i) the Tenant
Improvements shall be constructed in strict accordance with the Approved Working
Drawings; (ii) Tenant's Agents shall submit schedules of all work relating to
the Tenant's Improvements to Contractor and Contractor shall, within five (5)
business days of receipt thereof, inform Tenant's Agents of any changes which
are necessary thereto, and Tenant's Agents shall adhere to such corrected
schedule; and (iii) Tenant shall abide by all rules made by Landlord's Building
manager with respect to the use of freight, loading dock and service elevators,
storage of materials, coordination of work with the contractors of other
tenants, and any other matter in connection with this Tenant Work Letter,
including, without limitation, the construction of the Tenant Improvements.
Tenant shall pay a logistical coordination fee (the "Coordination Fee") to
Landlord in the amount of Fifty Thousand Dollars ($50,000), which Coordination
Fee shall be for services relating to the coordination of the construction of
the Tenant Improvements.
4.2.2.2 Indemnity. Tenant's indemnity of Landlord as set
forth in this Lease shall also apply with respect to any and all costs, losses,
damages, injuries and liabilities related in any way to any act or omission of
Tenant or Tenant's Agents, or anyone directly or indirectly employed by any of
them, or in connection with Tenant's non-payment of any amount arising out of
the Tenant Improvements and/or Tenant's disapproval of all or any portion of any
request for payment. Such indemnity by Tenant, as set forth in this Lease, shall
also apply with respect to any and all costs, losses, damages, injuries and
liabilities related in any way to Landlord's performance of any ministerial acts
reasonably necessary (i) to permit Tenant to complete the Tenant Improvements,
and (ii) to enable Tenant to obtain any building permit or certificate of
occupancy for the Premises.
4.2.2.3 Requirements of Tenant's Agents. Each of Tenant's
Agents shall guarantee to Tenant and for the benefit of Landlord that the
portion of the Tenant Improvements for which it is responsible shall be free
from any defects in workmanship and materials for a period of not less than one
(1) year from the date of completion thereof. Tenant and each of Tenant's Agents
shall be responsible for the replacement or repair, without additional charge,
of all work done or furnished in accordance with its contract that shall become
defective within one (1) year after the later to occur of (i) completion of the
work performed by such contractor or subcontractors and (ii) the Lease
Commencement Date. The correction of such work shall include, without additional
charge, all additional expenses and damages incurred in connection with such
removal or replacement of all or any part of the Tenant Improvements, and/or the
Building and/or common areas that may be damaged or disturbed thereby. All such
warranties or guarantees as to materials or workmanship of or with respect to
the Tenant Improvements shall be contained in the Contract or subcontract and
shall be written such that such guarantees or warranties shall inure to the
benefit of both Landlord and Tenant, as their respective interests may appear,
and can be directly enforced by either. Tenant covenants to give to Landlord any
assignment or other assurances which may be necessary to effect such right of
direct enforcement.
4.2.2.4 Insurance Requirements.
4.2.2.4.1 General Coverages. Tenant and all of Tenant's
Agents shall carry worker's compensation insurance covering all of their
respective employees, and shall also carry public liability insurance, including
property damage, all with limits, in form and with companies as are required to
be carried by Tenant as set forth in this Lease.
4.2.2.4.2 Special Coverages. Tenant shall carry "Builder's
All Risk" insurance in an amount approved by Landlord covering the construction
of the Tenant Improvements, and such other insurance as Landlord may require, it
being understood and agreed that the Tenant Improvements shall be insured by
Tenant pursuant to this Lease immediately upon completion thereof. Such
insurance shall be in amounts and shall include
EXHIBIT B - PAGE 5
<PAGE> 31
such extended coverage endorsements as may be reasonably required by Landlord
including, but not limited to, the requirement that Tenant and all of Tenant's
Agents shall carry excess liability and Products and Completed Operation
Coverage insurance, each in amounts not less than $500,000 per incident,
$1,000,000 in aggregate, and in form and with companies as are required to be
carried by Tenant as set forth in this Lease.
4.2.2.4.3 General Terms. Certificates for all insurance
carried pursuant to this Section 4.2.2.4 shall be delivered to Landlord before
the commencement of construction of the Tenant Improvements and before the
Contractor's equipment is moved onto the site. All such policies of insurance
must contain a provision that the company writing said policy will give Landlord
thirty (30) days prior written notice of any cancellation or lapse of the
effective date or any reduction in the amounts of such insurance. In the event
that the Tenant Improvements are damaged by any cause during the course of the
construction thereof, Tenant shall immediately repair the same at Tenant's sole
cost and expense. Tenant and Tenant's Agents shall maintain all of the foregoing
insurance coverage in force until the Tenant Improvements are fully completed
and accepted by Landlord, except for any Products and Completed Operation
Coverage insurance required by Landlord, which is to be maintained for ten (10)
years following completion of the work and acceptance by Landlord and Tenant.
All policies carried under this Section 4.2.2.4 shall insure Landlord and
Tenant, as their interests may appear, as well as Contractor and other Tenant's
Agents. All insurance, except Workers' Compensation, maintained by Tenant and
Tenant's Agents shall preclude subrogation claims by the insurer against anyone
insured thereunder. Such insurance shall provide that it is primary insurance as
respects the owner and that any other insurance maintained by owner is excess
and noncontributing with the insurance required hereunder. The requirements for
the foregoing insurance shall not derogate from the provisions for
indemnification of Landlord by Tenant under Section 4.2.2.2 of this Tenant Work
Letter.
4.2.3 Governmental Compliance. The Tenant Improvements shall
comply in all respects with the following: (i) the Code and other state,
federal, city or quasi-governmental laws, codes, ordinances and regulations, as
each may apply according to the rulings of the controlling public official,
agent or other person; (ii) applicable standards of the American Insurance
Association (formerly, the National Board of Fire Underwriters) and the National
Electrical Code; and (iii) building material manufacturer's specifications.
4.2.4 Inspection by Landlord. Landlord shall have the right to
inspect the Tenant Improvements at all times, provided however, that Landlord's
failure to inspect the Tenant Improvements shall in no event constitute a waiver
of any of Landlord's rights hereunder nor shall Landlord's inspection of the
Tenant Improvements constitute Landlord's approval of the same. Should Landlord
disapprove any portion of the Tenant Improvements, Landlord shall notify Tenant
in writing of such disapproval and shall specify the items disapproved. Any
defects or deviations in, and/or disapproval by Landlord of, the Tenant
Improvements shall be rectified by Tenant at no expense to Landlord, provided
however, that in the event Landlord determines that a defect or deviation exists
or disapproves of any matter in connection with any portion of the Tenant
Improvements and such defect, deviation or matter might adversely affect the
mechanical, electrical, plumbing, heating, ventilating and air conditioning or
life-safety systems of the Building, the structure or exterior appearance of the
Building or any other tenant's use of such other tenant's leased premises,
Landlord may, take such action as Landlord deems necessary, at Tenant's expense
and without incurring any liability on Landlord's part, to correct any such
defect, deviation and/or matter, including, without limitation, causing the
cessation of performance of the construction of the Tenant Improvements until
such time as the defect, deviation and/or matter is corrected to Landlord's
satisfaction.
4.2.5 Meetings. Commencing upon the execution of this Lease,
Tenant shall hold weekly meetings at a reasonable time, with the Architect and
the Contractor regarding the progress of the preparation of Construction
Drawings and the construction of the Tenant Improvements, which meetings shall
be held at a location designated by Landlord, and Landlord and/or its agents
shall receive prior notice of, and shall have the right to attend, all such
meetings, and, upon Landlord's request, certain of Tenant's Agents shall attend
such meetings. In addition, minutes shall be taken at all such meetings, a copy
of which minutes shall be promptly delivered to Landlord. One such meeting each
month shall include the review of Contractor's current request for payment.
4.2.6 Interference. Tenant, hereby acknowledges that Landlord
shall be performing certain construction work in the Building during
construction of the Tenant Improvements. Tenant and Tenant's Agents shall not
interfere with Landlord, its contractor or any of Landlord's agents during the
construction of the Tenant Improvements.
EXHIBIT B - Page 6
<PAGE> 32
4.3 Notice of Completion; Copy of Record Set of Plans. Within ten (10)
days after completion of construction of the Tenant Improvements, Tenant shall
cause a Notice of Completion to be recorded in the office of the Recorder of the
county in which the Building is located in accordance with Section 3093 of the
Civil Code of the State of California or any successor statute, and shall
furnish a copy thereof to Landlord upon such recordation. If Tenant fails to do
so, Landlord may execute and file the same on behalf of Tenant as Tenant's agent
for such purpose, at Tenant's sole cost and expense. At the conclusion of
construction, (i) Tenant shall cause the Architect and Contractor (A) to update
the Approved Working Drawings as necessary to reflect all changes made to the
Approved Working Drawings during the course of construction, (B) to certify to
the best of their knowledge that the "record-set" of as-built drawings are true
and correct, which certification shall survive the expiration or termination of
this Lease, and (C) to deliver to Landlord two (2) sets of copies of such record
set of drawings within ninety (90) days following issuance of a certificate of
occupancy for the Premises, and (ii) Tenant shall deliver to Landlord a copy of
all warranties, guaranties, and operating manuals and information relating to
the improvements, equipment, and systems in the Premises.
SECTION 5
MISCELLANEOUS
5.1 Tenant's Representative. Tenant has designated Deva Berman as its
sole representative with respect to the matters set forth in this Tenant Work
Letter, who shall have full authority and responsibility to act on behalf of the
Tenant as required in this Tenant Work Letter.
5.2 Landlord's Representative. Landlord has designated Thomas M. Monahan
as its sole representatives with respect to the matters set forth in this Tenant
Work Letter, who, until further notice to Tenant, shall have full authority and
responsibility to act on behalf of the Landlord as required in this Tenant Work
Letter.
5.3 Time of the Essence in This Tenant Work Letter. Unless otherwise
indicated, all references herein to a "number of days" shall mean and refer to
calendar days. If any item requiring approval is timely disapproved by Landlord,
the procedure for preparation of the document and approval thereof shall be
repeated until the document is approved by Landlord.
5.4 Tenant's Lease Default. Notwithstanding any provision to the
contrary contained in this Lease, if an event of default as described in the
Lease or this Tenant Work Letter has occurred at any time on or before the
Substantial Completion of the Premises, then (i) in addition to all other rights
and remedies granted to Landlord pursuant to this Lease, Landlord shall have the
right to withhold payment of all or any portion of the Tenant Improvement
Allowance and/or Landlord may cause Contractor to cease the construction of the
Premises (in which case, Tenant shall be responsible for any delay in the
substantial completion of the Premises caused by such work stoppage), and (ii)
all other obligations of Landlord under the terms of this Tenant Work Letter
shall be forgiven until such time as such default is cured pursuant to the terms
of this Lease (in which case, Tenant shall be responsible for any delay in the
substantial completion of the Premises caused by such inaction by Landlord).
5.5 Landlord Delays. The Lease Commencement Date shall occur as provided
in Section 2 of the Lease, unless the "substantial completion of the Tenant
Improvements," as that term is defined hereinbelow, are delayed beyond the Lease
Commencement Date because of a "Landlord Delay." In the event a Landlord Delay
occurs and such delay actually delays the substantial completion of the Tenant
Improvements beyond September 1, 1999, then the Lease Commencement Date shall be
delayed one (1) day for every day of Landlord Delay. As used herein, "Landlord
Delay" shall mean actual delays to the extent resulting from the acts or
omissions of Landlord including, but not limited to, (a) failure of Landlord to
approve or disapprove any Construction Drawings or other items within the time
periods provided in this Tenant Work Letter; (b) material interference by
Landlord, its agents or contractors with the completion of the Tenant
Improvements and which objectively preclude construction of tenant improvements
in the Building by any person, which interference relates to access by Tenant,
its agents and contractors to the Building or any Building facilities (including
loading docks and freight elevators) or service (including temporary power and
parking areas as provided herein) during normal construction hours, or the use
thereof during normal construction hours; and (c) delays due to the acts or
failures to act of Landlord, its agents or contractors with respect to payment
of the Tenant Improvements. As used in this Section 5.5, "substantial completion
of the Tenant Improvements" shall mean completion of construction of the Tenant
Improvements in the Premises pursuant to the Construction Drawings with the
exception of minor details of construction installation,
EXHIBIT B - Page 7
<PAGE> 33
decoration, or mechanical adjustments and punchlist items as certified to by the
Tenant's project manager and/or the architect who prepared the Construction
Drawings. In the event that an event occurs after the Lease Commencement Date
but prior to the substantial completion of the Tenant Improvements, which would
otherwise have constituted a Landlord Delay had it occurred prior to the Lease
Commencement Date, the Lease Commencement Date shall be retroactively delayed
one (1) day for each such day of actual Landlord Delay. If Tenant contends that
a Landlord Delay has occurred, Tenant shall notify Landlord in writing (the
"Delay Notice") of such event and if such event is determined to constitute a
Landlord Delay, the Landlord Delay shall be deemed to have occurred commencing
as of the date of Landlord's receipt of the Delay Notice, except that Tenant
shall not be required to provide a Delay Notice based on the failure of Landlord
to approve or disapprove the Construction Drawings within the required
applicable time period.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Tenant Work
Letter to be executed the day and date first above written.
"Landlord":
----------------------------------------------
JONATHAN PARKER
----------------------------------------------
THOMAS M. MONAHAN
HAROLD PARKER PROPERTIES, a California
limited partnership
By:
---------------------------------
Name:
---------------------------------
Its:
---------------------------------
----------------------------------------------
HAROLD A. PARKER, as trustee for the HAROLD A.
PARKER COMPANY TRUST dated May 11, 1988
----------------------------------------------
GERTRUD V. PARKER, as trustee for the
HAROLD A. PARKER COMPANY TRUST dated May 11,
1988
"Tenant":
E-GREETINGS NETWORK,
a California corporation
By:
---------------------------------
Its:
---------------------------------
By:
---------------------------------
Its:
---------------------------------
EXHIBIT B - Page 8
<PAGE> 34
EXHIBIT C
149 NEW MONTGOMERY
NOTICE OF LEASE TERM DATES
To:
--------------------------
--------------------------
--------------------------
Re: Office Lease dated April 13, 1999, between JONATHAN PARKER, a
married man as his sole and separate property; THOMAS M. MONAHAN,
a married man as his sole and separate property; HAROLD PARKER
PROPERTIES, L.P., a California limited partnership; and HAROLD A.
PARKER, TRUSTEE, AND GERTRUD V. PARKER, TRUSTEE of the HAROLD A.
PARKER COMPANY TRUST dated May 11, 1988; all as Tenants in Common
("Landlord"), and E-GREETINGS NETWORK, a California
corporation,("Tenant") concerning the 2nd, 3rd, 4th, 5th and 6th
floors of the Office Building located at 149 New Montgomery
Street, San Francisco, California.
Gentlemen:
In accordance with the Office Lease (the "Lease"), we wish to advise you
and/or confirm as follows:
1. That the Premises are Ready for Occupancy, and that the Lease Term
shall commence as of ________________ for a term of _______________ ending on
_______________.
2. That in accordance with the Lease, Rent commenced to accrue on
_______________________.
3. If the Lease Commencement Date is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter, with the exception of the final billing, shall be for the full
amount of the monthly installment as provided for in the Lease.
4. Rent is due and payable in advance on the first day of each and every
month during the Lease Term. Your rent checks should be made payable to
____________________________________ at____________________________.
5. The exact number of rentable square feet within the Premises is
_______ square feet.
EXHIBIT C - Page 1
<PAGE> 35
6. Tenant's Share as adjusted based upon the exact number of rentable
square feet within the Premises is _______%.
"Landlord":
------------------------------------------
JONATHAN PARKER
------------------------------------------
THOMAS M. MONAHAN
------------------------------------------
HAROLD PARKER PROPERTIES,
a California limited partnership
By:
---------------------------------
Name:
------------------------------
Its:
------------------------------
-------------------------------------------
HAROLD A. PARKER, as trustee for the HAROLD A.
PARKER COMPANY TRUST, dated May 11, 1988
-------------------------------------------
GERTRUD V. PARKER, as trustee for the HAROLD A.
PARKER COMPANY TRUST, dated May 11, 1988
Agreed to and Accepted as
of _____________, 19__.
"Tenant":
E-GREETINGS NETWORK,
a California corporation
By:
------------------------
Its:
--------------------
EXHIBIT C - Page 2
<PAGE> 36
EXHIBIT D
149 NEW MONTGOMERY
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Building.
1. Tenant shall not alter any lock or install any new or additional
locks or bolts on any doors or windows of the Premises without obtaining
Landlord's prior written consent. Tenant shall bear the cost of any lock changes
or repairs required by Tenant. Two keys will be furnished by Landlord for the
Premises, and any additional keys required by Tenant must be obtained from
Landlord at a reasonable cost to be established by Landlord.
2. All doors opening to public corridors shall be kept closed at all
times except for normal ingress and egress to the Premises, unless electrical
hold backs have been installed.
3. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during such hours as are customary for comparable
buildings in the vicinity of the Building. Tenant, its employees and agents must
be sure that the doors to the Building are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time when it is so locked, or any time when it is
considered to be after normal business hours for the Building, may be required
to sign the Building register when so doing. Access to the Building may be
refused unless the person seeking access has proper identification or has a
previously arranged pass for access to the Building. The Landlord and his agents
shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In case of invasion,
mob, riot, public excitement, or other commotion, Landlord reserves the right to
prevent access to the Building during the continuance of same by any means it
deems appropriate for the safety and protection of life and property.
4. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy property brought into the Building. Safes
and other heavy objects shall, if considered necessary by Landlord, stand on
supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property in any case. All damage done to any part of the Building, its contents,
occupants or visitors by moving or maintaining any such safe or other property
shall be the sole responsibility of Tenant and any expense of said damage or
injury shall be borne by Tenant.
5. Whenever Tenant brings into the Building (or moves between floors)
any furniture or bulky freight, packages, supplies, equipment or merchandise in
the Building, Tenant shall install such padding or take such other actions or
prescribe such procedures as are appropriate to protect against damage to the
elevators or other parts of the Building.
6. Landlord shall have the right to control and operate the public
portions of the Building, the public facilities, the heating and air
conditioning, and any other facilities furnished for the common use of tenants,
in such manner as is customary for comparable buildings in the vicinity of the
Building.
7. The requirements of Tenant will be attended to only upon application
at the Office of the Building or at such office location designated by Landlord.
Employees of Landlord shall not perform any work or do anything outside their
regular duties unless under special instructions from Landlord.
8. Tenant shall not disturb, solicit, or canvass any occupant of the
Building and shall cooperate with Landlord or Landlord's agents to prevent same.
9. The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from the violation of this rule shall
be borne by the tenant who, or whose employees or agents, shall have caused it.
EXHIBIT D - Page 1
<PAGE> 37
10. Tenant shall not overload the floor of the Premises, nor mark, drive
nails or screws, or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof without Landlord's consent first had and
obtained.
11. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines of any description other
than fractional horsepower office machines shall be installed, maintained or
operated upon the Premises without the written consent of Landlord.
12. Tenant shall not use or keep in or on the Premises or the Building
any kerosene, gasoline or other inflammable or combustible fluid or material.
13. Tenant shall not use any method of heating or air conditioning other
than that which may be supplied by Landlord, without the prior written consent
of Landlord.
14. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in or on the Premises, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors, or vibrations, or
interfere in any way with other Tenants or those having business therein.
15. Tenant shall not bring into or keep within the Building or the
Premises any animals (except for one (1) dog per floor), birds, or vehicles
(other than bicycles).
16. No cooking shall be done or permitted by any tenant on the Premises,
nor shall the Premises be used for the storage of merchandise, for lodging or
for any improper, objectionable or immoral purposes. Notwithstanding the
foregoing, Underwriters' laboratory-approved equipment and microwave ovens may
be used in the Premises for heating food and brewing coffee, tea, hot chocolate
and similar beverages, provided that such use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations, and does not cause odors which are objectionable to Landlord and
other Tenants.
17. Landlord will approve where and how telephone and telegraph wires
are to be introduced to the Premises. No boring or cutting for wires shall be
allowed without the consent of Landlord. The location of telephone, call boxes
and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
18. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of these Rules and Regulations.
19. Tenant, its employees and agents shall not loiter in the entrances
or corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or
elevators, and shall use the same only as a means of ingress and egress for the
Premises.
20. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in the city
in which the Building is located without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be made
only through entry-ways and elevators provided for such purposes at such times
as Landlord shall designate.
21. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
22. Tenant shall assume any and all responsibility for protecting the
Premises from theft, robbery and pilferage, which includes keeping doors locked
and other means of entry to the Premises closed, when the Premises are not
occupied.
23. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and
EXHIBIT D - Page 2
<PAGE> 38
Regulations in favor of any other tenant or tenants, nor prevent Landlord from
thereafter enforcing any such Rules or Regulations against any or all tenants of
the Building.
24. No awnings or other projection shall be attached to the outside
walls of the Building without the prior written consent of Landlord. No
curtains, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises without the prior written
consent of Landlord. All electrical ceiling fixtures hung in offices or spaces
along the perimeter of the Building must be fluorescent and/or of a quality,
type, design and bulb color approved by Landlord.
25. The sashes, sash doors, skylights, windows, and doors that reflect
or admit light and air into the halls, passageways or other public places in the
Building shall not be covered or obstructed by Tenant, nor shall any bottles,
parcels or other articles be placed on the windowsills.
26. The washing and/or detailing of or, the installation of windshields,
radios, telephones in or general work on, automobiles shall not be allowed on
the Real Property.
27. Food vendors shall be allowed in the Building upon receipt of a
written request from the Tenant. The food vendor shall service only the tenants
that have a written request on file in the Building Management Office. Under no
circumstance shall the food vendor display their products in a public or common
area including corridors and elevator lobbies. Any failure to comply with this
rule shall result in immediate permanent withdrawal of the vendor from the
Building.
28. Tenant must comply with requests by the Landlord concerning the
informing of their employees of items of importance to the Landlord.
29. Tenant shall comply with any non-smoking ordinance adopted by any
applicable governmental authority.
30. Landlord reserves the right at any time to change or rescind any one
or more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be necessary for the management, safety, care and cleanliness of the Premises
and Building, and for the preservation of good order therein, as well as for the
convenience of other occupants and tenants therein. Landlord shall not be
responsible to Tenant or to any other person for the nonobservance of the Rules
and Regulations by another tenant or other person. Tenant shall be deemed to
have read these Rules and Regulations and to have agreed to abide by them as a
condition of its occupancy of the Premises.
EXHIBIT D - Page 3
<PAGE> 39
EXHIBIT E
149 NEW MONTGOMERY
FORM OF TENANT'S ESTOPPEL CERTIFICATE
The undersigned as Tenant under that certain Office Lease (the "Lease")
made and entered into as of April 13, 1999 and between JONATHAN PARKER, a
married man as his sole and separate property; THOMAS M. MONAHAN, a married man
as his sole and separate property; HAROLD PARKER PROPERTIES, L.P., a California
limited partnership; and HAROLD A. PARKER, TRUSTEE, AND GERTRUD V. PARKER,
TRUSTEE of the HAROLD A. PARKER COMPANY TRUST dated May 11, 1988; all as Tenants
in Common , collectively as Landlord, and the undersigned as Tenant, for
Premises on the 2nd, 3rd, 4th, 5th and 6th floors of the Office Building located
at 149 New Montgomery Street, San Francisco, California, certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in Exhibit
A represent the entire agreement between the parties as to the Premises.
2. The undersigned has commenced occupancy of the Premises described in
the Lease, currently occupies the Premises, and the Lease Term commenced on
_________.
3. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
4. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
_______________________________________________________________________________
_______________________________________________________________________________
______________________.
5. Tenant shall not modify the documents contained in Exhibit A or
prepay any amounts owing under the Lease to Landlord in excess of thirty (30)
days without the prior written consent of Landlord's mortgagee.
6. Base Rent became payable on _______________.
7. The Lease Term expires on _________________.
8. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and, to Tenant's knowledge,
Landlord is not in default thereunder.
9. No rental has been paid in advance and no security has been deposited
with Landlord except as provided in the Lease.
10. As of the date hereof, there are no existing defenses or offsets
that the undersigned has, which preclude enforcement of the Lease by Landlord.
11. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through _________________. The current monthly installment of Base Rent is
$__________.
12. The undersigned acknowledges that this Estoppel Certificate may be
delivered to Landlord's prospective mortgagee, or a prospective purchaser, and
acknowledges that it recognizes that if same is done, said mortgagee,
prospective mortgagee, or prospective purchaser will be relying upon the
statements contained herein in making the loan or acquiring the property of
which the Premises are a part, and in accepting an assignment of the Lease as
collateral security, and that receipt by it of this certificate is a condition
of making of the loan or acquisition of such property.
EXHIBIT E
<PAGE> 40
13. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business in the
state in which the Building is located and that Tenant has full right and
authority to execute and deliver this Estoppel Certificate and that each person
signing on behalf of Tenant is authorized to do so.
Executed at __________________ on the _____ day of ______________,
19___.
"Tenant":
E-GREETINGS NETWORK,
a California corporation
By:
-------------------------------
Its:
-------------------------------
By:
-------------------------------
Its:
-------------------------------
EXHIBIT E
<PAGE> 41
LEASE
149 NEW MONTGOMERY
JONATHAN PARKER, a married man as his sole and separate property;
THOMAS M. MONAHAN, a married man as his sole and separate property;
HAROLD PARKER PROPERTIES, L.P., a California limited partnership; and
HAROLD A. PARKER, TRUSTEE, and GERTRUD V. PARKER, TRUSTEE, of the
HAROLD A. PARKER COMPANY TRUST dated May 11, 1988;
all as Tenants in Common,
as Landlord,
and
E-GREETINGS NETWORK,
a California corporation,
as Tenant.
<PAGE> 42
PROJECT NAME
SUMMARY OF BASIC LEASE INFORMATION
The undersigned hereby agree to the following terms of this Summary of
Basic Lease Information (the "Summary"). This Summary is hereby incorporated
into and made a part of the attached Lease (this Summary and the Lease to be
known collectively as the "Lease") which pertains to the building which is
located at 149 New Montgomery Street, San Francisco, California (the
"Building"). Each reference in the Lease to any term of this Summary shall have
the meaning as set forth in this Summary for such term. In the event of a
conflict between the terms of this Summary and the Lease, the terms of the Lease
shall prevail. Any capitalized terms used herein and not otherwise defined
herein shall have the meaning as set forth in the Lease.
<TABLE>
<CAPTION>
TERMS OF LEASE
(References are to
the Lease) DESCRIPTION
---------- -----------
<C> <C>
1. Date: April 13, 1999
2. Landlord: JONATHAN PARKER, a married man as his sole and separate
property; THOMAS M. MONAHAN, a married man as his sole
and separate property; HAROLD PARKER PROPERTIES, L.P., a
California limited partnership; and HAROLD A. PARKER,
TRUSTEE, AND GERTRUD V. PARKER, TRUSTEE, of the HAROLD A.
PARKER COMPANY TRUST dated May 11, 1988; all as Tenants
in Common
3. Address of Landlord c/o Monahan Parker, Inc.
(Article 28.14): 1101 Fifth Avenue, Suite 150
San Rafael, CA 94901
Attention: Jonathan Parker
and
Allen, Matkins, Leck, Gamble & Mallory LLP
333 Bush Street, Suite 1700
San Francisco, California 94104
Attention: Nancy Lundeen, Esq.
4. Tenant: E-greetings Network, a California corporation
5. Address of Tenant 149 New Montgomery Street
(Article 28.14): San Francisco, California 94105
Attention: Facilities Manager
with a copy to:
Howard Rice Nemerovski Canady Falk & Rabkin
Three Embarcadero Center, Seventh Floor
San Francisco, California 94111-4065
Attention: Kenneth A. Neale, Esq.
</TABLE>
(i)
<PAGE> 43
<TABLE>
<S> <C> <C>
6. Premises (Article 1): Approximately 56,249 rentable square feet of space
located on the 2nd, 3rd, 4th, 5th and 6th floors of the
Building, as set forth on Exhibit A attached hereto. For
purposes of this Lease, the rentable
square footage for each floor of the
Premises is as follows:
2nd Floor 10,519.50
3rd Floor 10,728.75
4th Floor 10,740.25
5th Floor 10,798.00
6th Floor 10,798.00
7. Term (Article 2).
7.1 Lease Term: Ten (10) years.
7.2 Lease Commencement Date The earlier of (i) the date upon which
Tenant first commence to conduct
business in the Premises, or (ii)
September 1, 1999, subject to Landlord
Delays, as defined in Section 5.5 of the
Tenant Work Letter, attached hereto as
Exhibit B.
7.3 Lease Expiration Date The last day of the month in which the
10th anniversary of the Lease
Commencement Date occurs.
8. Base Rent (Article 3):
Monthly
Year of Lease Installment
Term of Base Rent
---- ------------
1-10 $180,465.54
9. Additional Rent (Article 4).
9.1 Operating Expense Calendar year 1999.
Base Year:
9.2 Tax Base Year: Tax year 1999-2000
9.3 Tenant's Share: 82.45%
10. Use (Article 5): General office use.
11. Security Deposit $180,465.54, plus a Letter of Credit pursuant to
(Article 21): Article 21 of the Lease.
12. Brokers (Section 28.21): CB Richard Ellis, Inc. for Landlord and Colliers
International for Tenant
</TABLE>
(ii)
<PAGE> 44
INDEX
<TABLE>
<CAPTION>
ARTICLE SUBJECT MATTER PAGE
<S> <C> <C>
1. REAL PROPERTY, BUILDING AND PREMISES.................................................1
2. LEASE TERM...........................................................................1
3. BASE RENT............................................................................1
4. ADDITIONAL RENT......................................................................2
5. USE OF PREMISES......................................................................5
6. SERVICES AND UTILITIES...............................................................5
7. REPAIRS..............................................................................6
8. ADDITIONS AND ALTERATIONS............................................................6
9. COVENANT AGAINST LIENS...............................................................7
10. INSURANCE...........................................................................7
11. DAMAGE AND DESTRUCTION..............................................................9
12. NONWAIVER..........................................................................10
13. CONDEMNATION.......................................................................10
14. ASSIGNMENT AND SUBLETTING..........................................................10
15. OWNERSHIP AND REMOVAL OF TRADE FIXTURES............................................13
16. HOLDING OVER.......................................................................13
17. ESTOPPEL CERTIFICATES..............................................................13
18. SUBORDINATION......................................................................14
19. DEFAULTS; REMEDIES.................................................................14
20. FORCE MAJEURE......................................................................15
21. LETTER OF CREDIT...................................................................16
22. SECURITY DEPOSIT...................................................................17
23. SIGNS..............................................................................17
24. COMPLIANCE WITH LAW................................................................18
25. LATE CHARGES.......................................................................18
26. LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT...............................18
27. ENTRY BY LANDLORD..................................................................18
28. MISCELLANEOUS PROVISIONS...........................................................19
29. OPTION TERM........................................................................22
</TABLE>
EXHIBITS
A OUTLINE OF PREMISES
B TENANT WORK LETTER
C NOTICE OF LEASE TERM DATES
D RULES AND REGULATIONS
E ESTOPPEL CERTIFICATE
(iii)
<PAGE> 1
EXHIBIT 10.12
[LETTERHEAD]
February 12,1999
Mr. Gordon M. Tucker
2468 Funston
San Francisco, California 94116
Dear Gordon:
On behalf of the Board of Directors, management and employees of E-greetings
Network, Inc. (the "Company"), I am delighted that you have agreed to serve as
the Company's Chief Executive Officer, and as a member of the Board of Directors
of the Company, upon the terms and conditions set forth in this letter agreement
(the "Agreement"):
1. EMPLOYMENT.
(a) POSITION. The Company employs you as its Chief Executive Officer to
perform such duties and exercise such authority of an executive nature and which
are of the type and nature normally assigned to the Chief Executive Officer of a
corporation of the size, stature, and nature, and with the growth plans of, the
Company, as the Board, of Directors of the Company (the "Board") may from time
to time reasonably and lawfully assign, all upon the terms and conditions set
forth in this Agreement. You will report directly to the Board. You accept such
employment and agree to devote your full working time and attention to your
duties as Chief Executive Officer of the Company, subject to vacation periods
and personal and sick leave in accordance with this Agreement, the Company's
policies, and applicable law. Notwithstanding the foregoing, during your
employment with the Company you may continue (i) serving as an advisor to
Netcentives, Inc., (ii) serving on the boards of directors of other companies
that are not direct competitors of the Company, and (iii) your membership in and
participation in activities of the YPO, provided that such service, membership,
and participation do not unreasonably interfere with your duties and
responsibilities hereunder. As used in this Agreement, the term "direct
competitor of the Company" shall mean a company whose principal and dominant
business is to offer consumers digital greeting cards delivered over the
Internet.
(b) HEADQUARTERS. The Company agrees that you will perform your duties
hereunder in the San Francisco Bay Area, California and that you will not be
required to relocate your residence during your employment with the Company
outside the San Francisco Bay Area. You agree, however, periodically to travel
to such other locations as reasonably required by the Company to perform your
duties hereunder.
(c) BOARD SEATS. The Company agrees that, commencing with your employment
with the Company and during your employment with it (subject to appropriate
shareholder action), you shall be a member of the Board. In addition, you shall
be entitled to nominate a
<PAGE> 2
Mr. Gordon M. Tucker
February 12,1999
Page 2
candidate for membership on the Board for the next vacant Board seat elected by
the holders of Common Stock, subject to the approval of the Board, which
approval shall not be unreasonably withheld or delayed.
(d) ROLE OF FOUNDERS. Commencing on the first day of your employment with
the Company, (i) Fred Campbell shall give up his title as CEO and assume the
title of Senior Vice President, Business Development, or such other suitable
title to be determined by Mr. Campbell and you, and (ii) Tony Levitan shall give
up his title of President and assume the title of Chief Concept Officer, or such
other suitable title to be determined by Mr. Levitan and you. Messrs. Campbell
and Levitan shall report to you. If the Company determines it is advisable to
hire a President, it shall not do so without consulting with you and, if and
when a President is hired, he or she will report to you.
2. COMPENSATION. During your employment with the Company, it shall pay you
the following compensation:
(a) an annual base salary (the "Base Salary') of Two Hundred Twenty-Five
Thousand and No/100 Dollars ($225,000), payable in equal weekly, bi-weekly, or
monthly installments consistent with the Company's payroll practices, provided,
however, the Board may, from time to time in its sole discretion, increase your
Base Salary as appropriate in light of inflation, performance, market
conditions, and other factors, and provided further that, in no event, shall
your Base Salary be decreased except in connection with a general reduction in
salaries of management to which you consent; and
(b) an annual bonus, the target for which is fifty percent (50%) of your
Base Salary (i.e., $99,554.79, based on a pro ration for calendar year 1999).
For calendar year 1999, you will establish the management bonus plan, which will
be subject to the Board's reasonable approval. Your actual bonus for 1999 will
be paid to you according to the annual management incentive payout schedule
established for 1999, but in any event no later than March 1, 2000.
All amounts payable under this Agreement will be subject to applicable
withholding, which the Company may deduct from such amounts.
3. EQUITY. The Company shall grant you stock options equal to ten percent
(10%) of the Company's fully-diluted shares (computed as determined below)
outstanding as of February 12, 1999, subject to the standard terms of conditions
under the Company's option plan and stock option agreement, except as
specifically set forth herein. Vesting of these shares shall be on the Company's
normal vesting schedule, which is over four (4) years with an initial six (6)
month vesting cliff, followed by monthly vesting. The exercise price of these
options shall be $3.10 per share (which the Company represents and warrants is
the same price at which it is currently offering options on Common Stock to
employees of the Company). The Company shall extend
<PAGE> 3
Mr. Gordon M. Tucker
February 12,1999
Page 3
you full dilution protection through the current round of Series F Preferred
Stock Financing (i.e., additional options will be issued to you based on the
terms set forth above except that the exercise price will be the exercise price
at which the Company is offering options to employees as of the time of the
closing of the Series F Preferred Stock Financing, to bring you back to the ten
percent figure effective with the closing of the Series F Preferred Stock
Financing). For purposes of calculations, the denominator for fully-diluted
shares outstanding will include all common and preferred shares outstanding,
plus warrants outstanding and all employee stock options granted or available to
be granted, in each case as of February 12, 1999, except to give effect to the
sale of the Series F Preferred Stock Financing. The Company agrees that, with
respect to the foregoing options granted to you and your acquisition or
ownership of any of the shares of Common Stock, you shall enjoy at least the
same rights and privileges as the founders may have and as employees may have as
shareholders of the Company through the ESOP plan (but not the same rights and
privileges as the preferred shareholders have), including each of the following
if and to the extent that the founders or such employees may have or receive
same: (a) full registration rights with the SEC (with all costs associated with
any registration paid for in full by the Company) at the time of the first
registration of any Common Stock with the SEC, (b) full participation in any
stock splits with a proportionate reduction in the option price to be paid by
you (e.g., a two-for-one stock split or a one-for-one stock dividend would
reduce the strike price of the option stock available to you by fifty percent
(50%) and double the number of shares), and (c) full tag along rights in the
event of a sale of a majority (or more) of the Common Stock to a third party.
4. EXPENSES.
(a) BUSINESS EXPENSES. The Company shall reimburse you for all expenses
you necessarily and reasonably incur in connection with your duties (including
conferences, YPO dues, fees, and conference expenses, and travel, lodging, meal,
and entertainment expenses), against presentation of proper receipts or other
proof of expenditure, and subject to reasonable guidelines or limitations
provided to you, and which are to be applied prospectively only as the Board of
Directors may reasonably prescribe consistent with the requirements specified by
the Internal Revenue Service for the substantiation of business expenses.
(b) MOVING EXPENSES. The Company agrees that it will provide you with a
Transition Allowance of Seventy-Five Thousand and No/100 Dollars ($75,000) so
that you may be reimbursed for, or so that the Company may pay on your behalf
the reasonable costs and expenses of relocating you from the Dallas, Texas
metropolitan area to the San Francisco Bay Area, California. To the extent that
the Transition Allowance is not expended, the Company will pay the balance to
you. However, all amounts paid under this paragraph 4(b) will be credited
against any amounts otherwise payable to you as your bonus for calendar year
1999 as provided in Section 2(b) of this Agreement.
<PAGE> 4
Mr. Gordon M. Tucker
February 12,1999
Page 4
5. BENEFITS. During your employment with the Company, you shall be entitled
to participate in any and all employee benefits maintained by the Company for
its executives or employees generally, including any profit sharing plan, bonus
plan, stock option, or other benefit plan, retirement plan, group health,
disability, accident, and life insurance plans or other insurance plans or
medical expense plans; provided, however, that any participation by you in stock
option, stock purchase and bonus programs will be in the sole discretion of the
Board except as otherwise expressly provided in this Agreement. Without limiting
the generality of the foregoing, you will receive at least four (4) weeks of
paid vacation per year and a monthly parking space convenient to the Company's
principal place of business for which you will not be charged.
6. REIMBURSEMENT. The Company agrees promptly to reimburse you for your
attorneys' fees incurred in connection with the negotiation and preparation of
this Agreement up to a maximum of $5,000. To the maximum extent permitted by
applicable law and the Company's Articles and Bylaws, the Company agrees to
indemnify, defend, and hold you harmless from and against any and all demands,
actions, claims, suits, liabilities, losses, damages, fees and expenses relating
to any acts or omissions to act in the course or scope of your duties you
performed or perform on behalf of the Company while employed by it or serving on
its Board and to provide indemnification and Directors and Officers liability
insurance to you at least to the same extent that it provides such
indemnification and insurance to the Officers and Directors of the Company. The
provisions of the foregoing sentence shall survive the termination of your
employment with the Company.
7. TERMINATION OF EMPLOYMENT. Your employment with the Company under this
Agreement will commence as of February 12, 1999 and shall end on the earlier
date on which any of the following events may occur:
(a) your death or resignation from the employ of the Company;
(b) the termination of your employment with the Company for Cause, as
defined below, with notice given by the Company as provided hereinbelow; or
(c) the termination of your employment with the Company without Cause, as
defined below, with notice given by the Company as provided hereinbelow; or
(d) the termination of your employment with the Company by you due to a
Failure to Maintain Employment Conditions, with notice, given by you as provided
hereinbelow.
8. CAUSE. As used in this Agreement, the term "Cause" shall mean any of the
following:
(a) your willful theft or embezzlement of funds of the Company;
<PAGE> 5
Mr. Gordon M. Tucker
February 12,1999
Page 5
(b) your pleading guilty or no contest to, or your conviction of, a felony
involving moral turpitude or which shall have resulted in material injury to the
property or operations of the Company;
(c) a material and willful breach by you of this Agreement; or
(d) a material and willful breach by you of the Company's Standard
Proprietary Information and Inventions Agreement or of any other written,
contractual agreement between you and the Company.
Notwithstanding the foregoing, the conduct specified in subsections 8(c) and (d)
shall not constitute or be deemed to constitute Cause if it is of such a nature
that substantially all detriment otherwise resulting to the Company from it can
be cured or eliminated by appropriate action, and you cause such action to be
taken within fourteen (14) days following notice from the Company that it
desires to terminate your employment for Cause. For purposes of this Section 9,
no act on your part shall be considered "willful" unless it is done by you in
bad faith or without reasonable belief that your action was in the best
interests of the Company. Any act based upon a specific provision of the
Articles of Incorporation or Bylaws of the Company or a specific resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively deemed to be done by you in good faith and in the best interests
of the Company.
9. FAILURE TO MAINTAIN EMPLOYMENT CONDITIONS. As used in this Agreement, the
term "Failure to Maintain Employment Conditions" shall mean any of the
following:
(a) the assignment to you of any duties inconsistent in any respect with
your position (including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by this Agreement, or any
other action by the Company which results in a material diminution in such
position, authority, duties or responsibilities, or the failure to continue you
in office as Chief Executive Officer, and as a Director, of the Company;
(b) a material failure by the Company to comply with the provisions of
this Agreement or any other written agreement between you and the Company;
(c) the transfer of your headquarters to a place outside the San Francisco
Bay Area, California without your prior written consent; or
(d) a failure by the Company to require any successor (whether direct or
indirect by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
<PAGE> 6
Mr. Gordon M. Tucker
February 12,1999
Page 6
Notwithstanding the foregoing, the conduct Specified in subsections 9(a) through
(d) shall not constitute or be deemed to constitute a Failure to Maintain
Employment Conditions if it is of such a nature that substantially all detriment
otherwise resulting to you from it can be cured or eliminated by appropriate
action, and the Company causes such action to be taken within fourteen (14) days
following notice from you that you desire to terminate your employment with the
Company for Failure to Maintain Employment Conditions.
10. SEVERANCE. In the event that (a) the Company terminates your employment
with the Company without Cause, or (b) you terminate your employment with the
Company for a Failure to Maintain Employment Conditions, then, in such event,
and without abrogating or limiting any other rights or remedies you may have
under this Agreement or any other agreements with the Company or at law or in
equity, and provided that you are not employed by, providing services to, or
financially supporting in any capacity a direct competitor of the Company:
(a) the Company shall pay you your Base Salary for an additional period of
twelve (12) months following the last day of your employment with the Company;
(b) your stock options for the month in progress and for the twelve (12)
months thereafter shall immediately and fully vest and shall be exercisable
until not less than three (3) years after the termination of your employment;
provided, however, that, if within one hundred eighty (180) days after the
termination of your employment a Change of Control (as defined below) occurs or
is announced, or an agreement is reached that will result in a Change of Control
(as defined below), then all of your stock options shall accelerate and fully
vest effective as of the date of the termination of your employment and shall be
exercisable until not less than three (3) years after the termination of your
employment;
(c) the Company shall on the last day of your employment with the Company,
pay to you (x) your salary and earned and unused vacation pay through the last
day of your employment with the Company, (y) unpaid reimbursable business
expenses incurred by you through the last day of your employment with the
Company, and (z) any earned but unpaid annual bonus compensation for the prior
calendar year; further, following the close of the current calendar year, the
Company shall pay you the target bonus (if any) you would have earned had you
remained in the employ of the Company for the calendar year then in progress,
prorated for the portion of the year you were employed; and
(d) for an additional period of twelve (12) months following the last day
of your employment with the Company, the Company shall continue medical and
dental benefits, at its expense, to you and/or your family at least equal to
those which would have been provided to you and them in accordance with the
plans, programs, practices and policies described in Section 5 of this Agreement
if your employment had not ended or, if more favorable to you, as in effect
generally at any time thereafter with respect to other executives of the Company
and their
<PAGE> 7
Mr. Gordon M. Tucker
February 12,1999
Page 7
families, provided, however, that if you become reemployed with another employer
and are eligible to receive medical or other welfare benefits under another
employer provided plan, the medical and dental benefits described herein shall
cease.
You acknowledge that your employment is "at will" and may be terminated at any
time, subject to the payment of severance benefits as provided herein. The
Company may condition its payment to you of severance benefits on your execution
of a reasonable mutual general release by you and the Company in the form
attached hereto as Exhibit A; provided, however, that such release shall not
require you to release, or provide for your release of, any of your rights under
this Agreement which survive the termination of your employment with the
Company, and provided further that such release shall not require the Company to
release, or provide for the release of, any of the Company's rights under this
Agreement which survive the termination of your employment with the Company. You
shall not be required to seek other employment or take other action in order to
mitigate your damages to be entitled to the benefits and payments under Section
10 of this Agreement. Except as otherwise specifically provided in Section 10(d)
above with respect to your medical and dental benefits, in the event that you
become reemployed with another employer, the Company is not entitled to set off
against such benefits and payments due or any other amounts of money payable to
you under this Agreement any amounts earned by you in other employment after the
termination of your employment with the Company or any amounts that you might or
could have earned in other employment had you sought such other employment. The
amounts of money payable to you under this Section shall not be treated as
damages, but as severance compensation to which you are entitled by reason of
your service with the Company and the termination of your employment pursuant to
the provisions of this Agreement.
11. CHANGE OF CONTROL. In the event that there is a "Change of Control" then,
in such event, and without abrogating or limiting any other rights or remedies
you may have under this Agreement or any other agreements with the Company or at
law or in equity, the first three (3) years of your stock options shall
accelerate and fully vest effective immediately prior to such Change of Control,
and shall be exercisable until not less than three (3) years after the
termination of your employment for any reason. As used in this Agreement, the
term "Change of Control" shall mean:
(a) a merger involving the Company pursuant to which the shareholders of
the Company immediately prior to the merger do not continue to hold at least a
fifty percent (50%) percent equity interest in the successor entity (which may
be the Company) or the closing of any tender offer to Purchase substantially all
of the outstanding shares of the Company; or
(b) the sale of all or substantially all of the Company's assets.
<PAGE> 8
Mr. Gordon M. Tucker
February 12,1999
Page 8
If you remain the in the employ of the Company as its Chief Executive Officer
for one (1) year following such Change of Control or, if within the one (1) year
period following such Change of Control:
(i) your employment with the Company is terminated without Cause,
(ii) you terminate your employment with the Company by reason of a
Failure to Maintain Employment Conditions,
(iii) your employment does not terminate but there is an adverse change,
without your prior written consent, in your working conditions, including a
material breach of this Agreement, a reduction of your level of responsibility,
authority, autonomy, title, compensation, employee benefits, or executive
perquisites, a change of your reporting lines, a change in the place of
performance of your duties outside the San Francisco Bay Area, California, a
change of scope of your duties, or your being subject to conduct or harassment
intended to cause you to resign or to make your working conditions unacceptable,
or
(iv) your employment with the Company terminates by reason of your death,
then, if the fourth (4th) year of your stock options has not already vested
under Section 3 of this Agreement, the fourth (4th) year of your stock options
shall accelerate and fully vest effective at the end of such one (1) year period
or upon such termination, such adverse change, or your death, as the case may
be, and shall be exercisable until not less than three (3) years after the
termination of your employment.
12. CONFIDENTIALITY. Within seven (7) business days following your first day
of employment with the Company, you agree to sign the Company's Standard
Proprietary Information and Inventions Agreement (the "SPIIA"). For a period of
one (1) year following the termination of your employment with the Company for
Cause or as a result of your resignation, you agree not to solicit employees of
the Company for employment and not to solicit any customers or strategic
partners of the Company for a direct competitor of the Company.
13. MISCELLANEOUS.
(a) Each party hereby agrees to cooperate with the other and to execute
and deliver all such additional documents and instruments, and to take all such
other action, as the other party may reasonably request from time to time to
effectuate the provisions and purposes of this Agreement.
(b) Except as otherwise provided in this Agreement, all notices requests,
consents, and other communications required or permitted under this Agreement
shall be in writing and signed by the party giving notice, and shall be deemed
to have been given when hand delivered
<PAGE> 9
Mr. Gordon M. Tucker
February 12,1999
Page 9
by personal delivery, or by Federal Express or similar courier service, or when
transmitted by facsimile, or three (3) business days after being deposited in
the United States mail, registered or certified mail, with postage prepaid,
return receipt requested, addressed as follows:
If to the Company: E-greetings Network, Inc.
501 Second Street, Suite 114
San Francisco, California 94107
Attention: Mr. Fred Campbell
Facsimile: (415) 536-1877
If to the Executive: Mr. Gordon M. Tucker
2468 Funston
San Francisco, California 94116
Facsimile: (415) 681-2008
or to such other address as either party may designate for himself or itself by
notice given to the other party from time to time in accordance with the
provisions of this Agreement.
(c) Except as otherwise expressly provided in this Agreement, this
Agreement may not be assigned by either party, whether by operation of law or
otherwise, without the prior written consent of the other party; provided,
however, that this Agreement will be assigned by the Company to its successor in
any Change of Control transaction. Subject to the foregoing, this Agreement
shall be binding upon and shall inure to the benefit of the parties and their
respective heirs, legatees, devisees, : personal and legal representatives,
successors and assigns.
(d) No delay on the part of any party in the exercise of any right or
remedy shall operate as a waiver thereof, and no single or partial exercise by
any party of any right or remedy shall preclude other or farther exercise
thereof or the exercise of my other right or remedy. The waiver of any breach or
condition of this Agreement by either party shall not constitute a precedent in
the future enforcement of any of the terms and conditions of this Agreement.
(e) The headings of Sections and subsections contained in this Agreement
are merely for convenience of reference and shall not affect the interpretation
of any of the provisions of this Agreement. Whenever the term "include,"
"including," or "included" is used in this Agreement, it shall mean, including,
without limiting, the foregoing. This Agreement is deemed to have been drafted
jointly by the parties, and any uncertainty or ambiguity shall not be construed
for or against either party a an attribution of drafting to either party.
Whenever the context so requires, the singular shall include the plural and vice
versa. All words and phrases shall be construed as masculine, feminine or neuter
gender, according to the context.
<PAGE> 10
Mr. Gordon M. Tucker
February 12,1999
Page 10
(f) Whenever possible, each provision of this Agreement shall be construed
and interpreted in such a manner as to be effective and valid under applicable
law, but if any provision of this Agreement or the application thereof to any
party or circumstance shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition without
invalidating the remainder of such provision or any other provision of this
Agreement or the application of such provision to other parties or
circumstances.
(g) All discussions, correspondence, and agreements heretofore had or made
between the parties, are superseded by and merged into Agreement, which,
together with the SPIIA, fully and completely express the agreement between the
parties relating to their subject matter, and the same are entered into with no
party relying upon any statement or representation made by or on behalf of any
party not embodied in this Agreement or the SPIIA. Any modification of this
Agreement or the SPIIA may be made only by a written agreement signed by both of
the parties to this Agreement.
(h) This Agreement is being executed and delivered in the State of
California, and the validity, construction, and enforceability of this Agreement
shall be governed in all respects by the domestic laws of the United States and
the State of California applicable to agreements made and to be performed
entirely within the State of California, without regard to the conflicts of laws
principles of the State of California or any other state.
(i) This Agreement may be executed in any one or more counterparts, each
of which shall constitute an original, no other counterpart needing to be
produced, and all of which, when taken together, shall constitute but one and
the same instrument.
(j) The parties represent and warrant to each other that they have read
this Agreement in Its entirety, that they understood the terms of this Agreement
and understand that the terms of this Agreement are legally enforceable, that
they have had ample opportunity to negotiate with each other with regard to all
of its terms, that they have entered into this Agreement freely and voluntarily,
that they intend to and shall be legally bound by this Agreement and that they
have full power, right, authority, and competence to enter into and execute this
Agreement.
<PAGE> 11
Mr. Gordon M. Tucker
February 12,1999
Page 11
Gordon, we are very excited about your joining us and look forward to working
with you. Please acknowledge your acceptance of the terms and conditions
specified above by signing the enclosed duplicate copy of this Agreement on the
line below and returning it to me. This copy of the Agreement, which I have
already signed on behalf of the Company, is for you.
Sincerely,
E-GREETING NETWORK, INC.
By:
----------------------------------------
Fred Campbell
I hereby acknowledge my acceptance of the terms and conditions of this Agreement
this _____day of February, 1999.
- -------------------------------------------
Gordon A Tucker
<PAGE> 12
MUTUAL GENERAL RELEASE
THIS MUTUAL GENERAL RELEASE (the "Release") is made and entered into as
of the ___ day of _____________________ by and between GORDON TUCKER (the
"Executive") and E-GREETINGS NETWORK, INC. (the "Company").
WITNESSETH:
THAT, WHEREAS, Executive was employed by the Company as its Chief
Executive Officer; and
WHEREAS, pursuant to an employment agreement between the Executive and
the Company dated February 12, 1999 (the "Employment Agreement"), the Executive
is entitled to receive severance pay and other benefits;
WHEREAS, pursuant to the Employment Agreement the parties have agreed
to enter into this Release;
NOW, THEREFORE, for and in consideration of the foregoing, and for
other good and valuable consideration, the receipt and sufficiency of which the
Executive and the Company hereby acknowledge, the Executive and the Company
agree as follows:
1. RELEASES.
(a) Except for breaches of the Employment Agreement, except
for the payments, benefits, and rights to which the Executive is entitled to
under the Employment Agreement after his employment with the Company ended, and
except for breaches of this Release, to the extent permitted by applicable law,
the Executive, on behalf of himself and his heirs, personal and legal
representatives, successors, and assigns, does hereby RELEASE AND FOREVER
DISCHARGE the Company, and its officers, directors, shareholders, employees,
legal representatives, successors and assigns (the Company and all of the
foregoing being hereinafter collectively referred to as the "Company
Releasees"), of and from, and does hereby WAIVE, any and all rights, contracts
and agreements (whether express or implied), covenants of good faith and fair
dealing, torts, claims, damages, attorneys' fees, actions, causes of action, and
suits, whether or not now known, suspected, or claimed, which he ever had, now
has or claims, or might hereafter have or claim against the Company Releasees,
and each of them, based upon, arising out of or relating to, directly or
indirectly, any matter or thing occurring, in whole or in part from the
beginning of the world through the date hereof, including any and all rights,
claims, or causes of action which he has, had, or may have against the Company
Releases, and each of them, relating to his employment with the Company, or the
termination thereof, at common law (including any and all claims of wrongful
discharge, defamation, or emotional distress), under federal, state, and local
statute or ordinance, including Title VII of the Civil Rights Act of 1964, the
Civil Rights Act of 1991, the Equal Pay Act, the Age Discrimination in
Employment Act, and the Americans with Disabilities Act, and under any and all
other laws relating to employment, discrimination, and tortious conduct.
1.
<PAGE> 13
The Executive REPRESENTS AND WARRANTS that (i) he has not heretofore
assigned or transferred to any person or entity any of the matters released
under this Section 1(a), and (ii) he has not filed any charges or complaints
against any of the Company Releasees with any governmental or administrative
agency or with any court. The Executive covenants not to sue or file any
charges, or cause any suit or charge to be filed, against the Company Releasees,
or any of them, for any of the matters released under this Section 1(a).
(b) Except for breaches of the Employment Agreement, except
for the obligations of the Executive under the Employment Agreement which
survive the termination of his employment (including, without limitation,
Executive's obligations under the SPIIA (as defined in the Employment
Agreement), and except for breaches of this Release, to the maximum extent
permitted by applicable law, the Company Releasees, and each of them, do hereby
RELEASE AND FOREVER DISCHARGE the Executive and his heirs, personal and legal
representatives, successors and assigns (the Executive and all of the foregoing
being hereinafter collectively referred to as the "Executive Releasees"), of and
from, and do hereby WAIVE, any and all rights, contracts and agreements (whether
express or implied), covenants of good faith and fair dealing, torts, claims,
damages, attorneys' fees, actions, causes of action, and suits, whether or not
now known, suspected, or claimed, which they ever had, now have or claim, or
might hereafter have or claim against the Executive Releasees, and each of them,
based upon, arising out of, or relating to, directly or indirectly, any matter
or thing occurring, in whole or in part, from the beginning of the world through
the date hereof, including any and all rights, claims, or causes of action which
they have, had, or may have against the Executive Releasees, and each of them,
relating to the Executive's employment with the Company, or the termination
thereof, at common law (including any and all claims of defamation or emotional
distress).
The Company Parties REPRESENT AND WARRANT that (i) they have not
heretofore assigned or transferred to any person or entity any of the matters
released under this Section 1(b), and (ii) they have not filed any charges or
complaints against any of the Executive Releasees with any governmental or
administrative agency or with any court. The Company Releasees covenant not to
sue or file any charges, or cause any suit or charge to be filed, against the
Executive Releasees, or any of them, for any of the matters released under this
Section 1(b).
(c) The parties to this Release REPRESENT AND WARRANT to one
another that it is within their contemplation that they may have claims against
one another of which, at the time of the execution and delivery of this Release,
they have no knowledge or suspicion, but that they agree that this Release
extends to any and all claims in any way based upon, connected with, or related
to the matters released and described in Sections 1(a) and 1(b) of this Release,
whether or not now known, claimed or suspected by them. The parties to this
Release expressly WAIVE the benefits of California Civil Code Section 1542 which
provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
2.
<PAGE> 14
Notwithstanding anything to the contrary in this Release, nothing in
this Release shall preclude or interfere with the Executive's participation in
any investigations or proceedings by, or filing of any charge with, the United
States Equal Employment Opportunity Commission ("EEOC") with respect to a
violation of the civil rights laws administered by the EEOC, provided, however,
that the Executive acknowledges and agrees that he hereby waives any and all
rights he may have to recovery (whether monetary or otherwise) in connection
with any such charge or for any of the other claims referenced in this Section
1.
2. REFERENCE. Upon the written request of the Executive, the
Company agrees to provide the Executive with a mutually agreed upon favorable
written reference and to designate a mutually agreeable contact at the Company
to whom oral reference inquiries may be made.
3. WAIVER OF EMPLOYMENT. The Executive agrees that he shall not
knowingly apply for employment, reinstatement, or re-employment by the Company,
and he hereby WAIVES any right he may have to apply for such employment or
re-employment.
4. HEADINGS. The headings of Sections contained in this Release
are merely for convenience of reference and shall not affect the interpretation
of any of the provisions of this Release. Whenever the context so requires, the
singular shall include the plural and vice versa. All words and phrases shall be
construed as masculine, feminine or neuter gender, according to the context.
Whenever the term "include," "including," or "include' is used in this Release,
it shall mean including without limiting the foregoing. This Release is deemed
to have been drafted jointly by the parties to this Release, and any uncertainty
or ambiguity shall not be construed for or against any party as an attribution
of drafting to any party. This Release is being made and delivered in the State
of California, and the validity, construction, and enforceability of this
Release shall be governed in all respects by the internal laws of the State of
California, without regard to principles of conflicts of law. This Release may
be executed in any one or more counterparts, each of which shall constitute an
original, no other counterpart needing to be produced, and all of which, when
taken together, shall constitute but one and the same instrument.
5. EFFECTIVE DATE. THE EXECUTIVE ACKNOWLEDGES THAT THE COMPANY
HAS GIVEN HIM TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE AND THAT THE COMPANY
HAS ADVISED HIM TO CONSULT WITH A LAWYER BEFORE SIGNING THIS RELEASE.
THE PARTIES ACKNOWLEDGE AND AGREE THAT THEY HAVE READ THIS RELEASE IN
ITS ENTIRETY, THAT THEY HAVE HAD AMPLE OPPORTUNITY TO CONFER WITH THEIR OWN
COUNSEL FOR ASSISTANCE AND ADVICE CONCERNING THIS RELEASE, THAT THEY HAVE
NEGOTIATED THE TERMS OF THIS RELEASE, THAT THEY UNDERSTAND THE TERMS OF THIS
RELEASE AND UNDERSTAND THAT THE TERMS OF THIS RELEASE ARE LEGALLY ENFORCEABLE,
AND THAT THEY ARE ENTERING INTO THIS RELEASE FREELY AND VOLUNTARILY.
3.
<PAGE> 15
THE PARTIES EACH FURTHER ACKNOWLEDGE THAT FOR A PERIOD OF SEVEN (7)
DAYS FOLLOWING THE EXECUTION OF THIS RELEASE, THE EXECUTIVE MAY REVOKE THIS
RELEASE, AND THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE
SEVEN (7) DAY REVOCATION PERIOD HAS EXPIRED (the "Effective Date").
IN WITNESS WHEREOF, the parties have executed this Release as of the
day and year first above written.
GORDON TUCKER E-GREETINGS NETWORK, INC.
By: By:
------------------------------- -----------------------------------
Its:
----------------------------------
4.
<PAGE> 16
SECURED PROMISSORY NOTE
$4,761,881.60 June __, 1999
FOR VALUE RECEIVED, the undersigned, Gordon M. Tucker ("Purchaser") hereby
promises to pay E-greetings Network, a California corporation (the "Company"),
or order (the "Holder"), at its principal offices, or such other place as the
Holder may direct, on the date (the "Maturity Date") which is the earlier of (1)
four years after the date of this Note, or (2) sixty days after the termination
of Purchaser's employment with the Company, the principal sum of Four Million
Seven Hundred Sixty-One Thousand Eight Hundred Eighty-One Dollars and Sixty
Cents ($4,761,881.60), with interest from the date of this Promissory Note,
payable annually on the unpaid principal sum from time to time outstanding, in
lawful money of the United States, at the lesser of (i) the relevant mid-term
applicable federal rate in effect as of the date of this Promissory Note as
published by the Internal Revenue Service (i.e., 5.37% per annum), or (ii) the
maximum rate permitted under applicable law.
This Note is executed and delivered together with a Pledge Agreement
between Purchaser and the Holder by which Purchaser has pledged to Holder, among
other things, his right, title, and interest in and to Three Million Four
Hundred One Thousand Three Hundred Forty-Four (3,401,344)shares of the common
stock of the Company, such shares having been purchased with the cash proceeds
of a loan from the Company to Purchaser which is evidenced by this Note. In
addition to the security interest created under the Pledge Agreement, this Note
is intended to evidence a limited recourse obligation of Purchaser. The holder,
by acceptance of this Note, agrees that its recourse is limited to twenty
percent of the initial principal amount of the Note plus the value obtained in
the sale of the collateral.
This Note may be prepaid by Purchaser in whole or in part, at any time or
from time to time, without penalty or premium.
Purchaser waives diligence, presentment, demand, protest, and notice of
protest, dishonor, and nonpayment.
If any action or proceeding is brought by the Holder to enforce payment of
this Note, then the prevailing party shall be entitled to recover reasonable
attorneys' fees and other costs incurred therein.
This Note is to be construed in accordance with and be governed by the
laws of the State of California applicable to contracts made and to be performed
in the State of California.
SIGNED, as of the date shown above, by
- -------------------------------------------
GORDON M. TUCKER
<PAGE> 17
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT ("Agreement"), dated as of June __, 1999, is made
between E-GREETINGS NETWORK, a California corporation (the "Company"), and
GORDON M. TUCKER ("Pledgor").
For good and valuable consideration and to secure the payment of Pledgor's
indebtedness to the Company, the parties agree as follows:
1. PLEDGOR'S INDEBTEDNESS.
(a) Under the Non-Qualified Stock Option Agreement between the Company and
Pledgor dated as of June __, 1999 (the "Non-Qualified Stock Option Agreement"),
the Company has issued and sold and Pledgor has purchased Three Million Four
Hundred One Thousand Three Hundred Forty-Four (3,401,344) shares of its common
stock (the "Shares") for a purchase price of one dollar and forty cents ($1.40)
per share, and for an aggregate Purchase Price of Four Million Seven Hundred
Sixty-One Thousand Eight Hundred Eighty-One Dollars and Sixty Cents
($4,761,881.60) (the "Aggregate Purchase Price").
(b) Under the Non-Qualified Stock Option Agreement, the Aggregate Purchase
Price paid by Pledgor for the Shares was paid with the proceeds of a loan from
the Company to Pledgor, evidenced by the delivery of a promissory note (the
"Note") payable to the order of the Company in an aggregate principal amount
equal to the Aggregate Purchase Price for the Shares.
(c) Pledgor has executed the Note and is required to secure that Note by
delivery of this Agreement.
2. PLEDGE. Pledgor hereby pledges to the Company, and grants to the Company a
security interest in, the following (the "Pledged Collateral"): (i) the Shares
and the certificates representing the Shares, and all other securities,
instruments, dividends, cash, and other property that may be received,
receivable, or otherwise distributed in respect of or in exchange for any of the
Shares; and (ii) all other proceeds of the foregoing.
3. SECURITY FOR OBLIGATIONS.
(a) This Agreement secures the payment of all of Pledgor's present and
future obligations, duties, and liabilities under the Note and under this
Agreement (all referred to as the "Obligations").
(b) This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (i) remain in fall force and effect until payment
in full of the Obligations; (ii) be binding upon Pledgor and his successors and
assigns; and (iii) inure to the benefit of the Company and its successors,
transferees, and assigns.
4. DELIVERY OF PLEDGED SHARES. All certificates or instruments representing
or evidencing the Shares and other Pledged Collateral shall be held by or on
behalf of the Company
1.
<PAGE> 18
under this Agreement and shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or assignment in
blank, all in form and substance satisfactory to the Company. If Pledgor fails
to perform any Obligation, the Company may itself perform, or cause performance
of, that Obligation, and the expenses of the Company incurred in connection with
that performance shall be payable by Pledgor under Section 9.
5. REPRESENTATIONS AND WARRANTIES. Pledgor represents and warrants as
follows:
(a) Pledgor is the legal, record, and beneficial owner of the Pledged
Collateral free and clear of any lien on the Pledged Collateral except for the
security interest created by this Agreement and the other terms and conditions
set forth or referenced in the Non-Qualified Stock Option Agreement.
(b) The pledge of the Pledged Collateral under this Agreement creates a
valid and perfected first priority interest in the Pledged Collateral, securing
the payment of the Obligations.
6. RIGHTS IN ABSENCE OF DEFAULT.
(a) So long as there has been and is no Event of Default (as defined in
Section 8(a) below) or event which, with the giving of notice or the lapse of
time, or both, would become an Event of Default, and subject to the terms and
conditions of the Non-Qualified Stock Option Agreement:
(i) Pledgor shall be entitled to exercise any and all voting and
other consensual rights pertaining to any or all of the Pledged Collateral for
any purpose not inconsistent with the terms of this Agreement or the Note;
provided that Pledgor shall not exercise or shall refrain from exercising any of
those rights if, in the judgment of the Company, that action would have a
material adverse effect on the value of the Pledged Collateral or any part of
it.
(ii) Dividends, other distributions, and interest paid or payable in
respect of, and instruments and other property received, receivable, or
otherwise distributed in respect of, or in exchange for, an' Pledged Collateral
shall constitute, and shall be immediately delivered to the Company to hold as,
Pledged Collateral, and shall, if received by Pledgor, be received in trust for
the benefit of the Company, be segregated from the other property or funds of
Pledgor, and be immediately delivered to the Company as Pledged Collateral in
the same form as so received (with any necessary endorsement).
(iii) The Company shall execute and deliver (or cause to be executed
and delivered) to Pledgor all such proxies and other instruments as Pledgor may
reasonably request for the purpose of enabling him to exercise the voting and
other rights that he is entitled to exercise pursuant to paragraph (i) of this
Section 6(a).
(b) When and so long as there is an Event of Default or an event which,
with the giving of notice or the lapse of time, or both, would become an Event
of Default all rights of Pledgor to exercise the voting and other rights that he
would otherwise be entitled to exercise pursuant to Section 6(a)(i) shall cease,
and all those rights shall become vested in the Company, which shall then have
the sole right to exercise those voting and other rights.
2.
<PAGE> 19
7. TRANSFERS AND LIENS. Pledgor agrees that he will not (i) sell or otherwise
dispose of, or grant any option with respect to, any of the Pledged Collateral
without the prior written consent of the Company; or (ii) create or permit to
exist any lien upon or with respect to any of the Pledged Collateral, except for
the security interest under this Agreement and any other restrictions set forth
or referenced in the Non-Qualified Stock Option Agreement.
8. EVENTS OF DEFAULT, REMEDIES UPON DEFAULT.
(a) The following each shall constitute events of default ("Events of
Default") under this Agreement:
(i) If Pledgor fails to perform or observe any term, covenant, or
Obligation under this Agreement or the Note, or if any representation or
warranty made by Pledgor in this Agreement or the Note is untrue or misleading
in any material respect as of the date with respect to which that representation
or warranty was made;
(ii) If a notice of lien, levy, or assessment is filed or recorded
with respect to all or a substantial part of the Pledged Collateral, except for
a lien that relates to current taxes not yet due and payable, and if the
applicable claim is not discharged or satisfied within thirty (30) days of
Pledgor's actual or constructive knowledge of that filing or recordation; and
(iii) If all or a substantial part of the Pledged Collateral is
attached, seized, or subjected to a writ or distress warrant, or is levied upon,
or comes within the possession of any receiver, trustee, custodian, or assignee
for the benefit of creditors, and that Pledged Collateral is not returned to
Pledgor or the writ, distress warrant, or levy is not dismissed, stayed, or
lifted within thirty (30) days.
(b) When and so long as there is any Event of Default, the Company may
exercise in respect of the Pledged Collateral, in addition to other rights and
remedies provided for in this Agreement or otherwise available to it, all the
rights and remedies of a secured party upon a default under the Uniform
Commercial Code in effect in the State of California at that time.
9. EXPENSES. On demand, Pledgor will pay the Company all reasonable expenses,
including attorneys fees and costs, which the Company may incur in connection
with (i) the exercise or enforcement of any of the rights of the Company under
this Agreement; or (ii) Pledgor's failure to perform or observe any of the
provisions of this Agreement.
10. SECURITY INTEREST ABSOLUTE. All rights and security interests of the
Company, and all Obligations of Pledgor, under this Agreement shall be absolute
and unconditional irrespective of (i) any lack of validity or enforceability of
the Note or any other agreement or instrument relating to it; (ii) any change in
the time, manner, or place of payment of, or in any other term of, any of the
Obligations, or any other amendment or waiver of or consent to any departure
from the Note; (iii) any exchange, release, or non-perfection of any other
collateral, or any release, amendment, or waiver of any of the Obligations; or
(iv) any other circumstance that might otherwise constitute a defense available
to, or a discharge of, Pledgor in respect of the Obligations or of this
Agreement.
3.
<PAGE> 20
11. FURTHER ASSURANCES. Pledgor agrees that at any time and from time to time,
at the Company's expense, Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary or
desirable, or that the Company may request, in order to perfect and protect any
security interest granted or purported to be granted by this Agreement or to
enable the Company to exercise and enforce its rights and remedies under this
Agreement with respect to any Pledged Collateral.
12. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement, the Note, the
Non-Qualified Stock Option Agreement, the Employment Agreement (defined in the
Non-Qualified Stock Option Agreement) and the Proprietary Information and
Inventions Agreement dated March 19, 1999 between the Company and Pledgor
together embody the entire agreement of the parties hereto with respect to the
subject matter of this Agreement and supersede all prior agreements with respect
to that subject matter. This Agreement may not be amended or modified except in
a writing signed by both parties. No waiver of any provision of this Agreement
shall be deemed to, or shall, operate as a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
Except as expressly provided in this Agreement, no waiver shall be binding
unless executed in writing by the party making the waiver.
13. NOTICES. Any notice, request, claim or other communication required or
permitted hereunder will be in writing and will be deemed to have been duly
given if delivered by hand or if sent by certified mail, postage and
certification prepaid, to Pledgor at his residence (as noted in the Company's
records), or to the Company at the address of its principal executive offices,
or to such other address or addresses as either party may have furnished to the
other in writing in accordance herewith.
14. CAPTIONS. Captions are used for reference purposes only and should be
ignored in the interpretation of the Agreement. Unless the context requires
otherwise, all references in this Agreement to Sections are to the sections of
this Agreement.
15. GOVERNING LAW; TERMS. This Agreement shall be governed by and construed in
accordance with, the laws of the State of California applicable to contracts
wholly made and performed in the State of California. Unless otherwise defined
above, terms defined in Division 9 of the Uniform Commercial Code as adopted in
the State of California are used in this Agreement with their statutory
meanings.
4.
<PAGE> 21
16. COUNTERPARTS. This Agreement may be executed in one or more counterparts
all of which together shall constitute one and the same instrument.
The parties have duly executed this Agreement as of the date first written
above.
E-GREETINGS NETWORK
By:
---------------------------------
"PLEDGOR"
- ------------------------------------
GORDON M. TUCKER
5.
<PAGE> 1
EXHIBIT 10.13
EGREETINGS NETWORK, INC.
EARLY EXERCISE STOCK PURCHASE AGREEMENT
UNDER THE 1996 STOCK OPTION PLAN
This EARLY EXERCISE STOCK PURCHASE AGREEMENT (this "Agreement") is made
by and between EGREETINGS NETWORK, INC., a California corporation (the
"Company"), and ANDREW MOLEY ("Purchaser").
WITNESSETH:
WHEREAS, Purchaser holds a stock option granted July 30, 1999, to
purchase shares of common stock ("Common Stock") of the Company (the "Option")
pursuant to the Company's 1996 Stock Option Plan (the "Plan"); and
WHEREAS, the Option consists of a Stock Option Agreement; and
WHEREAS, Purchaser desires to exercise the Option on the terms and
conditions contained herein; and
WHEREAS, Purchaser wishes to take advantage of the early exercise
provision of the Purchaser's Option and therefore to enter into this Agreement;
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. INCORPORATION OF PLAN AND OPTION BY REFERENCE. This Agreement is
subject to all of the terms and conditions as set forth in the Plan and the
Option. If there is a conflict between the terms of this Agreement and/or the
Option and the terms of the Plan, the terms of the Plan shall control. If there
is a conflict between the terms of this Agreement and the terms of the Option,
the terms of the Option shall control. Defined terms not explicitly defined in
this Agreement but defined in the Plan shall have the same definitions as in the
Plan. Defined terms not explicitly defined in this Agreement or the Plan but
defined in the Option shall have the same definitions as in the Option.
2. PURCHASE AND SALE OF COMMON STOCK.
(a) AGREEMENT TO PURCHASE AND SELL COMMON STOCK. Purchaser hereby
agrees to purchase from the Company, and the Company hereby agrees to sell to
Purchaser, shares of the Common Stock of the Company in accordance with the
Notice of Exercise duly executed by Purchaser and attached hereto as an exhibit.
(b) CLOSING. The closing hereunder, including payment for and
delivery of the Common Stock, shall occur at the offices of the Company
immediately following the execution of this Agreement, or at such other time and
place as the parties may mutually agree; provided, however, that if shareholder
approval of the Plan is required before the Option may be exercised, then the
Option may not be exercised, and the closing shall be delayed, until such
shareholder
1.
<PAGE> 2
approval is obtained. If such shareholder approval is not obtained within the
time limit specified in the Plan, then this Agreement shall be null and void.
3. UNVESTED SHARE REPURCHASE OPTION
(a) REPURCHASE OPTION. In the event of Purchaser's Loss of
Eligibility Status, then the Company shall have an irrevocable option (the
"Repurchase Option") for a period of ninety (90) days after said termination (or
in the case of shares issued upon exercise of the Option after such date of
termination, within ninety (90) days after the date of the exercise), or such
longer period as may be agreed to by the Company and the Purchaser, to
repurchase from Purchaser or Purchaser's personal representative, as the case
may be, those shares that Purchaser received pursuant to the exercise of the
Option that have not as yet vested as of such termination date in accordance
with the Vesting Schedule indicated in the Option (the "Unvested Shares").
(b) SHARES REPURCHASABLE AT PURCHASER'S ORIGINAL EXERCISE PRICE.
The Company may repurchase all or any of the Unvested Shares at a price ("Option
Price") equal to the Purchaser's Exercise Price for such shares as indicated in
the Option.
4. EXERCISE OF REPURCHASE OPTION. The Repurchase Option shall be
exercised by written notice signed by an Officer of the Company and delivered or
mailed as provided herein. Such notice shall identify the number of shares of
Common Stock to be purchased and shall notify Purchaser of the time, place and
date for settlement of such purchase, which shall be scheduled by the Company
within the term of the Repurchase Option set forth above. The Company shall be
entitled to pay for any shares of Common Stock purchased pursuant to its
Repurchase Option at the Company's option in cash or by offset against any
indebtedness owing to the Company by Purchaser (including without limitation any
Note given in payment for the Common Stock), or by a combination of both. Upon
delivery of such notice and payment of the purchase price in any of the ways
described above, the Company shall become the legal and beneficial owner of the
Common Stock being repurchased and all rights and interest therein or related
thereto, and the Company shall have the right to transfer to its own name the
Common Stock being repurchased by the Company, without further action by
Purchaser.
5. CAPITALIZATION ADJUSTMENTS TO COMMON STOCK. In the event of an
adjustment affecting the Company's outstanding Common Stock as a class as
described in Section 9 of the Plan, then any and all new, substituted or
additional securities or other property to which Purchaser is entitled by reason
of Purchaser's ownership of Common Stock shall be immediately subject to the
Repurchase Option and be included in the word "Common Stock" for all purposes of
the Repurchase Option with the same force and effect as the shares of the Common
Stock presently subject to the Repurchase Option, but only to the extent the
Common Stock is, at the time, covered by such Repurchase Option. While the total
Option Price shall remain the same after each such event, the Option Price per
share of Common Stock upon exercise of the Repurchase Option shall be
appropriately adjusted.
6. CHANGE OF CONTROL. In the event of a "Change of Control" as
described in the Plan, then the Repurchase Option may be assigned by the Company
to the successor of the Company (or such successor's parent company), if any, in
connection with such Change of Control. To the extent the Repurchase Option
remains in effect following such Change of
2.
<PAGE> 3
Control, it shall apply to the new capital stock or other property received in
exchange for the Common Stock in consummation of the Change of Control, but only
to the extent the Common Stock was at the time covered by such right.
Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Option to reflect the Change of Control upon the
Company's capital structure; provided, however, that the aggregate Option Price
shall remain the same.
7. ESCROW OF UNVESTED COMMON STOCK. As security for Purchaser's
faithful performance of the terms of this Agreement and to insure the
availability for delivery of Purchaser's Common Stock upon exercise of the
Repurchase Option herein provided for, Purchaser agrees, at the closing
hereunder, to deliver to and deposit with the Secretary of the Company or the
Secretary's designee ("Escrow Agent"), as Escrow Agent in this transaction,
three (3) stock assignments duly endorsed (with date and number of shares blank)
in the form attached hereto as an exhibit, together with a certificate or
certificates evidencing all of the Common Stock subject to the Repurchase
Option; said documents are to be held by the Escrow Agent and delivered by said
Escrow Agent pursuant to the Joint Escrow Instructions of the Company and
Purchaser set forth in an exhibit, attached hereto and incorporated by this
reference, which instructions shall also be delivered to the Escrow Agent at the
closing hereunder.
8. RIGHTS OF PURCHASER. Subject to the provisions of the Option,
Purchaser shall exercise all rights and privileges of a shareholder of the
Company with respect to the shares deposited in escrow. Purchaser shall be
deemed to be the holder of the shares for purposes of receiving any dividends
that may be paid with respect to such shares and for purposes of exercising any
voting rights relating to such shares, even if some or all of such shares have
not yet vested and been released from the Company's Repurchase Option.
9. LIMITATIONS ON TRANSFER. In addition to any other limitation on
transfer created by applicable securities laws, Purchaser shall not sell,
assign, hypothecate, donate, encumber or otherwise dispose of any interest in
the Common Stock while the Common Stock is subject to the Repurchase Option.
After any Common Stock has been released from the Repurchase Option, Purchaser
shall not sell, assign, hypothecate, donate, encumber or otherwise dispose of
any interest in the Common Stock except in compliance with the provisions herein
and applicable securities laws. Furthermore, the Common Stock shall be subject
to any right of first refusal in favor of the Company or its assignees that may
be contained in the Company's Bylaws.
10. RESTRICTIVE LEGENDS. All certificates representing the Common Stock
shall have endorsed thereon legends in substantially the following forms (in
addition to any other legend which may be required by other agreements between
the parties hereto):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN
OPTION SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER,
OR SUCH HOLDER's PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THIS COMPANY. ANY TRANSFER OR ATTEMPTED TRANSFER OF ANY
SHARES SUBJECT TO SUCH
3.
<PAGE> 4
OPTION IS VOID WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF THE COMPANY."
(b) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
(c) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF THE COMPANY AND/OR ITS ASSIGNEE(S)
AS PROVIDED IN THE BYLAWS OF THE COMPANY."
(d) Any legend required by appropriate blue sky officials.
11. INVESTMENT REPRESENTATIONS. In connection with the purchase of the
Common Stock, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Common Stock.
Purchaser is acquiring the Common Stock for investment for Purchaser's own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the Common Stock has not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein.
(c) Purchaser further acknowledges and understands that the
Common Stock must be held indefinitely unless the Common Stock is subsequently
registered under the Securities Act or an exemption from such registration is
available. Purchaser further acknowledges and understands that the Company is
under no obligation to register the Common Stock. Purchaser understands that the
certificate evidencing the Common Stock will be imprinted with a legend that
prohibits the transfer of the Common Stock unless the Common Stock is registered
or such registration is not required in the opinion of counsel for the Company.
(d) Purchaser is familiar with the provisions of Rules 144 and
701, under the Securities Act, as in effect from time to time, which, in
substance, permit limited public resale of "restricted securities" acquired,
directly or indirectly, from the issuer thereof (or from an affiliate of such
issuer), in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of issuance of the securities, such issuance will be exempt from
registration under the Securities Act. In the event the Company becomes subject
to the reporting requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the securities exempt under Rule 701 may be sold by Purchaser
ninety (90) days thereafter, subject to the satisfaction of certain of the
conditions specified by Rule 144 and the market stand-off provision described in
the Plan.
4.
<PAGE> 5
In the event that the sale of the Common Stock does not qualify under Rule 701
at the time of purchase, then the Common Stock may be resold by Purchaser in
certain limited circumstances subject to the provisions of Rule 144, which
requires, among other things: (i) the availability of certain public information
about the Company and (ii) the resale occurring following the required holding
period under Rule 144 after the Purchaser has purchased, and made full payment
of (within the meaning of Rule 144), the securities to be sold.
(e) Purchaser further understands that at the time Purchaser
wishes to sell the Common Stock there may be no public market upon which to make
such a sale, and that, even if such a public market then exists, the Company may
not be satisfying the current public current information requirements of Rule
144 or 701, and that, in such event, Purchaser would be precluded from selling
the Common Stock under Rule 144 or 701 even if the minimum holding period
requirement had been satisfied.
12. SECTION 83(B) ELECTION. Purchaser understands that Section 83(a) of
the Code, taxes as ordinary income the difference between the amount paid for
the Common Stock and the fair market value of the Common Stock as of the date
any restrictions on the Common Stock lapse. In this context, "restriction"
includes the right of the Company to buy back the Common Stock pursuant to the
Repurchase Option set forth above. Purchaser understands that Purchaser may
elect to be taxed at the time the Common Stock is purchased, rather than when
and as the Repurchase Option expires, by filing an election under Section 83(b)
(an "83(b) Election") of the Code with the Internal Revenue Service within
thirty (30) days from the date of purchase. Even if the fair market value of the
Common Stock at the time of the execution of this Agreement equals the amount
paid for the Common Stock, the 83(b) Election must be made to avoid income under
Section 83(a) in the future. Purchaser understands that failure to file such an
83(b) Election in a timely manner may result in adverse tax consequences for
Purchaser. Purchaser further understands that Purchaser must file an additional
copy of such 83(b) Election with his or her federal income tax return for the
calendar year in which the date of this Agreement falls. Purchaser acknowledges
that the foregoing is only a summary of the effect of United States federal
income taxation with respect to purchase of the Common Stock hereunder, and does
not purport to be complete. Purchaser further acknowledges that the Company has
directed Purchaser to seek independent advice regarding the applicable
provisions of the Code, the income tax laws of any municipality, state or
foreign country in which Purchaser may reside, and the tax consequences of
Purchaser's death. Purchaser assumes all responsibility for filing an 83(b)
Election and paying all taxes resulting from such election or the lapse of the
restrictions on the Common Stock.
13. REFUSAL TO TRANSFER. The Company shall not be required (a) to
transfer on its books any shares of Common Stock of the Company which shall have
been transferred in violation of any of the provisions set forth in this
Agreement or (b) to treat as owner of such shares or to accord the right to vote
as such owner or to pay dividends to any transferee to whom such shares shall
have been so transferred.
14. NO EMPLOYMENT RIGHTS. This Agreement is not an employment contract
and nothing in this Agreement shall affect in any manner whatsoever the right or
power of the Company (or a parent or subsidiary of the Company) to terminate
Purchaser's employment for any reason at any time, with or without cause and
with or without notice.
5.
<PAGE> 6
15. MISCELLANEOUS.
(a) NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal delivery or
sent by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at such party's address hereinafter shown below its signature
or at such other address as such party may designate by ten (10) days' advance
written notice to the other party hereto.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of the successors and assigns of the Company and, subject to the
restrictions on transfer herein set forth, be binding upon Purchaser,
Purchaser's successors, and assigns. The Company may assign the Repurchase
Option hereunder at any time or from time to time, in whole or in part.
(c) ATTORNEYS' FEES; SPECIFIC PERFORMANCE. Purchaser shall
reimburse the Company for all costs incurred by the Company in enforcing the
performance of, or protecting its rights under, any part of this Agreement,
including reasonable costs of investigation and attorneys' fees. It is the
intention of the parties that the Company, upon exercise of the Repurchase
Option and payment of the Option Price, pursuant to the terms of this Agreement,
shall be entitled to receive the Common Stock, in specie, in order to have such
Common Stock available for future issuance without dilution of the holdings of
other shareholders. Furthermore, it is expressly agreed between the parties that
money damages are inadequate to compensate the Company for the Common Stock and
that the Company shall, upon proper exercise of the Repurchase Option, be
entitled to specific enforcement of its rights to purchase and receive said
Common Stock.
(d) GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. The parties
agree that any action brought by either party to interpret or enforce any
provision of this Agreement shall be brought in, and each party agrees to, and
does hereby, submit to the jurisdiction and venue of, the appropriate state or
federal court for the district encompassing the Company's principal place of
business.
(e) FURTHER EXECUTION. The parties agree to take all such further
action(s) as may reasonably be necessary to carry out and consummate this
Agreement as soon as practicable, and to take whatever steps may be necessary to
obtain any governmental approval in connection with or otherwise qualify the
issuance of the securities that are the subject of this Agreement.
(f) INDEPENDENT COUNSEL. Purchaser acknowledges that this
Agreement has been prepared on behalf of the Company by Cooley Godward LLP,
counsel to the Company and that Cooley Godward LLP does not represent, and is
not acting on behalf of, Purchaser. Purchaser has been provided with an
opportunity to consult with Purchaser's own counsel with respect to this
Agreement.
(g) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes and
6.
<PAGE> 7
merges all prior agreements or understandings, whether written or oral. This
Agreement may not be amended, modified or revoked, in whole or in part, except
by an agreement in writing signed by each of the parties hereto.
(h) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of _______________.
EGREETINGS NETWORK, INC.
By
------------------------------------
Title
------------------------------------
Address: 501 Second Street, Suite 104
San Francisco, CA 94107
PURCHASER
------------------------------------
Address:
------------------------------
------------------------------
ATTACHMENTS:
Exhibit A Notice of Exercise
Exhibit B Assignment Separate from Certificate
Exhibit C Joint Escrow Instructions
Exhibit D Promissory Note
Exhibit E Pledge Agreement
7.
<PAGE> 8
EXHIBIT A
NOTICE OF EXERCISE
<PAGE> 9
EXHIBIT B
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
<PAGE> 10
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, Andrew Moley hereby sells, assigns and transfers
unto EGREETINGS NETWORK, INC., a California corporation (the "Company"),
pursuant to the Repurchase Option under that certain Early Exercise Stock
Purchase Agreement, dated _______________ by and between the undersigned and the
Company (the "Agreement"), _______________ (_______________) shares of Common
Stock of the Company standing in the undersigned's name on the books of the
Company represented by Certificate No(s). _______________ and does hereby
irrevocably constitute and appoint the Company's Secretary attorney to transfer
said Common Stock on the books of the Company with full power of substitution in
the premises. This Assignment may be used only in accordance with and subject to
the terms and conditions of the Agreement, in connection with the repurchase of
shares of Common Stock issued to the undersigned pursuant to the Agreement, and
only to the extent that such shares remain subject to the Company's Repurchase
Option under the Agreement.
Dated: _______________
------------------------------------
(Signature)
------------------------------------
(Print Name)
INSTRUCTION: Please do not fill in any blanks other than the "Signature" line
and the "Print Name" line. The purpose of this Assignment is to enable the
Company to exercise its Repurchase Option set forth in the Agreement without
requiring additional signatures on the part of Purchaser.
<PAGE> 11
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, Andrew Moley hereby sells, assigns and transfers
unto EGREETINGS NETWORK, INC., a California corporation (the "Company"),
pursuant to the Repurchase Option under that certain Early Exercise Stock
Purchase Agreement, dated _______________ by and between the undersigned and the
Company (the "Agreement"), _______________ (_______________) shares of Common
Stock of the Company standing in the undersigned's name on the books of the
Company represented by Certificate No(s). _______________ and does hereby
irrevocably constitute and appoint the Company's Secretary attorney to transfer
said Common Stock on the books of the Company with full power of substitution in
the premises. This Assignment may be used only in accordance with and subject to
the terms and conditions of the Agreement, in connection with the repurchase of
shares of Common Stock issued to the undersigned pursuant to the Agreement, and
only to the extent that such shares remain subject to the Company's Repurchase
Option under the Agreement.
Dated: _______________
------------------------------------
(Signature)
------------------------------------
(Print Name)
INSTRUCTION: Please do not fill in any blanks other than the "Signature" line
and the "Print Name" line. The purpose of this Assignment is to enable the
Company to exercise its Repurchase Option set forth in the Agreement without
requiring additional signatures on the part of Purchaser.
<PAGE> 12
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, Andrew Moley hereby sells, assigns and transfers
unto EGREETINGS NETWORK, INC., a California corporation (the "Company"),
pursuant to the Repurchase Option under that certain Early Exercise Stock
Purchase Agreement, dated _______________ by and between the undersigned and the
Company (the "Agreement"), _______________ (_______________) shares of Common
Stock of the Company standing in the undersigned's name on the books of the
Company represented by Certificate No(s). _______________ and does hereby
irrevocably constitute and appoint the Company's Secretary attorney to transfer
said Common Stock on the books of the Company with full power of substitution in
the premises. This Assignment may be used only in accordance with and subject to
the terms and conditions of the Agreement, in connection with the repurchase of
shares of Common Stock issued to the undersigned pursuant to the Agreement, and
only to the extent that such shares remain subject to the Company's Repurchase
Option under the Agreement.
Dated: _______________
------------------------------------
(Signature)
------------------------------------
(Print Name)
INSTRUCTION: Please do not fill in any blanks other than the "Signature" line
and the "Print Name" line. The purpose of this Assignment is to enable the
Company to exercise its Repurchase Option set forth in the Agreement without
requiring additional signatures on the part of Purchaser.
<PAGE> 13
EXHIBIT C
JOINT ESCROW INSTRUCTIONS
<PAGE> 14
JOINT ESCROW INSTRUCTIONS
Secretary
Egreetings Network, Inc.
501 Second Street, Suite 114
San Francisco, CA 94107
Dear Sir or Madam:
As Escrow Agent for both EGREETINGS NETWORK, INC., a California
corporation ("Company"), and the undersigned purchaser of Common Stock of the
Company ("Purchaser"), you are hereby authorized and directed to hold the
documents delivered to you pursuant to the terms of that certain Early Exercise
Stock Purchase Agreement ("Agreement"), dated _______________ to which a copy of
these Joint Escrow Instructions is attached as Exhibit C, in accordance with the
following instructions:
1. In the event the Company or an assignee shall elect to exercise the
Repurchase Option set forth in the Agreement, the Company or its assignee will
give to Purchaser and you a written notice specifying the number of shares of
Common Stock to be purchased, the purchase price, and the time for a closing
hereunder at the principal office of the Company. Purchaser and the Company
hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.
2. At the closing you are directed (a) to date any stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of Common Stock to be transferred, to the Company against
the simultaneous delivery to you of the purchase price (which may include
suitable acknowledgment of cancellation of indebtedness) of the number of shares
of Common Stock being purchased pursuant to the exercise of the Repurchase
Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of Common Stock to be held by you hereunder and
any additions and substitutions to said shares as specified in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as the Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities and other property all documents of assignment and/or
transfer and all stock certificates necessary or appropriate to make all
securities negotiable and complete any transaction herein contemplated.
4. This escrow shall terminate upon expiration or exercise in full of
the Repurchase Option, whichever occurs first.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of same to Purchaser and shall be discharged of all
further obligations hereunder; provided, however, that if at the time of
termination of this escrow you are advised by the Company that the property
1.
<PAGE> 15
subject to this escrow is the subject of a pledge or other security agreement,
you shall deliver all such property to the pledgeholder or other person
designated by the Company.
6. Except as otherwise provided in these Joint Escrow Instructions,
your duties hereunder may be altered, amended, modified or revoked only by a
writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties or
their assignees. You shall not be personally liable for any act you may do or
omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while
acting in good faith and any act done or omitted by you pursuant to the advice
of your own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authority or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under any
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be Secretary of the Company or if you shall resign by written
notice to each party. In the event of any such termination, the Company may
appoint any officer or assistant officer of the Company as successor Escrow
Agent and Purchaser hereby confirms the appointment of such successor or
successors as the Purchaser's attorney-in-fact and agent to the full extent of
your appointment.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
13. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities, you are authorized and directed to retain in your possession without
liability to anyone all or any part of said securities until such dispute shall
have been settled either by mutual written agreement of the parties concerned or
by a final order, decree or judgment of a court of competent jurisdiction after
the
2.
<PAGE> 16
time for appeal has expired and no appeal has been perfected, but you shall be
under no duty whatsoever to institute or defend any such proceedings.
14. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, including
delivery by express courier or five days after deposit in the United States Post
Office, by registered or certified mail with postage and fees prepaid, addressed
to each of the other parties hereunto entitled at the following addresses, or at
such other addresses as a party may designate by ten days' advance written
notice to each of the other parties hereto:
COMPANY: Egreetings Network, Inc.
501 Second Street, Suite 114
San Francisco, CA 94107
PURCHASER:
------------------------------------------
------------------------------------------
------------------------------------------
ESCROW AGENT: Secretary
Egreetings Network, Inc.
501 Second Street, Suite 114
San Francisco, CA 94107
15. By signing these Joint Escrow Instructions you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
16. You shall be entitled to employ such legal counsel and other
experts (including without limitation the firm of Cooley Godward LLP) as you may
deem necessary properly to advise you in connection with your obligations
hereunder. You may rely upon the advice of such counsel, and may pay such
counsel reasonable compensation therefor. The Company shall be responsible for
all fees generated by such legal counsel in connection with your obligations
hereunder.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. It is
understood and agreed that references to "you" or "your" herein refer to the
original Escrow Agent and to any and all successor Escrow Agents. It is
understood and agreed that the Company may at any time or from time to time
assign its rights under the Agreement and these Joint Escrow Instructions in
whole or in part.
3.
<PAGE> 17
18. This Agreement shall be governed by and interpreted and determined
in accordance with the laws of the State of California, as such laws are applied
by California courts to contracts made and to be performed entirely in
California by residents of that state.
Very truly yours,
EGREETINGS NETWORK, INC.
By:
-----------------------------------
Title:
--------------------------------
PURCHASER:
--------------------------------------
ESCROW AGENT:
- -----------------------------------
4.
<PAGE> 18
EXHIBIT D
PROMISSORY NOTE
<PAGE> 19
PROMISSORY NOTE
$555,000.00 San Francisco, California
Date:____________________
FOR VALUE RECEIVED, the undersigned hereby unconditionally promises to
pay to the order of EGREETINGS NETWORK, INC., a California corporation (the
"Company"), at 501 Second Street, Suite 104, San Francisco, California, or at
such other place as the holder hereof may designate in writing, in lawful money
of the United States of America and in immediately available funds, the
principal sum of Five Hundred Fifty-Five Thousand Dollars ($555,000.00) together
with interest accrued from the date hereof on the unpaid principal at the rate
of six percent (6%) per annum, or the maximum rate permissible by law (which
under the laws of the State of California shall be deemed to be the laws
relating to permissible rates of interest on commercial loans), whichever is
less, as follows:
PRINCIPAL REPAYMENT. The outstanding principal amount hereunder shall
be due and payable in full on the fifth (5th) anniversary of the date
of this Note; and
INTEREST PAYMENTS. Interest shall be payable in arrears on each
Principal Repayment Date and shall be calculated on the basis of a
360-day year for the actual number of days elapsed;
provided, however, that in the event that the undersigned's employment by or
association with the Company or its Affiliate is terminated for any reason prior
to payment in full of this Note, this Note shall be accelerated and all
remaining unpaid principal and interest shall become due and payable immediately
after such termination.
If the undersigned fails to pay any of the principal and accrued
interest when due, the Company, at its sole option, shall have the right to
accelerate this Note, in which event the entire principal balance and all
accrued interest shall become immediately due and payable, and immediately
collectible by the Company pursuant to applicable law.
This Note may be prepaid at any time without penalty. All money paid
toward the satisfaction of this Note shall be applied first to the payment of
interest as required hereunder and then to the retirement of the principal.
The full amount of this Note is secured by a pledge of shares of Common
Stock of the Company, and is subject to all of the terms and provisions of the
Early Exercise Stock Purchase Agreement and Stock Pledge Agreement of even date
herewith between the undersigned and the Company.
The undersigned hereby represents and agrees that the amounts due under
this Note are not consumer debt, and are not incurred primarily for personal,
family or household purposes, but are for business and commercial purposes only.
1.
<PAGE> 20
The undersigned hereby waives presentment, protest and notice of
protest, demand for payment, notice of dishonor and all other notices or demands
in connection with the delivery, acceptance, performance, default or endorsement
of this Note.
The holder hereof shall be entitled to recover, and the undersigned
agrees to pay when incurred, all costs and expenses of collection of this Note,
including without limitation, reasonable attorneys' fees.
This Note shall be governed by, and construed, enforced and interpreted
in accordance with, the laws of the State of California, excluding conflict of
laws principles that would cause the application of laws of any other
jurisdiction.
Signed
---------------------------
2.
<PAGE> 21
EXHIBIT E
PLEDGE AGREEMENT
<PAGE> 22
STOCK PLEDGE AGREEMENT
This STOCK PLEDGE AGREEMENT ("Pledge Agreement") is made by Andrew
Moley ("Pledgor"), in favor of EGREETINGS NETWORK, INC., a California
corporation with its principal place of business at 501 Second Street, Suite
104, San Francisco, California ("Pledgee").
WHEREAS, Pledgor has concurrently herewith executed that certain
Promissory Note (the "Note") in favor of Pledgee in the amount of Five Hundred
Fifty-Five Thousand Dollars ($555,000.00) in payment of the purchase price of
three hundred thousand (300,000) shares of the Common Stock of Pledgee; and
WHEREAS, Pledgee is willing to accept the Note from Pledgor, but only
upon the condition, among others, that Pledgor shall have executed and delivered
to Pledgee this Pledge Agreement and the Collateral (as defined below):
NOW, THEREFORE, in consideration of the foregoing recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound, Pledgor hereby agrees as
follows:
1. As security for the full, prompt and complete payment and
performance when due (whether by stated maturity, by acceleration or otherwise)
of all indebtedness of Pledgor to Pledgee created under the Note (all such
indebtedness being the "Liabilities"), together with, without limitation, the
prompt payment of all expenses, including, without limitation, reasonable
attorneys' fees and legal expenses, incidental to the collection of the
Liabilities and the enforcement or protection of Pledgee's lien in and to the
collateral pledged hereunder, Pledgor hereby pledges to Pledgee, and grants to
Pledgee, a first priority security interest in all of the following
(collectively, the "Pledged Collateral"):
(a) Three hundred thousand (300,000) shares of Common Stock of
Pledgee represented by Certificates numbered ______ (the "Pledged Shares"), and
all dividends, cash, instruments, and other property or proceeds from time to
time received, receivable, or otherwise distributed in respect of or in exchange
for any or all of the Pledged Shares;
(b) all voting trust certificates held by Pledgor evidencing the
right to vote any Pledged Shares subject to any voting trust; and
(c) all additional shares and voting trust certificates from time
to time acquired by Pledgor in any manner (which additional shares shall be
deemed to be part of the Pledged Shares), and the certificates representing such
additional shares, and all dividends, cash, instruments, and other property or
proceeds from time to time received, receivable, or otherwise distributed in
respect of or in exchange for any or all of such shares.
The term "indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and Liabilities
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether recovery upon such
indebtedness may be or hereafter becomes unenforceable.
1.
<PAGE> 23
2. At any time, without notice, and at the expense of Pledgor, Pledgee
in its name or in the name of its nominee or of Pledgor may, but shall not be
obligated to: (1) collect by legal proceedings or otherwise all dividends
(except cash dividends other than liquidating dividends), interest, principal
payments and other sums now or hereafter payable upon or on account of said
Pledged Collateral; (2) enter into any extension, reorganization, deposit,
merger or consolidation agreement, or any agreement in any wise relating to or
affecting the Pledged Collateral, and in connection therewith may deposit or
surrender control of such Pledged Collateral thereunder, accept other property
in exchange for such Pledged Collateral and do and perform such acts and things
as it may deem proper, and any money or property received in exchange for such
Pledged Collateral shall be applied to the indebtedness or thereafter held by it
pursuant to the provisions hereof; (3) insure, process and preserve the Pledged
Collateral; (4) cause the Pledged Collateral to be transferred to its name or to
the name of its nominee; (5) exercise as to such Pledged Collateral all the
rights, powers and remedies of an owner, except that so long as no default
exists under the Note or hereunder Pledgor shall retain all voting rights as to
the Pledged Shares.
3. Pledgor agrees to pay prior to delinquency all taxes, charges, liens
and assessments against the Pledged Collateral, and upon the failure of Pledgor
to do so, Pledgee at its option may pay any of them and shall be the sole judge
of the legality or validity thereof and the amount necessary to discharge the
same.
4. At the option of Pledgee and without necessity of demand or notice,
all or any part of the indebtedness of Pledgor shall immediately become due and
payable irrespective of any agreed maturity, upon the happening of any of the
following events: (1) failure to keep or perform any of the terms or provisions
of this Pledge Agreement; (2) failure to pay any installment of principal or
interest on the Note when due; (3) the levy of any attachment, execution or
other process against the Pledged Collateral; or (4) the insolvency, commission
of an act of bankruptcy, general assignment for the benefit of creditors, filing
of any petition in bankruptcy or for relief under the provisions of Title 11 of
the United States Code of, by, or against Pledgor.
5. In the event of the nonpayment of any indebtedness when due, whether
by acceleration or otherwise, or upon the happening of any of the events
specified in the last preceding section, Pledgee may then, or at any time
thereafter, at its election, apply, set off, collect or sell in one or more
sales, or take such steps as may be necessary to liquidate and reduce to cash in
the hands of Pledgee in whole or in part, with or without any previous demands
or demand of performance or notice or advertisement, the whole or any part of
the Pledged Collateral in such order as Pledgee may elect, and any such sale may
be made either at public or private sale at its place of business or elsewhere,
or at any broker's board or securities exchange, either for cash or upon credit
or for future delivery; provided, however, that if such disposition is at
private sale, then the purchase price of the Pledged Collateral shall be equal
to the public market price then in effect, or, if at the time of sale no public
market for the Pledged Collateral exists, then, in recognition of the fact that
the sale of the Pledged Collateral would have to be registered under the
Securities Act of 1933 and that the expenses of such registration are
commercially unreasonable for the type and amount of collateral pledged
hereunder, Pledgee and Pledgor hereby agree that such private sale shall be at a
purchase price mutually agreed to by Pledgee and Pledgor or, if the parties
cannot agree upon a purchase price, then at a purchase price established by a
majority of three independent appraisers knowledgeable of the value of
2.
<PAGE> 24
such collateral, one named by Pledgor within ten (10) days after written request
by the Pledgee to do so, one named by Pledgee within such 10-day period, and the
third named by the two appraisers so selected, with the appraisal to be rendered
by such body within thirty (30) days of the appointment of the third appraiser.
The cost of such appraisal, including all appraiser's fees, shall be charged
against the proceeds of sale as an expense of such sale. Pledgee may be the
purchaser of any or all Pledged Collateral so sold and hold the same thereafter
in its own right free from any claim of Pledgor or right of redemption. Demands
of performance, notices of sale, advertisements and presence of property at sale
are hereby waived, and Pledgee is hereby authorized to sell hereunder any
evidence of debt pledged to it. Any officer or agent of Pledgee may conduct any
sale hereunder.
6. The proceeds of the sale of any of the Pledged Collateral and all
sums received or collected by Pledgee from or on account of such Pledged
Collateral shall be applied by Pledgee to the payment of expenses incurred or
paid by Pledgee in connection with any sale, transfer or delivery of the Pledged
Collateral, to the payment of any other costs, charges, attorneys' fees or
expenses mentioned herein, and to the payment of the indebtedness or any part
hereof, all in such order and manner as Pledgee in its discretion may determine.
Pledgee shall then pay any balance to Pledgor.
7. Upon the transfer of all or any part of the indebtedness Pledgee may
transfer all or any part of the Pledged Collateral and shall be fully discharged
thereafter from all liability and responsibility with respect to such Pledged
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of Pledgee hereunder with respect to such Pledged Collateral
so transferred; but with respect to any Pledged Collateral not so transferred
Pledgee shall retain all rights and powers hereby given.
8. Until all indebtedness shall have been paid in full the power of
sale and all other rights, powers and remedies granted to Pledgee hereunder
shall continue to exist and may be exercised by Pledgee at any time and from
time to time irrespective of the fact that the indebtedness or any part thereof
may have become barred by any statute of limitations, or that the personal
liability of Pledgor may have ceased.
9. Pledgee agrees that so long as no default exists under the Note or
hereunder, the Pledged Shares shall, upon the request of Pledgor, be released
from pledge as the indebtedness is paid. Such releases shall be at the rate of
one share for each one dollar and eighty-five cents ($1.85) of principal amount
of indebtedness paid. Release from pledge, however, shall not result in release
from the provisions of those certain Joint Escrow Instructions, if any, of even
date herewith among the parties to this Pledge Agreement and the Escrow Agent
named therein.
10. Pledgee may at any time deliver the Pledged Collateral or any part
thereof to Pledgor and the receipt of Pledgor shall be a complete and full
acquittance for the Pledged Collateral so delivered, and Pledgee shall
thereafter be discharged from any liability or responsibility therefor.
11. The rights, powers and remedies given to Pledgee by this Pledge
Agreement shall be in addition to all rights, powers and remedies given to
Pledgee by virtue of any statute or rule of law. Any forbearance or failure or
delay by Pledgee in exercising any right, power or remedy
3.
<PAGE> 25
hereunder shall not be deemed to be a waiver of such right, power or remedy, and
any single or partial exercise of any right, power or remedy hereunder shall not
preclude the further exercise thereof; and every right, power and remedy of
Pledgee shall continue in full force and effect until such right, power or
remedy is specifically waived by an instrument in writing executed by Pledgee.
12. If any provision of this Pledge Agreement is held to be
unenforceable for any reason, it shall be adjusted, if possible, rather than
voided in order to achieve the intent of the parties to the extent possible. In
any event, all other provisions of this Pledge Agreement shall be deemed valid
and enforceable to the full extent possible.
13. This Pledge Agreement shall be governed by, and construed in
accordance with, the laws of the State of California as applied to contracts
made and performed entirely within the State of California by residents of such
State.
Dated: PLEDGOR
----------------------------
-----------------------------------
Printed Name:
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4.
<PAGE> 1
EXHIBIT 10.14
THE VIRTUAL MALL, INC.
1996 STOCK OPTION PLAN
(AS AMENDED MAY 15, 1996)
1. ADOPTION AND PURPOSE OF THE PLAN. This stock option plan, to be
known as the "The Virtual Mall, Inc. 1996 Stock Option Plan" (but referred to
herein as the "PLAN") has been adopted by the board of directors (the "BOARD")
of The Virtual Mall, Inc., a California corporation (the "COMPANY"), and is
subject to the approval of its shareholders pursuant to section 8 below. The
purpose of this Plan is to advance the interests of the Company and its
shareholders by enabling the Company to attract and retain qualified employees,
independent contractors, consultants and advisers by providing them with an
opportunity for investment in the Company. The options that may be granted
hereunder ("OPTIONS") represent the right by the grantee thereof (each,
including any permitted transferee hereunder, an "OPTIONEE") to acquire shares
of the Company's common stock ("SHARES" which if acquired pursuant to the
exercise of an Option will be referred to as "OPTION STOCK") subject to the
terms and conditions of this Plan and a written agreement between the Company
and the Optionee to evidence each such Option (an "OPTION AGREEMENT").
2. CERTAIN DEFINITIONS. The defined terms set forth in Exhibit A
attached hereto and incorporated herein (together with other capitalized terms
defined elsewhere in this Plan) will govern the interpretation of this Plan.
3. ELIGIBILITY. The Company may grant Options under this Plan only
to persons who, at the time of such grant, are employees (including officers),
directors, independent contractors, advisers or consultants of the Company
and/or any of its Subsidiaries ("ELIGIBLE PARTICIPANTS"), and no Option may be
granted to any person after he or she ceases, for any reason, to be an Eligible
Participant (a "LOSS OF ELIGIBILITY STATUS", which for all purposes hereunder
will be determined with respect to the original grantee and holder of an Option,
who will be referred to as the "ORIGINAL HOLDER"). Subject to the provisions of
section 4 of this Plan, there is no limitation on the number of Options that may
be granted to an Eligible Participant.
4. OPTION POOL; SHARES RESERVED FOR OPTIONS. Options may be granted
hereunder from time to time only to the extent that the number of Shares (i)
that may be issued pursuant to the exercise of all outstanding and unexpired
Options granted hereunder, and (ii) that have been issued and are outstanding
pursuant to the exercise of Options granted hereunder (net of any such Shares of
Option Stock that have been reacquired by the Company by repurchase or
otherwise) does not exceed Six Hundred Thirty-Five Thousand (635,000) Shares
(the "OPTION POOL"). At all times while this Plan is in effect, the Company will
reserve for issuance hereunder the number of authorized and unissued Shares that
is equal to the Option Pool, less the number of Shares of Option Stock that have
been issued and are outstanding pursuant to the exercise of Options granted
hereunder.
5. ADMINISTRATION. This Plan will be administered and interpreted
by the Board, or by a committee consisting of two or more members of the Board,
appointed by the Board for such purpose (the Board, or such committee, referred
to herein as the
1.
<PAGE> 2
"ADMINISTRATOR"). Subject to the express terms and conditions hereof, the
Administrator is authorized to prescribe, amend and rescind rules and
regulations relating to this Plan, and to make all other determinations
necessary or advisable for its administration and interpretation. Specifically,
the Administrator will have full and final authority in its discretion, subject
to the specific limitations on that discretion as are set forth herein and in
the Articles of Incorporation and Bylaws of the Company, at any time and from
time to time:
(a) to select and approve the Eligible Participants to whom
Options will be granted from time to time hereunder;
(b) to determine the Fair Market Value of the Shares as of
the Grant Date for any Option that is granted hereunder;
(c) with respect to each Option it decides to grant, to
determine the terms and conditions of that Option, to be set forth in the Option
Agreement evidencing that Option (the form of which also being subject to
approval by the Administrator), including at a minimum the following:
(i) the total number of Shares of Option Stock that
may be acquired by the Optionee pursuant to that Option;
(ii) whether that Option will be designated an
"incentive stock option" as defined in Section 422 of the Code (an "ISO"), in
which case the Option will be subject to all of the special provisions set forth
in section 6 below;
(iii) the per share purchase price to be paid to the
Company by the Optionee to acquire the Option Stock issuable upon exercise of
the Option (the "OPTION PRICE"); provided that the Option Price will not be less
than eighty-five percent (85%) of the Fair Market Value of the Shares as of the
Grant Date, unless the Optionee is a 10% shareholder, in which case the Option
Price will not be less than one hundred ten percent (110%) of such Fair Market
Value;
(iv) the maximum period or term during which that
Option will be exercisable (the "OPTION TERM") and/or the last date on which
that Option may be exercised (the "EXPIRATION DATE"), provided that in no event
may the Expiration Date be later than, or the Option Term be longer than, ten
(10) years from the Grant Date;
(v) the maximum period following any Loss of
Eligibility Status with respect to the Original Holder, whether resulting from
his or her death, disability or any other reason, during which period (the
"GRACE PERIOD") the Option will be exercisable, subject to the earlier end of
the Option Term or the Expiration Date, provided that if the Administrator fails
to specify such Grace Periods, but subject to the provisions of section 6(e)
below with respect to ISOs, the Option may be exercised until its Expiration
Date regardless of such Loss of Eligibility Status, unless the same results from
a Just Cause Termination of the Original Holder, in which case the Grace Period
shall be a period of thirty (30) days after such Loss of Eligibility Status,
provided further that in no event may the Administrator specify any
2.
<PAGE> 3
Grace Periods that are shorter than (A) thirty (30) days after a Loss of
Eligibility Status, other than by reason of the Original Holder's death or
disability, and (B) six (6) months after a Loss of Eligibility Status by reason
of the Original Holder's death or disability;
(vi) the conditions (e.g., the passage of time or the
occurrence of events), if any, that must be satisfied prior to the vesting of
the right to exercise all, or specified portions, of an Option (the vested
portion of such Option being referred to as a "VESTED OPTION" and the unvested
portion being referred to as an "UNVESTED OPTION"); provided that no such
conditions (except the Loss of Eligibility Status of the Original Holder, after
which no Unvested Option will become a Vested Option) may be imposed which
prevents an Optionee from purchasing at least twenty percent (20%) of the Shares
of Option Stock initially subject to the Option as of the first anniversary of
the Grant Date, and as of each anniversary thereafter, such that by the fifth
anniversary of the Grant Date (assuming no such Loss of Eligibility Status) the
entire Option would be deemed a Vested Option; provided further, that if the
Option Agreement does not otherwise specify, the Option will initially be deemed
an entirely Unvested Option but portions of the Option will become a Vested
Option on the following schedule: (A) no portion of the Option will become a
Vested Option during the first six (6) months after the Grant Date; (B) two and
two-ninths percent (2.22%) will become a Vested Option, on a cumulative basis,
as of the end of each month following the Grant Date until the fourth
anniversary of the Grant Date, except that on the first anniversary of the Grant
Date an additional six and two-thirds percent (6.67%) will become a Vested
Option so that as of such first anniversary a total of twenty percent (20%) will
have become a Vested Option and as of the fourth anniversary of the Grant Date,
the entire Option will be a Vested Option, subject in each case to the condition
as of each such vesting date that the Original Holder does not suffer a Loss
Eligibility Status prior to such vesting date; and
(vii) the form or forms of legal consideration in
addition to cash (including without limitation Shares, unexercised Vested
Options, and promissory notes) that the Company will accept as payment of all or
a portion of the Option Price and/or Tax Withholding Liability to be paid by the
Optionee upon the exercise of an Option granted hereunder, and the fair market
value of such non-cash consideration; and
(d) to delegate all or a portion of the Administrator's
authority under sections 5(a), (b) and (c) above to one or more members of the
Board who also are executive officers of the Company, and subject to such
restrictions and limitations as the Administrator may decide to impose on such
delegation.
6. SPECIAL PROVISIONS RELATING TO ISOs. Notwithstanding anything
else in this Plan to the contrary, the following provisions will apply to each
Option granted hereunder that is designated as an ISO pursuant to section
5(c)(ii) above and that is intended to qualify for the treatment available
pursuant to Section 422 of the Code:
(a) such ISO may be granted only to Eligible Participants
who, as of the Grant Date, are employees of the Company and/or its Subsidiaries
(as determined by Section 340 1 (c) of the Code);
3.
<PAGE> 4
(b) to the extent that the Fair Market Value of Option Stock
with respect to which all ISOs are exercisable for the first time by any
individual during any calendar year (pursuant to this Plan and all other plans
of the Company and/or its Subsidiaries) exceeds $ 100,000, the Option will not
be treated as an ISO;
(c) the Option Price of an ISO will not be less than one
hundred percent (100%) of the Fair Market Value of the Shares as of the Grant
Date, except as set forth in section 6(d) below;
(d) in the case of an ISO granted to an Optionee who is a
10% shareholder: (i) the Option Price will not be less than one hundred ten
percent (110%) of the Fair Market Value of the Shares as of the Grant Date; and
(ii) the Option Term and/or the Expiration Date may not be more than five (5)
years from the Grant Date; and
(e) notwithstanding any Grace Period selected by the
Administrator pursuant to section 5(c)(v), the tax treatment available pursuant
to Section 422 of the Code upon the exercise of an ISO will not be available to
an Optionee who exercises any ISO more than (i) three (3) months following the
Original Holder's Loss of Eligibility Status other than by reason of his or her
death or permanent and total disability within the meaning of Section 22(e)(3)
of the Code, or (ii) twelve (12) months following such Original Holder's Loss of
Eligibility Status by reason or his or her permanent and total disability,
whichever case may be applicable.
7. ADDITIONAL TERMS AND CONDITIONS OF STOCK OPTION AGREEMENTS. No
Option will be deemed granted hereunder merely upon the authorization thereof by
the Administrator, but will be deemed granted hereunder only upon the execution
of an Option Agreement evidencing the same by both the Optionee and a duly
authorized officer of the Company. In addition to the terms and conditions
thereof to be determined by the Administrator pursuant to section 5(c) above,
unless otherwise stated therein, each-Option Agreement will be deemed to include
the following terms and conditions unless expressly waived by the Company in the
Option Agreement:
(a) EXERCISE OF THE OPTION; ISSUANCE OF SHARE CERTIFICATE.
That portion of the Option that is a Vested Option may be exercised by giving
written notice thereof to the Company, on such form as may be specified by the
Administrator, but in any event stating: the Optionee's intention to exercise
the Option; the date of exercise; the number of full Shares of Option Stock to
be purchased (which number shall be no less than one hundred (100) Shares,
without regard to adjustments to the number of Shares subject to the Option
pursuant to section 9 below, or, if less, all of the remaining Shares subject to
the Option); the amount and form of payment of the Option Price; and shall
contain such assurances of the Optionee's investment intent as the Company may
require to ensure that the transaction complies in all respects with the
requirements of the 1933 Act and other applicable securities laws. The notice of
exercise will be signed by the person or persons exercising the Option. In the
event that the Option is being exercised by the representative of Optionee, the
notice will be accompanied by proof satisfactory to the Company of the
representative's right to exercise the Option. The notice
4.
<PAGE> 5
of exercise will be accompanied by full payment of the Option Price for the
number of Shares of Option Stock to be purchased, in United States dollars, in
cash, by check made payable to the Company, or in the form of such other legal
consideration for the purchase of Shares as may be approved by the
Administrator, in its discretion pursuant to section 5(c)(vii) above. In
addition, to the extent required by applicable federal, state, local or foreign
law, and as a condition to the Company's obligation to issue any Shares upon the
exercise of the Option in full or in part, Optionee will make arrangements
satisfactory to the Company for the payment of any applicable Tax Withholding
Liability that may arise by reason of or in connection with such exercise. Such
arrangements may include, in the Company's sole discretion, that the Optionee
tender to the Company the amount of such Tax Withholding Liability, in cash, by
check made payable to the Company, or in the form of such other payment as may
be approved by the Administrator, in its discretion pursuant to section
5(c)(vii) above. After receiving a proper notice of exercise and payment of the
applicable Option Price and withholding taxes, the Company will cause to be
issued a certificate or certificates for the Shares of Option Stock as to which
the Option has been exercised, registered in the name of the person rightfully
exercising the Option and, subject to sections 7(e)(iv) and 7(g) below, the
Company will cause such certificate or certificates to be delivered to such
person.
(b) COMPLIANCE WITH LAW. Notwithstanding any other provision
of this Plan, Options may be granted pursuant to this Plan, and Option Stock may
be issued pursuant to the exercise thereof by an Optionee, only after and on the
condition that there has been compliance with all applicable federal and state
securities laws. The Company will not be required to list, register or qualify
any Shares of Option Stock upon any securities exchange, under any state or
federal law, or with the Securities and Exchange Commission or any State agency,
or secure the consent or approval of any governmental regulatory authority,
except that if at any time the Board determines, in its discretion, that such
listing, registration or qualification of the Shares of Option Stock, or any
such consent or approval, is necessary or desirable as a condition of or in
connection with the exercise of an Option and the purchase of Shares of Option
Stock thereunder, that Option may not be exercised, in whole or in part, unless
and until such listing, registration, qualification, consent or approval is
effected or obtained free of any conditions that are not acceptable to the
Board, in its discretion. However, the Company will seek to register or qualify
with, or as may be provided by applicable local law, file for and secure an
exemption from such registration or qualification requirements from, the
applicable securities administrator and other officials of each jurisdiction in
which an Eligible Participant would be granted an Option hereunder prior to such
grant.
(c) RESTRICTIONS ON TRANSFER.
(i) OPTIONS NONTRANSFERABLE. No Option will be
transferable by the Original Holder otherwise than by will or the laws of
descent and distribution. During the lifetime of the Original Holder, the Option
will be exercisable only by him or her.
(ii) GENERAL RULE ON PROHIBITED TRANSFERS OF OPTION
STOCK. Until the occurrence of a First Public Offering, all Transfers of Option
Stock (or
5.
<PAGE> 6
interest therein) are expressly prohibited, except for Permitted Transfers
described in section 7(d) below and the Transfers described in section 7(e)
below. Any prohibited Transfer is void and of no effect, and no purported
transferee thereof will be recognized as a shareholder of the Company for any
purpose whatsoever. Should such a Transfer purport to occur, the Company may
refuse to carry out the Transfer on its books, attempt to set aside the
Transfer, enforce any rights under this section 7(c), or exercise any other
legal or equitable remedy. For purposes of this section 7, the term "Option
Stock" includes all Shares issued by the Company to a Holder (or his, her or
its predecessor) by reason of such holdings, including any securities which may
be acquired as a result of a stock split, stock dividend, and other
distributions of Shares in the Company made upon, or in exchange for, other
securities of the Company.
(iii) MARKET STANDOFF. In connection with a firm
commitment underwritten public offering of securities of the Company (or any
Successor Entity), if requested by the issuer or its principal underwriter, each
Optionee and each Holder will: (A) not sell or otherwise Transfer any such
Shares not included in such underwriting during the period of two hundred ten
(210) days (or such shorter or longer period as the underwriter may require of
the principal security holders of the issuer) following the effective date of
the registration statement filed with the Securities and Exchange Commission in
connection with such offering; and (B) execute such instruments as the
underwriter may reasonably require to evidence compliance with this section
7(c)(iii).
(d) PERMITTED TRANSFERS. The following Transfers of Shares
of Option Stock are permitted ("PERMITTED TRANSFERS"), and are not subject to
the Company's rights of first refusal described in section 7(e) below:
(i) a Transfer by will or under the laws of descent
and distribution; and
(ii) a Transfer by a Holder of Shares of Option Stock
to his or her ancestors, descendants or spouse (other than pursuant to a decree
of divorce, dissolution or separate maintenance, a property settlement, or a
separation agreement or any similar agreement or arrangement with a spouse,
except for bona fide estate planning purposes), or to a trust, partnership,
custodianship or other fiduciary account for the benefit of the Holder and/or
such ancestors, descendants or spouse, including any Transfer in the form of a
distribution from any such trust, partnership, custodianship or other fiduciary
account to any of the foregoing permitted beneficiaries thereof.
(e) COMPANY RIGHTS OF REPURCHASE AND FIRST REFUSAL. The
Company will have the following rights of repurchase and first refusal with
respect to Shares of Option Stock:
(i) COMPANY'S RIGHT OF FIRST REFUSAL. If any Holder
proposes to Transfer any Shares of Option Stock to any transferee, other than in
the case of an Involuntary Transfer subject to section 7(e)(ii) below, the
Company will have an assignable right (but not an obligation) to purchase such
Shares on the terms and conditions set out in this section 7(e)(i). Such right
of first refusal will be exercisable only on an all-or-nothing basis as to
6.
<PAGE> 7
any particular Transfer of Shares, in the following manner:
(1) The Holder proposing to Transfer such
Shares will provide to the Company a notice of proposed Transfer (a "PROPOSED
TRANSFER NOTICE") stating: the number of Shares that the Holder proposes to
Transfer and the Holder's bona fide intention to Transfer such Shares; the names
and addresses of the Holder, the proposed transferee and subsequently such other
information regarding such transferee as the Company reasonably requests; the
manner and date of such proposed Transfer; and the bona fide cash price and/or
other consideration (and the fair market value thereof) per share, if any, that
such Transferee has offered to pay Holder for such Shares (the "OFFERED PRICE")
as well as such other terms, including payment terms, and conditions, if any, as
were included in such offer (the "OFFERED TERMS").
(2) The Company (or its assignee) may
exercise its right of first refusal under this section 7(e)(i) at any time not
more than thirty (30) days after the Company has received the Proposed Transfer
Notice with respect to such Shares. If the Company (or its assignee) elects to
exercise such purchase rights it will do so by delivering to the Holder of such
Shares a notice of such election, specifying the number of Shares to be
purchased and a closing date that is no more than sixty (60) days after receipt
of the Proposed Transfer Notice (or such later date as the transferee may have
offered or on which the Transfer is otherwise scheduled to occur).
(3) At such closing, to be held at the
Company's principal executive offices, the Company (or its assignee) will pay
the Holder of the Shares, in cash, the purchase price equal to the Offered
Price, subject to an appropriate adjustment to take into account any deferred
payment terms that were included in the Offered Terms; provided that if the
Offered Price includes any non-cash consideration, the value thereof for
purposes of this section 7(e)(i) will be determined in good faith by the Board,
subject to section 7(e)(iii) below.
(4) If the Company (including its assignees)
fails or refuses to exercise its rights under this section 7(e)(i) with respect
to any Shares that are the subject of any Proposed Transfer Notice, the Holder
may Transfer such Shares to the transferee named in such Notice at the Offered
Price and upon such Offered Terms as were set forth in such Notice; provided
that such Transfer must be completed within ninety (90) days after the Company
has received the Proposed Transfer Notice with respect to such Shares; provided
further that as a condition of such Transfer, such transferee will execute such
documents as the Company may reasonably require to ensure that the Company's
rights under the applicable Option Agreement and this Plan are adequately
protected with respect to such Shares, including, without limitation, the
Transferee's agreement to be bound by all of the terms and conditions of this
Plan, and of the Option Agreement, as if he or she were the original Holder of
the Shares, and the Company satisfies itself that such Transfer complies in all
respects with the requirements imposed by applicable state and federal
securities laws and regulations.
(ii) FOLLOWING AN INVOLUNTARY TRANSFER.
7.
<PAGE> 8
Following any Involuntary Transfer of Shares of Option Stock (the "TRANSFERRED
SHARES"), the Company shall have the assignable right (but not the obligation),
prior to a First Public Offering, to purchase from the transferee of the
Transferred Shares ("TRANSFEREE") all or a portion of such Shares for a purchase
price that is equal to the Fair Market Value of those Shares as of the date of
such Involuntary Transfer. Such right will be exercisable in the following
manner:
(1) The Transferee promptly after such
Involuntary Transfer will provide to the Company a notice of Transfer (an
"INVOLUNTARY TRANSFER NOTICE") stating: the number of Transferred Shares; the
names and addresses of the transferor and the Transferee, and subsequently such
other information regarding the Transferee as the Company reasonably requests;
and the manner, circumstances and date of such Involuntary Transfer.
(2) The Company (or its assignee) may
exercise its purchase rights under this section 7(e)(ii) at any time not more
than ninety (90) days after the Company has received the Involuntary Transfer
Notice with respect to the Transferred Shares. If the Company (or its assignee)
elects to exercise such purchase rights it will do so by delivering to the
Transferee a notice of such election, specifying the number of Transferred
Shares to be purchased and a closing date that is no more than sixty (60) days
after the giving of such notice.
(3) At such closing, to be held at the
Company's principal executive offices, the Company (or its assignee) will pay
the Transferee the purchase price specified in this section 7(e)(ii).
(iii) RESOLUTION OF DISPUTES. If there is a dispute
concerning the fair market value of the consideration offered or accepted for
the Shares of Option Stock or the Fair Market Value of the Option Stock, in
connection with the exercise by the Company of its rights under this section
7(e), the dispute will be resolved by the independent certified public
accounting firm that audited or prepared without audit the Company's last
regular annual financial statement and the determination of that firm will be
binding on the parties in the absence of fraud.
(iv) ESCROW. For purposes of facilitating the
enforcement of the restrictions on Transfer set forth in this Plan or in any
Option Agreement, the Administrator may, at its discretion, require the Holder
of Shares of Option Stock to deliver the certificate(s) for such Shares with a
stock power executed by him or her and by his or her spouse (if required for
Transfer), in blank, to the Secretary of the Company or his or her designee, to
hold said certificate(s) and stock power(s) in escrow and to take all such
actions and to effectuate all such Transfers and/or releases as are in
accordance with the terms of this Plan. The certificates may be held in escrow
so long as the Shares of Option Stock whose ownership they evidence are subject
to any right of repurchase or of first refusal under this Plan or under an
Option Agreement. Each Optionee, by exercising an Option, thereby acknowledges
that the Secretary of the Company (or his or her designee) is so appointed as
the escrow holder with the foregoing authorities as a material inducement to the
grant of an Option under this Plan, that the
8.
<PAGE> 9
appointment is coupled with an interest, and that it accordingly will be
irrevocable. The escrow holder will not be liable to any party to an Option
Agreement (or to any other party) for any actions or omissions unless the escrow
holder is grossly negligent relative thereto. The escrow holder may rely upon
any letter, notice or other document executed by any signature purported to be
genuine.
(f) CHANGE OF CONTROL TRANSACTIONS. Notwithstanding any
other provision of this Plan, in the event of a Change of Control Transaction
(as defined herein):
(i) with respect to all Options that have been
granted hereunder and that are outstanding as of the consummation of such Change
of Control Transaction, the Board, in its sole discretion, may determine that it
is in the best interests of the Company, and if so may take all appropriate
action either to:
(1) cancel all such Options effective as of
the consummation of the Change of Control Transaction and, in connection with
each Option, any portion of which is a Vested Option, notify the Optionee of the
proposed Change of Control Transaction reasonably prior to its consummation so
that the Optionee will have an opportunity to exercise the Vested Option
immediately prior to such consummation; or
(2) require the Successor Entity in such
Change of Control Transaction to assume the outstanding Options or substitute
therefor comparable options of such Successor Entity (or of its parent or its
Subsidiary); and
(ii) with respect to all Shares of Option Stock that
have been issued and that are outstanding as of the consummation of such Change
of Control Transaction, the Company will have the right (but not the obligation)
to repurchase all (but not less than all) of the Shares by paying the Holder
thereof cash, or canceling any indebtedness of such Holder to the Company, or
both, at a closing to be held contemporaneously with the consummation of the
Change of Control Transaction, provided that the repurchase price for such
Shares will be an amount per share that is equal to the Fair Market Value of the
Shares based on the Board's good faith estimate of the valuation of the Company
implied by the estimated fair market value of the total consideration to be paid
in connection with the Change of Control Transaction.
(iii) For purposes of this section 7(f): the term
"CHANGE OF CONTROL TRANSACTION" means a Business Combination in which less than
sixty-six and two-thirds percent (66.67%) of the outstanding voting securities
of the Successor Entity immediately following the consummation of the Business
Combination transaction are beneficially held by those persons and entities in
the same proportion as such persons and entities beneficially held the Units of
the Company immediately prior to such transaction; the term "BUSINESS
COMBINATION" means a transaction or series of transactions consummated within
any period of ninety (90) days resulting in (A) the sale of all or substantially
all of the assets of the Company, (B) a merger or consolidation or other
reorganization in which the Company is not the surviving entity or becomes owned
entirely by another entity, or (C) the sale or other change of beneficial
ownership of at least thirty-three and one-third percent (33.33%) of the
outstanding
9.
<PAGE> 10
voting securities of the Company.
(g) ADDITIONAL RESTRICTIONS ON TRANSFER, INVESTMENT INTENT.
By accepting an Option and/or Shares of Option Stock under this Plan, the
Optionee will be deemed to represent, warrant and agree that, unless a
registration statement is in effect with respect to the sale of Shares of Option
Stock: (i) those Shares are not freely tradeable and must be held indefinitely
unless such Shares are either registered under the 1933 Act or an exemption from
such registration is available; (ii) the Company is under no obligation to
register those Shares; (iii) upon exercise of that Option, the Optionee will
purchase the Shares of Option Stock for his or her own account and not with a
view to distribution within the meaning of the 1933 Act, other than as may be
effected in compliance with the 1933 Act and the rules and regulations
promulgated thereunder; (iv) no one else will have any beneficial interest in
the Option Stock; (v) the Optionee has no present intention of disposing of the
Option Stock at any particular time; and (vi) neither the Option nor the Shares
have been qualified under the securities laws of any state and may only be
offered and sold pursuant to an exception from qualification under applicable
state securities laws.
(h) STOCK CERTIFICATES, LEGENDS. Certificates representing
Shares of Option Stock will bear all legends required, by law and necessary or
appropriate in the Administrator's discretion to effectuate the provisions of
this Plan and of the applicable Option Agreement. The Company may place a "stop
transfer" order against Shares of Option Stock until full compliance with all
restrictions and conditions set forth in this Plan and in the legends referred
to in this section 7(h).
(i) NOTICES. Any notice to be given to the Company under the
terms of an Option Agreement will be addressed to the Company at its principal
executive office, Attention: Corporate Secretary, or at such other address as
the Company may designate in writing. Any notice to be given to an Optionee will
be addressed to him or her at the address provided to the Company by the
Optionee. Any such notice will be deemed to have been duly given if and when
enclosed in a properly sealed envelope, addressed as aforesaid, deposited,
postage prepaid, in a post office or branch post office regularly maintained by
the United States Postal Service.
(j) OTHER PROVISIONS. Each Option Agreement may contain such
other terms, provisions and conditions, including restrictions on the Transfer
of Shares of Option Stock, and rights of the Company to repurchase such Shares,
not inconsistent with this Plan, as may be determined by the Administrator in
its sole discretion.
(k) SPECIFIC PERFORMANCE. Under those circumstances in which
the Company chooses to timely exercise its rights to repurchase Shares of Option
Stock as provided herein, the Company will be entitled to receive such Shares in
specie in order to have the same available for future issuance without dilution
of the holdings of other shareholders of the Company. By accepting Shares of
Option Stock, the Holder thereof therefore acknowledges and agrees that money
damages will be inadequate to compensate the Company and its shareholders if
such a repurchase is not completed as contemplated hereunder and that the
10.
<PAGE> 11
Company shall, in such case, be entitled to a decree of specific performance of
the terms hereof or to an injunction restraining such Holder (or such Holder's
personal representative) from violating this Plan or Option Agreement, in
addition to any other remedies that may be available to the Company at law or in
equity.
(l) NO SHAREHOLDER RIGHTS. No rights or privileges of a
shareholder in the Company are conferred by reason of the granting of the
Option. No Optionee will become a shareholder in the Company with respect to any
Shares of Option Stock unless and until the Option has been properly exercised
and the Option Price fully paid as to the portion of the Option exercised.
8. TERM OF THE PLAN. This Plan will become effective on the date of
its adoption by the Board, provided this Plan is approved by the shareholders of
the Company (excluding Shares of Option Stock issued by the Company pursuant to
the exercise of Options granted under this Plan) within twelve (12) months
before or after that date. If this Plan is not so approved by the shareholders
of the Company within that twelve (12) month period of time, any Options granted
under this Plan will be rescinded and will be void. This Plan will remain in
effect until the tenth (10th) anniversary of the date of its adoption by the
Board or its approval by the shareholders of the Company, whichever is earlier,
unless it is terminated earlier pursuant to section 1 of this Plan.
9. ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change in
the outstanding Shares of the Company as a result of a stock split, reverse
stock split, stock dividend or distribution, recapitalization, combination or
reclassification, appropriate proportionate adjustments will be made in: (i) the
aggregate number of Shares that are reserved for issuance in the Option Pool
pursuant to section 4 above, under outstanding Options or future Options granted
hereunder; (ii) the Option Price and the number of Shares of Option Stock that
may be acquired under each outstanding Option granted here6nder; and (iii) other
rights and matters determined on a per share basis under this Plan or any Option
Agreement evidencing an outstanding Option granted hereunder. Any such
adjustments will be made only by the Board, and when so made will be effective,
conclusive and binding for all purposes with respect to this Plan and all
Options then outstanding. No such adjustments will be required by reason of the
issuance or sale by the Company for cash or other consideration of additional
Shares or securities convertible into or exchangeable for Shares.
10. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS, GOVERNING LAW.
Subject to the terms and conditions and within the limitations of this Plan, the
Administrator may modify, extend or renew outstanding Options granted under this
Plan, or accept the surrender of outstanding Options (to the extent not
theretofore exercised) and authorize the granting of new Options in substitution
therefor (to the extent not theretofore exercised). Notwithstanding the
foregoing, however, no modification of any Option will, without the consent of
the Optionee, alter or impair any rights or obligations under any outstanding
Option. This Plan will be governed by, and construed in accordance with, the
laws of the State of California.
11.
<PAGE> 12
11. AMENDMENT AND DISCONTINUANCE. The Board may amend, suspend or
discontinue this Plan at any time or from time to time; provided that no action
of the Board will cause ISOs granted under this Plan not to comply with Section
422 of the Code unless the Board specifically declares such action to be made
for that purpose and provided further that no such action may, without the
approval of the shareholders of the Company, materially increase (other than by
reason of an adjustment pursuant to sections 4 or 9 hereof) the maximum
aggregate number of Shares of Option Stock in the Option Pool, materially
increase the benefits accruing to Eligible Participants, or materially modify
the category of, or eligibility requirements for persons who are Eligible
Participants. However, no such action may alter or impair any Option previously
granted under this Plan without the consent of the Optionee, nor may the number
of Shares of Option Stock in the Option Pool be reduced to a number that is less
than the aggregate number of Shares of Option Stock (i) that may be issued
pursuant to the exercise of all outstanding and unexpired Options granted
hereunder, and (ii) that have been issued and are outstanding pursuant to the
exercise of Options granted hereunder (net of any such Shares that have been
reacquired by the Company by repurchase or otherwise).
12. INFORMATION PROVIDED BY COMPANY. Prior to a First Public
Offering, the Company annually will make available to each Optionee the
Company's financial statements (which statements need not be audited), and each
Optionee shall, by virtue of entering into an Option Agreement, be deemed to
have agreed (and to cause any investment advisers to whom the Optionee proposes
to make such information available to agree) to keep such information
confidential and not to use such information for any purpose whatsoever other
than determining whether to exercise an Option.
13. COPIES OF PLAN. A copy of this Plan will be delivered to each
Optionee at or before the time he or she executes an Option Agreement.
Date Plan Adopted by Board of Directors: January 5, 1996
Date Plan Approved by the Shareholders: January 5, 1996
12.
<PAGE> 13
THE VIRTUAL MALL, INC.
1996 STOCK OPTION PLAN
EXHIBIT A
DEFINITIONS
1. "10% SHAREHOLDER" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions set forth in
Section 424(d) of the Code at the time he or she is granted an Option, stock
possessing more than ten percent (10%) of the total combined voting power or
value of all classes of stock of the Company and/or of its Subsidiaries.
2. "1933 ACT" means the Securities Act of 1933, as amended.
3. "CODE" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to refer to Sections of
the Code as enacted at the time of the Plan's adoption by the Board and as
subsequently amended, or to any substantially similar successor provisions of
the Code resulting from recodification, renumbering or otherwise).
4. "FAIR MARKET VALUE" means, with respect to the Shares and as of
the date that is relevant to-such a determination (e.g., on the Grant Date), the
market price per share of such Shares determined by the Administrator,
consistent with the requirements of Section 422 of the Code and to the extent
consistent therewith, as follows: (a) if the Shares are traded on a stock
exchange on the date in question, then the Fair Market Value will be equal to
the closing price reported by the applicable composite-transactions report for
such date; (b) if the Shares are traded over-the-counter on the date in question
and was classified as a national market issue, then the Fair Market Value will
be equal to the last-transaction price quoted by the NASDAQ system for such
date; (c) if the Shares are traded over-the-counter on the date in question but
was not classified as a national market issue, then the Fair Market Value will
be equal to the mean between the last reported representative bid and asked
prices quoted by the NASDAQ system for such date; and (d) if none of the
foregoing provisions is applicable, then the Fair Market Value will be
determined by the Administrator in good faith on such basis as it deems
appropriate.
5. "FIRST PUBLIC OFFERING" means the closing of the first sale of
securities of the Company, or of any Successor Entity, to the public, through a
firm commitment underwriting, for an aggregate price (exclusive of underwriters'
discounts and commissions and expenses of the offering) of at least seven
million five hundred thousand dollars ($7,500,000), pursuant to an effective
registration statement filed with the Securities and Exchange Commission under
the 1933 Act.
6. "GRANT DATE" means, with respect to an Option, the date on which
the Option Agreement evidencing that Option is entered into between the Company
and the Optionee, or such other date as may be set forth in that Option
Agreement as the "Grant Date" which will be the effective date of that Option
Agreement.
7. "HOLDER" means the holder of any Shares of Option Stock.
13.
<PAGE> 14
8. "INVOLUNTARY TRANSFER" with respect to Shares of Option Stock
includes, without limitation, any of the following: (A) an assignment of the
Shares for the benefit of creditors of the transferor; (B) a Transfer by
operation of law; (C) an execution of judgment against the Shares or the
acquisition of record or beneficial ownership of Shares by a lender or creditor;
(D) a Transfer by will or under the laws of descent and distribution; (E) a
Transfer pursuant to any decree of divorce, dissolution or separate maintenance,
any property settlement, any separation agreement or any other agreement with a
spouse (except for bona fide estate planning purposes) under which any Shares
are Transferred or awarded to the spouse of the transferor or are required to be
sold; or (F) a Transfer resulting from the filing by the transferor of a
petition for relief, or the filing of an involuntary petition against the
transferor, under the bankruptcy laws of the United States or of any other
nation.
9. "JUST CAUSE TERMINATION" means a termination by the Company
and/or any of its Subsidiaries of the Original Holder's employment or services
(or if the Original Holder is a director, removal of him or her from the Board
by action of the shareholders or, if permitted by applicable law and the Bylaws
of the Company, the other directors), in connection with the good faith
determination of the Board (or of the Company's shareholders if the Original
Holder is a director and the removal of him or her from the Board is by action
of the shareholders, but in either case excluding the vote of the subject
individual if he or she is a director or a shareholder) that the Original Holder
has engaged in any acts involving dishonesty or moral turpitude or in any acts
that materially and adversely affect the business, affairs or reputation of the
Company or any of its Subsidiaries.
10. "SUBSIDIARY" has the same meaning as "subsidiary corporation" as
defined in Section 424(f) of the Code.
11. "SUCCESSOR ENTITY" means a corporation or other entity that
acquires all or substantially all of the assets of the Company, or which is the
surviving or parent entity resulting from a Business Combination, as defined in
section 7(f) of the Plan.
12. "TAX WITHHOLDING LIABILITY" in connection with the exercise of
any Option means all federal and state income taxes, social security tax, and
any other taxes applicable to the compensation income arising from the
transaction required by applicable law to be withheld by the Company.
13. "TRANSFER" with respect to Shares of Option Stock, includes,
without limitation, a voluntary or involuntary sale, assignment, transfer,
conveyance, pledge, hypothecation, encumbrance, disposal, loan, gift, attachment
or levy of those Shares, including without limitation any Involuntary Transfer.
14.
<PAGE> 15
Stock Option Agreement
Stock Option Agreement
Under the 1996 Stock Option Plan
of Egreetings Network
THIS AGREEMENT is made effective as of (the "Grant Date"), between
Egreetings Network, a California corporation (the "Company"), and (Optionee).
THE PARTIES AGREE AS FOLLOWS:
OPTION GRANT. Subject to all of the terms and conditions of this
Agreement and of the Company's 1996 STOCK OPTION PLAN (the "OPTION PLAN"),
Optionee will have an option (the "OPTION") to purchase _________ shares of the
Company's common stock (the "SHARES"), for an exercise price per share equal to
$_________ (the "OPTION PRICE"). The Option will expire ten years from the date
of grant and will be of no further force or effect thereafter.
VESTING AND EXERCISE. The Option will become a Vested Option on the
schedule set forth in Section 5(a)(vi) of the Option Plan; provided that in each
case the Original Holder of the Option does not suffer a Loss of Eligibility
Status prior to each such vesting date.
REPRESENTATIONS AND WARRANTIES OF OPTIONEE. Optionee represents and
warrants that he or she is acquiring the Option, and will acquire any Shares
obtained upon exercise of the Option, for investment purposes only, for
Optionee's own account, and with no view to the distribution thereof.
NO EMPLOYMENT RIGHTS. This Agreement gives Optionee no right to be
retained as an employee of the Company and/or its Subsidiaries.
TERMS OF THE OPTION PLAN. Optionee understands that the Option Plan
includes important terms and conditions that apply to the Option. Those terms
include: important conditions to the right of Optionee to exercise the Option;
important restrictions on the ability of Optionee to transfer the Option or to
Transfer any of the Shares of Option Stock received upon exercise of the Option;
and early termination of the Option following the occurrence of certain events.
OPTIONEE HAS READ THE OPTION PLAN, AGREES TO BE BOUND BY ITS TERMS, AND MAKES
EACH OF THE REPRESENTATIONS REQUIRED TO BE MADE BY OPTIONEE UNDER IT. OPTIONEE
FURTHER ACKNOWLEDGES THAT THE COMPANY HAS GIVEN NO TAX ADVICE CONCERNING THE
OPTION AND HAS ADVISED OPTIONEE TO CONSULT WITH HIS OR HER OWN TAX OR FINANCIAL
ADVISOR ABOUT THE TAX TREATMENT OF THE OPTION AND ITS EXERCISE.
SPOUSAL CONSENT
The undersigned is the spouse of the Optionee (______) referred to in
the attached Stock Option Agreement (the "AGREEMENT"). The undersigned
acknowledges that he or she:
15.
<PAGE> 16
1. has received, reviewed and understands the terms and conditions
of the Agreement, including the 1996 Stock Option Plan EGREETINGS NETWORK (the
"PLAN");
2. consents to the Agreement and the Plan, and agrees to be bound
by their terms and conditions to the extent that he or she now has or may obtain
any interest in the Option or Shares of Option Stock covered by the Agreement;
and
3. understands that the Company is relying upon this consent in
entering into the Agreement and in not taking further steps to protect its
interests.
Date: Signature:
Name:
16.
<PAGE> 17
NOTICE OF EXERCISE OF STOCK OPTION
E-GREETINGS NETWORK INC.
To: Fred Campbell, Secretary; E-greetings Network Inc.
The undersigned, the holder of an Option to purchase shares of common
stock of E-greetings Network, Inc. (the "Company"), hereby irrevocably elects to
exercise the purchase rights represented by such Option, and to purchase
thereunder __________ shares of common stock of the Company, herewith makes
payment of $___________ therefor in the form of a check made payable to the
Company, and requests that the certificates for such shares be issued in the
name of and delivered to the undersigned at the address set forth below.
The undersigned acknowledges that the shares being purchased by him or
her (the "Option Shares") are subject to substantial restrictions on sale or
transfer set forth in the Company's 1996 Stock Option Plan (the "Plan") and
agrees to be bound by the terms and conditions of said Plan and the Stock Option
Agreement entered into by and between the Company and the undersigned on ______,
199_. The undersigned further represents, warrants and acknowledges that, unless
a registration statement is in effect with respect to the s ` ale of Option
Shares: (i) those Option Shares are not freely tradeable and must be held
indefinitely unless such Option Shares are either registered under the
Securities Act of 1933, as amended, (the "Act"), or an exemption from such
registration is available; (ii) the Company is under no obligation to register
those Option Shares; (iii) the undersigned is purchasing the Option Shares for
his or her own account and not with a view to or for sale in connection with any
distribution within the meaning of the Act, other than as may be effected in
compliance with the Act and the rules and regulations promulgated thereunder;
(iv) no one else will have any beneficial interest in the Option Shares; and (v)
he or she has no present intention of disposing of the Option Shares or any
interest therein at any particular time.
DATED
(signature)
Print name exactly as to be shown on certificate
Address:
17.
<PAGE> 1
EXHIBIT 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated October , 1999
with respect to the financial statements of Egreetings Network, Inc. as of
December 31, 1997 and 1998 and for each of the three years in the period ended
December 31, 1998 in the Registration Statement (Form S-1) and the related
Prospectus of Egreetings Network, Inc. for the registration of shares of its
common stock.
Walnut Creek, California
October , 1999
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon approval of
the certificate of incorporation in the state of Delaware as described in Note 8
to the financial statements.
/s/ Ernst & Young LLP
Walnut Creek, California
October 1, 1999
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