<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ZAPME! CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7370 91-1836242
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
ZAPME! CORPORATION
3000 EXECUTIVE PARKWAY, SUITE 150
SAN RAMON, CA 94583
(925) 543-0300
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
LANCE MORTENSEN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ZAPME! CORPORATION
3000 EXECUTIVE PARKWAY
SAN RAMON, CA 94583
(925) 543-0300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
MARK A. BERTELSEN, ESQ. NORA L. GIBSON, ESQ.
DON S. WILLIAMS, ESQ. PETER S. BUCKLAND, ESQ.
MICHAEL S. ELLIS, ESQ. TAYLOR L. STEVENS, ESQ.
JEFFREY A. EVANS, ESQ. BRIAN E. COVOTTA, ESQ.
WILSON SONSINI GOODRICH & ROSATI BROBECK, PHLEGER & HARRISON LLP
Professional Corporation Spear Street Tower
650 Page Mill Road One Market
Palo Alto, CA 94304 San Francisco, CA 94105
(650) 493-9300 (415) 442-0900
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
------------------------------
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 of
1933, 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, please 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(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,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1)(2) FEE
<S> <C> <C>
Common Stock, $0.01 par value...................................... $100,000,000 $27,800
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) promulgated under 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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1999
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 it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
<PAGE>
P_R_O_S_P_E_C_T_U_S
SHARES
[LOGO]
COMMON STOCK
--------------
This is ZapMe! Corporation's initial public offering of common stock and
consequently no public market currently exists for our stock.
We expect that the public offering price to be between $ and $ per
share. After pricing the offering, we expect that the common stock will trade on
the Nasdaq National Market under the symbol "IZAP."
INVESTING IN OUR COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 5 OF THIS PROSPECTUS.
-----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- --------------
<S> <C> <C>
Public offering price........................................ $ $
Underwriting discount........................................ $ $
Proceeds, before expenses, to ZapMe! Corporation............. $ $
</TABLE>
The underwriters may also purchase up to an additional shares from
us at the public offering price, less the underwriting discount, within 30 days
from the date of this prospectus to cover over-allotments.
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.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
------------------
MERRILL LYNCH & CO.
DEUTSCHE BANC ALEX. BROWN
THOMAS WEISEL PARTNERS LLC
WIT CAPITAL CORPORATION
------------------
The date of this prospectus is , 1999.
<PAGE>
INSIDE FRONT COVER PAGE
DIAGRAMS, DESCRIPTIONS AND CAPTIONS
1. Top caption: ZapMe! Network.
2. Center: Diagram of the ZapMe! network showing a map of the U.S. highlighting
ZapMe!'s network operating centers in Georgia and Virginia. This illustrates
the flow of information from the network operations centers via satellite to
PC labs in schools throughout the U.S.. Caption: ZapMe! is building a
broadband interactive network which brings the latest technology tools and
educational resources to schools for free. For each school participating in
the ZapMe! network, we provide free PCs, software, installation and support
as well as free "always on," bi-directional satellite-delivered connectivity
to the Internet. The ZapMe! network, which is designed primarily for
students aged 13-19, makes education more engaging and entertaining by
providing a rich media computer experience that is free and easy to use. We
plan to extend the ZapMe! network into the home in order to enhance a
student's educational experience and promote better communication among
students, teachers and parents.
As of July 31, 1999, there were more than 250 school districts, representing
over 6,000 K-12 schools, including over 2,000 middle and high schools, that
have approved and signed a three-year contract with us. As of July 31, 1999,
we had installed ZapMe! labs in over 220 schools, which had an average of
over 1,000 students, providing a total addressable user base of over 220,000
students, each of whom is provided a free ZapMe! account upon request. In
the Fall of the 1999-2000 school year, ZapMe! will expand current programs
and incentives to encourage network usage.
INTERIOR FOLDOUT OF FRONT COVER PAGE
PHOTOGRAPHS, DESCRIPTIONS AND CAPTIONS
1. Top caption: ZapMe! Netspace.
2. Center: Color photo of ZapMe! Netspace.
Captions describing three key features of ZapMe! Netspace:
- ZapMail - Student email accessible through the Internet for home study.
- MyTools - An entire toolbox full of useful Microsoft Office Suite software
including Word, PowerPoint, and Excel.
- Dynamic Billboards - Rotating sponsor messages and public service
announcements. All content is age appropriate.
3. Bottom caption: The ZapMe! Netspace is our proprietary, easy-to-use
interface that provides access to over 10,000 pre-selected, indexed
educational sites and other aggregated content, applications, and services,
including Microsoft Word, Excel and PowerPoint. In addition, we provide a
range of educational and communication tools, including ZapMail, our network
email program, and ZapPoints, a membership program that rewards students for
using the ZapMe! network.
4. Far right side: Two color photos of students using the ZapMe! network in
school.
INSIDE BACK COVER PAGE
PHOTOGRAPHS AND CAPTIONS
1. Top caption: ZapMe! Network.
2. Center: Color photo of students using the ZapMe! network in school.
3. Bottom: Color photo of six students.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 5
Special Note Regarding Forward-Looking Statements.......................................................... 23
Use of Proceeds............................................................................................ 24
Dividend Policy............................................................................................ 24
Capitalization............................................................................................. 25
Dilution................................................................................................... 27
Selected Financial Data.................................................................................... 29
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 30
Business................................................................................................... 38
Management................................................................................................. 52
Certain Transactions....................................................................................... 62
Principal Stockholders..................................................................................... 65
Description of Capital Stock............................................................................... 67
Shares Eligible for Future Sale............................................................................ 72
Underwriting............................................................................................... 74
Legal Matters.............................................................................................. 76
Experts.................................................................................................... 76
Where You Can Find More Information........................................................................ 76
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------------
Except as otherwise noted, all information in this prospectus assumes:
- our reincorporation from California to Delaware, which will be effective
prior to consummation of this offering, has already taken place;
- the conversion of all outstanding shares of our preferred stock into
common stock upon the completion of this offering; and
- no exercise of the underwriters' over-allotment option.
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you different information. If anyone provides you different or inconsistent
information, you should not rely on it. We are not, and the underwriters are
not, making an offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the information appearing
in this prospectus is accurate as of the date on the front cover of this
prospectus only. Our business, financial condition, results of operations and
prospects may have changed since that date.
------------------------
ZapMe! and the ZapMe! logo, ZapMail, ZapPoints, ZapSearch, ZapMe! Home, and
I Need To Know are unregistered trademarks of ZapMe!. All other brand names or
trademarks appearing in this prospectus are the property of their respective
holders.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO
YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING THE FINANCIAL DATA AND
RELATED NOTES, BEFORE MAKING AN INVESTMENT DECISION. YOU SHOULD CAREFULLY
CONSIDER, AMONG OTHER THINGS, THE MATTERS SET FORTH IN "RISK FACTORS."
OUR COMPANY
ZapMe! is building a broadband interactive network that brings the latest
technology tools and educational resources to schools for free. For each school
participating in the ZapMe! network, we provide free PCs, software, installation
and support, as well as free "always on," bi-directional satellite-delivered
connectivity to the Internet. The ZapMe! network, which is designed primarily
for students aged 13-19, makes education more engaging and entertaining by
providing a rich media computer experience that is free and easy to use. We plan
to extend the ZapMe! network into the home in order to enhance a student's
educational experience and promote better communication among students, teachers
and parents.
Each school participating in the ZapMe! network typically receives 15
high-end, multimedia PCs with 17-inch monitors, satellite communications
hardware, and a laser printer, as well as broadband access to the ZapMe!
Netspace and the Internet. The ZapMe! Netspace is our proprietary, easy-to-use
interface that provides access to over 10,000 pre-selected, indexed educational
sites and other aggregated content, applications, and services, including
Microsoft Word, Excel and PowerPoint. In addition, we provide a range of
educational and communication tools, including ZapMail, our network email
program, and ZapPoints, a membership program that rewards students for using the
ZapMe! network. Because ZapMe!'s network employs a bi-directional satellite
system, a ZapMe! lab does not require extensive rewiring or phone access to
connect to the Internet.
We believe that by providing schools with free PCs and broadband
connectivity to the Internet, we will help to alleviate the significant
technology funding gap in schools, and provide greater educational and economic
opportunity to students of all demographic backgrounds by giving them access to
the digital tools and electronic information that are critical in today's
knowledge-based economy. Moreover, the ZapMe! network will provide a platform
for the school community to engage in many important activities, including
providing teachers and administrators with access to Internet-based educational
content, cost-effective school e-commerce solutions, and school fundraising
opportunities. In connection with many of these core activities, the ZapMe!
network has established strategic alliances with a wide range of companies,
including Dell Computer Corporation, Gilat Satellite Networks and its
subsidiary, Spacenet, Microsoft, New Sub Services, School Specialty, Sylvan
Learning Systems and Xerox to further enhance the educational experience. In
addition, we plan to enter into additional strategic alliances to enhance our
technology, gain access to compelling educational content, add new features and
functionality, or generate sponsorship and e-commerce revenues.
In particular, in the Fall of the 1999-2000 school year, the ZapMe! network
will:
- Enable schools and students to obtain equipment from leading technology
and document management companies, including Dell and Xerox, two of our
core OEM partners;
- Offer access to educational testing and training programs, through an
exclusive strategic relationship with Sylvan, a leading provider of
educational services to students in grades K-12;
- Create convenient, low-cost purchasing options for teachers and
administrators interested in purchasing school supplies, software and
supplementary materials from School Specialty, Inc., the largest supplier
of non-textbook education products to educators in the U.S.; and
- Facilitate safe and effective implementation of school fundraising
activities, such as online magazine drives with New Sub Services, the
world's largest provider of magazine subscriptions.
1
<PAGE>
Funding for the development, installation and maintenance of the ZapMe!
network is provided by a combination of corporate sponsorships and e-commerce
relationships. We expect to derive additional revenue from partners and other
sources from after-school use of ZapMe! labs and participation in fundraising
activities. In particular, we will receive additional revenue from Sylvan, which
has committed to sharing a percentage of its profits resulting from joint
activities on the ZapMe! network. Participating sponsors have the opportunity to
underwrite public service messages, as well as corporate sponsorships
appropriate for ZapMe! network users, including students aged 13-19, teachers
and administrators. The U.S. Army, for example, plans to use the ZapMe! network
to communicate recruiting opportunities to graduating high school seniors. Other
corporate sponsors scheduled for the Fall of the 1999-2000 school year include
Dell, General Electric, Johnson & Johnson, Labtech, Mercury Records, Microsoft,
New Sub Services, Proctor & Gamble, Sylvan, Toshiba, the U.S. Navy and Xerox.
We intend to aggressively grow our installed base of schools and increase
our number of users by installing ZapMe! labs in schools throughout the country.
As our installed base of schools and number of users grow, we intend to
stimulate demand for, and use of, our educational network at home. Students and
parents will be able to log on to the ZapMe! network from home in order to
communicate with other ZapMe! users, as well as access ZapMe! applications and
features unique to the home version. We believe that ZapMe! will increase
parental involvement in schools by facilitating communication with teachers.
As of July 31, 1999, there were more than 250 school districts, representing
over 6,000 K-12 schools, including more than 2,000 middle and high schools, that
have approved and signed a three-year contract with us. As of July 31, 1999, we
had installed ZapMe! labs in over 220 schools, which had an average of more than
1,000 students, providing a total addressable user base of over 220,000
students, each of whom has access to a free ZapMe! account upon request. In the
Fall of the 1999-2000 school year, ZapMe! will expand current programs and
incentives to encourage network usage.
CORPORATE INFORMATION
We incorporated in California in June 1997 under the name Satellite Online
Solutions, Inc. In October 1998 we changed our name to ZapMe! Corporation. Our
principal executive offices are located at 3000 Executive Parkway, San Ramon,
CA, 94583, and our telephone number at that location is (925) 543-0300. Our main
web site address is WWW.ZAPME.COM. The reference to our Internet address does
not constitute incorporation by reference of the information contained at this
web site.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by ZapMe!............... shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds.............................. For general corporate purposes, including
expansion of operations, working capital,
product development and other corporate
expenses.
Proposed Nasdaq National Market symbol....... IZAP
</TABLE>
The above table is based on shares outstanding as of June 30, 1999. This
table excludes, as of June 30, 1999:
- 2,512,857 shares of common stock issuable upon exercise of options
outstanding under our 1997 Stock Option Plan and 1998 Stock Option Plan at
a weighted average exercise price of $1.87 per share and 386,493 shares
reserved for future issuance under the plans;
- 895,890 shares of common stock issuable upon exercise of outstanding
warrants, of which 655,890 shares at a weighted average exercise price of
$3.67 per share were outstanding at June 30, 1999;
- additional shares issuable to holders of the Series C preferred
stock on closing of this offering assuming an initial public offering
price of $ per share and that the closing of the offering occurs on
, 1999;
- additional shares issuable to holders of the Series D preferred
stock on closing of this offering assuming an initial public offering
price of $ per share and that the closing of the offering occurs on
, 1999; and
- additional shares issuable to holders of the Series E preferred
stock on closing of this offering assuming an initial public offering
price of $ per share and that the closing of the offering occurs on
, 1999.
See "Management--Incentive Stock Plans," "Description of Capital Stock" and
note 3 of notes to financial statements.
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 25,
1997
(INCEPTION) SIX MONTHS ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, --------------------
1997 1998 1998 1999
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenue...................................................... $ -- $ -- $ -- $ 147
Loss from operations......................................... (570) (4,009) (1,028) (7,125)
Net loss..................................................... (581) (4,045) (1,063) (7,096)
Net loss applicable to common stockholders................... (581) (4,651) (1,063) (8,032)
Net loss per share, basic and diluted........................ $ (0.05) $ (0.40) $ (0.09) $ (0.59)
Shares used in calculation of net loss per share, basic and
diluted.................................................... 11,183 11,685 11,859 13,517
Pro forma net loss per share, basic and diluted
(unaudited)................................................ $ (0.26) $ (0.28)
Shares used in computing pro forma net loss per share, basic
and diluted (unaudited).................................... 15,993 25,462
</TABLE>
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.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................. $ 19,855 $ $
Working capital............................................................ 15,597
Total assets............................................................... 32,146
Capital lease obligations.................................................. 6,705
Stockholders' equity....................................................... 16,752
</TABLE>
The balance sheet data table set forth above summarizes:
- actual balance sheet data;
- pro forma balance sheet data giving effect to the sale of 2,030,000 shares
of Series E preferred stock in August 1999 with net proceeds of
approximately $9.5 million and the conversion of all outstanding shares of
preferred stock, including the shares of Series E preferred stock, into
shares of common stock; and
- pro forma as adjusted balance sheet data, adjusted to give effect to the
sale by ZapMe! of shares of common stock offered through this
prospectus, assuming an initial public offering price of $ per share,
and after deducting the estimated underwriting discount and estimated
offering expenses.
4
<PAGE>
RISK FACTORS
THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK. OUR
BUSINESS AND RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED BY ANY OF THE
FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY
OF THESE RISKS, AND YOU MAY LOSE PART OR ALL OF YOUR INVESTMENT.
WE CANNOT PREDICT OUR SUCCESS BECAUSE OUR BUSINESS MODEL IS UNPROVEN AND WE HAVE
OPERATED OUR BUSINESS FOR ONLY A SHORT PERIOD OF TIME
Because we were incorporated in June 1997 and only launched our network in
June 1998, we have a limited operating history on which investors can base an
evaluation of our business and prospects. Our revenue and income potential are
unproven and our business model is unique, constantly evolves and will continue
to evolve. We only recently began generating revenue from sponsorships and to
date we have not generated any revenue from e-commerce or network services. We
have limited insight into trends that may emerge and affect our business.
An investor in our common stock must carefully consider the risks and
difficulties frequently encountered by companies in an early stage of
development, as well as the risks we face due to our participation in a new and
rapidly evolving market. To address the risks we face, we must, among other
things:
- expand our network through deployment into additional schools and other
steps to attract additional users to the ZapMe! network;
- ensure that our users use our network frequently;
- attract a large number of sponsors from a variety of industries;
- rapidly deploy our two-way broadband satellite technology;
- translate our installed base of schools and associated users into demand
for ZapMe! at home;
- adapt to changing government regulations and political processes;
- anticipate changes in and adapt to a new and developing market;
- maintain our current strategic alliances and develop new ones;
- maintain our relationships with key third parties, such as Gilat and
Spacenet, and Inacom, which are instrumental in the expansion of our
network;
- build and strengthen user loyalty;
- offer compelling content;
- gain acceptance of interactive online sponsorship by users and sponsors;
- increase awareness of the ZapMe! brand;
- respond effectively to competitive pressures;
- continue to develop and upgrade our communication and collaboration
services and our technology; and
- attract, retain and motivate qualified personnel.
Our business strategy may not be successful and we may not successfully
overcome these risks. Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for more detailed information on
our limited operating history.
5
<PAGE>
WE HAVE A HISTORY OF LOSSES, AND WE EXPECT LOSSES AND SIGNIFICANT INCREASES IN
OUR OPERATING EXPENSES FOR THE FORESEEABLE FUTURE
We incurred net losses of approximately $11.7 million for the period of
inception through June 30, 1999. These losses resulted primarily from costs
related to developing the ZapMe! network, deploying the ZapMe! network to
schools and developing content and features for the ZapMe! network. We have not
achieved profitability. We expect to have increasing net losses and negative
cash flows for the foreseeable future. The size of these net losses will depend,
in part, on the rate of growth in our revenues from our sponsors, e-commerce
offerings and network services and on the level of our expenses. We intend to
increase our operating expenses substantially as we:
- increase the number of users of our network through the deployment of our
network to additional schools;
- increase our network usage through marketing activities and the addition
of new features; and
- increase our general and administrative functions to support our growing
operations.
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 will 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 or sustain
profitability in the future, then we may be unable to continue our operations.
WE EXPECT OUR QUARTERLY FINANCIAL RESULTS TO FLUCTUATE AND OUR EARLY STAGE OF
DEVELOPMENT LIMITS OUR ABILITY TO PREDICT REVENUES AND EXPENSES PRECISELY
Our quarterly and annual operating results have varied in the past and are
likely to fluctuate significantly in the future due to a variety of factors,
many of which are outside of our control. Some of the factors that may affect
our quarterly or annual operating results include:
- the rate of expansion of our network through deployment into additional
schools;
- the rate of usage of our network in schools and at home;
- our ability to generate and sustain significant levels of sponsorship
revenue;
- fluctuations in the use of our network and in demand for our products and
services related to the school calendar, including vacations and holidays;
- the burden of lease payment obligations;
- government action to regulate or otherwise restrict our access to schools;
- our ability to manage costs, including personnel costs; and
- costs relating to possible acquisitions and integration of technologies or
businesses.
In addition, see "--We could be required to record a significant accounting
expense upon the vesting of a warrant" for a description of an accounting
expense that could impact our quarterly operating results. To respond to these
and other factors, we may need to make business decisions that could impact our
quarterly operating results. Due to the above factors, we believe that
period-to-period comparisons of our operating results are not necessarily
meaningful, and should not be viewed as indicators of our future performance. In
addition, during future periods our quarterly or annual operating results may
fail to meet the expectations of securities analysts or investors. In this case
the trading price of our common stock would likely decrease.
6
<PAGE>
OUR METHODS OF GENERATING REVENUES ARE NEW AND LARGELY UNTESTED AND WE MUST
ESTABLISH AND CONTINUE TO GENERATE MULTIPLE REVENUE STREAMS
The success of our business will depend on our ability to generate multiple
revenue streams through the ZapMe! network. We initially expect to receive the
majority of our revenue from:
- sponsorships;
- e-commerce; and
- network services, including marketing and profit sharing fees.
From inception through June 30, 1999, we generated approximately 90% of our
revenue from sponsorships. Over the longer term, we expect most of our revenue
to come from sponsorships, e-commerce and network services. Although we expect
to generate a portion of our future revenue through e-commerce, we have not
generated any e-commerce revenue through June 30, 1999. As a result, our
expected primary methods of generating revenue are relatively new to us and
largely untested.
We expect that revenue from sponsorships will make up a significant amount
of our revenue for the foreseeable future, although we may never achieve
significant sponsorship revenue. Since the broadband interactive ZapMe! network
is in a new and unproven advertising medium, advertisers that have traditionally
relied on other advertising media may be reluctant to purchase or face creative
challenges in developing media for sponsorships on the ZapMe! network. Potential
sponsors may believe that online advertising in general, and sponsorship on our
network in particular, is less effective than traditional advertising media for
promoting their products and services. Consequently, they may allocate little or
none of their advertising budget to sponsorships on the ZapMe! network. Our
business could be severely harmed if Internet and online advertising do not
continue to grow, if we are unsuccessful in increasing our sponsorship revenue
for that or other reasons, or if we are unable to adapt to new forms of online
advertising.
In addition, competition for Internet-based advertising revenue is intense
and the amount of available standard banner advertising space on the Internet is
increasing at a significant rate. These factors are causing Internet advertising
rates to decline and we expect that these rates may continue to decline in the
future. While we have the ability to deliver online advertising in a richer
format than standard banner advertising, we cannot assure you that we will not
be subjected to these trends or that we will be able to attract sponsorship
revenue in quantities and at rates that are sufficient to support our business
model. Our failure to do so would likely result in lower revenue from
sponsorships than we expect.
The success of our e-commerce initiative depends on our users being willing
to engage in commerce over our network and more generally upon the adoption of
the Internet as a medium for commerce by a broad base of customers and our
users. If this market fails to develop or develops more slowly than expected, or
if our e-commerce services do not achieve market acceptance, our revenue
generated from e-commerce will be lower than expected.
In the future, we expect to generate revenue through network services. For
example, we have entered into an agreement with a strategic partner who will use
the ZapMe! labs after school hours and, in return, will pay us a portion of its
revenue or profits. We anticipate entering into other arrangements like this
one; however, if we are unable to structure such arrangements, if they develop
more slowly then expected, or if our partners are unable or unwilling to make
full and effective use of our ZapMe! labs and network, our revenue generated
from network services will be lower then expected.
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OUR BUSINESS WILL BE SERIOUSLY HARMED IF WE FAIL TO RETAIN AND GROW OUR USER
BASE, GENERATE FREQUENT AND RECURRING USAGE BY OUR USERS, OR DEMONSTRATE THAT
OUR USERS ARE ACTUALLY USING OUR SERVICE
The success of our business will depend on our ability to add users and
demonstrate to sponsors that our users are using the ZapMe! network on a regular
basis. Our ability to grow our user base depends largely on our ability to
deploy our network to additional schools and extend our network to home users.
If we are unable to rapidly deploy our network to a large number of additional
schools, we will not be able to grow our core school user base, and our ability
to generate revenue and implement our strategy will be severely limited. Our
ability to grow our user base also depends on our success with the development
and implementation of programs designed to help schools encourage their students
to register.
We must also encourage our users to use our service regularly and for long
periods of time. We have developed programs and features to encourage this type
of use of our network; however, these programs could fail, in whole or in part.
There are also a variety of reasons why our users might not continue to
regularly use our service. Some users may dislike our dynamic billboard, which
is always present. Users may find that our features and content are not
sufficiently compelling to continue regular use, or may turn to other Internet
providers for such services, such as email. A number of our users may not
actively use our service for periods of time. If we are not able to demonstrate
to our sponsors that we have an active and growing user base, sponsors may
choose not to enter into sponsorship agreements with us and our revenue
generated from sponsorships would suffer.
WE RELY HEAVILY ON OUR KEY PARTNERS AND OUR BUSINESS WILL BE HARMED IF THEY
TERMINATE THEIR STRATEGIC ALLIANCES WITH US OR IF THE ARRANGEMENT FAILS TO MEET
OUR OBJECTIVES
Our current strategic alliance relationships include: Dell, Gilat and
Spacenet, Microsoft, New Sub Services, School Specialty, Sylvan, Toshiba and
Xerox. We rely heavily on our strategic alliance relationships. These agreements
involve many aspects of our business and in some cases include the sale of
equity securities to these companies. These types of arrangements are complex
and will require a great deal of effort to operate successfully. As a result,
there are many risks related to these arrangements, including some that we may
not have foreseen. It is difficult to assess the likelihood of occurrence of
these risks, including the lack of success of the overall arrangement to meet
the parties' objectives. If we fail to maintain these relationships, or if our
partners do not perform to our expectations, our ability to deploy our network
to additional schools, the performance of our network, and our ability to
generate revenues may all be harmed. Specific examples of these strategic
alliance relationships include: (1) our agreements with Sylvan relating to the
use of our network and labs outside of school hours, (2) our agreement with Dell
relating to the acquisition and integration of our computer lab equipment, and
(3) our agreements with Spacenet relating to the installation of our network and
labs as well as the operation of our network.
WE ARE DEPENDENT ON THIRD PARTIES TO DEPLOY OUR NETWORK TO SCHOOLS AND SUPPORT
IT ONCE INSTALLED
We plan to rapidly deploy our network to additional schools across the
country. We have used, and plan to continue to use, third parties such as Gilat
and Spacenet, and Inacom, to install and support the ZapMe! network in each
school. In the past we have experienced difficulties resulting from the failure
of certain third party integrators to manage successfully a wide-scale
deployment into a school environment. Such failures resulted in delays in the
scheduled deployment of our network to additional schools. We have recently
entered into relationships with nationally recognized parties to install
software on the computers, to install the ZapMe! lab in each school site and to
serve as the general contractor to oversee the installation process. However,
these parties may not be able to install schools on a wide scale according to
our schedule. While we do not currently anticipate additional changes of our
third party installers, any further changes would cause delays in the deployment
of the ZapMe! network and any inability to install schools according to our plan
could limit or eliminate revenue
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generated from sponsorships, e-commerce and network services. Further, if we do
need to hire substitute or additional third party installers of our network we
cannot assure you that we will be able to do so on terms as favorable as our
current arrangements, or at all, which could result in higher installation costs
to us as well as potential delays in our deployment.
We also rely on third parties to provide the majority of support necessary
to maintain the ZapMe! network and labs once installed. Any inability to
maintain or delays to the maintenance of this equipment would lead to lower
revenue generated from sponsorship and network services.
OUR DEPENDENCE ON SHORT-TERM SPONSORSHIP CONTRACTS COULD HARM OUR BUSINESS
A substantial portion of our sponsorship revenue is and will continue to be
derived from short-term contracts. Consequently, we may not be able to command
higher prices typically associated with more comprehensive arrangements.
Further, many of our sponsors will be able to cease advertising on our network
quickly and without penalty, thereby increasing our exposure to competitive
pressures. Our current sponsors may not continue to purchase advertisements and
we may not be able to secure new contracts from existing or future sponsors at
attractive rates or at all. Any failure by us to achieve significant sponsorship
revenue would seriously harm our business.
WE DERIVE A SIGNIFICANT PORTION OF OUR REVENUE FROM A SMALL NUMBER OF SPONSORS
AND OUR REVENUE MAY DECLINE SIGNIFICANTLY IF ANY MAJOR SPONSOR CANCELS OR DELAYS
A PURCHASE
A small number of sponsors account for a significant portion of our revenue,
and we anticipate that this trend will continue. For example, in the near-term
we expect to derive a substantial portion of our revenue from an agreement with
Sylvan, and anticipate that this agreement will continue to account for a
meaningful percentage of our revenue through December 31, 2003, when it expires.
GE Americom accounted for approximately 87% of our revenue during the six-month
period ended June 30, 1999. Our revenue from sponsorships will not increase if,
among other things, we are unable to renew our material agreements, replace such
agreements with similar agreements with new sponsors, or sufficiently diversify
our sponsor base so that we do not rely on a small number of sponsors for a
significant portion of our revenue.
OUR VARIED SALES CYCLES COULD HARM OUR BUSINESS
The length of time between the date of initial contact with a potential
sponsor and the execution of a contract with the potential sponsor varies
significantly and depends on the nature of the arrangement. Furthermore,
contracting with potential sponsors is subject to delays over which we have
little or no control, including:
- potential sponsors' adoption of the ZapMe! network, which is an entirely
new advertising medium, as an acceptable use of advertising budgets;
- potential sponsors' budgetary constraints;
- potential sponsors' internal acceptance reviews; and
- the possibility of cancellation or delay of projects by sponsors.
During any given sales cycle, we may expend substantial funds and management
resources and yet not obtain sponsorship revenue. Our results of operations for
a particular period may suffer if sales to sponsors forecasted in a particular
period are delayed or do not otherwise occur.
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OPPOSITION TO OUR NETWORK, ADVERTISING IN SCHOOLS AND UNRESTRICTED INTERNET
ACCESS MAY LEAD TO NEGATIVE PUBLICITY, REGULATORY CONTROL, LEGAL ACTION,
BOYCOTTS OR OTHER ACTION THAT COULD HARM OUR BUSINESS
We expect to generate a significant portion of our revenue from sponsorships
purchased by marketers interested in addressing our student population across
the ZapMe! network in schools. This business model may prove controversial and
lead to negative publicity as well as action by the government or private
interests to restrict or stop our network. To date, some third parties that
oppose corporate advertising in schools, as well as sponsorships on the ZapMe!
network, have engaged in publicity campaigns to deter sponsors from dealing with
the companies engaging in advertising or sponsorship activities and have sought
legislation to curb this practice. In particular, legislation in California is
expected to become law that would impose additional procedural requirements
before local school boards could enter into certain contracts involving
advertising in schools. Similar or more restrictive legislation is possible in
other states and at the local and federal levels. Anti-school-advertising groups
have had some successes in the past seeking regulation and boycotts of companies
that advertise in schools, such as Channel One, a wholly owned subsidiary of
Primedia, Inc. Restrictions on our sponsorships or e-commerce would seriously
harm our business. Moreover, any new law or regulation pertaining to online
media or sponsorships in schools, or the application or interpretation of
existing laws, could decrease the demand for our service, increase our cost of
doing business or otherwise have a negative impact on our business.
The Internet is the subject of an increasing number of laws and regulations.
These laws or regulations may relate to, among other things, liability for
information retrieved from or transmitted over the Internet, online content
regulation, user privacy, taxation and the quality of products and services. In
particular, Congress has recently passed (and the President has signed into
law): (a) the Children's Online Protection Act, which restricts the knowing
distribution of material for commercial purposes over the Internet deemed
harmful to children and imposes additional restrictions; (b) the Children's
Online Privacy Protection Act, which restricts the ability of online services to
collect user information from children under 13; and (c) the Protection of
Children from Sexual Predators Act, which mandates that electronic communication
service providers report facts or circumstances from which a violation of child
pornography laws is apparent. Although we support the objectives of these laws
and regulations and believe they have not harmed our business to date, changes
to and new interpretations of these laws and regulations, as well as additional
laws or regulations adopted in the future, may impose significant restrictions,
requirements or additional costs on our business, require us to change our
operating methods, or subject us to additional liabilities.
Other new laws such as the Digital Millennium Copyright Act, which reduces
the liability of online service providers for listing or linking to third-party
web sites that include copyright-infringing materials, have not yet been
interpreted by the courts. Their applicability and reach, therefore, are not
defined. Moreover, the applicability to the Internet of existing laws governing
issues such as intellectual property ownership, copyright, defamation, obscenity
and personal privacy is uncertain and developing. We may be subject to claims
that our services violate such laws. Any new legislation or regulation in the
United States or abroad or the application of existing laws and regulations to
the Internet could damage our business and cause the price of our common stock
to decline. Please see "Business-- Government Regulation" for more information
on regulations that might affect our business.
WE ARE DEPENDENT ON OUR NETWORK INFRASTRUCTURE, AND IN PARTICULAR ON SATELLITES
AND SATELLITE TRANSMISSION TECHNOLOGY, AND ANY FAILURE OF OUR NETWORK WOULD HARM
OUR OPERATIONS
Our business plan calls for rapidly deploying our network to many additional
schools. Our network infrastructure may not be able to support the demands this
growth places on it and its performance and reliability may decline. We have
experienced and may in the future experience interruptions in service
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as a result of outages and other delays occurring throughout our network
infrastructure. If these outages or delays occur frequently in the future, use
of our network could grow more slowly or decline.
Our network operations center and our communications and other computer
hardware are also subject to disruptions which are beyond our control and for
which we may not have adequate insurance. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage our
communications hardware and other network operations. Our network operations
center is located separate from our principal offices at third party hosting
facilities in California. In addition, each school installed with the ZapMe!
network is connected to our network through a satellite link. We send
information to the satellite through our operator's uplink facilities located in
Georgia and Virginia. Our network currently uses a single satellite. The
complete or partial loss of the satellite used to transmit data to schools could
affect the performance of our network. Orbiting satellites are subject to the
risk of failing prematurely due to, among other things, mechanical failure, a
collision with objects in space or an inability to maintain proper orbit. Any
such loss of the use of the satellite could prevent us from delivering our
services. This interruption in services would continue until either a new
substitute satellite is placed into orbit, or until our services were moved to a
different satellite. Moving to an alternate satellite would require that we
redirect all of the satellite dishes in our network which is a very time
consuming and expensive process. In addition, a loss of a satellite could result
in increased costs of using satellites. We are dependent on transmissions from
the satellite to our customer sites, and these transmissions may be interrupted
or experience other difficulty, which could result in service interruptions and
delays in our network. In addition, the use of the satellite to provide
transmissions to our customers requires a direct line of sight between the
satellite and the receiver at the school and is subject to distance and rain
attenuation. In certain markets which experience heavy rainfall we may need to
use greater power to maintain transmission quality. Such changes may require
Federal Communications Commission, or FCC, approval which may not be granted.
The future success of our business will also depend on the security of our
network. Computer viruses or problems caused by our users or other third
parties, such as the sending of excessive volumes of unsolicited bulk email or
"spam," could lead to interruptions, delays, or cessation in service to our
users. In addition, the sending of "spam" through our network could result in
third parties asserting claims against us. We cannot assure you that we would
prevail in such claims and our failure to do so could result in large judgments
which would harm our business. Users or other third parties could also
potentially jeopardize the security of confidential information stored in our
computer systems by their inappropriate use of the Internet, including
"hacking," which could cause losses to us or our users or deter persons from
using our services. Users or third parties may also potentially expose us to
liability by "identity theft," or posing as another ZapMe! user. Unauthorized
access by current and former employees or others could also potentially
jeopardize the security of confidential information stored in our computer
systems and those of our users.
We expect that our users will increasingly use the Internet for commercial
transactions in the future. Any network malfunction or security breach could
cause these transactions to be delayed, not completed at all, or completed with
compromised security. Users or others may assert claims of liability against us
as a result of any failure by us to prevent these network malfunctions and
security breaches, and may deter others from using our services, which could
cause our business prospects to suffer. Although we intend to continue using
industry-standard security measures, such measures have been circumvented in the
past, and we cannot assure you that these measures will not be circumvented in
the future. In addition, to alleviate problems caused by computer viruses or
other inappropriate uses or security breaches, we may have to interrupt, delay,
or cease service to our users, which could severely harm our business.
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WE ARE DEPENDENT ON OUR LEASED SATELLITE BANDWIDTH
We currently lease satellite bandwidth from GE Americom and in the future
expect to sublease satellite bandwidth from Spacenet. If, for any reason, the
leases were to be terminated, we might not be able to renegotiate new leases
with GE Americom or Spacenet or another satellite provider on favorable terms,
if at all.
The satellite industry is a highly regulated industry. In the United States,
operation and use of satellites requires licenses from the FCC. As a lessee of
satellite space, we could in the future be indirectly subject to new laws,
policies or regulations or changes in the interpretation or application of
existing laws, policies or regulations, any of which may modify the present
regulatory environment in the United States. While we believe that our satellite
access providers will be able to obtain all U.S. licenses and authorizations
necessary to operate effectively, they may not continue to be successful in
doing so. Our failure to indirectly obtain some or all necessary licenses or
approvals could seriously harm our business.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST OUR CURRENT AND POTENTIAL
COMPETITORS
The market for the ZapMe! network is new and rapidly evolving, and we expect
competition in and around this market to intensify in the future. While we do
not believe any of our competitors currently offer the functionality offered by
the ZapMe! network, we face competition from a number of companies who provide
services and functionality similar to portions of our network, who market
products and services to a similar base of users, or both, and who could in the
future seek to compete more directly with us. In this light, we believe our
current and potential competitors (and potential partners) include America
Online and Channel One, as well as Microsoft, Disney and Hughes Electronics. For
more information on some of our competitors, please see "Business-Competition."
Many of our existing competitors, as well as potential new competitors, have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
This may allow them to devote greater resources than we can to the development
and promotion of their products and services. Many of these competitors offer a
wider range of products and services than we do. These products and services may
attract users to our competitors' sites and, consequently, result in lower usage
of our network. These competitors may also engage in more extensive research and
development, adopt more aggressive pricing policies and make more attractive
offers to existing and potential employees, partners, sponsors and e-commerce
merchants. Our competitors may develop services that are equal or superior to
ours or that achieve greater market acceptance. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to better address the needs
of sponsors and businesses engaged in e-commerce. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share.
SCHOOLS MAY USE ALTERNATIVE MEANS TO ACQUIRE COMPUTERS AND INTERNET ACCESS
An immediate attraction of deploying our network is free access to computers
and the Internet. However, for a variety of reasons, schools may decide to use
other methods to acquire computers and Internet access. If schools decide to use
means other than deployment of our network, it will limit our user base, and
consequently we will have lower than expected revenues from sponsorships,
e-commerce and network services. Aside from purchasing the computers and
Internet access from already existing budgets or from donations from parents or
other members of the community, some other methods of acquiring computer
equipment and Internet access that schools may turn to include:
E-rate. The Education-rate initiative, commonly referred to as "E-rate," is
a government sponsored program under which schools can qualify for discounts on
a wide variety of networking products, telecommunications services and Internet
access. The discount ranges from 20%-90% depending upon
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whether the school is in an urban or rural area and the economic status of the
students. Passed as part of the 1996 Telecommunications Act, the E-rate is an
extension of the Universal Service Fund, originally designed to make telephone
service ubiquitous in the United States. The FCC recently moved to fund the
E-rate program at $2.25 billion for the period from July 1, 1999 to June 30,
2000, the maximum level under its regulations. Schools may choose to utilize the
E-rate and purchase their computer and network equipment and Internet access
themselves, rather than using the ZapMe! network.
Free Computer Equipment and Internet Access Companies and Offerings. Various
companies have recently begun to offer a variety of low cost computer equipment
and Internet access, as well as packages of both. The free equipment and
Internet access has to date largely been tied to the user accepting additional
advertising or network services from the company providing the equipment or
Internet access. In addition, several companies have recently announced that
they will subsidize the cost of computer equipment for purchasers who agree to a
full price multi-year Internet access commitment. We believe that to date none
of these offerings has targeted the school or multiple PC lab markets. New
product offerings occur rapidly in our industry, however, and in the future
schools may choose to receive their computer equipment and Internet access from
these sources rather than use the ZapMe! network.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS WHEN
NEEDED
We expect to use the net proceeds of this offering primarily to continue to
expand our installed school base, make capital expenditures, continue
investments in product development and expand sales and marketing activities. We
believe that such proceeds, together with our existing capital resources, will
be sufficient to meet our cash requirements for at least the next twelve months.
However, our cash requirements are large, and depend on several factors,
including cash outflows due to lease obligations, the rate of expansion of our
installed school base, the availability of equipment leases on competitive
terms, our success in generating revenues, the growth of sales and marketing,
and other factors. If capital requirements vary materially from those currently
planned, we may require additional financing sooner than anticipated.
If additional funds are raised through the issuance of equity securities,
the percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution, or these equity securities may have rights,
preferences or privileges senior to those of the holders of our common stock. If
additional funds are raised through the issuance of debt securities, such
securities would have rights, preferences and privileges senior to holders of
common stock and the term of such debt could impose restrictions on our
operations. Additional financing may not be available when needed on terms
favorable to us or at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to deploy our network, develop
or enhance our services, take advantage of future opportunities or respond to
competitive pressures, all of which would severely harm our business.
WE ARE DEPENDENT ON THE CONTINUED GROWTH IN USE AND POPULARITY OF OUR NETWORK
AND THE INTERNET BY OUR USERS AND OUR ABILITY TO SUCCESSFULLY ANTICIPATE THE
FREQUENTLY CHANGING TASTES OF OUR USERS
Our business is unlikely to be successful if the popularity of the Internet
and related media in school as an educational tool and among students in general
does not continue to increase. Even if the popularity of the Internet and
related media does increase, the success of our network in particular depends on
our ability to anticipate and keep current with the frequently changing tastes
of our users, primarily students age 13-19. Any failure on our part to
successfully anticipate, identify or react to changes in styles, trends or
preferences of our users would lead to reduced interest in and use of the ZapMe!
network and therefore limit opportunities for sponsorship sales as well as
e-commerce. Moreover, the ZapMe! brand could be eroded by misjudgments in
service offerings or a failure to keep our content current with the evolving
preferences of our audience.
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SEASONAL AND CYCLICAL PATTERNS MAY AFFECT OUR BUSINESS
We believe that in-school advertising and e-commerce sales will be lower
during the Summer, in late December and early January and during other school
holiday periods when most users of the ZapMe! network will be on vacation and
away from school. In addition, advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. If our market makes the transition from an emerging to a
more developed market, these traditional seasonal and cyclical patterns may
develop in the future. These patterns would exacerbate seasonality to which we
are subject by further reducing advertising revenues in the first and third
calendar quarter of each year. Seasonal and cyclical patterns in online
advertising and e-commerce in general may also affect our revenue. Because our
operating history is so limited, it is difficult for us to accurately predict
these trends and plan accordingly. Since our operating expenses are based on
future revenue performance, it is possible that seasonal fluctuations could
materially and adversely affect our revenue and results of operations.
OUR NETWORK IS NEW AND WE MAY NEED TO DEVELOP CERTAIN TOOLS TO ATTRACT SPONSORS
AND PARTNERS
It is important to our sponsors that we accurately measure the user base
demographics and sponsorship delivery on our network. We are currently
implementing systems designed to leverage known non-identifying demographic data
about our users, including age, gender, and location identified by zip code, in
such a way as to permit sponsors to address their intended market segment. This
effort may be complicated by the remote nature of the ZapMe! labs in which this
information is generated and recorded before being transmitted back to our
network operations center. If we fail to implement these systems successfully,
we may not be able to accurately evaluate the demographic characteristics of our
users. Sponsors may choose not to advertise on our network or may pay less for
sponsorships if they perceive our measurements to be unreliable.
No standard measurement currently exists to determine the effectiveness or
market reach of the advertising that is available on our network. We may need to
develop standard measurements in order to support and promote our network as a
significant advertising medium. If such standards do not develop, it could be
difficult to attract sponsors and sponsorship revenue.
OUR EFFORTS TO DEVELOP WIDESPREAD BRAND RECOGNITION ARE LIKELY TO BE EXPENSIVE
AND MAY FAIL
The development of our brand is important to our future success. If we fail
to develop sufficient brand recognition, our ability to attract advertising and
sponsorship revenue may be impaired, and our revenue will suffer. In order to
build our brand awareness we must succeed in our brand marketing efforts,
deliver features and services that are engaging to our users, provide
high-quality content and increase user traffic to the ZapMe! network. These
efforts have required, and will continue to require, significant expenses. If we
expend additional resources to build the ZapMe! brand and do not generate a
corresponding increase in revenue as a result of our branding efforts, or if we
otherwise fail to promote our brand successfully our business could be harmed.
We cannot assure you that we will be successful in developing our brand.
WE MAY BE LIABLE OR INCUR ADDITIONAL COSTS FOR OUR USE OR DISTRIBUTION OF OUR
USERS' INFORMATION
We could be subject to liability claims for misuses of information collected
from our users, such as for unauthorized marketing purposes, and will face
additional expenses to analyze and comply with increasing regulation in this
area. In addition, the Federal Trade Commission, or FTC, is in the process of
issuing final regulations governing collection of personal information from
children under 13, has submitted proposals to the Internet industry regarding
the rights and safety of children using the Internet, and is expected to issue
additional regulations in this area. We are sensitive to the impetus for these
regulations, and accordingly, we currently collect only non-personally
identifying information
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during user registration, including age, gender, and location by zip code. We
use this non-personal information internally to determine how to improve our
service, applications and features and to focus our advertisements and
communications. We also use this information externally on an aggregated,
non-individually identifiable basis to provide our sponsors with the
demographics of our user base and response rate to their media. We may in the
future collect names and other personal information for users over 13 in
connection with contests and other promotions, but will not distribute this
information externally, and may sell our user information on an aggregated,
non-individual basis. We could incur additional expenses, or be required to
alter, or eliminate, various current practices if new regulations regarding the
use or distribution of personal and other information collected online are
introduced or if our privacy practices are investigated.
WE MAY BE SUBJECT TO LIABILITY FOR PRODUCTS SOLD THROUGH OUR NETWORK
To date, we have had very limited experience in the sale of products online
and the development of relationships with manufacturers or suppliers of such
products. However, we plan to develop a range of e-commerce opportunities.
Consumers may sue us if any of the products that we sell online are defective,
fail to perform properly or injure the user. Liability claims resulting from our
sale of products could require us to spend significant time and money in
litigation or to pay significant damages.
WE MAY BE SUBJECT TO LIABILITY FOR PUBLISHING OR DISTRIBUTING CONTENT OVER OUR
NETWORK
We may be subject to claims relating to content that is published on or
downloaded from the ZapMe! network. We also could be subject to liability for
content that is accessible from our network through links to other web sites or
that is posted by members in chat rooms or bulletin boards. Although we carry
general liability insurance, our insurance may not cover potential claims of
this type, such as defamation or trademark infringement, or may not be adequate
to cover all costs incurred in defense of potential claims or to indemnify us
for all liability that may be imposed. In addition, any claims like this, with
or without merit, could require us to change our network in a manner that could
be less attractive to our customers and would result in the diversion of our
financial resources and management personnel.
WE MAY NOT BE ABLE TO DELIVER VARIOUS SERVICES IF THIRD PARTIES FAIL TO PROVIDE
RELIABLE SOFTWARE, SYSTEMS AND RELATED SERVICES TO US
All of our advertisements are served using software licensed from
NetGravity. While there is other software available, it would substantially
disrupt our business in the near term to switch to another provider. As such, we
are reliant on NetGravity and its software. If NetGravity's software fails to
perform as expected, or if we are not able to renew such agreement or license or
internally develop similar software in the future, we may not be able to
effectively display advertisements to our users. In such event, our revenue from
sponsorships would likely suffer. On July 13, 1999, DoubleClick, an Internet
advertising provider, and NetGravity announced that they had entered into a
merger agreement pursuant to which DoubleClick will acquire NetGravity in a
stock-for-stock transaction. We cannot predict how this acquisition will affect
our relationship with NetGravity.
In addition we are dependent on various third parties for other software,
systems and related services. Several of the third parties that provide software
and services to us have a limited operating history, have relatively immature
technology and are themselves dependent on reliable delivery of services from
others. As a result, our ability to deliver various services to our users may
suffer due to the failure of these third parties to provide reliable software,
systems and related services to us.
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THE INABILITY TO OBTAIN KEY SOFTWARE FROM THIRD PARTIES MAY HARM OUR BUSINESS
We rely on software licensed from third parties, including applications that
are integrated with internally developed software and used in our products. Most
notably, we license remote management software and Windows NT. These third-party
technology licenses may not continue to be available to us on commercially
reasonable terms, or at all, and we may not be able to obtain licenses for other
existing or future technologies that we desire to integrate into our products.
Our business could be seriously harmed if we cannot maintain existing
third-party technology licenses or enter into licenses for other existing or
future technologies needed for our products.
OUR SUCCESS DEPENDS UPON THE SUCCESSFUL DEVELOPMENT OF NEW SERVICES AND FEATURES
IN THE FACE OF RAPIDLY EVOLVING TECHNOLOGY
Our market is characterized by rapidly changing technologies, frequent new
service introductions and evolving industry standards. The recent growth of the
Internet and intense competition in our industry exacerbate these market
characteristics. Our future success will depend on our ability to adapt to
rapidly changing technologies by continually improving the performance, features
and reliability of our network. We may experience difficulties that could delay
or prevent the successful development, introduction or marketing of new
features, content or network services. In addition, our new enhancements must
meet the requirements of our current and prospective users and must achieve
significant market acceptance. We could also incur substantial costs if we need
to modify our service or infrastructures to adapt to these changes.
FAILURE TO MANAGE THE GROWTH OF OUR OPERATIONS COULD HARM OUR BUSINESS
We have rapidly and significantly expanded our operations. We anticipate
that further significant expansion will be required to grow our user base if we
are to be successful in implementing our business strategy. We may not be able
to implement management information and control systems in an efficient and
timely manner, and our current or planned personnel, systems, procedures and
controls may not be adequate to support our future operations. If we are unable
to manage growth effectively, our business would suffer. During 1998, we
increased the number of employees from 12 to 45, and during the first six months
of 1999, we added 43 additional employees. This expansion is placing a
significant strain on our managerial, operational and financial resources. Most
of our existing senior management personnel, including Don Kingsborough, our
Senior Vice President, Sales and Marketing, and Bob Rudy, our Vice President of
Operations, joined us within the last six months. Certain other key managerial,
technical and operations personnel have not yet been fully integrated. To manage
the expected growth of our operations and personnel, we will be required to:
- improve existing and implement new operational, financial and management
controls, reporting systems and procedures;
- install new management information systems; and
- train, motivate and manage our sales and marketing, engineering, technical
and customer support employees.
THE LOSS OF CERTAIN KEY PERSONNEL MAY HURT OUR ABILITY TO OPERATE OUR BUSINESS
EFFECTIVELY
Our success depends to a significant degree upon the continued contributions
of the principal members of our sales, engineering and management departments,
many of whom perform important management functions and would be difficult to
replace. Specifically, we believe that our future success is highly dependent on
our senior management, and in particular on Lance Mortensen, Chairman and Chief
Executive Officer. We do not have employment contracts with our key personnel.
The loss of the services of any key personnel, particularly senior management,
could seriously harm our business.
16
<PAGE>
IF WE ARE UNABLE TO RETAIN AND HIRE ADDITIONAL QUALIFIED PERSONNEL AS NECESSARY,
WE MAY NOT BE ABLE TO SUCCESSFULLY ACHIEVE OUR OBJECTIVES
We have recently hired and anticipate continuing to hire additional
engineering, sales, marketing, e-commerce, customer support and accounting
personnel. We may not be able to attract and retain the necessary personnel to
accomplish our business objectives, and we may experience constraints that will
adversely affect our ability to deploy the ZapMe! network in a timely fashion or
to support our users and operations. We have at times experienced, and continue
to experience, difficulty in recruiting qualified personnel. Recruiting
qualified personnel is an intensely competitive and time-consuming process.
WE ARE CURRENTLY IN ARBITRATION WITH ONE OF OUR FORMER OFFICERS
On July 7, 1999, we filed a demand for arbitration with our former President
and Director, Frank J. Vigil, related to his employment at and departure from
ZapMe!. We assert that ZapMe! was induced by Mr. Vigil's fraudulent
representations regarding his work history and managerial experience to enter
into an employment agreement with him. We seek the rescission of the employment
agreement, as well as the return of all benefits received by Mr. Vigil under the
agreement, and costs and fees associated with the arbitration.
On July 26, 1999, Mr. Vigil filed a response to our demand and a
counterclaim. Mr. Vigil denied the allegations contained in our demand. Mr.
Vigil's counterclaim alleges, among other claims, breach of contract, breach of
implied covenant of good faith and fair dealing, fraud in the inducement of
contract, intentional misrepresentation, defamation, and certain violations of
the California Labor Code, all related to the circumstances of his employment at
and departure from ZapMe!. Mr. Vigil seeks double general damages; special
damages; exemplary and punitive damages; earned and unpaid vacation; an award of
the benefits, including wages, bonuses, margin interest expenses, stock
distributions and insurance benefits he is allegedly entitled to under the
employment agreement; and costs and fees related to the arbitration.
Each party to the arbitration has asserted various defenses to the claims
and counterclaims. We cannot assure you that we will prevail in this
arbitration, and any decision against us could result in an obligation to pay
some or all of the damages Mr. Vigil has sought in his counterclaim. These
damages could be substantial. Notably, under the terms of his employment
agreement and related agreements, Mr. Vigil was permitted to purchase 1.35
million shares of common stock of ZapMe!. Certain of those shares were subject
to a right of repurchase by ZapMe! at the time of Mr. Vigil's separation from
ZapMe!. Mr. Vigil may claim that, under the terms of his employment agreement,
the closing of this offering could result in the cancellation of the right of
repurchase and the full vesting of his stock. A decision against us with regard
to the validity of the employment contract and related agreements could
therefore result in the complete vesting of Mr. Vigil's stock.
THE PURCHASERS IN THE OFFERING WILL EXPERIENCE DILUTION DUE TO OUR OBLIGATION TO
ISSUE ADDITIONAL SHARES TO CERTAIN OF OUR PREFERRED STOCKHOLDERS IN CONNECTION
WITH THE OFFERING
On August 27, 1998 we sold 600,000 shares of Series C preferred stock. On
December 3, 1998, February 1, 1999, March 31, 1999 and May 28, 1999, we sold an
aggregate of 5,894,110 shares of Series D preferred stock. On August 4, 1999, we
sold 2,030,000 shares of Series E preferred stock. Generally, the shares of
Series C, Series D and Series E preferred stock will convert to common stock on
a one-to-one basis. However, rights granted to the holders of the Series C,
Series D and Series E preferred stock under our Certificate of Incorporation
will require us to issue additional shares of common stock.
The holders of our Series C preferred stock, Series D preferred stock and
Series E preferred stock are entitled to per annum dividends equal to ten
percent, fifteen percent and seven and one half
17
<PAGE>
percent, respectively, of the liquidation value of their stock, initially set at
$5 per share. The dividend will be payable upon the closing of this offering in
shares of additional common stock in the amount equal to the dividend amount.
The holders of our Series C preferred stock and Series D preferred stock
will also be entitled to receive additional newly issued shares of common stock
upon the closing of this offering if the offering price does not exceed $15 per
share in the case of the Series C preferred stock and $10 per share in the case
of the Series D preferred stock.
By way of example, if the offering price is $ per share and the offering
closes on , the Series C stockholders, Series D stockholders and
Series E stockholders would be entitled to receive approximately shares,
shares and shares, respectively. When such issuance of additional
shares of common stock occurs, current and prospective stockholders will suffer
additional dilution with a resulting proportionate decrease in our earnings per
share. Depending on the timing of our offering, and in particular, on the
offering price, this dilution could be substantial. Please see "Description of
Capital Stock--Preferred Stock" for additional detail.
WE COULD BE REQUIRED TO RECORD A SIGNIFICANT ACCOUNTING EXPENSE UPON THE VESTING
OF A WARRANT
As part of our agreement with Sylvan, we issued a warrant to purchase
150,000 shares of our common stock at $5.00 per share. This warrant becomes
exercisable if Sylvan meets certain milestones by December 31, 2003. If the
warrant becomes exercisable, we could be required to record a significant
non-cash accounting expense based on the value of the warrant in the period in
which the warrant becomes exercisable. The value of the warrant at that time
will depend on the value of our common stock at the time.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS AND RESULT IN
INCREASED DEBT AND ASSUMPTION OF CONTINGENT LIABILITIES
As part of our business strategy, we expect to review acquisition prospects
that would complement our current product offerings, augment our market
coverage, enhance our technical capabilities, or otherwise offer growth
opportunities. While we have no current agreements or negotiations underway with
respect to any such acquisitions, we may acquire businesses, products or
technologies in the future. In the event of such future acquisitions, we could:
- issue equity securities which would dilute current stockholders'
percentage ownership;
- incur substantial debt; or
- assume contingent liabilities.
Such actions by us could have a detrimental effect on our results of
operations and/or the price of our common stock. Acquisitions also entail
numerous risks, including:
- difficulties in assimilating acquired operations, technologies or
products;
- unanticipated costs associated with the acquisition that could materially
adversely affect our results of operations;
- negative effects on our reported results of operations from acquisition
related charges and of amortization of acquired technology and other
intangibles;
- diversion of management's attention from other business concerns;
- adverse effects on existing business relationships with suppliers and
customers;
- risks of entering markets in which we have no or limited prior experience;
and
18
<PAGE>
- potential loss of key employees of acquired organizations.
We may not be able to successfully integrate part or all of any businesses,
products, technologies or personnel that we might acquire in the future, and our
failure to do so could seriously harm our business.
CONTROL BY EXISTING STOCKHOLDERS MAY LIMIT YOUR ABILITY TO INFLUENCE THE OUTCOME
OF DIRECTOR ELECTIONS AND OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL
Upon completion of this offering, our executive officers, directors and
principal stockholders and their affiliates will own shares or
approximately % of the outstanding shares of common stock ( % if the
underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $ and that the closing of the offering occurs on
, 1999. These stockholders, if acting together, would be able to
significantly influence all matters requiring approval by our stockholders,
including the election of directors and the approval of mergers or other
business combination transactions. This concentration of ownership could have
the effect of delaying or preventing a change in our control or otherwise
discouraging a potential acquirer from attempting to obtain control of us. These
results could in turn have a negative effect on the market price of the common
stock or prevent our stockholders from realizing a premium over the market
prices for their shares of common stock. For information about the ownership of
common stock by our executive officers, directors and principal stockholders
please refer to "Principal Stockholders."
OUR STOCK PRICE MAY BE VOLATILE AND YOU MAY NOT BE ABLE TO RESELL SHARES AT OR
ABOVE THE OFFERING PRICE
A public market for our common stock has not previously existed. We cannot
predict the extent to which investor interest in ZapMe! will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for the shares will be determined by negotiations
between us and the representatives of the Underwriters and may not be indicative
of prices that will prevail in the trading market. The trading price of our
common stock could be subject to wide fluctuations in response to factors
unrelated to our operating results such as:
- announcements of technological innovations, significant acquisitions,
strategic alliance relationships, joint ventures or capital commitments by
us or our competitors;
- new products or services offered by us or our competitors;
- changes in financial estimates by securities analysts;
- additions or departures of key personnel; and
- sales of common stock.
In addition, the stock market in general and the Nasdaq National Market and
technology companies in particular have experienced extreme price and volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of such companies. Some of these fluctuations may be due to
speculative trading by individual investors, including investors commonly
referred to as "day traders." The trading prices of many technology companies'
stocks are at or near historical highs and these trading prices and multiples
are substantially above historical levels. These trading prices and multiples
may not be sustained. These broad market and industry factors may materially
adversely affect the market 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 against such companies. Such litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources, results which would seriously harm our business.
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<PAGE>
POSSIBLE INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS
We seek to protect our intellectual property and to respect the intellectual
property rights of others. To protect our own intellectual property, we rely on
U.S. and international law regarding copyright, patents, trademarks and trade
secrets as well as confidentiality agreements with employees, consultants,
contractors and business partners. We cannot guarantee that we will succeed in
obtaining, registering, policing or defeating challenges to our intellectual
property rights, or that we will avoid claims that we are infringing the rights
of others.
We currently have five patent applications on file with the United States
Patent and Trademark Office. In addition, we are in the process of preparing
four additional patent applications and two continuations of our existing
applications. To date, we have applied for registered trademark status in the
United States for ZapMe! and various other marks. We have also applied to
register "ZapMe!" in a number of foreign countries. We have given copyright
notice on our Netspace and many other copyrightable materials by affixing a
standard copyright notice in the appropriate places. We have not registered any
copyrights. ZapMe! controls access to our trade secrets and proprietary
information by entering into confidentiality agreements with its employees,
consultants, contractors and actual and potential business partners. We
currently own the Internet domain name "zapme.com," from which we run our
corporate website.
Despite our efforts to protect our intellectual property, we may be
unsuccessful in doing so. We may be unable to obtain patents or register
trademarks for a variety of reasons, including a mistaken belief that these
items are eligible for intellectual property protection or that we are the
entity entitled to this protection, if any. Our copyrights and trade secrets may
similarly turn out to be ineligible for legal protection. In addition, parties
may attempt to disclose, obtain or use its proprietary information despite, or
in the absence of, a confidentiality agreement. Some foreign countries do not
protect intellectual property rights to the same extent as the United States,
and intellectual property law in the United States is still uncertain and
evolving as applied to Internet-related industries. The status of domain names
and the regulatory bodies in charge of them is also unsettled. Any inability to
register or otherwise protect our intellectual property rights could seriously
harm on our business since it could, among other things, enable competitors to
copy important features on our network and Netspace.
Furthermore, third parties may assert intellectual property infringement
claims against ZapMe!. These claims, possibly including those from companies
from which we license key technology for its operations, could result in
significant liability, the inability to use key rights and technologies, and the
invalidation of our own proprietary rights. In addition, regardless of the
outcome, any litigation could be time-consuming, expensive, and distracting of
management's time and attention. Any intellectual property litigation could
materially adversely affect our business.
FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PRODUCTS TO BE YEAR 2000 COMPLIANT
COULD NEGATIVELY IMPACT OUR BUSINESS
Many currently installed computer systems and software products only accept
two digits to identify the year in any date. Thus, the year 2000 will appear as
"00," which the system might consider to be the year 1900 rather than the year
2000. This could result in system failures, delays or miscalculations causing
disruptions to our operations. The failure of systems maintained by third
parties to be Year 2000 compliant could cause us to incur significant expense to
remedy any problems, reduce our revenues from such third parties or otherwise
seriously damage our business. A significant Year 2000-related disruption of the
network services or equipment that third-party vendors provide to us could also
cause our members or visitors to consider seeking alternate providers or cause
an unmanageable burden on our technical support.
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<PAGE>
Our failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, some of our normal business activities or
operations. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Readiness Disclosure."
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE
OUR STOCK PRICE TO FALL
Sales of a large number of shares of our common stock in the public market
after this offering or the perception that such sales could occur could cause
the market price of our common stock to drop. Upon completion of this offering,
assuming an initial public offering price of $ and that the closing of the
offering occurs on , 1999, we will have approximately shares of
common stock outstanding, of which approximately shares (approximately
shares if the underwriters' over-allotment option is exercised in full)
will be freely transferable without restriction or registration under the
Securities Act of 1933, unless such shares are held by our affiliates, as that
term is defined in Rule 144 under the Securities Act. The officers and directors
and all of our existing stockholders have agreed with Merrill Lynch or have
otherwise agreed with us not to sell or otherwise dispose of any of their shares
for 180 days after the date of this prospectus. However, Merrill Lynch may, in
its sole discretion, at any time without notice, release all or any portion of
the shares subject to lock-up agreements. Sales of common stock by existing
stockholders in the public market, or the availability of such shares for sale,
could adversely affect the market price of the common stock.
In addition, as soon as practicable after the date of this prospectus, we
intend to file a registration statement on Form S-8 with the Securities and
Exchange Commission covering the 4,899,350 shares of common stock reserved for
issuance under our 1997 Stock Option Plan, 1998 Stock Plan and 1999 Employee
Stock Purchase Plan and for options issued outside such plans. On the date 180
days after the effective date of this offering, at least shares will be
subject to immediately exercisable options (based on options outstanding on June
30, 1999. Sales of a large number of shares could have an adverse effect on the
market price for our common stock.
After this offering, the holders of shares of common stock (including
shares issuable upon exercise of warrants) will have certain rights with respect
to registration of such shares for sale to the public. If such holders, by
exercising their registration rights, cause a large number of securities to be
registered and sold in the public market, such sales could have an adverse
effect on the market price for our common stock. If we were to include in a
company-initiated registration shares held by such holders pursuant to the
exercise of their registration rights, such sales may have an adverse effect on
our ability to raise needed capital.
OUR CHARTER DOCUMENTS WILL MAKE IT MORE DIFFICULT TO ACQUIRE US AND MAY
DISCOURAGE TAKE-OVER ATTEMPTS AND THUS DEPRESS THE MARKET PRICE OF OUR STOCK
Provisions of our Certificate of Incorporation and Bylaws could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. For example, stockholder meetings may be called only by our
board of directors, the chairman of the board and the president, advanced notice
is required prior to stockholder proposals, and stockholders may not act by
written consent. Further, we have authorized preferred stock that is
undesignated, making it possible for the board of directors to issue preferred
stock with voting or other rights or preferences that could impede the success
of any attempt to change control of ZapMe!.
Delaware law also could make it more difficult for a third party to acquire
us. Specifically, Section 203 of the Delaware General Corporation Law may have
an anti-takeover effect with respect to transactions not approved in advance by
the board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by our
stockholders.
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<PAGE>
THE PURCHASERS IN THE OFFERING WILL IMMEDIATELY EXPERIENCE SUBSTANTIAL DILUTION
IN NET TANGIBLE BOOK VALUE
Because our common stock has been sold previously at prices substantially
less than the initial public offering price that you will pay, you will suffer
immediate and substantial dilution in pro forma net tangible book value. The
exercise of outstanding options and warrants, or the issuance of additional
shares of preferred stock, may result in further dilution. See "Dilution" and
"Description of Capital Stock."
22
<PAGE>
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. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks outlined
under "Risk Factors," that may cause our or our industry's actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels or activity, performance or achievements expressed or
implied by such forward-looking statements.
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. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform such statements to actual results.
23
<PAGE>
USE OF PROCEEDS
The net proceeds to ZapMe! from the sale of the shares of common stock
sold by us in the offering are estimated to be approximately $
(approximately $ if the underwriters' over-allotment option is exercised in
full) assuming an initial public offering price of $ per share and after
deducting the estimated underwriting discount and estimated offering expenses.
We expect to use the net proceeds for general corporate purposes, including
expansion of operations, working capital, product development and other
corporate expenses. The amounts we actually expend for such working capital and
other purposes may vary significantly and will depend on a number of factors,
including the amount of our future revenues and the other factors described
under "Risk Factors." Our management will retain broad discretion in the
allocation of the net proceeds of this offering. A portion of the net proceeds
may also be used to acquire or invest in complementary businesses, technologies,
product lines or products. However, we have no current plans, agreements or
commitments with respect to any such acquisition, and we are not currently
engaged in any negotiations with respect to any such transaction. Pending such
uses, the net proceeds of this offering will be invested in short term,
interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared nor paid cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of the board of directors and will be
dependent upon our financial condition, results of operations, capital
requirements, general business condition and such other factors as the board of
directors may deem relevant.
24
<PAGE>
CAPITALIZATION
The table below sets forth the following information:
- our actual capitalization as of June 30, 1999;
- our pro forma capitalization after giving effect to our sale of 2,030,000
shares of Series E preferred stock in August 1999, with net proceeds of
approximately $9.5 million, and the conversion of all outstanding shares
of preferred stock into shares of common stock; and
- our pro forma as adjusted capitalization to give effect to the sale of
shares of common stock at an assumed initial public offering price
of $ per share in this offering, and after deducting the estimated
underwriting discount and estimated offering expenses payable by us.
This information should be read in conjunction with our financial statements
and related notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Capital lease obligations, net of current portion........................... $ 4,613 $ $
Redeemable convertible preferred stock, $0.01 par value, issuable in series;
600,000 shares authorized, issued and outstanding, actual; no shares
authorized, issued or outstanding pro forma and pro forma as adjusted..... 4,288 -- --
Stockholders' equity:
Convertible preferred stock, $0.01 par value; 16,357,671 shares authorized
(including 600,000 shares designated as redeemable convertible preferred
stock), 15,151,781 shares issued and outstanding, actual; 5,000,000
shares authorized, no shares issued and outstanding, pro forma and pro
forma as adjusted....................................................... 29,112
Common stock, $0.01 par value; 50,000,000 shares authorized, 14,359,380
shares issued and outstanding, actual; 200,000,000 shares authorized,
shares outstanding, pro forma; 200,000,000 shares authorized,
shares issued and outstanding, pro forma as adjusted.............. 2,026
Deferred stock compensation................................................. (1,122)
Accumulated deficit during the development stage............................ (13,264)
---------- ----------- -----------
Total stockholders' equity.................................................. 16,752
---------- ----------- -----------
Total capitalization........................................................ $ 25,653 $ $
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The above table is based on shares outstanding as of June 30, 1999. This
table excludes, as of June 30, 1999:
- 2,512,857 shares of common stock issuable upon exercise of options
outstanding under our 1997 Stock Option Plan and 1998 Stock Option Plan at
a weighted average exercise price of $1.87 per share and 386,493 shares
reserved for future issuance under the plans;
- 895,890 shares of common stock issuable upon exercise of outstanding
warrants, of which 655,890 shares at a weighted average exercise price of
$3.67 per share were outstanding at June 30, 1999;
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<PAGE>
- additional shares issuable to holders of the Series C preferred
stock on closing of this offering assuming an initial public offering
price of $ per share and that the closing of the offering occurs on
, 1999;
- additional shares issuable to holders of the Series D preferred
stock on closing of this offering assuming an initial public offering
price of $ per share and that the closing of the offering occurs on
, 1999; and
- additional shares issuable to holders of the Series E preferred
stock on closing of this offering assuming an initial public offering
price of $ per share and that the closing of the offering occurs on
, 1999.
See "Management--Incentive Stock Plans," "Description of Capital Stock" and
note 3 of notes to financial statements.
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<PAGE>
DILUTION
The pro forma net tangible book value of our common stock after giving
effect to our sale of 2,030,000 shares of Series E preferred stock in August
1999 with net proceeds of approximately $9.5 million, on June 30, 1999 was
approximately $30.5 million or $ per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets less our
total liabilities, divided by the number of outstanding shares of our common
stock on a pro forma basis after giving effect to the conversion of all
outstanding shares of our preferred stock into shares of common stock upon
the closing of the offering. Assuming our sale of shares of common stock
in this offering at an assumed initial public offering price of $ per share
and our receipt of the estimated net proceeds from the offering, after deducting
the estimated underwriting discount and our estimated offering expenses, our pro
forma net tangible book value at June 30, 1999 would have been $ or $
per share of common stock. This represents an immediate increase of pro forma
net tangible book value of $ per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $ per share to
new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $
Pro forma net tangible book value per share as of June 30, 1999......... $
Increase in pro forma net tangible book value per share attributable to
new investors.........................................................
---------
Pro forma net tangible book value per share after offering................
---------
Dilution per share to new public investors................................ $
---------
---------
</TABLE>
The following table sets forth, as of June 30, 1999, on the pro forma basis
described above, the differences between the number of shares of common stock
purchased from us, the total price paid and the average price per share paid by
existing stockholders and by the new investors in this offering at an assumed
initial public offering price of $ per share (before deducting the
estimated underwriting discounts and commissions and estimated offering expenses
payable).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......................................% $ % $
New investors..............................................% %
----------- --------- --------- ----- ------------
Total.................................................. 100.0% $ 100.0% $
----------- --------- --------- ----- ------------
----------- --------- --------- ----- ------------
</TABLE>
If the underwriters exercise their over-allotment in full, the following
will occur:
- the number of shares of common stock held by existing stockholders will
decrease to , or approximately % of the total number of shares
of our common stock outstanding; and
- the number of shares held by new public investors will increase to ,
or approximately % of the total number of shares of our common stock
outstanding after this offering.
The above computations are based on shares outstanding as of June 30, 1999.
They exclude, as of June 30, 1999:
- 2,512,857 shares of common stock issuable upon exercise of options
outstanding under our 1997 Stock Option Plan and 1998 Stock Option Plan at
a weighted average exercise price of $1.87 per share and 386,493 shares
reserved for future issuance under the plans;
27
<PAGE>
- 895,890 shares of common stock issuable upon exercise of outstanding
warrants, of which 655,890 shares at a weighted average exercise price of
$3.67 per share were outstanding at June 30, 1999;
- additional shares issuable to holders of the Series C preferred
stock on closing of this offering assuming an initial public offering
price of $ per share and that the closing of the offering occurs on
, 1999;
- additional shares issuable to holders of the Series D preferred
stock on closing of this offering assuming an initial public offering
price of $ per share and that the closing of this offering occurs on
, 1999; and
- additional shares issuable to holders of the Series E preferred
stock on closing of this offering assuming an initial public offering
price of $ per share and that the closing of the offering occurs on
, 1999.
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<PAGE>
SELECTED FINANCIAL DATA
The statements of operations data for the period from June 25, 1997
(inception) through December 31, 1997 and for the year ended December 31, 1998,
and the balance sheet data at December 31, 1997 and December 31, 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
statement of operations data for the six month periods ended June 30, 1998 and
1999 and the balance sheet data at 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 our financial
position and operating results for such periods. Historical results are not
necessarily indicative of future results and the results for interim periods are
not necessarily indicative of results to be expected for the entire year or for
any future period. When you read this selected financial data, it is important
that you also read the 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."
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 25,
1997
(INCEPTION)
THROUGH YEAR ENDED SIX MONTHS ENDED
DECEMBER DECEMBER JUNE 30,
31, 31, --------------------
1997 1998 1998 1999
----------- ----------- --------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................... $ -- $ -- $ -- $ 147
Costs and expenses:
Cost of services................................ -- 135 8 1,247
Research and development........................ 231 1,140 429 1,034
Sales and marketing............................. 40 1,197 176 2,456
General and administrative...................... 299 1,458 415 1,975
Amortization of deferred stock compensation..... -- 79 -- 560
----------- ----------- --------- ---------
Total costs and expenses...................... 570 4,009 1,028 7,272
----------- ----------- --------- ---------
Loss from operations.............................. (570) (4,009) (1,028) (7,125)
Interest income (expense), net.................... (11) (36) (35) 29
----------- ----------- --------- ---------
Net loss.......................................... (581) (4,045) (1,063) (7,096)
Accretion and dividend on redeemable convertible
preferred stock................................. -- (606) -- (936)
----------- ----------- --------- ---------
Net loss applicable to common stockholders........ $ (581) $ (4,651) $ (1,063) $ (8,032)
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Net loss per share:
Basic and diluted............................... $ (0.05) $ (0.40) $ (0.09) $ (0.59)
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Pro forma basic and diluted (unaudited)......... $ (0.26) $ (0.28)
----------- ---------
----------- ---------
Shares used in calculation of net loss per share:
Basic and diluted............................... 11,183 11,685 11,859 13,517
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Pro forma basic and diluted (unaudited)......... 15,993 25,462
----------- ---------
----------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
JUNE 30,
1997 1998 1999
--------- --------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 275 $ 815 $ 19,855
Working capital (deficit)....................................... (111) (1,013) 15,597
Total assets.................................................... 349 3,603 32,146
Capital lease obligations....................................... -- 387 6,705
Stockholders' equity (deficit).................................. (512) (2,123) 16,752
</TABLE>
29
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL
STATEMENTS AND RELATED NOTES AS WELL AS THE OTHER FINANCIAL INFORMATION IN THIS
PROSPECTUS. IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE EVENTS OR OUR FUTURE
FINANCIAL PERFORMANCE, WHICH INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS," "BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
ZapMe! is building a broadband interactive network that brings the latest
technology tools and educational resources to schools for free. For each school
participating in the ZapMe! network, we provide free PCs, software, installation
and support, as well as free "always on," bi-directional satellite-delivered
connectivity to the Internet. The ZapMe! network, which is designed primarily
for students aged 13-19, makes education more engaging and entertaining by
providing a rich media computer experience that is free and easy to use. We plan
to extend the ZapMe! network into the home in order to enhance a student's
educational experience and promote better communication among students, teachers
and parents.
We commenced operations in June 1997 and began offering sponsorships through
our proprietary network in December 1998. From inception through June 30, 1999,
we were in the development stage, and our activities primarily consisted of:
- marketing the ZapMe! network to school districts;
- entering into agreements with school districts for the placement of the
ZapMe! network in schools;
- developing our proprietary user interface and satellite multicasting
capabilities;
- raising capital;
- recruiting personnel;
- conducting research and development activities; and
- purchasing assets to support our operations.
Since December 1998, we have been:
- deploying our network in schools;
- developing our operations, technology and support capabilities;
- forming strategic alliance relationships; and
- continuing to invest in research and development.
In order to achieve our strategic plan, we intend to continue to invest
heavily in deploying our network, marketing and promotion, technology and
operations.
As of July 31, 1999, there were more than 250 school districts, representing
over 6,000 K-12 schools, including more than 2,000 middle and high schools, that
have approved and signed a three-year contract with us. As of July 31, 1999, we
had installed ZapMe! labs in over 220 schools, which had an average of more than
1,000 students, providing a total addressable user base of over 220,000
students, each of whom has access to a free ZapMe! account upon request. In the
Fall of the
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1999-2000 school year, ZapMe! will expand current programs and incentives to
encourage network usage.
We have incurred net losses of approximately $11.7 million for the period of
inception through June 30, 1999. We expect to incur additional losses for the
foreseeable future due to the increased cost of sales and marketing, advertising
and promotion, expanded network features and research and development. We expect
that the size of these losses will fluctuate from quarter to quarter and that
these fluctuations may be substantial. In view of the rapidly evolving nature of
our business and our limited operating history, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and should
not be relied upon as an indication of future performance.
REVENUE. To date, ZapMe! has generated revenue primarily from content
sponsorship fees paid by strategic partners. Two sponsors accounted for
approximately 90% of our revenue in the six months ended June 30, 1999. We
intend to derive revenue from three primary activities: sponsorship, e-commerce
and network services and other. Sponsorship revenue, which includes content and
public service announcement sponsorships, banner advertising and full screen
interactive ads, consists of fees charged for messages delivered over our
network. Revenue related to sponsorship of content on our network is generally
recognized ratably over the time periods that the sponsorship is acknowledged
unless such sponsorship is based on delivery of a minimum amount of media
exposure, in which case revenue is recognized over the time period of such
exposure. We expect to generate sponsorship revenue both at school and at home.
Advertising revenue is recognized in the period in which the advertisement
message is displayed on the network, provided that no material obligations
remain and collection of the related account receivable is reasonably certain.
E-commerce revenue consists of referral fees and commissions on transactions
facilitated through our network as well as referred transactions. Revenue from
e-commerce is recognized upon notification from the contracting partner of the
fact of the referral or sale upon which referral fees or commissions is due.
Network services and other revenue consist of revenue from the distribution of
content and products which is delivered through our network, and from
educational services delivered in the ZapMe! labs such as teacher training,
tutoring and other educational programs offered through a strategic alliance
with Sylvan Learning Systems. Revenue from network services and other is
recognized in the time period in which the underlying service is delivered.
Network services and other revenue also include revenue from our five-year
agreement with Sylvan which provides for a sharing of revenue derived from the
delivery of Sylvan programs in ZapMe! computer labs. This agreement allows
Sylvan to offer student tutoring, teacher training, and other programs in the
ZapMe! computer labs. For the calendar year 1999, Sylvan is committed to pay
ZapMe! minimum fees. Thereafter, fees will be based on a rate for installed
schools available for use by Sylvan. To date, no programs have been offered
under this arrangement, and additionally no material e-commerce or network
services have been delivered and no significant revenue has been recognized by
ZapMe!.
COST OF SERVICES. Cost of services consist primarily of depreciation on
network equipment, including computers placed in schools, allowances for the
cost of equipment replacement not covered by manufacturers' warranties, and the
cost of operating our satellite communications network. The costs associated
with this form of telecommunication include (1) the cost of land-based
equipment, or "earth segment," such as the satellite dish, hubs, send and
receive cards located inside the network servers and land-based phone service
and (2) the cost of the link to and from the satellite, or "space segment."
ZapMe! provides much of its earth segment to schools by purchasing satellite
dishes, hubs and send/receive cards for its network servers. ZapMe! purchases
space segment from GE Americom, a unit of General Electric Corporation, and from
Spacenet, a wholly-owned subsidiary of Gilat Satellite Networks, pursuant to
fixed price agreements. Commencing July 1999, Spacenet began to install and
lease satellite dishes and lease receive and transmit cards as well as provide
space segment under a long-term fixed-price per school contract. Cost of
services varies directly with the number of schools.
31
<PAGE>
OPERATING EXPENSES. Our operating expenses consist primarily of sales and
marketing, research and development and general and administrative expenses.
Research and development expenses consist primarily of compensation and
consulting expenses associated with the development and refinement of the ZapMe!
user interface, the satellite network, content and quality assurance. To date,
we have not capitalized any software development costs under Statement of
Financial Accounting Standards ("SFAS") No. 86 because we believe that our
process for developing software is essentially completed concurrent with the
establishment of technological feasibility; as a result, all development costs
have been expensed as incurred. Sales and marketing expenses consist primarily
of salaries, commissions, travel expenses, advertising expenses, costs of
promotional programs such as ZapPoints, trade show expenses, seminars and costs
of marketing materials. General and administrative expenses consist primarily of
salaries and related costs for our executive, administrative, finance, legal and
information technology personnel, support services, facilities costs and
professional services fees.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. We recorded deferred stock
compensation of approximately $553,000 during the year ended December 31, 1998,
and approximately $916,000 during the six months ended June 30, 1999 as a result
of stock options granted during 1998 and 1999 and shares of common stock granted
to an officer of ZapMe! at a price below the deemed fair market value at the
date of grant. Amortization of deferred stock compensation of approximately
$79,000 was recognized in 1998 and approximately $560,000 for the six months
ending June 30, 1999. Deferred stock compensation is amortized over the vesting
period of the options, generally three to four years, or the performance period
for certain warrants we granted. As a result, amortization of deferred stock
compensation will adversely impact our operating results for the next four
years.
INCOME TAXES. There was no provision for federal or state income taxes for
any period since inception due to our operating losses. At December 31, 1998, we
had net operating loss carryforwards for federal income tax purposes of
approximately $4.1 million which will expire beginning in fiscal year 2012 if
not utilized. Utilization of our net operating loss carryforwards may be subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code and similar state provisions. Such an
annual limitation could result in the expiration of the net operating loss
carryforwards before utilization. A valuation allowance has been established
and, accordingly, no benefit has been recognized for our net operating losses
and other deferred tax assets. The net valuation allowance increased by
approximately $1.6 million during the year ended December 31, 1998. We believe
that, based on a number of factors, the available objective evidence creates
sufficient uncertainty regarding the realizability of the deferred tax assets
such that a full valuation allowance has been recorded. These factors include
our history of net losses since inception and expected near-term future losses.
We will continue to assess the realizability of the deferred tax assets based on
actual and forecasted operating results. See note 4 of notes to financial
statements.
RESULTS OF OPERATIONS
Because (1) we were a development stage company through June 30, 1999, (2)
first earned revenue in the quarter ended March 31, 1999 and (3) have a short
operating history, we believe that year-over-year comparisons are less
meaningful than an analysis of recent quarterly operating results. Accordingly,
we are providing a discussion and analysis of our results of operations that is
focused on the year ended December 31, 1998 and the quarters ended March 31,
1999 and June 30, 1999.
REVENUE. Total revenue for the quarters ending March 31 and June 30, 1999
were $5,000 and $142,000, respectively. We began earning revenue in the quarter
ending March 31, 1999. Revenue is primarily attributed to content sponsorship of
our network. One sponsor accounted for substantially all of our revenue in the
quarter ended June 30, 1999.
COST OF SERVICES. Cost of services were $135,000, $212,000 and
approximately $1.0 million for the year ending December 31, 1998 and for the
quarters ending March 31 and June 30, 1999, respectively.
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<PAGE>
The increase in the level of expense was due primarily to depreciation
associated with increased levels of school network equipment which were placed
in service. We expect cost of services to increase in absolute dollars in future
periods due to increasing depreciation on network equipment and to additional
costs for space segment associated with the deployment of the ZapMe! network in
additional schools.
RESEARCH AND DEVELOPMENT. Research and development expenses were
approximately $1.1 million, $472,000 and $562,000 for the year ending December
31, 1998 and for the quarters ending March 31 and June 30, 1999, respectively.
The increase in the level of expense was due primarily to increased personnel
expenses and, to a lesser extent, outside services associated with enhancements
of existing products and development of new products. We believe that continued
investment in research and development will contribute to attaining our
strategic objectives and, as a result, expect research and development expenses
to increase in absolute dollars in future periods.
SALES AND MARKETING. Sales and marketing expenses were approximately $1.2
million, $864,000 and approximately $1.6 million for the year ending December
31, 1998 and for the quarters ending March 31 and June 30, 1999, respectively.
The increase in the level of expense was due primarily to compensation
associated with the increased number of sales and marketing personnel and
related overhead, and increased travel costs associated with our direct selling
efforts. We expect selling and marketing expenses to increase in absolute
dollars in future periods as we hire additional personnel, promote our home
client, and develop incentive programs to increase in-school and at home usage
of the ZapMe! network.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
approximately $1.5 million, $885,000 and approximately $1.1 million for the year
ending December 31, 1998 and for the quarters ending March 31 and June 30, 1999,
respectively. The increase in the level of expenses is due primarily to
increased personnel and related overhead necessary to support our increased
scale of operations. We expect general and administrative expenses to increase
in absolute dollars in future periods as we expand our management and staff,
incur additional costs related to expansion of our operations and continue to
incur the additional costs associated with being a publicly-traded company.
Our revenue, operating expenses and operating results may vary significantly
from quarter to quarter. The fluctuations may be due to a number of factors,
many of which are beyond our control. These factors include:
- the rate of expansion of our network through deployment into additional
schools;
- the rate of usage of our network in schools and at home;
- our ability to generate and sustain significant levels of sponsorship
revenue;
- fluctuations in the use of our network and in demand for our products and
services related to the school calendar, including vacations and holidays;
- the burden of lease payment obligations;
- government action to regulate or otherwise restrict our access to schools;
- our ability to manage costs, including personnel costs; and
- costs relating to possible acquisitions and integration of technologies or
businesses.
Due to all of the foregoing factors, our quarterly revenue and operating
results are difficult to forecast, and we believe that period-to-period
comparisons of our operating results will not necessarily be meaningful and
should not be relied upon as an indication of future performance.
33
<PAGE>
INCEPTION TO DECEMBER 31, 1997 AND YEAR ENDED DECEMBER 31, 1998
Because we were a development stage company during 1997 and the year ended
December 31, 1998, we generated no revenue for these periods. Operating expenses
increased to approximately $4.0 million in 1998 from $570,000 in the period from
June 25, 1997 through December 31, 1997 ("inception period"). During our
inception period, we incurred primarily general and administrative and
development expenses as our primary focus was on developing the ZapMe! network.
Research and development expenses in 1998 totaled approximately $1.1 million, an
increase of $909,000 from $231,000 in fiscal 1997, which was attributable to the
addition of product development, network engineering, satellite engineering and
content personnel and related costs and outside consulting fees. In the year
ended December 31, 1998, sales and marketing expenses totaled approximately $1.2
million, compared to $40,000 for fiscal 1997. This increase was due primarily to
increased personnel and related costs. Additionally, in 1998 we began to build
our infrastructure and added finance, legal, business development, information
technology, executive management and administrative personnel and related costs,
which amounted to approximately $1.5 million for fiscal 1998 compared to
$299,000 for fiscal 1997. Sales and marketing expenses were not significant in
fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since inception through June 30, 1999, we used approximately $7.9 million of
cash for operating activities, resulting primarily from operating losses of
approximately $11.7 million. During this same period, we used approximately $3.7
million of cash for investing activities, consisting primarily of the purchase
of equipment.
We have financed our cash needs primarily through the private placement of
preferred stock and lease financings. Placements of preferred stock through June
30, 1999 provided net proceeds totaling approximately $30.2 million. At June 30,
1999, we had approximately $20.4 million in cash and cash equivalents and
short-term investments, including restricted cash of $560,000, which represents
an increase of approximately $19.6 million as compared to $815,000 at December
31, 1998. We currently have no significant capital commitments other than
obligations under capital equipment and facilities leases as well as commitments
under cancelable outstanding purchase orders.
Net cash used in operating activities was approximately $2.3 million and
$5.4 million in fiscal 1998 and for the six-month period ending June 30, 1999,
respectively. In each period, cash used by operating activities was primarily a
result of the net losses for such period.
Net cash used in investing activities was approximately $2.4 million and
$1.3 million in fiscal 1998 and for the six-month period ending June 30, 1999,
respectively. In each period, cash used by investing activities was primarily
for the acquisition of property and equipment.
Cash provided by financing activities was approximately $5.2 million and
$25.8 million in fiscal 1998 and for the six-month period ending June 30, 1999,
respectively. The primary source of cash provided by financing activities was
proceeds from the issuance of preferred stock and, to a lesser extent,
borrowings. In addition, in August 1999 we received net proceeds of
approximately $9.5 million from the issuance of preferred stock.
Capital leases incurred were approximately $390,000 and $6.8 million in
fiscal 1998 and for the six-month period ending June 30, 1999, respectively.
Lease financing was used primarily to acquire and install computer equipment in
schools.
Our deferred revenue balance includes deferred revenue attributable to
billings in advance of earnings on content sponsorship activities. We record an
account receivable and deferred revenue upon billing for sponsorships. We
recognize revenue ratably over the period the sponsorship is acknowledged on the
network.
34
<PAGE>
Although we have no other material commitments other than our capital
equipment and facilities leases (see note 5 to notes to financial statements)
and cancelable commitments to purchase school network equipment in the ordinary
course, we anticipate that we will experience an increase in our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel. Subject to the availability of cash or
other capital financing arrangements, we expect that capital expenditures for
1999 will be approximately $50 million. In particular, we anticipate incurring
substantial capital expenditures in connection with our expansion of our
network. We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future related to expansion
of our network, including increasing research and development spending,
increasing our sales and marketing operations, developing supporting business
and technical infrastructures, improving our operational and financial systems
and broadening our user support capabilities. Such operating expenses will be a
material use of our cash resources.
We believe that our available cash resources and amounts available under
financing facilities will be sufficient to meet our expected working capital and
capital expenditure requirements for at least the next full operating cycle.
We may need to raise additional funds in order to support more rapid
expansion, develop new vertical markets, respond to competitive pressures,
acquire complementary businesses or technologies, or respond to unanticipated
developments. We may seek to raise additional funds through private or public
sales of securities, strategic financial and business relationships, bank debt,
lease financing, or otherwise. If additional funds are raised through the
issuance of equity securities, the percentage of ZapMe! owned by existing
stockholders will be reduced, stockholders may experience additional dilution,
and these equity securities may have rights, preferences, or privileges senior
to those of the holders of ZapMe!'s common stock. Additional financing may not
be available on acceptable terms, if at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to deploy or enhance
our network and Netspace, take advantage of future opportunities, or respond to
competitive pressures or unanticipated developments, which could severely harm
our business.
YEAR 2000 READINESS DISCLOSURE
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
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
OUR STATE OF READINESS
We are engaged in an ongoing assessment of the Year 2000 readiness of all
our relevant operating, financial and administrative systems, including the
hardware and software that support our information technology ("IT") and non-IT
systems. Our assessment plan consists of:
- quality assurance testing of our internally developed proprietary
software;
- contacting third-party vendors and licensors of material hardware,
software and services that are both directly and indirectly related to the
delivery of our network services to our users;
- contacting vendors of third-party systems;
- assessing repair and replacement requirements and implementing appropriate
procedures; and
- creating contingency plans in the event of Year 2000 failures.
35
<PAGE>
We are currently reviewing our Year 2000 readiness and developing a plan for
verifying the proper operation of our internally developed software. We expect
to complete and execute our verification plan by October 1999. In addition, the
transition from year 1999 to year 2000 was simulated for our material IT and
non-IT systems to test our system readiness. These simulations revealed no
notable Year 2000 issues.
All of our third party hardware and software vendors for critical systems
have provided written statements to us or have posted them to their public web
sites, indicating that they are Year 2000 compliant. However, our review of the
internal systems of third parties with whom we have material relationships is
ongoing.
COSTS TO ADDRESS YEAR 2000 ISSUES
We do not separately account for Year 2000 related expenses but estimate
that our expenses incurred to date to address Year 2000 issues have not been
material and, although we have not completed our assessment of our Year 2000
readiness, we do not expect to incur expenses in excess of $100,000 in
connection with any required future remediation efforts. Such costs, if higher
than anticipated, could adversely impact our operating results.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES
We are not currently aware of any Year 2000 compliance problems relating to
our network applications or our IT or non-IT systems that would have a material
adverse effect on our business, results of operations and financial condition,
notwithstanding efforts to detect and correct such problems. However:
- we may discover Year 2000 compliance problems in our network and other
software that will require substantial revisions or replacements;
- there can be no assurance that third-party hardware or software
incorporated into our material IT and material non-IT systems will not
need to be revised or replaced, which could be time consuming and
expensive; and
- the failure to adequately address Year 2000 compliance issues in our IT
and non-IT systems could result in claims of mismanagement,
misrepresentation or breach of contract and bring about litigation, which
could be costly to defend.
Any such worst-case scenario, if not quickly remedied, could result in lost
revenues, increased expenses and business interruptions, which could have a
material adverse effect on our business, results of operations and financial
condition.
In addition, we cannot guarantee that Internet access companies,
governmental agencies, utility companies, third-party service providers and
others not within our control will be Year 2000 compliant. The failure of such
entities to be Year 2000 compliant could result in a failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could prevent us from operating our network.
CONTINGENCY PLAN
Because our needs for hardware and software continually change, we are
engaged in an ongoing Year 2000 compliance assessment. We have not identified
any significant non-compliance issues with our products that have not already
been corrected. However, the results obtained from our ongoing effort will be
considered in determining the need for and the extent of any contingency plan
which, if required, will be implemented by October 31, 1999. The cost of
developing and implementing such a plan could be material.
36
<PAGE>
The information set forth above and elsewhere in this prospectus relating to
Year 2000 issues constitute "Year 2000 Readiness Disclosures," as such term is
defined by the Year 2000 Information and Readiness Disclosure Act of 1998,
enacted October 19, 1998 (Public Law 105-271, 112 State. 2386).
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 expense 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
cash and cash equivalents or the interest 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.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement No. 131 ("SFAS 131"), "Disclosure about Segments
of an Enterprise and Related Information," which 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. This statement is effective for financial
statements for periods beginning after December 15, 1997. We adopted SFAS 131 in
the year ended December 31, 1998, and operate in one business segment which is
building a broadband interactive network that brings technology tools and
educational resources to schools at no cost.
37
<PAGE>
BUSINESS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THIS PROSPECTUS. FACTORS THAT MAY CAUSE OR CONTRIBUTE TO SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
ZapMe! is building a broadband interactive network that brings the latest
technology tools and educational resources to schools for free. For each school
participating in the ZapMe! network, we provide free PCs, software, installation
and support, as well as free "always on," bi-directional satellite-delivered
connectivity to the Internet. The ZapMe! network, which is designed primarily
for students aged 13-19, makes education more engaging and entertaining by
providing a rich media computer experience that is free and easy to use. We plan
to extend the ZapMe! network into the home in order to enhance a student's
educational experience and promote better communication among students, teachers
and parents.
Each school participating in the ZapMe! network typically receives 15
high-end, multimedia PCs with 17-inch monitors, satellite communications
hardware, and a laser printer, as well as broadband access to the ZapMe!
Netspace and the Internet. The ZapMe! Netspace is our proprietary, easy-to-use
interface that provides access to over 10,000 pre-selected, indexed educational
sites and other aggregated content, applications, and services, including
Microsoft Word, Excel and PowerPoint. In addition, we provide a range of
educational and communication tools, including ZapMail, our network email
program, and ZapPoints, a membership program that rewards students for using the
ZapMe! network. Because ZapMe!'s network employs a bi-directional satellite
system, a ZapMe! lab does not require extensive rewiring or phone access to
connect to the Internet.
We believe that by providing schools with free PCs and broadband
connectivity to the Internet, we will help to alleviate the significant
technology funding gap in schools, and provide greater educational and economic
opportunity to students of all demographic backgrounds by giving them access to
the digital tools and electronic information that are critical in today's
knowledge-based economy. Moreover, the ZapMe! network will provide a platform
for the school community to engage in many important activities, including
providing teachers and administrators with access to Internet-based educational
content, cost-effective school e-commerce solutions, and school fundraising
opportunities. In connection with many of these core activities, the ZapMe!
network has established strategic alliances with a wide range of companies,
including Dell, Gilat Satellite Networks and its subsidiary, Spacenet,
Microsoft, New Sub Services, School Specialty, Sylvan Learning Systems and Xerox
to further enhance the educational experience. In addition, we plan to enter
into additional new strategic alliances to enhance our technology, gain access
to compelling educational content, add new features and functionality, or
generate sponsorship and e-commerce revenues.
Funding for the development, installation and maintenance of the ZapMe!
network is provided by a combination of corporate sponsorships and e-commerce
relationships. We expect to derive additional revenue from partners and other
sources from after-school use of ZapMe! labs and participation in fundraising
activities. In particular, we will receive additional revenues from Sylvan,
which has committed to sharing a percentage of its profits resulting from joint
activities on the ZapMe! network. Participating sponsors have the opportunity to
underwrite public service messages, as well as corporate sponsorships
appropriate for ZapMe! network users, including students aged 13-19, teachers
and administrators.
As of July 31, 1999, there were more than 250 school districts, representing
over 6,000 K-12 schools, including more than 2,000 middle and high schools, that
have approved and signed a three-year contract with us. As of July 31, 1999, we
had installed ZapMe! labs in over 220 schools,
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which had an average of more than 1,000 students, providing a total addressable
user base of over 220,000 students, each of whom has access to a free ZapMe!
account upon request. In the Fall of the 1999-2000 school year, ZapMe! will
expand current programs and incentives to encourage network usage.
MARKET OPPORTUNITY
NEED FOR TECHNOLOGY IN K-12 SCHOOLS
INCREASED IMPORTANCE OF TECHNOLOGY. Throughout the last decade, the U.S.
economy has undergone a fundamental shift, moving from a resource-based economy
to a knowledge-based economy. Despite the fact that over $650 billion is
currently spent each year on education and training in the U.S., we believe that
this spending falls short of what is necessary. We believe that education and
training are becoming more important, and that knowledge is increasingly making
the difference in how individuals and companies perform economically. In
addition, an understanding of the uses of technology is now essential to achieve
superior performance in a knowledge-based economy. In order to respond to these
demands, educators, parents and opinion leaders in the U.S. are increasingly
looking to technology, not only as a means of improving the essential academic
skills of students, but also as the basis for a set of tools students must have
to compete effectively. This has created an increased demand for technology in
schools.
TECHNOLOGY FUNDING GAP IN K-12 SCHOOLS. According to the National Center
for Education Statistics, during the 1998-1999 school year, there were over
110,000 K-12 schools in the U.S. These schools face inherent resource
constraints, including limited budgets and annual budget cycles which limit long
term investments. These constraints have, to date, prohibited adequate
investment in technology. According to a study by McKinsey & Co., the cost to
achieve the five-to-one ratio of students-to-computers mandated by the President
of the United States and the U.S. Department of Education in their national
technology plan is estimated to be $110 billion over 10 years. A RAND
Corporation study for the federal government estimates that to wire and equip
88,000 public schools with computers will cost from $40 billion to $100 billion
over the next five years. Despite the significant expenditures necessary to
improve technology available in schools, Quality Education Data estimates that
only $5.4 billion was spent on technology in public K-12 schools during the
1998-99 school year. Furthermore, Quality Education Data lists lack of
technology funding as the number one barrier to increased Internet usage in
school. Based on these statistics, we believe schools in the U.S. suffer a
multi-billion dollar funding gap for technology.
NEED FOR EDUCATION NETWORK. Most schools lack the infrastructure to allow
students, teachers and parents to communicate electronically. According to the
National Center for Education Statistics, there are approximately 53.1 million
students in grades K-12 and 3.2 million teachers who teach grades K-12.
According to Quality Education Data, only 22.5% of schools have a network
capable of connecting the school to the home. We believe that a broadband
educational network focused on students aged 13-19 will facilitate the
integration of computers into the school's curriculum, improve academic
performance, and enhance the student-teacher-parent connection. Stand-alone PCs
are useful for preparing a document or doing individual research, but networked
PCs provide numerous advantages to students, teachers and parents, enabling
timely, effective communication, as well as helping students to collaborate on
group projects. Information and ideas can be shared with anyone connected to the
network.
THE INTERNET
GROWTH OF THE INTERNET. The Internet has emerged as a significant global
communications medium, enabling millions of people to share information and
conduct business electronically and providing advertisers and businesses with an
attractive means of marketing and selling their products and services.
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The growth in the number of web users is expected to continue as Internet access
becomes more widely available, bandwidth increases and Internet content improves
and incorporates more multimedia capabilities. International Data Corporation,
or IDC, has estimated that the number of web users worldwide will increase from
approximately 142.2 million at the end of 1998 to approximately 502.4 million by
the end of 2002, representing a compound annual growth rate of 37%. IDC
estimates that worldwide e-commerce revenue on the Internet will increase from
approximately $50.4 billion at the end of 1998 to more than $1.3 trillion in
2003.
GROWTH OF ONLINE SPONSORSHIP. The Internet has become an attractive medium
for corporate sponsors, offering a level of flexibility, interactivity and
measurability not available in traditional media. The Internet enables corporate
sponsors to use demographics in delivering their messages to specific groups, as
well as to change their messages frequently in response to market factors,
current events and consumer feedback. Moreover, the Internet allows corporate
sponsors to specify an offering to each user in real-time and receive valuable
data on customer tastes, preferences and shopping and buying patterns. Jupiter
Communications, Inc. estimates that the amount of Internet advertising in the
U.S. will grow from approximately $2.1 billion in 1998 to $9.0 billion by 2002,
a compound annual growth rate of 45%.
INCREASING VALUE OF DEFINED DEMOGRAPHIC AUDIENCE. Early Internet
sponsorship efforts were directed primarily at a broad audience by placing
corporate messages on the most frequently visited web sites. As the Internet has
matured, businesses have sought to improve the effectiveness of their corporate
sponsorship by directing their messages toward the Internet users they most want
to reach. By offering corporate sponsorship efforts to the most relevant users,
Internet-based corporate sponsors seek to improve their brand awareness and
response rates and reduce costs by eliminating spending that is not directed at
their intended audience.
STUDENTS' IMPORTANCE TO THE INTERNET AND IN THE ECONOMY. Extrapolating from
United States Census Bureau data, we estimate that there are more than 25
million individuals aged 13-19. Individuals in this age group are becoming
increasingly involved in the Internet. According to Jupiter Communications, the
number of people aged 13-19 who regularly access the Internet will rise from 8.4
million in 1998 to 16.6 million by 2002. Their increased Internet activity
creates a significant opportunity for underwriting corporate sponsorships and
offering products and services online to students aged 13-19. Based upon data
from Teens Research Unlimited, we estimate that this audience spent in excess of
$100 billion in 1998. According to Jupiter Communications, teens will spend $1.2
billion on e-commerce alone by 2002.
THE ZAPME! SOLUTION
ZapMe! has designed a broadband interactive network, using "always on,"
bi-directional satellite technology, which brings the latest technology tools
and educational resources to schools. We believe that by providing free PCs and
broadband connectivity to the Internet, we will help to ease the technology
funding gap in schools, and provide students of all social and economic
backgrounds access to the technology and information that are critical in
today's knowledge-based economy. In addition, the ZapMe! network facilitates
greater parental involvement in schools by enabling electronic communication
among parents and teachers. Moreover, the ZapMe! network provides students,
teachers and administrators access to Internet-based educational content,
cost-effective school e-commerce solutions and school fundraising opportunities.
The ZapMe! network also provides corporate sponsors the opportunity to
underwrite public service messages and education content areas and services
appropriate for ZapMe! network users. Key elements of our approach are:
FREE BROADBAND INTERACTIVE NETWORK FOR SCHOOLS. We offer a turnkey
technology solution for schools by providing each participating school with
access to the ZapMe! network, including PCs and broadband connectivity to the
Internet, all at no cost to the school. A participating school typically
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receives 15 high-end, multimedia PCs with 17-inch monitors, satellite
communications hardware, and a laser printer, as well as broadband access to the
Internet and the ZapMe! Netspace, our proprietary, easy-to-use interface that
provides access to over 10,000 pre-selected, indexed educational sites and other
aggregated content and services. We also offer schools a single point of contact
for free service, including network implementation, maintenance, training and
system upgrading.
HIGH-SPEED, "ALWAYS ON," BI-DIRECTIONAL SATELLITE DELIVERY. Our network
incorporates broadband Internet connectivity over a bi-directional satellite
delivery system. This design enables full motion video, other rich media files,
system updates and other data to be cached directly to local school servers via
satellite. We believe multicasting from a remote location is an efficient and
cost-effective method of distributing data to one or multiple school networks.
This ability to multicast data to local servers via broadband satellites enables
ZapMe! to provide our users high-speed access to graphic-oriented Internet
content and new bandwidth-intensive multimedia applications (such as video and
high-quality audio), e-commerce applications and interactive games.
ALTERNATIVE SOURCES OF SCHOOL FUNDING. The ZapMe! network provides schools
with a wide range of alternative sources for funding the acquisition of
technology and related equipment and services. In addition to providing schools
with free computing equipment and broadband Internet access, we offer or plan to
offer schools the following funding opportunities:
- Programs which enable safe, effective deployment of school fundraising
activities, such as magazine drives. For example, we are currently
planning to launch a network-based, Internet-delivered program for
fundraising activities with New Sub Services, the world's largest provider
of magazine subscriptions.
- Our ZapPoints program, which provides opportunities for schools to upgrade
technology, including PCs and document processing equipment, through the
accumulation of ZapPoints. Schools have the opportunity to purchase
products and equipment based upon ZapPoints, which measure a school's
cumulative usage and participation in ZapMe! programs. Xerox intends to
participate in the ZapPoints program.
We believe there are a wide variety of technology providers and educational
organizations which are interested in participating in these programs.
OPPORTUNITY FOR ONLINE SPONSORSHIP. We believe that ZapMe! appeals to
potential sponsors because it combines the following attributes:
- access to students aged 13-19 who, prior to the ZapMe! network, have been
difficult to reach during school hours or who may not otherwise have had
access to the Internet;
- "always on," rich-media, full-screen, full-motion, interactive display
that can be used to create more entertaining and engaging messages;
- delivery of messages that meet the individual preferences of users;
- ability to engage users, conduct online surveys, test product trials,
provide product feedback, and support product launches;
- access to a quarterly take-home CD-ROM that sponsors can use to explain
their programs or services; and
- the opportunity to underwrite public service messages and education
content areas and services that serve the local community.
ATTRACTIVE FEATURES DRIVE NETWORK USAGE. We have designed the ZapMe!
Netspace to have attractive features, content and functionality, in order to
maintain and increase usage of the ZapMe! network. Features incorporated on the
ZapMe! Netspace include ZapMail, ZapPoints affinity
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marketing programs, discussion boards, and a full suite of Microsoft software,
including Word, Excel and PowerPoint.
ZapMe! believes that this combination will lead to above industry average
sponsorship rates and more effective and engaging sponsorship models.
OUR STRATEGY
Our goal is to create the premier broadband educational network for students
aged 13-19, as well as for teachers, administrators and parents. We plan to
continue installing our network in schools, building brand recognition among
students, teachers and parents, and promoting increased use of our network both
in school and at home. Key elements of our strategy are as follows:
ACTIVELY DEPLOY OUR NETWORK AND GROW OUR INSTALLED BASE OF SCHOOLS AND
NUMBER OF USERS. We intend to capitalize on our early market entrance to deploy
our network, grow our installed base of schools and increase our number of
users. As of July 31, 1999, we had installed ZapMe! labs in over 220 schools.
Installation on this scale requires significant time and resources; therefore,
we believe our progress to date provides us a time-to-market advantage over
potential competitors. We have gained experience as we have deployed our
network, which we believe will streamline our further expansion. In addition, as
of July 31, 1999, there are more than 250 school districts, representing over
6,000 K-12 schools, including more than 2,000 middle and high schools, that have
approved and signed a three-year contract with us. We intend to capitalize on
our early mover advantage to gain significant market share.
PROMOTE REPEAT USAGE AND LOYALTY OF USERS. We believe that
broadband-delivered rich media networks, such as the ZapMe! network, have an
inherent potential for creating loyal users, particularly when combined with
free service offerings such as those we provide. As users invest time and energy
in ZapMe!'s services, they may become less inclined to switch to alternative
services. In particular, we believe that our ZapPoints affinity marketing
program will promote user loyalty by providing students incentives to
participate, as well as incentives for schools to encourage their students to
participate. We intend to promote repeat usage and user loyalty by maintaining
and improving our range of no cost services, expanding the breadth and depth of
our product offerings and remaining responsive to user trends and suggestions.
INCREASE FUNDING FROM SPONSORS. We believe that the ZapMe! network will
provide sponsors with an attractive means of offering their products and
services to schools, students, teachers, administrators and parents. We intend
to develop innovative sponsorship relationships with leading brand marketers
which support broad marketing objectives, including brand promotion, awareness,
product introductions and online research. We expect many of these sponsorship
arrangements will involve longer-term contracts and higher dollar values than
typical banner deals. We also intend to offer traditional banner advertising
options for sponsors.
BUILD STRONG BRAND RECOGNITION. We believe that establishing and leveraging
the ZapMe! brand is important to our success. We have already benefited from
positive news stories and from word-of-mouth marketing. We intend to increase
our brand equity through the rapid introduction of the ZapMe! network into
schools throughout the country. We believe that the attractive features, content
and functionality of the ZapMe! Netspace will strengthen our brand and attract
new students, teachers and parents to become users.
LEVERAGE INSTALLED BASE OF SCHOOLS AND NUMBER OF USERS TO DRIVE USE AT
HOME. As our installed base of schools and number of users grow, we intend to
stimulate demand for, and use of, ZapMe! at home. As part of its agreement with
participating schools, ZapMe! intends to send home to each student a quarterly
CD-ROM that includes a home version of the ZapMe! Netspace. In order to
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stimulate home use of ZapMe!, we also intend to offer certain communication and
entertainment features unique to the home version of the ZapMe! Netspace, as
well as our ZapPoints program.
PURSUE STRATEGIC ALLIANCES. We plan to increase usage of the network and
grow our revenues through strategic alliances that offer opportunities to
improve our technology, gain access to compelling content, add new features and
functionality or generate sponsorship or e-commerce revenues. ZapMe! also
intends to form alliances with other companies to leverage their brands, while
incorporating content that is consistent with our educational mission. We may
also expand our revenue opportunities through alliances with technology
providers, providers of educational goods and services, online service and
content providers, commerce providers and advertisers.
LEVERAGE OUR NETWORK TO CREATE ADDITIONAL REVENUE STREAMS. Our ZapMe!
network will enable us to create additional revenue streams through appropriate
after-school use of the labs and e-commerce. For example, our agreement with
Sylvan provides for Sylvan to use the ZapMe! labs outside of school hours for
educational programs and services and we share in the revenue generated from
those programs and services. Other opportunities to leverage our network include
an alliance to establish computer summer camps utilizing ZapMe! labs and
corporations using the labs after hours for training purposes. In addition, we
believe that by building a large base of users, we will be able to enter into
revenue sharing or other agreements with appropriate e-commerce partners
interested in serving students, teachers and parents in both the school market
and the home market.
THE ZAPME! NETWORK
The ZapMe! network offers significant benefits not only to schools, but also
to students, teachers, administrators, parents and sponsors.
WHAT ZAPME! OFFERS TO SCHOOLS. We offer a free turnkey technology solution
for schools by providing each school with a complete broadband interactive
network with the following components. We will offer the following in the Fall
of the 1999-2000 school year:
- Hardware. An eligible school typically receives 15 high-end, multimedia
PCs with 17-inch monitors, satellite communications hardware, and a laser
printer, as well as access to broadband Internet connectivity through the
ZapMe! Netspace, our proprietary, easy-to-use interface that provides
access to over 10,000 pre-selected, indexed educational sites and other
aggregated content and services;
- Broadband Connectivity. Our network incorporates broadband Internet
connectivity over a bi-directional satellite delivery system. This design
permits us to simultaneously multicast data, including full motion video
files, to schools. The speed afforded by broadband satellite-delivered
multicast data allows ZapMe! to provide our users fast access to
graphic-oriented Internet content and new bandwidth-intensive multimedia
applications;
- Software. The ZapMe! school network incorporates two categories of
software: the ZapMe! Netspace and third-party software that is accessed
directly through the ZapMe! Netspace. The ZapMe! Netspace is a
proprietary, easy-to-use interface that uses standard Web browser commands
and runs on top of Internet Explorer 4.0 and Windows NT. Microsoft Office
applications such as Word, Excel and PowerPoint are also accessed directly
through the ZapMe! Netspace; and
- Services. An eligible school typically also receives installation,
customer service and technical support, as well as teacher training.
- Installation. To enable rapid and reliable deployment, we have
agreements with third-parties to provide complete network installation
services. These agreements provide for site inspection, installation
and testing of both the satellite dish, which is typically installed on
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the roof of the school, and the balance of the computer lab, which is
typically installed in a library or dedicated computer room. We believe
that these relationships with third-parties enable us to provide
high-quality, nationwide service, and to reach and sustain a much
higher deployment scale than if we were to undertake all installation
services ourselves. We currently rely on Gilat and Spacenet, and
Inacom, for the majority of our installation needs.
- Customer Service and Technical Support. We have developed a
comprehensive approach for managing all customer service and technical
support issues, intended to ensure that every interaction a user has
with ZapMe! is a positive experience. Participating schools, therefore,
are not required to have a dedicated network administrator.
Specifically, we have established a four-level escalation process,
which is balanced between a national call center partner and internal
ZapMe! technical support representatives. Level 1 and 2 are handled
through our national call center partner, while more complex problems
are routed to our own technical personnel. We believe that we have
developed customer support metrics which are directly correlated to the
customer satisfaction experience. We intend to manage both our national
call center partner and ourselves to achieve high standards for
customer support.
- Teacher Training. We intend to provide enabling training designed for
both teachers and administrators, including systems administration,
Internet fundamentals, and applications. This training will be
delivered through a variety of media, including broadcast, computer-
based, online and face-to-face channels.
WHAT ZAPME! RECEIVES FROM K-12 SCHOOLS. According to the National Center
for Education Statistics, during the 1998-1999 school year, there were over
110,000 K-12 schools in the U.S. Our initial focus is on middle and high
schools. In order to have a ZapMe! lab installed at a school, a school board
must approve and sign a standard three-year contract with us. This contract
commits each school that receives a ZapMe! lab to use each PC an average of four
hours per school day. Each school must also provide related items such as power,
a dedicated phone line, lab space and insurance for the equipment. The standard
contract also stipulates that each participating school provides us and our
partners with access to the ZapMe! lab during non-school hours. As part of its
agreement with participating schools, ZapMe! intends to send home to each
student a quarterly CD-ROM that includes a home version of the ZapMe! Netspace.
WHAT ZAPME! OFFERS TO USERS. The ZapMe! network provides our users a rich
media computer experience that is easy to use and makes education more engaging
and entertaining. We believe that we have designed the ZapMe! Netspace with
attractive features, content and functionality, and that students and teachers
will use the ZapMe! network in school and at home. We expect the following
software features to be available by Fall of the 1999-2000 school year:
- ZapMail. All ZapMe! users can email students, friends, teachers, and
others with this standard feature. ZapMail is accessible through the
Internet, so students can also use ZapMail to take their schoolwork home
with them. Students can create documents at school and have access to them
at home, on vacation or wherever they can connect to the Internet.
- Message Boards. These message centers, which can be customized by class
or topic, allow students to collaborate with peers and teachers,
regardless of geographic location. Message boards are valuable tools for
asynchronous discussions and collaboration between students. Message
boards also enable teachers to build a stronger community, and are
vehicles for students to become more involved in extracurricular
activities.
- ZapSearch. This feature allows students to find what they want on the
ZapMe! network or the full Internet.
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- Microsoft Office. Microsoft Office applications such as Word, Excel and
PowerPoint may be accessed directly through the ZapMe! Netspace.
- ZapPoints. ZapPoints is an incentive-based program much like a frequent
flyer program that rewards students for using the ZapMe! network. This
"earn while you learn" program of rewards can also be extended to academic
and athletic achievement, extracurricular activities, community fund
raising efforts, ZapMe! network administration, and for purchasing
sponsor's products and services. Schools receive matching ZapPoints for
each of their students, which are redeemable through ZapMe!'s e-commerce
programs.
- My Bookmarks. Bookmarks are an option supplied with most browsers, but
the ZapMe! network allows the students' bookmarks to travel with them to
any computer on which the ZapMe! Netspace can be accessed. For example,
students may work at a different computer each time they enter the lab.
The bookmarks are delivered upon log in, and are stored on the ZapMe!
network, so no matter where the students log in, their favorite web sites
are easily accessible.
- My Tools. The ZapMe! network allows students to launch their favorite
software applications directly through the browser, not separately.
Students can toggle back and forth between a web site, a Word document and
their email. This allows for easier, quicker work and again provides them
the security of knowing that all of their stuff, including homework, is
just one click away.
WHAT ZAPME! OFFERS TO SPONSORS. We believe that ZapMe! offers an appealing
opportunity for sponsors because it provides the following:
- access to students aged 13-19 who, prior to the ZapMe! network, have been
difficult to reach during school hours or who may not otherwise have had
access to the Internet;
- our dynamic billboard is a fixed space on the PC screen that displays
sponsorship messages. The dynamic billboard is larger than typical banner
ads and is always on the left-hand side of the PC screen, regardless of
which applications are used or where a user navigates. The dynamic
billboard displays new sponsorship messages periodically, for example,
every 15 seconds. The ZapMe! network is designed to allow users to click
on the dynamic billboard and view the sponsor's message on a full-screen,
rich media interactive display, with full motion video and high quality
audio.
- ability to deliver messages that meet the individual preferences of users;
- ability to interact with users, conduct online surveys, product trials,
online recruiting, provide product feedback and support product launches;
- access to a quarterly take-home CD-ROM that sponsors can use to explain
their programs or services; and
- opportunity to underwrite public service messages that serve the local
community.
STRATEGIC ALLIANCES
We plan to enter into strategic alliances in order to capitalize on our
infrastructure, improve our technology, gain access to compelling content, add
new features and functionality, and generate sponsorship and e-commerce
revenues. We may also expand our revenue opportunities through alliances with
technology providers, providers of educational goods and services, online
service and content providers, commerce providers and advertisers. ZapMe!'s
current strategic alliances include:
DELL COMPUTER CORPORATION. Dell has agreed to be a principal supplier of
hardware for our labs. ZapMe! is installing Dell equipment, including PCs,
monitors, and high-end servers in schools across
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the country. Dell has indicated that it plans to participate in our e-commerce
and ZapPoints programs. Dell has also made an equity investment in ZapMe!.
GILAT SATELLITE NETWORKS. Gilat supplies our satellite uplink equipment and
two-way satellite receiver cards for each school installation. Gilat's
wholly-owned subsidiary, Spacenet, provides us with our satellite space segment.
Spacenet is also our primary contractor for the network installation process.
Gilat has also made an equity investment in ZapMe!.
MICROSOFT. Through an agreement with Microsoft, ZapMe! will provide
Microsoft's Word, Excel and PowerPoint programs to the in-school users of our
network. Microsoft's operating system products are the backbone of our network.
NEW SUB SERVICES. We are currently planning to launch a network-based,
Internet-delivered program for safe, effective deployment of school fundraising
activities with New Sub Services, the world's largest provider of magazine
subscriptions.
SCHOOL SPECIALTY. ZapMe! and School Specialty, the largest supplier of
non-textbook education products to educators in the U.S., have teamed up to
offer e-commerce opportunities to schools, teachers and administrators. School
Specialty intends to offer a range of school supplies over the ZapMe! Netspace
for convenient ordering through the network.
SYLVAN LEARNING SYSTEMS. We have entered into an agreement with Sylvan
which permits Sylvan to offer educational programs and services in ZapMe! labs
when not in use. In exchange, Sylvan pays us a percentage of the net profit it
generates from those programs and services. Sylvan has also made an equity
investment in ZapMe!.
TOSHIBA. Toshiba is a sponsor of the ZapMe! network and a supplier of
hardware for our labs.
XEROX. Xerox has agreed to be a sponsor of our network and a principal
supplier of state-of-the-art printers for our labs. Xerox participates in our
ZapPoints program.
SPONSORSHIP
We intend to fund the ZapMe! network through a combination of corporate
sponsorships and e-commerce relationships. Participating sponsors have the
opportunity to underwrite public service messages, as well as corporate
sponsorship appropriate for ZapMe! network users, including students aged 13-19,
teachers and administrators. The U.S. Army, for example, plans to use the ZapMe!
network to communicate recruiting opportunities to graduating high school
seniors. Other corporate sponsors scheduled for the Fall of the 1999-2000 school
year include: Dell, General Electric, Johnson & Johnson, Labtech, Mercury
Records, Microsoft, New Sub Services, Proctor & Gamble, Sylvan, Toshiba, the
U.S. Navy and Xerox.
Our sponsorship arrangements often differ from traditional banner
advertising in that they are designed to achieve broad marketing objectives such
as brand promotion. We believe the dynamic nature of our network will allow us
to design sponsorships programs that cater to the specific goals of sponsors.
These goals include delivery of a rich, interactive media experience (including
full motion video with audio), impression frequency, ability to conduct online
market research, supporting new product launches, product feedback information,
online recruiting, new account openings, and fulfilling e-commerce transactions.
In addition, we intend to develop educationally-appropriate content to support
the marketing and e-commerce initiatives of sponsors. We believe that we will,
in a limited number of cases, enter into exclusive sponsorship arrangements in
key sponsor categories that may extend for a period of time. As a result of our
sponsorship strategy, we believe that ZapMe! will be able to command effective
sponsorship rates significantly above the industry average.
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SALES AND MARKETING
As of July 31, 1999, ZapMe! had a direct sales organization consisting of
six sales professionals with an average of 11 years of experience, all of whom
were hired since February 28, 1999. We intend to hire additional qualified sales
professionals in the future. Our sales organization consults regularly with
sponsors on design and placement of advertising, provides customers with
advertising management analysis and focuses on providing a high level of
customer satisfaction. We generally seek to hire individuals who possess
significant experience in obtaining sponsorships and preexisting relationships
with potential sponsors in a variety of media. In addition to our sponsorship
sales organization, we have six internal and four dedicated external sales
professionals (including four at a telemarketing firm) focused on marketing to
school districts who are candidates for joining the ZapMe! network.
We employ a variety of methods to promote the ZapMe! brand and to increase
network usage by users, including the ZapPoints user rewards program, in-school
promotions such as technology incentive programs co-branded with partners, and
home CD-ROM co-marketing campaigns integrating student recreational interests
such as video games, music videos, movie trailers and fashion. In the Fall of
the 1999-2000 school year, ZapMe! will expand current programs and incentives to
encourage network usage. In addition, ZapMe! engages in an ongoing public
relations campaign which includes, among other things, speaking engagements,
conference participation and press tour activities. Our marketing department,
which consists of seven professionals, works in conjunction with our creative
services department.
INSTALLED SCHOOL BASE AND USERS
ZapMe! believes a large and active user base is critical to its success.
ZapMe! has launched an aggressive user-acquisition campaign, which includes
rapidly growing our installed base of schools and creating free services and
support for our users. Registration is available to all students, teachers and
administrators in participating schools at no cost to the students or school.
Recognizing the importance of student privacy, ZapMe! has designed its
registration process and created a policy to ensure the privacy of its users.
Under our privacy policy, we collect only non-personally identifying
information--including age, gender and location by zip code--from our student
users. We use collected information internally in order to make appropriate
materials available to our student users. Schools are solely responsible for
maintaining any personally identifying information about their student users. We
may in the future collect names and other personal information from users over
13 in conjunction with contests and other promotions, but will not distribute
this information externally. We provide only aggregated versions of
non-personally identifying information--such as what percentage of our users are
a certain age--to third parties.
ZapMe! also promotes the protection of students in their use of the network.
Students sign on and are known to ZapMe! only by the anonymous user names that
they choose. In addition, they pick a password to protect their accounts from
use by others. We also provide schools the ability, at their discretion, to
provide more or less access to the Internet. Schools can choose to allow access
only to our selected 10,000 educational sites, or to sites one or two clicks
from these sites. We plan to offer filtering software as well to help schools
gain even more flexibility and control over the Internet. Finally, ZapMe!
encourages schools to comply with all applicable requirements, including, for
example, the collection of acceptable use policies signed by the students and
their parents.
INFRASTRUCTURE AND TECHNOLOGY
The ZapMe! network incorporates "always on" broadband Internet connectivity
over a bi-directional satellite delivery system, application servers located in
our network operations center, and a desktop interface and related applications.
Our satellite delivery system permits us to simultaneously multicast data,
including full motion video files, from our network operations center to each
school
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server in the ZapMe! network. We believe that this is an efficient way of
distributing files over a remote network in a school environment.
[DESCRIPTION OF DIAGRAM
Diagram of the ZapMe! network with a satellite, PC computer labs and network
operations center served by video encoder, data push server and audio
encoder/server.]
Our infrastructure is scalable, allowing us to quickly adjust to our rapidly
expanding user base. Currently, we license commercially available technology
whenever possible in lieu of dedicating our financial and human resources to
developing technology solutions. We are in the process of implementing fail safe
or redundant systems to promote high system availability and ease of
maintenance.
ZapMe! users access the Internet and ZapMe!-provided desktop applications
(which typically has been previously multi-casted to the school server) using
the ZapMe! Netspace. Users have access to the Internet, third-party applications
such as Microsoft Office, and ZapMe! features, including email, search and
bulletin boards. The ZapMe! Netspace also presents rich media sponsor messages
which are generated at the local school server, within the dynamic billboard
portion of the Netspace.
Our public web site, user registration database, email server, and system
backup functions are hosted at Frontier Global Center in California using a set
of NT and Unix software systems. Frontier Global Center is manned 24 hours per
day, seven days per week by systems administrators and network managers to
ensure the highest level of support. Critical data from the servers are
regularly archived off site by a third party service.
COMPETITION
The market for the ZapMe! network is new and rapidly evolving, and we expect
competition in and around the market to intensify in the future. We are not
aware of any competitor that currently offers or is planning to offer a
broadband interactive network for schools at minimal or no cost. However, we
face competition from a number of companies such as America Online, Channel One,
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<PAGE>
Microsoft, Disney, and Hughes Electronics, which provide services and
functionality similar to portions of the ZapMe! network, market products and
services to a similar base of users, or both. For example:
- America Online targets a similar base of users with its Kids Only section
that derives most of its revenue from advertising. In addition, America
Online can leverage its log in based network to better address the
demographics of its user base.
- Channel One owns and operates an advertising-supported educational
television service for secondary school students in the U.S. It airs
12-minutes of news and current events each school day via satellite,
generating revenues from the 2-minutes of advertising included in the
program.
Many of our competitors have significantly greater financial, technical,
marketing and distribution resources than we do. Competition could reduce our
revenues and otherwise harm our business. We therefore believe that we must
rapidly deploy our network in order to achieve a leadership position relative to
potential competitors or imitators.
We believe that our success in competing with other potential competitors or
imitators will depend on various factors, many of which are outside of our
control. These factors include:
- The quality of our network content;
- The ease of use of our user interface;
- The timing and market acceptance of new and enhanced services and
features; and
- The sales and marketing efforts by us and our competitors.
INTELLECTUAL PROPERTY
We seek to protect our intellectual property through a combination of U.S.
and international law regarding copyright, patents, trademarks and trade secrets
as well as confidentiality agreements with employees, consultants, contractors
and business partners. However, we cannot guarantee that we will succeed in
obtaining, registering, policing or defeating challenges to our intellectual
property rights, or that we will avoid claims that we are infringing the rights
of others. In addition, the laws of many foreign countries do not protect
intellectual property rights to the same extent as the United States, and
intellectual property law in the United States is still uncertain and evolving
as applied to Internet-related industries.
We currently have five patent applications on file with the United States
Patent and Trademark Office and are in the process of preparing four additional
patent applications and two continuations of our existing applications. In
addition, we have applied to register ZapMe! and other trademarks in the United
States and in a number of foreign countries. We have given copyright notice on
our Netspace and many other copyrightable materials by affixing a standard
copyright notice in the appropriate places. ZapMe! controls access to our trade
secrets and proprietary information by entering into confidentiality agreements
with its employees, consultants, contractors and actual and potential business
partners. We currently own the Internet domain name "zapme.com," from which we
run our corporate web site.
GOVERNMENT REGULATION
We expect to generate a significant portion of our revenue from advertising
and e-commerce directed primarily at teens using ZapMe! labs in schools. This
business model may prove controversial and lead to action by the government or
private interests to restrict or stop our network. To date, some third parties
that oppose corporate advertising in schools, including sponsorships on the
ZapMe! network, have sought legislation to curb this practice. In particular,
legislation has been introduced in California that, if it becomes law as
expected, would impose additional procedural requirements before
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ZapMe! or certain other entities may sign contracts with local school boards.
Similar or more restrictive legislation is possible in other states and at the
local and federal levels. Anti-school-advertising groups have had some successes
in the past seeking regulation and boycotts of other companies that advertise in
schools, such as Channel One. Restrictions on our advertising or e-commerce
would seriously harm our business. Moreover, any new law or regulation
pertaining to online media or advertising in schools, or the application or
interpretation of existing laws, could decrease the demand for our service,
increase our cost of doing business or otherwise have a negative effect on our
business.
The Internet is also the subject of an increasing number of laws and
regulations. These laws and regulations may relate to liability for information
retrieved from or transmitted over the Internet, online content regulation, user
privacy, taxation and the quality of products and services. In particular,
Congress has recently passed (and the President has signed into law):
- Child Online Protection Act of 1998. The Act makes it unlawful for anyone
to knowingly distribute material for commercial purposes over the Internet
to minors that is harmful to minors. It imposes additional restrictions
and obligations and establishes the Commission on Online Protection to
study and report to Congress on methods to help reduce access to harmful
information by minors.
- Children's Online Privacy Protection Act of 1998. The Act makes it
unlawful for an operator of a web site or online service directed to
children under 13 to collect, use or distribute personal information from
a child under 13 in a manner which violates regulations to be proscribed
by the FTC. The FTC is in the process of issuing final regulations, which
concern, among other things, the scope of the Act's parental consent
requirements.
- Protection of Children from Sexual Predators Act of 1998. This Act
mandates that electronic communication service providers report facts or
circumstances from which a violation of child pornography laws is
apparent.
- Digital Millennium Copyright Act of 1998. This Act establishes limited
liability for online copyright infringement by online service providers
for listing or linking to third-party web sites that include
copyright-infringing materials.
The courts have not yet interpreted these laws so their applicability and
reach, therefore, are not defined. One federal court has, however, upheld a
challenge to the constitutional validity of the Child Online Protection Act and
ordered a preliminary injunction against enforcement or prosecution under the
Act as of February 1, 1999. Nonetheless, these laws may impose significant
additional costs on our business, require us to change our operating methods, or
subject ZapMe! to additional liabilities. Moreover, the applicability to the
Internet of existing laws governing issues such as intellectual property
ownership, copyright, defamation, obscenity and personal privacy is uncertain
and developing. ZapMe! may be subject to claims that our services violate such
laws. Any new legislation or regulation in the United States or abroad or the
application of existing laws and regulations to the Internet could damage our
business and cause the price of our common stock to decline.
The satellite industry is a highly regulated industry. In the United States,
operation and use of satellites requires licenses from the FCC. As a lessee of
satellite space, we could in the future be indirectly subject to new laws,
policies or regulations or changes in the interpretation or application of
existing laws, policies or regulations, any of which may modify the present
regulatory environment in the United States. While we believe that our satellite
access providers will be able to obtain all U.S. licenses and authorizations
necessary to operate effectively, they may not continue to be successful in
doing so. Our failure to indirectly obtain some or all necessary licenses or
approvals could seriously harm our business.
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LEGAL PROCEEDINGS
On July 7, 1999, we filed a demand for arbitration with our former President
and Director, Frank J. Vigil, related to his employment at and departure from
ZapMe!. We assert that ZapMe! was induced by Mr. Vigil's fraudulent
representations to enter into an employment agreement with him. We seek the
rescission of the employment agreement, as well as the return of all benefits
received by Mr. Vigil under the agreement, and costs and fees associated with
the arbitration.
On July 26, 1999, Mr. Vigil filed a response to our demand and a
counterclaim. Mr. Vigil denied the allegations contained in our demand. Mr.
Vigil's counterclaim alleges, among other claims, breach of contract, breach of
implied covenant of good faith and fair dealing, fraud in the inducement of
contract, intentional misrepresentation, defamation, and certain violations of
the California Labor Code, all related to the circumstances of his employment at
and departure from ZapMe!. Mr. Vigil seeks various damages which are set forth
in "Risk Factors--We are currently in arbitration with one of our former
officers."
Each party to the arbitration has asserted various defenses to the claims
and counterclaims. We cannot assure you that we will prevail in this
arbitration, and any decision against us could result in an obligation to pay
some or all of the damages Mr. Vigil has sought in his counterclaim. These
damages could be substantial. Notably, under the terms of his employment
agreement and related agreements, Mr. Vigil was permitted to purchase 1.35
million shares of common stock of ZapMe!. Certain of those shares were subject
to a right of repurchase by ZapMe! at the time of Mr. Vigil's separation from
ZapMe!. Mr. Vigil may claim that, under the terms of his employment agreement,
the closing of this offering could result in the cancellation of the right of
repurchase and the full vesting of his stock. A decision against us with regard
to the validity of the employment contract and related agreements could
therefore result in the complete vesting of Mr. Vigil's stock.
EMPLOYEES
As of June 30, 1999, we had 88 employees. None of our employees is
represented by a labor union or is the subject of a collective bargaining
agreement. We have never experienced a work stoppage and believe that employee
relations are good.
ZapMe! believes that its future success will depend in part on its continued
ability to attract, hire and retain qualified personnel. Competition for such
personnel is intense, and we cannot guarantee that we will be able to identify,
attract and retain such personnel in the future.
FACILITIES
Our primary offices are located in approximately 12,000 square feet of
office space in San Ramon, California, under a lease expiring in August 2002. We
believe that our current facilities will not be adequate to sustain the
anticipated increase in headcount during the 1999 fiscal year, and we are
currently negotiating for additional office space in San Ramon.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The executive officers, key employees and directors of the Company, and
their ages as of June 30, 1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --------- --------------------------------------------------------------
<S> <C> <C>
Lance Mortensen........................... 46 Chairman of the Board and Chief Executive Officer
Robert A. Stoffregen...................... 50 Chief Financial Officer
Don Kingsborough.......................... 52 Senior Vice President, Sales and Marketing
Bruce Bower............................... 37 General Counsel, Vice President of Business Development and
Secretary
Dave Lundberg............................. 40 Chief Technical Officer
Robert Rudy............................... 44 Vice President of Operations
Royce Johnson............................. 50 Vice President of Vertical Markets
Darryl Deaton............................. 51 Vice President and Director
Michael Arnouse(1)(2)..................... 43 Director
Douglas Becker(1)(2)...................... 33 Director
Yoel Gat(1)............................... 47 Director
Tom Hitchner(2)........................... 47 Director
Jack Kemp................................. 64 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
MR. MORTENSEN is a founder of ZapMe! Corporation and has been our Chairman
and Chief Executive Officer since our inception. Mr. Mortensen began the
planning and preliminary organization of ZapMe! in 1996, and incorporated us in
June 1997. Prior to founding ZapMe!, Mr. Mortensen was Chief Executive Officer
of Monterey Pasta Company, a food service company, from January 1993 to October
1995. From 1981 to 1992 he was President of Morweg Construction Company, a
California residential construction company.
MR. STOFFREGEN has been our Chief Financial Officer since January 1999.
Prior to joining us as an employee, Mr. Stoffregen was a consultant to the
company. From January 1998 to October 1998, he served as Vice President and
Chief Financial Officer of Radical Entertainment, a video game development
company. Prior to that, from June 1996 to January 1998, he was Executive Vice
President, Chief Financial Officer and Director of Corporate Development for the
California Culinary Academy, a culinary arts school. From May 1995 to May 1996,
he was providing financial consulting services. Mr. Stoffregen was Executive
Vice President and Chief Financial Officer of YES! Entertainment Corporation, a
children's product and entertainment company, from September 1994 to March 1995.
From August 1991 to September 1994, he was Senior Vice President and Chief
Financial Officer of The Sharper Image, a retailer of upscale gifts. Mr.
Stoffregen was a partner with Deloitte & Touche from 1985 through August 1991.
MR. KINGSBOROUGH joined us in April 1999 as Senior Vice President, Sales and
Marketing. From July 1998 to April 1999, Mr. Kingsborough provided consulting
services. Mr. Kingsborough served as the Chief Executive Officer of YES!
Entertainment Corporation, a children's product and entertainment company, from
December 1992 to July 1998. YES! Entertainment Corporation filed a petition
pursuant to Chapter 11 of the Bankruptcy Code in February 1999. Mr. Kingsborough
serves on the Board of Directors of Game Trader, Inc., a wholesaler of new and
used video games and a publicly traded company.
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MR. BOWER has been our General Counsel, Vice President of Business
Development and Secretary since November 1998. Prior to joining us, Mr. Bower
was a founder and principal of i-80 Ventures, an investment and consulting firm,
from November 1997 to November 1998. Mr. Bower was the principal of Bower
Consulting Group from April 1997 to November 1998. From March 1995 to March
1997, he served as Executive Vice President, Business Development and General
Counsel of YES! Entertainment Corporation, a children's product and
entertainment company. From November 1989 to March 1995, Mr. Bower was an
associate with Wilson Sonsini Goodrich & Rosati, a law firm.
MR. LUNDBERG, our Chief Technical Officer, joined us in January 1999. Before
that, he was with Computer Curriculum Corporation, an educational software
development company, from June 1995 to January 1999, initially as Vice President
of Engineering, and then as Vice President of Internet Technology. From December
1992 to June 1995, Mr. Lundberg was Vice President of Engineering for Kalieda
Labs, a software development company.
MR. RUDY has been Vice President of Operations since March 1999. From March
1998 to March 1999, he was Vice President of Corporate Quality and Development
at Credence Systems Corporation, a semiconductor supplier. Mr. Rudy was Director
of Account Management and Technology Transfer at SEMATECH, a nonprofit research
and development consortium of U.S. semiconductor manufacturers, from November
1994 to March 1998.
MR. JOHNSON, our Vice President of Vertical Markets, has been with us since
September 1998. From April 1996 to September 1998, Mr. Johnson was Vice
President, Marketing and a Director of Millennia Software, a software company.
He was the owner and principal of Pioneer Business Consulting, a business and
financial consulting firm from October 1994 to April 1996. Mr. Johnson worked
from June 1976 to October 1994 for Intel Corporation, serving in a number of
positions, including Controller and Assistant General Manager, Microprocessor
Division.
MR. DEATON is a Vice President and has been one of our directors since
November 1997. One of our co-founders, he has been with us since our inception
in June 1997, and has headed various departments, including Content Development,
School Sales and Marketing and School Network Installation. From July 1994 until
June 1997, Mr. Deaton was the owner and principal of Darryl Deaton Real
Estate/Consulting.
MR. ARNOUSE has been one of our directors since October 1998. Mr. Arnouse
has spent the past 10 years as a business consultant and financier for private
and publicly traded companies. During that period, he had financed more than
fifty transactions totaling in excess of five hundred million dollars. Mr.
Arnouse co-founded Sky Trek International Airlines and served as Chairman of the
Board of Directors from January 1996 until June 1998 and continues to serve on
its board. Mr. Arnouse is currently employed as Chairman and President of
Wharton Capital Partners Ltd., a New York based investment banking and financial
consulting firm. Mr. Arnouse also serves as president of State Capital Market
Group Ltd., a privately owned investment and business consulting company.
MR. BECKER has been one of our directors since April 1999. Mr. Becker has
been President and Co-Chief Executive Officer of Sylvan Learning Systems, Inc.,
one of our shareholders, since April 1993. From February 1991 until April 1993,
Mr. Becker was the Chief Executive Officer of the Sylvan Learning Center
Division of Sylvan. He has been a Director of Sylvan since December 1986. Mr.
Becker also serves as a director of Caliber Learning Network, Inc. and
Constellation Energy Group. Mr. Becker was elected to our board pursuant to the
terms of the Series D Preferred Stock Purchase Agreement.
MR. GAT has been one of our directors since June 1999. Mr. Gat is a
co-founder of Gilat Satellite Networks Ltd., a leading supplier of VSAT
satellite earth stations, and one of our shareholders, and has served as Chief
Executive Officer and a director of Gilat since 1987. Mr. Gat is a member of the
Stock Option and Compensation Committees of Gilat Satellite Networks, and has
also been Chairman
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of the Board since July 1995. Mr. Gat also serves as Chairman of the Board of
Directors of KSAT, a joint venture with Keppel Communications, which provides
satellite-based telecommunication services in China, as well as serving as a
Director of Gilat Communications Ltd., a provider of satellite-based
communications services. Mr. Gat is also the Chairman of the MOST consortium, an
initiative for research relating to next-generation real-time, multimedia
content delivery tools for the Internet, and a director of ILAN-GAT Engineering
Ltd., a construction engineering company.
MR. HITCHNER has been one of our directors since May 1999. Mr. Hitchner is a
General Partner of QuestMark Partners, L.P., where he has been since January
1999. From 1988 to November 1998, he was with BT Alex. Brown, serving in a
number of positions, including Managing Director and a founder and senior member
of the Private Equity Group. Mr. Hitchner served as the senior private equity
professional on 49 transactions while he was with the Private Equity Group of BT
Alex. Brown, in which $973 million was invested. Mr. Hitchner was elected to the
board pursuant to a voting agreement between QuestMark Partners, L.P., Lance
Mortensen, and ZapMe!, entered into in connection with the Series D preferred
stock financing.
MR. KEMP has been one of our directors since July 1999. Mr. Kemp has been
Co-Director of Empower America, a political policy organization, since 1993. Mr.
Kemp served as the Secretary of Housing and Urban Development from February 1989
until January 1992 and, before that, for 18 years as a member of the United
States House of Representatives. Mr. Kemp is also a director of Oracle
Corporation, American Bankers Insurance Group, Inc., Carson Products, Inc., a
manufacturer and marketer of personal care products, Everen Securities, Inc., a
securities firm, Proxicom, Inc., an internet services provider, Speedway
Motorsports, Inc., a promotor and sponsor of motorsports and The Sports
Authority, Inc., a sporting goods retailer. Mr. Kemp also sits on the
compensation committee of Everen Securities, Inc., and on the advisory board of
Thomas Weisel Partners, LLC, one of the underwriters of this offering.
BOARD COMMITTEES
The board of directors recently reconstituted the compensation and audit
committees. The compensation committee evaluates and approves the compensation
policies for the executive officers and administers our employee benefit plans.
The members of the compensation committee are Michael Arnouse, Douglas Becker
and Yoel Gat. The audit committee reviews the accounting practices and
procedures, the results and scope of the audit and recommends the appointment of
the independent auditors. The members of the audit committee are Michael
Arnouse, Douglas Becker and Tom Hitchner.
DIRECTOR COMPENSATION
We reimburse each member of our board of directors for out-of-pocket
expenses incurred in connection with attending board meetings. No member of our
board of directors currently receives any additional cash compensation.
Our 1998 Plan provides that options will be granted to non-employee
directors pursuant to an automatic nondiscretionary grant formula. Each
non-employee director will be granted an option to purchase 7,500 shares of
common stock on the date of each annual meeting of the shareholders of ZapMe!.
Each option will be granted at the fair market value of the common stock on the
date of grant. Options granted to non-employee directors under the Director Plan
will be fully vested and exercisable on the date of grant. The options to be
granted under the 1998 Plan will be nonqualified stock options. Nonqualified
stock options are stock options which do not constitute "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code.
Currently, all directors other than Mr. Mortensen and Mr. Deaton are eligible to
participate in the 1998 Plan as non-employee
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directors. Mr. Mortensen and Mr. Deaton are eligible to participate in the 1998
Plan as employees. See "Incentive Stock Plans--1998 Stock Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to June 1999, the compensation committee was composed of Messrs.
Arnouse and Mortensen. The committee is currently composed of Messrs. Arnouse,
Becker and Gat. No interlocking relationship exists between the board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has any interlocking relationship existed in
the past.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning the
compensation we paid for services rendered to us during 1998 by our chief
executive officer and our two most highly compensated executive officers who
were serving as executive officers at the end of 1998 and whose salaries were
more than $100,000 in 1998 and one individual who was not serving as an
executive officer at the end of 1998, but who was otherwise qualified to be
named in this table (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION
- ------------------------------------------------------------ ---------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
Lance Mortensen, Chairman and Chief Executive Officer....... 273,052 -- 300,000 --
Darryl Deaton, Vice President and Director.................. 145,013 -- 50,000 --
John Evleth, former Chief Financial Officer and
Director(1)............................................... 137,607 -- 50,000 --
Joshua Marks, former Chief Operating Officer/ Executive
Producer(2)............................................... 120,000 -- 158,730 --
</TABLE>
- ------------------------
(1) Mr. Evleth resigned as Chief Financial Officer and Director in November
1998.
(2) Mr. Marks resigned as Chief Operating Officer/Executive Producer in January
1999.
OPTION GRANTS IN FISCAL YEAR 1998
The following table provides information relating to stock options awarded
to each of the executive officers named in the summary compensation table during
the fiscal year ended December 31, 1998, including the potential realizable
value over the 10 year term of the options based on assumed rates of stock
appreciation of 5% and 10%, compounded annually. These assumed rates of
appreciation comply with the rules of the SEC and do not represent our estimate
of future stock prices. Actual gains, if any, on stock option exercises will be
dependent on the future performance of our common stock. In 1998, we granted
options and rights to acquire up to an aggregate of 3,070,230 shares to
employees, consultants, directors and other persons having a business
relationship with us under the 1997 and 1998 Stock Option Plans and all at an
exercise price equal to not less than the fair market value of our common stock
on the date of grant as determined in good faith by the board of directors.
Optionees may pay the exercise price by check, note, delivery of already-owned
shares of our common stock or any other instrument the board will accept.
Options granted under the 1997 and 1998 Stock Option
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Plans generally vest at a rate of one-third per year. No stock appreciation
rights were granted to these individuals during such year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZED
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES PRICE PER OPTIONS TERM
OPTIONS IN FISCAL SHARE EXPIRATION --------------------
NAME GRANTED YEAR (%) ($) DATE 5%($) 10%($)
- ------------------------------------------- ----------- ------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lance Mortensen............................ 300,000 9.8 1.10 9/8/08 207,535 525,935
Darryl Deaton.............................. 50,000 1.6 1.00 9/8/08 31,445 79,687
John Evleth................................ 50,000(1) 1.6 1.00 9/8/08 31,445 79,687
Joshua Marks............................... 158,730(2) 5.2 0.09 1/6/08 8,984 22,768
</TABLE>
- ------------------------
(1) 50,000 shares returned to 1998 Stock Plan on 11/23/98.
(2) 97,002 shares returned to 1997 Stock Plan on 1/8/99.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information about the number and year-end
value of exercisable and unexercisable options held by the executive officers
named in the summary compensation table for the year ended December 31, 1998.
The "Value of Unexercised In-the-Money Options at December 31, 1998" is based on
our initial public offering price, minus the exercise price, multiplied by the
number of shares underlying the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER
DECEMBER 31, 1998 31, 1998
SHARES ACQUIRED VALUE -------------------------- ----------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- --------------- ----------- ----------- ------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Lance Mortensen.............. 600,000 -- 300,000
Darryl Deaton................ 200,000 -- 50,000
John Evleth.................. 200,000 -- -- -- --
Joshua Marks................. -- 57,319 101,411
</TABLE>
INCENTIVE STOCK PLANS
1997 EMPLOYEE STOCK OPTION PLAN.
Our 1997 Employee Stock Option Plan was adopted by our board of directors
and approved by our stockholders in October 1997. The 1997 Employee Stock Option
Plan provides for the granting to our employees of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and for the granting to employees, directors and
independent contractors of nonstatutory stock options. Our board of directors
and our stockholders have authorized a total of 1,363,730 shares of common stock
for issuance pursuant to the 1997 Employee Stock Option Plan. As of June 30,
1999, there were options to purchase 129,410 shares outstanding. No grants were
made under this plan after the adoption of the 1998 Stock Plan.
1998 STOCK PLAN.
The board of directors adopted the 1998 Plan and the stockholders initially
approved the 1998 Plan in June 1998. In connection with this offering, the board
of directors approved the amendment and restatement of the 1998 Plan in August
1999 and the stockholders approved the amendment and
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<PAGE>
restatement in 1999. The 1998 Plan provides for the grant of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code
(the "Code") to employees, and for the grant of nonstatutory stock options and
stock purchase rights ("SPRs") to employees, directors and consultants.
NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE 1998 PLAN
As of June 30, 1999, a total of 4,036,270 shares of common stock were
reserved for issuance pursuant to the 1998 Plan, of which options to acquire
2,383,447 shares were issued and outstanding as of that date. As part of the
1999 amendment and restatement of the 1998 Plan, the board of directors approved
an increase of 1,500,000 shares reserved for issuance under the 1998 Plan. The
1998 Plan provides for annual increases in the number of shares available for
issuance thereunder, on the first day of each new fiscal year of the Company,
effective beginning with the Company's fiscal year 2000, equal to the lowest of
5% of the outstanding shares of common stock on the first day of the fiscal
year, 2 million shares or such amount as the board may determine.
ADMINISTRATION OF THE 1998 PLAN
The board of directors or a committee of the board (as applicable, the
administrator) administers the 1998 Plan. In the case of options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code, the committee will consist of two or more "outside directors"
within the meaning of Section 162(m) of the Code. The administrator has the
power to determine the terms of the options or SPRs granted, including the
exercise price, the number of shares subject to each option or SPR, the
exercisability of the options and the form of consideration payable upon
exercise.
OPTIONS
The administrator determines the exercise price of nonstatutory stock
options granted under the 1998 Plan, but with respect to nonstatutory stock
options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code, the exercise price must at least be equal
to the fair market value of the common stock on the date of grant. The exercise
price of all incentive stock options granted under the 1998 Plan must be at
least equal to the fair market value of the common stock on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of ZapMe!'s outstanding capital stock, the exercise
price of any incentive stock option granted must equal at least 110% of the fair
market value on the grant date and the term of such incentive stock option must
not exceed five years. The term of all other options is determined by the
administrator.
An optionee generally must exercise an option granted under the 1998 Plan at
the time set forth in the optionee's option agreement after termination of the
optionee's status as an employee, director or consultant of ZapMe!, or within 12
months after the optionee's termination by death or disability, but in no event
later than the expiration of the option's ten year term.
STOCK PURCHASE RIGHTS ("SPRS")
The administrator determines the exercise price of SPRs granted under the
1998 Plan. In the case of SPRs, unless the administrator determines otherwise,
the restricted stock purchase agreement entered into in connection with the
exercise of the SPR shall grant ZapMe! a repurchase option that ZapMe! may
exercise upon the voluntary or involuntary termination of the purchaser's
service with ZapMe! for any reason (including death or disability). The purchase
price for shares ZapMe! repurchases pursuant to restricted stock purchase
agreements shall generally be the original price paid by the purchaser and may
be paid by cancellation of any indebtedness of the purchaser to ZapMe!. The
repurchase option shall lapse at a rate that the administrator determines.
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OUTSIDE DIRECTOR OPTIONS
The 1998 Plan also provides for the automatic grant to each nonemployee
director of a nonstatutory stock option for 7,500 shares of common stock on the
date of each annual stockholder's meeting of ZapMe!. Each option shall have a
term of 10 years and the shares subject to these options shall be fully vested
and exercisable on the date of grant. The exercise price of each option shall be
100% of the fair market value per share of common stock on the date of grant.
TRANSFERABILITY OF OPTIONS AND SPRS
An optionee generally may not transfer options and SPRs granted under the
1998 Plan and only the optionee may exercise an option and SPR during his or her
lifetime.
ADJUSTMENTS UPON MERGER OR ASSET SALE
The 1998 Plan provides that in the event of a merger of ZapMe! with or into
another corporation or a sale of substantially all of ZapMe!'s assets, the
successor corporation shall assume or substitute each option or SPR. If the
outstanding options or SPRs are not assumed or substituted, the administrator
shall provide notice to the optionee that he or she has the right to exercise
the option or SPR as to all of the shares subject to the option or SPR,
including shares which would not otherwise be exercisable, for a period of
fifteen days from the date of the notice. The option or SPR will terminate upon
the expiration of the fifteen-day period.
AMENDMENT AND TERMINATION OF THE 1998 PLAN
Unless terminated sooner, the 1998 Plan will terminate automatically in
2008. In addition, the administrator has the authority to amend, suspend or
terminate the 1998 Plan, provided that no such action may affect any share of
common stock previously issued and sold or any option previously granted under
the 1998 Plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
The board of directors adopted ZapMe!'s Purchase Plan in August 1999.
ZapMe!'s stockholders approved the Purchase Plan in 1999.
NUMBER OF SHARES OF COMMON STOCK AVAILABLE UNDER THE PURCHASE PLAN
A total of 500,000 shares of common stock has been reserved for issuance
under the Purchase Plan. In addition, the Purchase Plan provides for automatic
annual increases in the number of shares available for issuance under the
Purchase Plan on the first day of each fiscal year, beginning with the Company's
fiscal year 2000, equal to the lowest of 2% of the outstanding shares of common
stock on the first day of the fiscal year, one million shares or such other
amount as may be determined by the board.
ADMINISTRATION OF THE PURCHASE PLAN
The board of directors or a committee appointed by the board administers the
Purchase Plan. The board of directors or its committee has full and exclusive
authority to interpret the terms of the Purchase Plan and determine eligibility.
ELIGIBILITY TO PARTICIPATE
Employees are eligible to participate if they are customarily employed by
ZapMe! or any participating subsidiary for at least 20 hours per week and more
than five months in any calendar year.
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However, an employee may not be granted an option to purchase stock under the
Purchase Plan if such employee:
- immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of the capital stock of
ZapMe!; or
- whose rights to purchase stock under all employee stock purchase plans of
ZapMe! accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
OFFERING PERIODS AND CONTRIBUTIONS
The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, contains consecutive, 6-month offering periods. The
offering periods generally start on the first trading day on or after and
of each year, except for the first such offering period which will
commence on the first trading day on or after the effective date of this
offering and will end on the last trading day on or before .
The Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 10% of the participant's "compensation."
Compensation is defined as the participant's base straight time gross earnings
and commissions but excludes payments for overtime, shift premium payments,
incentive compensation, incentive payments, bonuses and other compensation. The
maximum number of shares a participant may purchase during a single offering
period is 5,000 shares.
PURCHASE OF SHARES
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the Purchase Plan is 85% of the lower of the fair market value
of the common stock at the beginning or end of the offering period. Participants
may end their participation at any time during an offering period, and they will
be paid their payroll deductions to date. Participation ends automatically upon
termination of employment with ZapMe!.
TRANSFERABILITY OF RIGHTS
A participant may not transfer rights granted under the Purchase Plan other
than by will, the laws of descent and distribution or as otherwise provided
under the Purchase Plan.
ADJUSTMENTS UPON MERGER OR ASSET SALE
The Purchase Plan provides that, in the event of a merger of ZapMe! with or
into another corporation or a sale of substantially all of ZapMe!'s assets, a
successor corporation may assume or substitute for each outstanding option. If
the successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened, and a new
exercise date will be set.
AMENDMENT AND TERMINATION OF THE PURCHASE PLAN
The 1999 Purchase Plan will terminate in 2009. However, the board of
directors has the authority to amend or terminate the Purchase Plan, except
that, subject to certain exceptions described in the Purchase Plan, no such
action may adversely affect any outstanding rights to purchase stock under the
Purchase Plan.
401(k) PLAN
ZapMe! recently adopted a 401(k) plan which is scheduled to go into effect
in September 1999. ZapMe!'s 401(k) plan covers its eligible employees located in
the United States. The 401(k) plan is intended to qualify under Sections 401(a)
and 401(k) of the Internal Revenue Code. Consequently, contributions to the
401(k) plan by employees or by ZapMe!, and the investment earnings thereon, will
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not be taxable to employees until withdrawn from the 401(k) plan. Further,
contributions by ZapMe!, if any, will be deductible by ZapMe! when made.
Employees may elect to contribute up to 15% of their current compensation to the
401(k) plan up to the statutorily prescribed annual limit, which was $10,000 in
1999.
ZapMe! does not currently intend to make any contributions to the 401(k)
plan. However, since this is a new plan participation in the plan by non-highly
compensated employees may be insufficient to meet certain statutory minimums. In
such a case, ZapMe! may be required to make contributions, and the ability of
highly compensated employees to participate may be limited.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
We have entered into agreements with certain of our officers providing for
payments upon termination of their employment. Our agreement with Mr. Deaton
provides that he will receive a minimum compensation level of $10,000 per month,
paid through December 31, 1999 regardless of whether either he or ZapMe!
terminates his employment voluntarily or with cause. Our agreement with Mr.
Kingsborough provides that in the event that he terminates his employment for
good reason, or if ZapMe! terminates his employment without cause, he will
receive nine months of base salary, if the termination occurs prior to the first
anniversary of his employment at ZapMe!, or six months of base salary, if the
termination occurs prior to the third anniversary of his employment. Mr.
Kingsborough is also entitled to a pro rata portion of the cash bonus otherwise
payable to him under these circumstances. Our agreement with Mr. Rudy provides
that, in the event he terminates his employment for good reason, or if ZapMe!
terminates his employment without cause, he will receive six months of base
salary, six months of non-cash benefits, a pro rata share of the cash bonus
otherwise payable to him, and accelerated vesting of his options, to the lesser
of 30,000 shares or the balance of the unvested shares under Mr. Rudy's initial
grant of options.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Our bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to the
fullest extent permitted by the General Corporations Law of the State of
Delaware, as amended. We are also empowered under our bylaws to enter into
indemnification agreements with our directors and officers and to purchase
insurance on behalf of any person whom we are required or permitted to
indemnify. We have entered into indemnification agreements with each of our
directors and executive officers and intend to obtain a policy of directors' and
officers' liability insurance that insures such persons against the cost of
defense, settlement or payment of a judgment under certain circumstances.
We have entered into agreements with our directors and executive officers
regarding indemnification. Under these agreements we are required to indemnify
them against expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred (including expenses of a derivative action) in
connection with an actual, or a threatened, proceeding if any of them may be
made a party because he or she is or was one of our directors or officers. We
are obligated to pay these amounts only if the officer or director acted in good
faith and in a manner that he or she reasonably believed to be in (or not
opposed to) our best interests. With respect to any criminal proceeding, we are
obligated to pay these amounts only if the officer or director had no reasonable
cause to believe his or her conduct was unlawful. The indemnification agreements
also set forth procedures that will apply in the event of a claim for
indemnification thereunder.
In addition, our amended and restated certificate of incorporation filed in
connection with this offering provides that the liability of our directors for
monetary damages shall be eliminated to the fullest extent permissible under the
General Corporation Law of the State of Delaware, as amended. This provision in
our amended and restated certificate of incorporation does not eliminate a
director's duty of care, and, in appropriate circumstances, equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available. Each director will continue to be subject to
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liability for breach of the director's duty of loyalty to us, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, for acts or omissions that the director believes to be
contrary to our best interests or our stockholders, for any transaction from
which the director derived an improper personal benefit, for improper
transactions between the director and us and for improper distributions to
stockholders and loans to directors and officers. This provision also does not
affect a director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have 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.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
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CERTAIN TRANSACTIONS
EQUITY TRANSACTIONS
On June 25, 1997, we issued and sold 10,000,000 shares of common stock to
Lance Mortensen, our Chief Executive Officer and Chairman of the Board, for an
aggregate purchase price of $50,000. On September 3, 1997, we issued 1,486,984
shares of common stock to Darryl Deaton, one of our directors and officers, and
371,746 shares of common stock to John Evleth, a former officer and director, in
lieu of wages owed.
In August 1998, Mr. Mortensen, Mr. Deaton, and Mr. Evleth exercised options
to purchase 600,000, 200,000 and 200,000 shares of our common stock,
respectively, at an aggregate purchase price of approximately $10,000, $3,000
and $3,000, respectively.
In January 1999, Joshua Marks, a former officer, exercised options to
purchase 57,319 shares of our common stock, for an aggregate purchase price of
approximately $5,000.
On August 1, 1997, October 17, 1997, December 22, 1997, January 22, 1998,
March 23, 1998, and June 9, 1998, we issued convertible promissory notes for an
aggregate amount of $900,000. On August 5, 1998, the principal of the notes and
interest which had accrued converted into 9,097,671 shares of our Series A
preferred stock. Michael Arnouse, one of our directors, and his affiliates were
holders of $800,000 of these promissory notes, which, at a rate of 6.50% per
annum, had accrued approximately $23,000 in interest. This principal and accrued
interest was converted into 7,986,560 shares of Series A preferred stock. All of
the Series A preferred stock will convert into 9,097,671 shares of common stock
upon the consummation of this offering.
On December 3, 1998, March 31, 1999 and May 28, 1999, we issued and sold an
aggregate of 5,894,110 shares of our Series D preferred stock at a purchase
price of $5.00 per share, including:
- 2,026,070 shares to QuestMark Partners, L.P., a major shareholder and an
entity with which Thomas Hitchner, one of our directors, is affiliated;
- 600,000 shares to Sylvan Learning Systems, Inc., an entity with which
Douglas Becker, one of our directors, is affiliated;
- 600,000 shares to Gilat Satellite Networks, Ltd. and Phoenix Worldwide
Limited, a related party, entities with which Yoel Gat, one of our
directors, is affiliated; and
- other private investors.
All of the Series D preferred stock will convert into shares of
common stock upon the consummation of this offering.
On August 4, 1999, we issued and sold an aggregate of 2,030,000 shares of
our Series E preferred stock at a purchase price of $5.00 per share, including:
- 2,000,000 shares to Dell Computer Corporation, a major shareholder; and
- 30,000 shares to another private investor.
On May 7, 1998, we issued a convertible promissory note to Wharton Capital
Partners, L.P., an entity with which Mr. Arnouse, one of our directors, is
affiliated. In August 1998, the promissory note was converted into 160,000
shares of Series B preferred stock and we paid approximately $8,000 in accrued
interest. In February 1999, the shares were transferred to another private
investor.
On March 9, 1999, we issued a warrant to Mr. Becker's affiliate, Sylvan
Learning Systems, Inc., to purchase up to 150,000 shares of common stock at an
exercise price of $5.00 per share.
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Since inception, we have granted the following options to officers,
directors and stockholders who beneficially own five percent of our securities:
- In October 1997 and September 1998, Mr. Mortensen was granted options to
purchase 600,000 and 300,000 shares, respectively, of our common stock;
- In October 1997 and September 1998, Mr. Evleth was granted options to
purchase 200,000 and 50,000 shares, respectively, of our common stock;
- In October 1997 and September 1998, Mr. Deaton was granted options to
purchase 200,000 and 50,000 shares, respectively, of our common stock;
- In January 1998, Mr. Marks was granted options to purchase 158,730 shares
of ZapMe!'s common stock;
- In December 1998 and June 1999, Robert A. Stoffregen, one of our officers,
was granted options to purchase 110,000 and 40,000 shares, respectively,
of our common stock;
- In January 1999, April 1999 and April 1999, Don Kingsborough, one of our
officers, was granted options to purchase 30,000, 120,000 and 180,000
shares, respectively, of our common stock;
- In November 1998 and June 1999, Bruce Bower, one of our officers, was
granted options to purchase 150,000 and 30,000 shares, respectively, of
our common stock;
- In December 1998, April 1999 and June 1999, Dave Lundberg, one of our
officers, was granted options to purchase 40,000, 25,000 and 85,000
shares, respectively, of our common stock;
- In April 1999, Robert Rudy, one of our officers, was granted options to
purchase 180,000 shares of our common stock;
- In October 1998 and December 1998, Royce Johnson, one of our officers, was
granted options to purchase 60,000 and 20,000 shares, respectively, of our
common stock;
- In June 1999, Mr. Arnouse, Mr. Becker and Mr. Gat were each granted
options to purchase 20,000 shares of our common stock;
- In June 1999, QuestMark Partners, L.P. was granted options to purchase
20,000 shares of our common stock, in lieu of granting Mr. Hitchner such
options; and
- In August 1999, Jack Kemp, one of our directors, was granted options to
purchase 20,000 shares of our common stock.
On August 2, 1999, a majority of ZapMe!'s directors, excluding Lance
Mortensen, approved the issuance of an immediately exercisable non-statutory
option to purchase 300,000 shares of our common stock to Mr. Mortensen at an
exercise price of $5.00 per share. The shares are subject to a right of
repurchase in favor of ZapMe!, which will expire at a rate of one third on each
anniversary of the date of grant. ZapMe! has agreed to loan Mr. Mortensen, at
his request, the amount necessary to pay for the aggregate exercise price of the
option, which loan will be secured by the shares purchased on exercise of the
option.
We believe that the shares issued in the above described transactions were
sold at the then fair market value and that the terms of all the above described
transactions were no less favorable than we could have obtained from
unaffiliated third parties.
OTHER TRANSACTIONS
Between June 1997 and October 1997, we issued promissory notes to Mr.
Mortensen aggregating approximately $156,000 bearing an interest rate of 12.0%
per annum. In September 1998, the principal and approximately $11,000 in accrued
interest was paid.
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We have paid Aquatic Innovations, Inc. approximately $10,000 and $130,000
for office equipment rental and other expenses incurred on behalf of ZapMe! in
1997 and 1998, respectively. Mr. Mortensen is the owner of Aquatic Innovations,
Inc.
In March 1999, ZapMe! entered into a "Products and Services Agreement" with
Sylvan Learning Systems, Inc. The Agreement grants Sylvan an exclusive right to
deliver products and services on the ZapMe! systems in schools. The products and
services include student tutoring, information training services, test
preparation programs and other computer based tests. We will earn fees based
upon the number of eligible schools and the length of time eligible schools have
been operational. The initial term of the agreement will expire on December 31,
2003 with a five year renewal option subject to our earning certain minimum fees
from the agreement. Mr. Becker is an affiliate of Sylvan.
As consideration to enter into the agreement, Sylvan was issued a warrant
for 150,000 shares of ZapMe!'s common stock at $5.00 per share. The warrant is
exercisable in whole after Sylvan issues its release of audited financial
statements for the year ended December 31, 2003 and subject to ZapMe! earning a
minimum fee per eligible school during the year ended December 31, 2003.
We purchase VSAT data communications equipment from Gilat Satellite
Networks, Ltd. Through June 1999, ZapMe! has paid approximately $1.8 million to
Gilat and its subsidiary, Spacenet, for equipment, consulting services and
software license fees. In June 1999, ZapMe! and Spacenet, entered into an
agreement whereby Spacenet will provide us with equipment, installation and
space segment for a fixed fee per school installation. Mr. Gat is an affiliate
of Gilat.
In September 1998, we paid Wharton Capital Partners, L.P. $180,000 in
consulting fees in connection with the issuance of ZapMe!'s Series C preferred
stock. Mr. Arnouse is an affiliate of Wharton.
In January 1999, we issued a promissory note in the amount of $500,000 to
Mr. Arnouse bearing an interest rate of 12.0% per annum. The note and
approximately $12,000 of interest was paid in April 1999.
We have entered into agreements with certain of our officers providing for
payments upon termination of their employment. Our agreement with Mr. Deaton
provides that he will receive a minimum compensation level of $10,000 per month,
paid through December 31, 1999 regardless of whether either he or ZapMe!
terminates his employment voluntarily or with cause. Our agreement with Mr.
Kingsborough provides that in the event that he terminates his employment for
good reason, or if ZapMe! terminates his employment without cause, he will
receive nine months of base salary, if the termination occurs prior to the first
anniversary of his employment at ZapMe!, or six months of base salary, if the
termination occurs prior to the third anniversary of his employment. Mr.
Kingsborough is also entitled to a pro rata portion of the cash bonus otherwise
payable to him under these circumstances. Our agreement with Mr. Rudy provides
that, in the event he terminates his employment for good reason, or if ZapMe!
terminates his employment without cause, he will receive six months of base
salary, six months of non-cash benefits, a pro rata share of the cash bonus
otherwise payable to him, and accelerated vesting of his options, to the lesser
of 30,000 shares or the balance of the unvested shares under Mr. Rudy's initial
grant of options.
------------------------
ZapMe! believes that all of the transactions set forth above were made on
terms no less favorable to ZapMe! than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between ZapMe! and its officers, directors and principal stockholders and their
affiliates and any transactions between ZapMe! and any entity with which its
officers, directors or 5% shareholders are affiliated will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors of the board of directors and will be on terms
no less favorable to ZapMe! than could be obtained from unaffiliated third
parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding to the
beneficial ownership of our common stock as of June 30, 1999, and as adjusted to
reflect the sale of the shares of common stock offered in this offering, by (i)
each person or entity who is known by ZapMe! to own beneficially 5% or more of
ZapMe!'s outstanding common stock; (ii) each director of ZapMe!; (iii) each of
the executive officers and (iv) all directors and executive officers of ZapMe!
as a group. The address of all the beneficial owners, unless otherwise noted, is
3000 Executive Parkway, San Ramon CA 94583. Except as otherwise indicated, and
subject to applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of common stock
held by them.
The percentage ownership in the table below is based on 30,111,161 shares of
common stock outstanding as of June 30, 1999 and shares immediately
following the completion of this offering (assuming no exercise of the
Underwriters' over-allotment option), together with applicable options and/or
warrants for such shareholder. 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, subject to community
property laws, where applicable. Shares of common stock subject to options or
warrants that are presently exercisable or exercisable within 60 days of the
date of this prospectus are deemed to be beneficially owned by the person
holding such options for the purpose of computing the percentage of ownership of
such person but are not treated as outstanding for the purpose of computing the
percentage of any other person. To the extent that any shares are issued upon
exercise of options, warrants or other rights to acquire our capital stock that
are presently outstanding or granted in the future or reserved for future
issuance under our stock plans, there will be further dilution to new public
investors.
The number of shares includes 15,751,781 shares of common stock issuable
upon conversion of our convertible preferred stock upon consummation of this
offering. These figures do not include 2,030,000 shares of Series E preferred
stock issued August 4, 1999. For purposes of this table, we have assumed that
the preferred stock converts to common stock at a ratio of one-to-one. The
percentage of shares outstanding after the offering assumes the underwriter's
over-allotment is not exercised.
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<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED AS A RESULT OF
OPTIONS PERCENTAGE OF SHARES
AND WARRANTS OUTSTANDING
NUMBER OF EXERCISABLE --------------------
SHARES WITHIN 60 DAYS OF THE BEFORE
BENEFICIALLY DATE OF THE AFTER THE
NAME OF BENEFICIAL OWNER OWNED THIS PROSPECTUS OFFERING OFFERING
- ------------------------------------ --------- ---------------------- --------- ---------
<S> <C> <C> <C> <C>
QuestMark Partners, L.P.(1)......... 2,026,070 2,046,070
Dell Computer Corporation(2)........ 2,000,000 2,000,000
Mortensen Irrevocable Family
Trust(3).......................... 2,000,000 2,000,000
MCA Irrevocable Family Trust(4)..... 2,000,000 2,000,000
Marianne Schmitt Hellauer(5)........ 4,000,000 4,000,000
Lance Mortensen(6).................. 10,600,000 11,000,000
Michael Arnouse(7).................. 7,976,560 7,996,560
Robert A. Stoffregen................ -- --
Don Kingsborough.................... -- --
Bruce Bower......................... -- 50,000
Dave Lundberg....................... -- --
Bob Rudy............................ -- --
John Evleth......................... 541,046 541,046
Joshua Marks........................ 57,319 61,728
Royce Johnson....................... -- 64,000
Darryl Deaton....................... 1,636,984 1,653,651
Douglas Becker(8)................... 600,000 770,000
Yoel Gat(9)......................... 600,000 620,000
Thomas Hitchner(10)................. 2,026,070 2,046,070
Jack Kemp........................... -- 20,000
All executives officers and
directors as a group (15
persons).......................... 24,037,979 24,523,055
</TABLE>
- ------------------------
* Less than 1%.
(1) One South Street, Suite 800, Baltimore, MD 21202.
(2) Dell Computer Corporation purchased 2,000,000 shares of Series E preferred
stock on August 4, 1999. Dell Computer Corporation owns these shares through
Dell USA L.P., an indirect wholly-owned subsidiary.
(3) Trust established for the benefit of Lance Mortensen, Marianne Schmitt
Hellauer, Trustee, 3712 Valerie Carol Ct., Ellicott City, MD 21042.
(4) Trust established for the benefit of Michael Arnouse, Marianne Schmitt
Hellauer, Trustee, 3712 Valerie Carol Ct., Ellicott City, MD 21042.
(5) Includes 2,000,000 shares held by Ms. Hellauer as trustee of the MCA
Irrevocable Family Trust and 2,000,000 shares held by Ms. Hellauer as
trustee of the Mortensen Family Trust. Ms. Hellauer disclaims beneficial
ownership of these shares.
(6) Includes 2,000,000 shares held by the Mortensen Irrevocable Family Trust, a
trust established for the benefit of Mr. Mortensen.
(7) Includes 2,000,000 shares held by the MCA Irrevocable Family Trust, a trust
established for the benefit of Mr. Arnouse, and 700,000 shares held by the
MC Investment Trust, a trust established for the benefit of Mr. Arnouse.
(8) Includes 600,000 shares and a warrant for 150,000 shares held by Sylvan
Learning Systems, Inc. Mr. Becker is the President and Co-Chief Executive
Officer of Sylvan Learning System, Inc., and disclaims beneficial ownership
of the shares and warrant held by Sylvan, except to the extent of his
pecuniary interest therein.
(9) Includes 500,000 shares held by Gilat Satellite Networks, Ltd., a company of
which Mr. Gat is Chief Executive Officer. Mr. Gat disclaims beneficial
ownership of the shares held by Gilat Satellite Networks, Ltd., except to
the extent of his pecuniary interest therein. Also includes 100,000 shares
held by Phoenix Worldwide Limited, an entity associated with Gilat Satellite
Networks, Ltd. Mr. Gat disclaims beneficial ownership of the shares held by
Phoenix Worldwide Limited.
(10) Includes 2,026,070 shares and options for 20,000 shares held by QuestMark
Partners, L.P., an entity with which Mr. Hitchner is affiliated. Mr.
Hitchner disclaims beneficial ownership of the shares held by QuestMark
Partners, L.P., except to the extent of his general partnership interest
therein.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and the provisions of our
articles of incorporation and bylaws are only summaries and are qualified by
reference to our articles of incorporation and bylaws filed as exhibits to the
registration statement of which this prospectus is a part. Our authorized
capital stock consists of 50,000,000 shares of common stock, $.01 par value per
share, and 16,357,671 shares of preferred stock, $.01 par value per share. As of
June 30, 1999, there were 14,359,380 shares of common stock outstanding held of
record by 28 shareholders, 9,097,671 shares of Series A preferred stock
outstanding held of record by four shareholders, 160,000 shares of Series B
preferred stock outstanding held of record by one shareholder, 600,000 shares of
Series C preferred stock outstanding held of record by five shareholders and
5,894,110 shares of Series D preferred stock held of record by 47 shareholders.
These figures do not include 2,030,000 shares of Series E preferred stock
authorized and outstanding held of record by two shareholders, issued August 4,
1999. Each of the shares of preferred stock outstanding prior to this offering
will automatically convert into share of common stock upon consummation of
this offering.
COMMON STOCK
Holders of the common stock are entitled to receive, when and if declared by
the board of directors, dividends and other distributions in cash, stock or
property from our assets or funds legally available for those purposes subject
to any dividend preferences that may be attributable to preferred stock. Holders
of common stock are entitled to one vote for each share held of record on all
matters on which shareholders may vote. Holders of common stock are not entitled
to cumulative voting for the election of directors.
There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and non-assessable. In the event of our liquidation, dissolution or winding
up, holders of common stock are entitled to share ratably in the assets
available for distribution.
After this offering there will be shares of common stock outstanding.
This number consists of 14,359,380 shares of common stock currently outstanding,
shares to be issued in this offering and shares issuable upon
conversion of our preferred stock, assuming an initial public offering price of
$ per share and that the closing of the offering occurs on ,
1999.
PREFERRED STOCK
Before this offering, there were 17,781,781 shares of preferred stock
outstanding, including 2,030,000 shares of Series E preferred stock. Each of
these shares will be converted into common stock upon consummation of the
offering. After this conversion, our board of directors, without further action
by the shareholders, is authorized to issue an aggregate of 5,000,000 shares of
preferred stock. Currently, we have no plans to issue a new series of preferred
stock. Our board of directors may, without shareholder approval, issue preferred
stock with dividend rates, redemption prices, preferences on liquidation or
dissolution, conversion rights, voting rights and any other preferences, which
rights and preferences could adversely affect the voting power of the holders of
common stock. Issuance of preferred stock could make it harder for a third party
to acquire, or could discourage or delay a third party from acquiring, a
majority of our outstanding stock.
The 17,781,781 shares of preferred stock currently outstanding have
preemptive rights.
RIGHTS OF CERTAIN PREFERRED STOCK HOLDERS
On August 27, 1998, we sold 600,000 shares of Series C preferred stock. On
December 3, 1998, February 1, 1999, March 31, 1999 and May 28, 1999 we sold an
aggregate of 5,894,110 shares of
67
<PAGE>
Series D preferred stock. On August 4, 1999 we sold 2,030,000 shares of Series E
preferred stock. Generally, the shares of Series C, Series D and Series E
preferred stock will convert to common stock on a greater than one-to-one basis.
In addition, rights granted to the holders of the Series C and Series D
preferred stock under our Certificate of Incorporation may require us to issue
additional shares of common stock under certain circumstances.
STOCK DIVIDEND
The holders of our Series C, Series D and Series E preferred stock are
entitled to a per annum dividend equal to ten percent, fifteen percent and seven
and one-half percent, respectively, of the liquidation value of the preferred
stock, which value is initially set at $5 per share, the purchase price of the
stock. The dividend will be paid by increasing the liquidation value of the
preferred stock by the amount equal to the dividend obligation. Upon the closing
of the offering, the number of shares of common stock that the preferred stock
converts into equals the quotient obtained by dividing (1) the liquidation value
of the preferred stock then in effect by (2) the purchase price of the preferred
stock.
Assuming that the closing of the offering occurs on , the
600,000 shares of Series C preferred stock outstanding will convert into
shares of our common stock, the 5,894,110 shares of Series D preferred stock
will convert into shares of our common stock and the 2,030,000 shares of
Series E preferred stock will convert into shares of our common stock.
ADDITIONAL SHARES OF COMMON WHICH MUST BE ISSUED UPON CONVERSION
The holders of our Series C preferred stock and Series D preferred stock
will also be entitled to receive additional newly issued shares of common stock
upon the closing of this offering if the offering price does not exceed $15 per
share in the case of the Series C preferred stock and $10 per share in the case
of the Series D preferred stock. The number of additional shares of common stock
to be issued can be calculated using the following formula:
<TABLE>
<S> <C>
(MP - X)Y
AS = X
</TABLE>
where
- AS is the number of additional shares of common stock to be issued to a
holder upon conversion of their shares of Series C or Series D preferred
stock;
- MP is the minimum price ($15 per share in the case of the Series C
preferred and $10 per share in the case of the Series D preferred);
- X is the public offering price; and
- Y is the number of shares of common into which the holder's Series C or
Series D preferred stock were convertible pursuant to our certificate of
incorporation.
The following table sets forth at several example offering prices, and
assuming that the closing of the offering occurs on , the approximate
number of additional shares of common stock that we will be obligated to issue
to the holders of Series C or Series D preferred stock:
<TABLE>
<CAPTION>
ADDITIONAL SHARES ADDITIONAL SHARES
TO SERIES C TO SERIES D
ASSUMED OFFERING PRICE PER SHARE HOLDERS HOLDERS
- ------------------------------------------------------ ----------------- ------------------
<S> <C> <C>
</TABLE>
If such issuance of additional shares were to occur, current and prospective
stockholders would suffer additional dilution with a resulting proportionate
decrease in our earnings per share. This dilution could be substantial.
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<PAGE>
WARRANTS
As of June 30, 1999, giving effect to the conversion of all preferred stock
into common stock, we had outstanding warrants to purchase an aggregate of
shares of common stock, of which are immediately exercisable and
150,000 of which are exercisable for 30 days after Sylvan releases its audited
financial statements for the year ended December 31, 2003, if Sylvan achieves
certain milestones. Of these, warrants to purchase 5,890 shares of preferred
stock expire immediately prior to the closing of this offering. The remaining
warrants expire at various dates through April 2004.
The following table sets forth warrants outstanding as of June 30, 1999:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OF EXERCISE
DATE OF ISSUANCE TYPE WARRANTS PRICE EXPIRES
- ---------------------------- --------------------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
May 1998.................... Series B preferred 500,000 $ 3.25 May 2003
November 1998............... Series D preferred 5,500 $ 5.00 November 2005
February 1999............... Series D preferred 390 $ 5.00 February 2006
March 1999.................. Common 150,000 $ 5.00 April 2004
</TABLE>
We have agreed to issue warrants to a number of lease financing companies.
As of June 30, 1999, we are obligated to issue warrants for 100,000 shares of
Series D preferred stock and 140,000 shares of common stock.
Some of the warrants have a net exercise provision under which the holder
may, in lieu of payment of the exercise price in cash, surrender the warrant and
receive a net amount of shares, based on the fair market value of our stock at
the time of the exercise of the warrant, after deducting the aggregate exercise
price.
The holders of warrants for Series B and Series D preferred shares have the
right, subject to some limitations, to require us to include their securities in
future registration statements we file under the Securities Act of 1933.
REGISTRATION RIGHTS
After the consummation of the offering, the holders of shares of
common stock issuable upon conversion of the preferred stock will have
registration rights with respect to those securities, assuming an initial public
offering price of $ per share and that the closing of the offering occurs on
, 1999. These rights are described in a shareholders agreement
between us and the holders of those securities. The agreement provides for
registration upon the demand of the holders of not less than 25% of the
outstanding shares of Series C and Series D preferred stock, upon the demand of
the holders of not less than 50% of the outstanding Series C preferred stock,
and upon the demand of certain specified holders of Series D preferred stock. In
addition, pursuant to that agreement, the holders of our preferred stock and
warrants for our preferred stock are entitled, subject to some limitations, to
require us to include their securities in future registration statements we file
under the Securities Act of 1933, referred to as piggyback registration rights.
The holders of those securities also are entitled, subject to some limitations,
to require us to register their securities on a registration statement on Form
S-3 once we are eligible to use a Form S-3 in connection with registrations.
However, holders of these shares will be restricted from exercising these rights
until 180 days after the date of this prospectus. Registration of shares of
common stock by the exercise of these demand registration rights, piggyback
registration rights or S-3 registration rights under the Securities Act of 1933
would result in these shares becoming freely tradable without restriction under
the Securities Act of 1933 immediately upon the effectiveness of such
registration. Please see "Risk Factors--Substantial future sales of our common
stock in the public market could cause our stock price to fall" and "Shares
Eligible for Future Sale."
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<PAGE>
SHAREHOLDER ACTION; SPECIAL MEETING OF SHAREHOLDERS
The Delaware Certificate of Incorporation that will become effective
immediately prior to the effectiveness of this offering state that shareholders
may not take action by written consent, but only at duly called annual or
special meetings of shareholders. The Delaware Certificate of Incorporation also
provide that special meetings of shareholders may be called only by the chairman
of the board of directors or by a majority of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The bylaws provide that shareholders must provide timely notice in writing
to bring business before an annual meeting of shareholders or to nominate
candidates for election as directors at an annual meeting of shareholders. To be
timely notice for an annual meeting, a shareholder's notice must be delivered to
or mailed and received at our principal executive offices at least 120 days
before the first anniversary of the date our notice of annual meeting was
provided for the previous year's annual meeting of shareholders. If no annual
meeting of shareholders was held in the previous year or the date of the annual
meeting of shareholders has been changed to be more than 30 calendar days
earlier than or 60 calendar days after that anniversary, notice by the
shareholder, to be timely, must be received at least 60 days but no more than 90
days before the annual meeting of shareholders or the close of business on the
10th day following the date on which notice of the date of the meeting is given
to shareholders or made public, whichever first occurs. To be timely notice for
a special meeting, a shareholder's notice must be delivered to us by the close
of business 10 days after notice of the meeting is given to shareholders. The
bylaws also specify requirements as to the form and content of a shareholders'
notice. These provisions may keep shareholders from bringing matters before an
annual meeting of shareholders or from making nominations for directors at an
annual meeting of shareholders.
AUTHORIZED BUT UNISSUED SHARES
The authorized but unissued shares of common stock and preferred stock are
available for future issuances without shareholder approval. These additional
shares may be used for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans. The existence of authorized but unissued shares of common stock
and preferred stock could make it harder or discourage an attempt to obtain
control of us by a proxy contest, tender offer, merger or otherwise.
CHANGE OF CONTROL PROVISIONS IN EMPLOYEE BENEFIT PLANS
The 1998 Plan provides that in the event of a merger of ZapMe! with or into
another corporation or a sale of substantially all of ZapMe!'s assets, the
successor corporation shall assume or substitute each option or SPR. If the
outstanding options or SPRs are not assumed or substituted, the administrator
shall provide notice to the optionee that he or she has the right to exercise
the option or SPR as to all of the shares subject to the option or SPR,
including shares which would not otherwise be exercisable, for a period of
fifteen days from the date of the notice. The option or SPR will terminate upon
the expiration of the fifteen-day period.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER PROVISIONS
After our reincorporation in Delaware, we will be subject to Section 203 of
the Delaware General Corporation Law which generally prohibits a Delaware
corporation from engaging in any business
70
<PAGE>
combination with any interested stockholder for a period of three years
following the date that such stockholder became an interested stockholder.
Section 203 applies unless:
- prior to the date such stockholder became an interested stockholder, the
board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming
an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
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 certain shares; or
- on or after such date the stockholder became an interested stockholder,
the business combination is approved by the board of directors and
authorized at a meeting of stockholders by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Provisions of our certificate of incorporation and Delaware law may delay,
defer or prevent a change in our control and may adversely affect the voting and
other rights of holders of common stock. In particular, our certificate of
incorporation provides for a classified board of directors and the inability of
stockholders to vote cumulatively for directors.
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that, except to the extent
provided by Delaware law, our directors will not be personally liable to us or
our stockholders for monetary damages for any breach of fiduciary duty while
serving as directors. This provision also does not affect the directors'
responsibilities under Delaware corporate law or any other laws, such as the
Federal securities laws or state or Federal environmental laws. Insofar as the
indemnification for liabilities arising under the Securities Act may be
permitted to our directors or officers, we have been informed 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.
We have entered into indemnity agreements to indemnify our executive
officers and directors in addition to the indemnification provided for in our
certificate of incorporation and bylaws. These agreements, among other things,
indemnify our directors and executive officers for expenses, judgments and fines
and amounts paid in settlement, actually and reasonably incurred by any such
person in any action, suit or proceeding arising out of such person's services
as a director or executive officer on our behalf. We believe that these
provisions and agreements are necessary to attract and retain qualified
directors and officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is BankBoston N.A.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
the offering could adversely affect the market price of our common stock and our
ability to raise equity capital in the future on terms favorable to us.
After the offering, shares of our common stock will be outstanding,
assuming an initial public offering price of $ per share and that the
closing of the offering occurs on , 1999 and that the underwriters do
not exercise the over-allotment option. 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" as that term is defined in Rule 144 under the Securities Act. The
remaining shares of common stock held by existing shareholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144 or 701 under the
Securities Act, which rules are summarized below.
The following table shows approximately when the shares of our
common stock that are not being sold in this offering but which will be
outstanding when this offering is complete will be eligible for sale in the
public market:
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<CAPTION>
<S> <C>
180 days after the effective date................................................
----------
</TABLE>
Resale of most of the restricted shares that will become available for sale
in the public market starting 180 days after the effective date will be limited
by volume and other resale restrictions under Rule 144 because the holders are
our affiliates.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell, within any three-month
period, a number of shares that is not more than the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the sale
on Form 144 is filed.
Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days before a sale, and who has beneficially owned the
restricted shares for at least two years, is entitled to sell the shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchase shares from us under a
stock option plan or other written
72
<PAGE>
agreement can resell those shares 90 days after the effective date of this
offering in reliance on Rule 144, but without complying with some of the
restrictions, including the holding period, contained in Rule 144.
LOCK-UP AGREEMENTS
Executive officers, directors, shareholders and optionees who will hold an
aggregate of shares of our common stock after this offering, assuming an
initial public offering price of $ per share and that the closing of the
offering occurs on , 1999, will sign or are subject to existing
lock-up agreements under which they will agree not to transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for shares of common stock, for a period of
180 days after the date of this prospectus. Transfers or dispositions can be
made sooner with the prior written consent of Merrill Lynch & Co.
REGISTRATION RIGHTS
Upon completion of this offering, assuming an initial public offering price
of $ per share and that the closing of the offering occurs on ,
1999, the holders of shares of our common stock will be entitled to
rights with respect to the registration of their shares under the Securities
Act. Please see "Description of Capital Stock--Registration Rights" for a more
detailed description of these registration rights. After registration, these
shares will become freely tradable without restriction under the Securities Act.
Any sales of securities by these shareholders could have a material adverse
effect on the trading price of our common stock.
STOCK OPTIONS
Immediately after this offering we intend to file a registration statement
under the Securities Act covering 4,899,350 shares of common stock reserved for
issuance under our stock option plans. Each year as the number of shares
reserved for issuance under our 1998 Stock Plan increases, we will file an
amendment to the registration statement covering the additional shares. As of
June 30, 1999, options to purchase 2,512,857 shares of common stock were issued
and outstanding. Of these options to purchase shares of common stock, 493,567
will be vested and exercisable within 60 days of the date of this offering. When
the lock-up agreements described above expire, these vested options will become
freely tradable. This registration statement is expected to be filed and become
effective as soon as practicable after the effective date of this offering.
Accordingly, shares registered under that registration statement will, subject
to vesting provisions and Rule 144 volume limitations applicable to our
affiliates, be available for sale in the open market immediately after the 180
day lock-up agreements expire.
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<PAGE>
UNDERWRITING
GENERAL
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities
Inc., Thomas Weisel Partners LLC, and Wit Capital Corporation are acting as
representatives of each of the underwriters named below. Subject to the terms
and conditions stated in the Purchase Agreement among us and the underwriters,
we have agreed to sell to each of underwriters, and each of the underwriters,
severally and not jointly, has agreed to purchase from us the number of shares
of common stock stated opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
Deutsche Bank Securities Inc.....................................
Thomas Weisel Partners LLC.......................................
Wit Capital Corporation..........................................
---------
Total..................................................
---------
---------
</TABLE>
Subject to the terms and conditions stated in the Purchase Agreement, the
several underwriters have agreed to purchase all of the shares of common stock
being sold pursuant to the Purchase Agreement if any shares of common stock are
purchased. Under the terms of the Purchase Agreement, the commitments of the
non-defaulting Underwriters may in some circumstances be increased or the
Purchase Agreement may be terminated.
We have agreed to indemnify the several underwriters against some
liabilities, including some liabilities under the Securities Act, or to
contribute to payments the underwriters may be required to make in respect
thereof.
The underwriters offer the shares of common stock, subject to prior sale,
when as and if issued to and accepted by them, subject to approval of some legal
matters by counsel for the underwriters and some other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject order in whole or in part.
A prospectus in electronic format is being made available on a web site
maintained by Wit Capital. In addition, all dealers purchasing shares from Wit
Capital in this offering have agreed to make a prospectus in electronic format
available on web sites maintained by each of these dealers.
COMMISSIONS AND DISCOUNTS
The representatives have advised us that they propose initially to offer the
shares of common stock to the public at the public offering price stated on the
cover page of this prospectus, and to some dealers at such price less a
concession not in excess of $ per share. The underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share on sales
to some other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The following table shows the per share and total underwriting discounts
that we will pay to the underwriters. This information is presented assuming
either no exercise or full exercise by the underwriters of their over-allotment
options.
<TABLE>
<CAPTION>
WITHOUT
PER SHARE OPTION WITH OPTION
----------- --------- -----------
<S> <C> <C> <C>
Public offering price............................................. $ $ $
Underwriting discount............................................. $ $ $
Proceeds, before expenses, to ZapMe!.............................. $ $ $
</TABLE>
We will pay the expenses of the offering, estimated at $ .
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<PAGE>
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to percent of the shares offered hereby to be sold
to people associated with us or our directors, officers or employees, such as
vendors, suppliers, existing stockholders and other persons that have
relationships with or are interested in us. Shares may also be reserved for our
directors, officers or employees. The number of shares of our common stock
available for sale to the general public will be reduced to the extent that
those persons purchase the reserved shares. Any reserved shares which are not
orally confirmed for purchase within one day of the pricing of this offering
will be offered by the underwriters to the general public on the same terms as
the other shares offered by this prospectus.
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option exercisable for 30 days after
the date of this prospectus, to purchase up to an aggregate of an
additional shares of common stock at the public offering price stated on
the cover of this prospectus, less the underwriting discount. The underwriters
may exercise this option solely to cover over-allotments, if any, made on the
sale of the common stock offered hereby. To the extent that the underwriters
exercise this option, each underwriter will be obligated, subject to some
conditions, to purchase a number of additional shares of common stock
proportionate to such underwriter's initial amount reflected to the table above.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have agreed, for a period of 180
days after the date of this prospectus, subject to exceptions, not to directly
or indirectly issue, sell, or otherwise dispose of or transfer any shares of
common stock or securities convertible into or exchangeable or exercisable for
common stock, without the prior written consent of Merrill Lynch on behalf of
the underwriters. See "Shares Eligible for Future Sale."
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
some selling group members to bid for and purchase the common stock. As an
exception to these rules, the representatives are permitted to engage in some
transactions that stabilize the price of the common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the common stock.
If the underwriters create a short position in the common stock in
connection with this offering, i.e., if they sell more shares of common stock
than are stated on the cover page of this prospectus, the representatives may
reduce that short position by purchasing common stock in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the representation that the representatives will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
NEW UNDERWRITERS
Wit Capital, a member of the National Association of Securities Dealers,
Inc., will participate in this offering as one of the underwriters. The National
Association of Securities Dealers, Inc. approved the membership of Wit Capital
on September 4, 1997. Since that time, Wit Capital has acted as an underwriter
or co-manager in over 75 public offerings.
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<PAGE>
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager on 52 filed
public offerings of equity securities, of which 31 have been completed, and has
acted as a syndicate member in an additional 21 public offerings of equity
securities. Jack Kemp, one of our directors, sits on the Advisory Board of
Thomas Weisel Partners. Other than Mr. Kemp's affiliation, Thomas Weisel
Partners does not have any material relationship with us or any of our officers,
directors or other controlling persons, except with respect to its contractual
relationship with us pursuant to the underwriting agreement entered into in
connection with this offering.
OTHER RELATIONSHIPS
Certain of the underwriters and their affiliates engage in transactions
with, and perform services for, our company in the ordinary course of business
and have engaged, and may in the future engage, in commercial banking and
investment banking transactions with our company, for which they have received
or may receive customary compensation.
LEGAL MATTERS
The validity of the common stock offered hereby is being passed upon by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, San
Francisco, California. As of the date of this prospectus, an investment
partnership composed of certain current and former members of and persons
associated with Wilson Sonsini Goodrich & Rosati, Professional Corporation, as
well as certain individual attorneys of this firm, beneficially own an aggregate
of 21,400 shares of ZapMe!'s Series D preferred stock, which, assuming an
initial public offering price of $ per share and that the closing of the
offering occurs on , 1999 , will convert into shares of common
stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements as of December 31, 1997 and 1998, and for the period June 25, 1997
(inception) through December 31, 1997 and for the year 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.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements and other information with the Securities
and Exchange Commission. Our Securities and Exchange Commission filing are also
available over the Internet at the Securities and Exchange Commission's web site
at http://www.sec.gov. You may also read and copy any document we file at the
Securities and Exchange Commission's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for more information on the public reference rooms and their copy charges. You
may also inspect our Commission reports and other information at the Nasdaq
National Market, Inc., 1735 K Street, N.W., Washington, D.C. 20606-1500.
76
<PAGE>
ZAPME! CORPORATION
INDEX TO FINANCIAL STATEMENTS
<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 Redeemable Convertible Preferred Stock and Stockholders' Equity
(Deficit)........................................................................... F-5
Statements of Cash Flows.............................................................. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
ZapMe! Corporation
We have audited the accompanying balance sheets of ZapMe! Corporation (a
development stage company) as of December 31, 1997 and 1998, and the related
statements of operations, redeemable convertible preferred stock and
stockholders' equity (deficit) and cash flows for the period June 25, 1997
(inception) through December 31, 1997 and for the year 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 audits.
We conducted our audits 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 audits provide 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 ZapMe! Corporation (a
development stage company) at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period June 25, 1997 (inception) through
December 31, 1997 and for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
Walnut Creek, California
April 2, 1999,
except for Note 8, as to which the date is
August , 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon final computation
of the number of common shares which may be received by holders of Series C and
D preferred stock and computation of an additional dividend amount, if any, as
described in Note 3 to the financial statements, the effect on pro forma
weighted average shares as described in Note 1 to the financial statements, and
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
August 4, 1999
F-2
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY
DECEMBER 31, JUNE 30, JUNE 30,
1997 1998 1999 1999
--------- --------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 275 $ 815 $ 19,855
Restricted cash........................................................... -- -- 560
Accounts receivable....................................................... -- -- 14
Other receivables......................................................... -- 105 1,168
Notes receivable from stockholder......................................... -- 127 131
Prepaid expenses and other current assets................................. 13 45 362
--------- --------- -----------
Total current assets........................................................ 288 1,092 22,090
Equipment, net.............................................................. 43 2,471 9,781
Other assets................................................................ 18 40 275
--------- --------- -----------
Total assets................................................................ $ 349 $ 3,603 $ 32,146
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses..................................... $ 157 $ 1,541 $ 3,217
Accrued compensation and related expenses................................. 242 446 882
Deferred revenue.......................................................... -- -- 302
Current portion of capital lease obligations.............................. -- 118 2,092
--------- --------- -----------
Total current liabilities................................................... 399 2,105 6,493
Capital lease obligations................................................... -- 269 4,613
Notes payable to stockholders............................................... 462 -- --
--------- --------- -----------
Total liabilities........................................................... 861 2,374 11,106
Commitments
Redeemable convertible preferred stock, $0.01 par value, issuable in series:
Authorized shares--600,000 (none pro forma)
Issued and outstanding shares--600,000 in 1998, and 1999 and none pro
forma (liquidation preference at June 30, 1999--$4,542)................. -- 3,352 4,288 $ --
Stockholders' equity (deficit):
Convertible preferred stock, $0.01 par value:
Authorized shares--12,857,671 in 1998 and 16,357,671 in 1999 (including
600,000 shares designated as redeemable convertible preferred stock)
(5,000,000 pro forma)
Issued and outstanding shares--9,557,671 in 1998 and 15,151,781 in 1999,
and none pro forma (liquidation preference at June 30,
1999--$30,893)........................................................ -- 2,783 29,112 --
Common stock, $0.01 par value:
Authorized shares--50,000,000 (200,000,000 pro forma)
Issued and outstanding shares--11,858,730 in 1997, 14,208,730 in 1998,
14,359,380 in 1999, and 30,111,161 pro forma.......................... 69 800 2,026 35,426
Deferred stock compensation............................................... -- (474) (1,122) (1,122)
Accumulated deficit during the development stage.......................... (581) (5,232) (13,264) (13,264)
--------- --------- ----------- -------------
Total stockholders' equity (deficit)........................................ (512) (2,123) 16,752 $ 21,040
--------- --------- ----------- -------------
-------------
Total liabilities, redeemable convertible preferred stock and stockholders'
equity (deficit).......................................................... $ 349 $ 3,603 $ 32,146
--------- --------- -----------
--------- --------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM JUNE PERIOD FROM JUNE
25, 1997 SIX MONTHS ENDED JUNE 25, 1997
(INCEPTION) YEAR ENDED 30, (INCEPTION)
THROUGH DECEMBER DECEMBER 31, ------------------------ THROUGH JUNE 30,
31, 1997 1998 1998 1999 1999
------------------ ------------ ----------- ----------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................................. $ -- $ -- $ -- $ 147 $ 147
Costs and expenses:
Cost of services...................... -- 135 8 1,247 1,382
Research and development.............. 231 1,140 429 1,034 2,405
Sales and marketing................... 40 1,197 176 2,456 3,693
General and administrative............ 299 1,458 415 1,975 3,732
Amortization of deferred stock
compensation........................ -- 79 -- 560 639
------- ------------ ----------- ----------- --------
Total costs and expenses................ 570 4,009 1,028 7,272 11,851
------- ------------ ----------- ----------- --------
Loss from operations.................... (570) (4,009) (1,028) (7,125) (11,704)
Interest income (expense), net.......... (11) (36) (35) 29 (18)
------- ------------ ----------- ----------- --------
Net loss................................ (581) (4,045) (1,063) (7,096) (11,722)
Accretion and dividend on redeemable
convertible preferred stock........... -- (606) -- (936) (1,542)
------- ------------ ----------- ----------- --------
Net loss applicable to common
stockholders.......................... $ (581) $ (4,651) $ (1,063) $ (8,032) $ (13,264)
------- ------------ ----------- ----------- --------
------- ------------ ----------- ----------- --------
Net loss per share:
Basic and diluted..................... $ (0.05) $ (0.40) $ (0.09) $ (0.59)
------- ------------ ----------- -----------
------- ------------ ----------- -----------
Pro forma basic and diluted
(unaudited)......................... $ (0.26) $ (0.28)
------------ -----------
------------ -----------
Shares used in calculation of net loss
per share:
Basic and diluted..................... 11,183 11,685 11,859 13,517
------- ------------ ----------- -----------
------- ------------ ----------- -----------
Pro forma basic and diluted
(unaudited)......................... 15,993 25,462
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------
REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK DEFERRED
---------------------- ---------------------- ---------------------- STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION
--------- ----------- --------- ----------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders at $0.005 per
share........................ -- $ -- -- $ -- 10,000,000 $ 50 $ --
Issuance of common stock for
services at $0.10 per
share........................ -- -- -- -- 1,858,730 19 --
Net loss and comprehensive
loss......................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- -------
Balances at December 31, 1997.... -- -- -- -- 11,858,730 69 --
Issuance of Series A preferred
stock at $0.10 per share for
conversion of notes payable,
net of issuance cost of
$11.......................... -- -- 9,097,671 899 -- -- --
Issuance of Series B preferred
stock at $2.50 per share for
conversion of notes payable,
net of issuance costs of
$4........................... -- -- 160,000 396 -- -- --
Issuance of Series C redeemable
convertible preferred stock
at $5.00 per share, net of
issuance costs of $254....... 600,000 2,746 -- -- -- -- --
Issuance of Series D preferred
stock at $5.00 per share, net
of issuance costs of $12..... -- -- 300,000 1,488 -- -- --
Issuance of common stock upon
exercise of stock options at
prices ranging from $0.015 to
$0.0165 per share............ -- -- -- -- 1,000,000 16 --
Issuance of common stock at
$0.25 per share for services
for note receivable.......... -- -- -- -- 1,350,000 334 (172)
Deferred stock compensation.... -- -- -- -- -- 381 (381)
Amortization of deferred stock
compensation................. -- -- -- -- -- -- 79
Accretion of redeemable
convertible preferred
stock........................ -- 531 -- -- -- -- --
Accrued Series C dividends..... -- 75 -- -- -- -- --
Net loss and comprehensive
loss......................... -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- -------
Balances at December 31, 1998.... 600,000 3,352 9,557,671 2,783 14,208,730 800 (474)
Issuance of common stock at
prices ranging from $0.02 to
$0.25 per share upon exercise
of stock options
(unaudited).................. -- -- -- -- 150,650 18 --
Issuance of Series D preferred
stock at $5.00 per share, net
of issuance costs of $1,811
(unaudited).................. -- -- 5,554,110 25,960 -- -- --
Issuance of Series D preferred
stock at $5.00 per share for
conversion of note payable
(unaudited).................. -- -- 40,000 200 -- -- --
Issuance of common stock
options to non-employees in
consideration for services
rendered (unaudited)......... -- -- -- -- -- 362 (70)
Warrants issued in connection
with lease financing
(unaudited).................. -- -- -- 169 -- -- --
Deferred stock compensation
(unaudited).................. -- -- -- -- -- 846 (846)
Amortization of deferred stock
compensation (unaudited)..... -- -- -- -- -- -- 268
Accretion of redeemable
convertible preferred stock
(unaudited).................. -- 780 -- -- -- -- --
Accrued Series C dividends
(unaudited).................. -- 156 -- -- -- -- --
Net loss and comprehensive loss
(unaudited).................. -- -- -- -- -- -- --
--------- ----------- --------- ----------- --------- ----------- -------
Balances at June 30, 1999
(unaudited).................... 600,000 $ 4,288 15,151,781 $ 29,112 14,359,380 $ 2,026 $ (1,122)
--------- ----------- --------- ----------- --------- ----------- -------
--------- ----------- --------- ----------- --------- ----------- -------
<CAPTION>
STOCKHOLDERS' EQUITY
(DEFICIT)
---------------------------
ACCUMULATED
DEFICIT TOTAL
DURING THE STOCKHOLDERS'
DEVELOPMENT EQUITY
STAGE (DEFICIT)
------------ -------------
<S> <C> <C>
Issuance of common stock to
founders at $0.005 per
share........................ $ -- $ 50
Issuance of common stock for
services at $0.10 per
share........................ -- 19
Net loss and comprehensive
loss......................... (581) (581)
------------ -------------
Balances at December 31, 1997.... (581) (512)
Issuance of Series A preferred
stock at $0.10 per share for
conversion of notes payable,
net of issuance cost of
$11.......................... -- 899
Issuance of Series B preferred
stock at $2.50 per share for
conversion of notes payable,
net of issuance costs of
$4........................... -- 396
Issuance of Series C redeemable
convertible preferred stock
at $5.00 per share, net of
issuance costs of $254....... -- --
Issuance of Series D preferred
stock at $5.00 per share, net
of issuance costs of $12..... -- 1,488
Issuance of common stock upon
exercise of stock options at
prices ranging from $0.015 to
$0.0165 per share............ -- 16
Issuance of common stock at
$0.25 per share for services
for note receivable.......... -- 162
Deferred stock compensation.... -- --
Amortization of deferred stock
compensation................. -- 79
Accretion of redeemable
convertible preferred
stock........................ (531) (531)
Accrued Series C dividends..... (75) (75)
Net loss and comprehensive
loss......................... (4,045) (4,045)
------------ -------------
Balances at December 31, 1998.... (5,232) (2,123)
Issuance of common stock at
prices ranging from $0.02 to
$0.25 per share upon exercise
of stock options
(unaudited).................. -- 18
Issuance of Series D preferred
stock at $5.00 per share, net
of issuance costs of $1,811
(unaudited).................. -- 25,960
Issuance of Series D preferred
stock at $5.00 per share for
conversion of note payable
(unaudited).................. -- 200
Issuance of common stock
options to non-employees in
consideration for services
rendered (unaudited)......... -- 292
Warrants issued in connection
with lease financing
(unaudited).................. -- 169
Deferred stock compensation
(unaudited).................. -- --
Amortization of deferred stock
compensation (unaudited)..... -- 268
Accretion of redeemable
convertible preferred stock
(unaudited).................. (780) (780)
Accrued Series C dividends
(unaudited).................. (156) (156)
Net loss and comprehensive loss
(unaudited).................. (7,096) (7,096)
------------ -------------
Balances at June 30, 1999
(unaudited).................... $ (13,264) $ 16,752
------------ -------------
------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 25, 1997 PERIOD FROM
(INCEPTION) SIX MONTHS ENDED JUNE JUNE 25, 1997
THROUGH YEAR ENDED 30, (INCEPTION)
DECEMBER 31, DECEMBER 31, ------------------------ THROUGH JUNE
1997 1998 1998 1999 30, 1999
--------------- ------------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................................... $ (581) $ (4,045) $ (1,063) $ (7,096) $ (11,722)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of deferred stock compensation.......... -- 79 -- 268 347
Depreciation and amortization........................ 10 205 27 770 985
Common stock issued for services..................... 19 -- -- 292 311
Changes in operating assets and liabilities:
Restricted cash.................................... -- -- -- (560) (560)
Accounts receivable................................ -- -- -- (14) (14)
Other receivables.................................. -- (105) -- (1,063) (1,168)
Prepaid expenses and other current assets.......... (13) (32) (36) (317) (362)
Other assets....................................... (18) (22) -- (75) (115)
Accounts payable and accrued expenses.............. 157 1,384 155 1,676 3,217
Accrued compensation and related expenses.......... 242 204 256 436 882
Deferred revenue................................... -- -- -- 302 302
----- ------------- ----------- ----------- -------------
Net cash used in operating activities.................. (184) (2,332) (661) (5,381) (7,897)
INVESTING ACTIVITIES
Purchase of equipment, net............................. (53) (2,243) (378) (1,303) (3,599)
Notes receivable from stockholder...................... -- (127) -- (4) (131)
----- ------------- ----------- ----------- -------------
Net cash used in investing activities.................. (53) (2,370) (378) (1,307) (3,730)
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock, net......... -- 4,229 -- 25,960 30,189
Proceeds from issuance of common stock................. 50 178 -- 18 246
Proceeds from borrowings on notes payable.............. 462 1,000 1,026 700 2,162
Payments on notes payable.............................. -- (162) -- (500) (662)
Payments on lease obligations.......................... -- (3) -- (450) (453)
----- ------------- ----------- ----------- -------------
Net cash provided by financing activities.............. 512 5,242 1,026 25,728 31,482
----- ------------- ----------- ----------- -------------
Increase (decrease) in cash and cash equivalents....... 275 540 (13) 19,040 19,855
Cash and cash equivalents at beginning of period....... -- 275 275 815 --
----- ------------- ----------- ----------- -------------
Cash and cash equivalents at end of period............. $ 275 $ 815 $ 262 $ 19,855 $ 19,855
----- ------------- ----------- ----------- -------------
----- ------------- ----------- ----------- -------------
SUPPLEMENTAL DISCLOSURES:
Conversion of notes payable to stockholders to
preferred stock...................................... $ -- $ 1,300 $ -- $ 200 $ 1,500
----- ------------- ----------- ----------- -------------
----- ------------- ----------- ----------- -------------
Issuance of common stock for notes receivable.......... $ -- $ 162 $ -- $ -- $ 162
----- ------------- ----------- ----------- -------------
----- ------------- ----------- ----------- -------------
Accretion and dividends of redeemable preferred stock.. $ -- $ 606 $ -- $ 936 $ 1,542
----- ------------- ----------- ----------- -------------
----- ------------- ----------- ----------- -------------
Capital lease obligations incurred..................... $ -- $ 390 $ -- $ 6,768 $ 7,158
----- ------------- ----------- ----------- -------------
----- ------------- ----------- ----------- -------------
Warrants issued in connection with lease financing..... $ -- $ -- $ -- $ 169 $ 169
----- ------------- ----------- ----------- -------------
----- ------------- ----------- ----------- -------------
Cash paid for interest................................. $ -- $ 26 $ 10 $ 110 $ 136
----- ------------- ----------- ----------- -------------
----- ------------- ----------- ----------- -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE COMPANY
ZapMe! Corporation (the "Company") was incorporated, under the name
Satellite Online Solutions Corporation, on June 25, 1997 in California for the
purpose of building a broadband interactive network that brings technology tools
and educational resources to schools at no cost. The Company changed its name to
ZapMe! Corporation in October 1998. The Company is planning to generate revenue
from corporate sponsorships on its network. The Company is in the development
stage, devoting its efforts to developing products and raising capital.
The Company has incurred operating losses since inception during the
development stage. Its activities to date have been financed primarily through
private placements of equity securities, including preferred stock issuances of
$10 million in March 1999 and $16 million in May 1999. The Company may seek to
raise additional capital through the issuance of debt or equity securities.
However, there can be no assurance that additional funding will be available to
the Company on acceptable terms, if at all.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make 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 those 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 demand deposits and money market
accounts held with two financial institutions with insignificant interest rate
risk and original maturities of three months or less from the date of purchase.
EQUIPMENT
Equipment is stated at cost and depreciated using the straight-line method
over estimated useful lives of three to seven years.
DEPENDENCE ON THIRD PARTIES
The Company has relationships with three parties, one which installs the
Company's software on the computers, one which installs the Company's lab in
each school site and one which serves as the
F-7
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
general contractor to oversee the installation process. In addition, the Company
relies on third parties to provide the majority of support necessary to maintain
the network and labs once installed and are also dependent on transmissions from
the satellite to customer sites. The inability of any of these parties to
fulfill their obligations with the Company could negatively impact the Company's
future results.
SOFTWARE DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards Board ("SFAS") No. 86, "Accounting
for the Costs of 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 research
and development expense in the accompanying statements of operations.
REVENUE RECOGNITION
The Company earns revenue from sponsorship agreements, which include content
and public service announcement sponsorships, banner advertising and full screen
interactive ads, upon delivery of messages over the Company's network. Provided
that collectibility is probable, revenue is recognized ratably over the time
periods that the advertisement is delivered or sponsorship is acknowledged
unless such sponsorship is based on delivery of a minimum number of impressions,
in which case revenue is recognized as the impressions are delivered.
Deferred revenue consists of prepaid sponsorship fees.
STOCK-BASED COMPENSATION
The Company accounts for employee stock options 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").
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.
F-8
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF 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". Basic
loss per share has been computed using net loss applicable to common
stockholders divided by the weighted-average number of common shares outstanding
during the period, less shares subject to repurchase, and excludes stock
options, warrants, and convertible securities. Such securities have also 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 using net loss as adjusted
for accrued redeemable convertible preferred stock dividends divided by the
weighted-average number of shares outstanding 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 conversion
assumes a one-for-one conversion of the preferred stock into common stock. Such
conversion is subject to adjustment based on the final pricing of the Company's
common stock in an initial public offering. The accretion of the redeemable
convertible preferred stock is excluded from the pro forma net loss per share
calculation as such accretion may also be adjusted based on the final pricing of
the Company's common stock in an initial public offering.
F-9
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The calculation of historical and pro forma basic and diluted net loss per
share is as follows (in thousands, expect per share amounts):
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 25, 1997
(INCEPTION) SIX MONTHS ENDED JUNE
THROUGH YEAR ENDED 30,
DECEMBER 31, DECEMBER 31, ------------------------
1997 1998 1998 1999
------------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Historical:
Net loss................................................. $ (581) $ (4,045) $ (1,063) $ (7,096)
Accretion and dividend on redeemable convertible
preferred stock........................................ -- (606) -- (936)
------------- ------------ ----------- -----------
Net loss applicable to common stockholders............... $ (581) $ (4,651) $ (1,063) $ (8,032)
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
Weighted average shares of common stock outstanding...... 11,183 12,739 11,859 14,311
Less: weighted average shares subject to repurchase...... -- 1,054 -- 794
------------- ------------ ----------- -----------
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share...... 11,183 11,685 11,859 13,517
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
Basic and diluted net loss per share..................... $ (0.05) $ (0.40) $ (0.09) $ (0.59)
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
Pro forma (Unaudited):
Net loss applicable to common stockholders (from
above)................................................. $ (4,651) $ (8,032)
Accretion on redeemable convertible preferred stock...... 531 780
------------ -----------
Pro forma net loss....................................... $ (4,120) $ (7,252)
------------ -----------
------------ -----------
Weighted average shares used in computing basic and
diluted net loss per share (from above)................ 11,685 13,517
Adjustment to reflect the effect of the assumed
conversion of preferred stock from the date of
issuance............................................... 4,308 11,945
------------ -----------
Weighted average shares used in computing pro forma basic
and diluted net loss per share......................... 15,993 25,462
------------ -----------
------------ -----------
Pro forma basic and diluted net loss per share........... $ (0.26) $ (0.28)
------------ -----------
------------ -----------
</TABLE>
If the Company had reported net income, the calculation of historical and
pro forma diluted earnings per share would have included approximately an
additional 86,000, 938,000, 979,000 and
F-10
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
1,258,000 common equivalent shares related to the outstanding stock options and
warrants not included above (determined using the treasury stock method at the
estimated fair value) for the period from June 25, 1997 (inception) through
December 31, 1997, the year ended December 31, 1998, and for the six months
ended June 30, 1998 and 1999, respectively.
EFFECT OF NEW ACCOUNTING STANDARDS
The FASB issued Statement No. 131 ("SFAS 131"), "Disclosure about Segments
of an Enterprise and Related Information," which 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. This statement is effective for financial
statements for periods beginning after December 15, 1997. The Company adopted
SFAS 131 in the year ended December 31, 1998, and operates in one business
segment which is building a broadband interactive network that brings technology
tools and educational resources to schools at no cost.
2. EQUIPMENT
Equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Computer and office equipment................................................ $ 43 $ 2,510
Furniture and fixtures....................................................... 10 176
--- ---------
53 2,686
Less accumulated depreciation and amortization............................... (10) (215)
--- ---------
$ 43 $ 2,471
--- ---------
--- ---------
</TABLE>
3. STOCKHOLDERS' EQUITY
PREFERRED STOCK
Preferred stock consists of the following by series:
<TABLE>
<CAPTION>
SHARES ISSUED AND OUTSTANDING
---------------------------------------
AUTHORIZED SHARES
-------------------------- DECEMBER 31,
DECEMBER 31, JUNE 30, ------------------------- JUNE 30,
SERIES 1998 1999 1997 1998 1999
- -------------------------------------------------- ------------ ------------ ----- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
A convertible..................................... 9,097,671 9,097,671 -- 9,097,671 9,097,671
B convertible..................................... 660,000 660,000 -- 160,000 160,000
C redeemable convertible.......................... 600,000 600,000 -- 600,000 600,000
D convertible..................................... 2,500,000 6,000,000 -- 300,000 5,894,110
------------ ------------ --- ------------ ------------
12,857,671 16,357,671 -- 10,157,671 15,751,781
------------ ------------ --- ------------ ------------
------------ ------------ --- ------------ ------------
</TABLE>
F-11
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
The holders of Series A, Series B and Series D convertible preferred stock
are entitled to dividends when and if they are declared by the Board of
Directors prior to and in preference to any dividend on common stock. No
dividend or distribution can be declared or paid on any shares of Series A, B or
D convertible preferred stock unless all accrued but unpaid dividends on the
Series C redeemable convertible preferred stock have been paid. The holders of
Series C redeemable convertible preferred stock are entitled to a mandatory
dividend payable quarterly at the rate of 10% per annum of the liquidation
preference. In the event the corporation does not pay a dividend in cash, the
preferred liquidation value of each such share is automatically increased by an
amount equal to the unpaid dividend amount. The holders of Series D convertible
preferred stock are entitled to a mandatory rate increase of 15% per annum of
the liquidation preference, compounded quarterly. In the event of an initial
public offering of the Company's common stock, the liquidation value per share
will be issued in shares of the Company's common stock at a conversion price of
$5.00 per share.
Each share of preferred stock is convertible, at the option of the holder,
into one share of the Company's common stock, subject to certain anti-dilution
provisions. Each share of preferred stock will be automatically converted into
common stock upon completion of an initial public offering of the Company's
common stock with proceeds to the Company of a minimum of $25,000,000 at a
minimum offering price of $8.00 per share of common stock. The holders of
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 Series C redeemable convertible preferred stock is redeemable in the
event that the Company has not consummated a public offering or merger event on
or before August 27, 2000. The redemption price per share will equal twice the
preferred liquidation amount for each such share, together with accrued but
unpaid dividends on such shares. The carrying value of Series C redeemable
convertible preferred stock is being accreted to its redemption value by charges
to accumulated deficit during the development stage. In the event of any
liquidation, dissolution, or winding up of the Company, the holders of the
Series A, Series B, Series C and Series D preferred stock have a liquidation
preference of $0.10, $2.50, $5.00 and $5.00 per share, respectively, over
holders of common stock plus any declared but unpaid dividends. If the assets
and funds of the Company are insufficient to pay the aforesaid potential
amounts, the holders of Series C redeemable convertible preferred stock have
preference to the holders of Series A, Series B and Series D convertible
preferred stock.
In the event of an initial public offering of the Company's common stock
with an offering price of less than $15.00 or $10.00 per share, as adjusted for
stock splits or reverse splits, each holder of Series C redeemable convertible
and Series D convertible preferred stock, respectively, will be immediately
issued or deemed to hold additional shares of Series C and Series D preferred
stock which is convertible into shares of common stock at the closing of a
public offering using a conversion price pursuant to a pre-determined formula
which will compensate the holders for the lower offering price.
F-12
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
BRIDGE FINANCINGS
Between August 1997 and June 1998, the Company issued notes payable with
aggregate principal totaling $900,000 and interest rates of 5.87% to 6.50% per
annum. The principal amount of these notes was converted into 9,097,671 shares
of Series A convertible preferred stock in August 1998.
In May 1998, the Company issued notes payable with aggregate principal
totaling $400,000 and an interest rate of 8.5% per annum together with warrants
to purchase 500,000 shares of Series B convertible preferred stock. The
principal amount of these notes was converted into 160,000 shares of Series B
convertible preferred stock in August 1998.
In February 1999, the Company issued a $200,000 note payable with an
interest rate of 10% per annum. The principal amount was converted into 40,000
shares of Series D preferred stock in April 1999.
STOCK PLANS
The Company has two stock plans which provide for the granting of stock
options or shares of common stock to employees, directors and consultants. Stock
options are exercisable immediately upon issuance (subject to vesting
requirements) and generally have a term of 10 years. The Company typically
reserves the right of first refusal to purchase all shares held by the
participant upon termination of employment. Unvested options are canceled upon
termination of employment. Fully vested shares may be repurchased by the Company
at the higher of the original purchase price or the fair market value of the
shares as determined by the Board of Directors. The vesting schedule is
determined by the Board of Directors at the time of issuance. Stock options
generally vest over a period of between three and four years. The repurchase
right for vested shares expires upon the completion of an initial public
offering of the Company's common stock. The Company has reserved 4,400,000
shares of common stock for issuance under the plans. In January 1999, the
Company reserved an additional 1,000,000 shares of common stock for issuance
under the Plan.
F-13
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
A summary of activity under the Company's stock option plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Options granted................................................. 1,120,000 $ 0.02
--------- -----
Outstanding at December 31, 1997.................................. 1,120,000 0.02
Options granted................................................. 1,720,230 0.84
Options exercised............................................... (1,000,000) 0.02
Options canceled................................................ (91,000) 0.59
--------- -----
Outstanding at December 31, 1998.................................. 1,749,230 0.80
Options granted (unaudited)..................................... 1,192,946 2.94
Options exercised (unaudited)................................... (150,650) 0.12
Options canceled (unaudited).................................... (278,669) 0.55
--------- -----
Outstanding at June 30, 1999 (unaudited).......................... 2,512,857 $ 1.87
--------- -----
--------- -----
Vested and exercisable at December 31, 1998....................... 152,742 $ 0.42
--------- -----
--------- -----
Vested and exercisable at June 30, 1999 (unaudited)............... 167,773 $ 2.34
--------- -----
--------- -----
Outstanding shares of common stock that may be repurchased at
December 31, 1998............................................... 977,684
---------
---------
Outstanding shares of common stock that may be repurchased at June
30, 1999 (unaudited)............................................ 624,215
---------
---------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS VESTED AND
OPTIONS OUTSTANDING EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING EXERCISE
NUMBER PRICE CONTRACTUAL LIFE NUMBER PRICE
EXERCISE PRICES OF SHARES PER SHARE (YEARS) OF SHARES PER SHARE
- ------------------ --------- ------------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$0.02 - $0.275.... 699,730 $ 0.16 9.23 118,742 $ 0.11
$1.00 - $1.10..... 628,500 $ 1.05 9.74 -- --
$1.50............. 421,000 $ 1.50 9.95 34,000 $ 1.50
--------- -----------
1,749,230 152,742
--------- -----------
--------- -----------
</TABLE>
F-14
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
During the year ended December 31, 1998, the Company also granted 1,350,000
shares of common stock to an officer of the Company (Note 6) under the 1998
Stock Plan at a price below the deemed fair market value at the date of grant.
As a result, the Company recorded deferred compensation of $172,000 during the
year ended December 31, 1998 representing the difference between the price paid
per share and the deemed fair value of the Company's common stock. These amounts
are being amortized by charges to operations over the vesting period of the
stock resulting in amortization of approximately $40,000 for the year ended
December 31, 1998 and $47,000 for the six months ended June 30, 1999.
The Company recorded deferred stock compensation of approximately $381,000
during the year ended December 31, 1998 and $846,000 during the six months ended
June 30, 1999 representing the difference between the exercise price and the
deemed fair value of the Company's common stock on the grant date for 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 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
approximately $39,000 for the year ended December 31, 1998 and approximately
$221,000 for the six months ended June 30, 1999.
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 a Black-Scholes option valuation model with the following
weighted average assumptions: a risk-free interest rate of 5.5% for the period
from June 25, 1997 (inception) through December 31, 1997 and the year ended
December 31, 1998, no dividend yield or volatility factors of the expected
market price of the Company's common stock, and a weight-average expected life
of the option of three and one-half 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 those plans
calculated using the minimum value
F-15
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
method of SFAS 123, the Company's net loss (in thousands) and pro forma basic
and diluted net loss per share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 25, 1997
(INCEPTION)
THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------- ------------
<S> <C> <C>
Net loss--pro forma.............................................. $ (584) $ (4,060)
------ ------------
------ ------------
Net loss per share--pro forma.................................... $ (0.05) $ (0.35)
------ ------------
------ ------------
</TABLE>
The weighted-average fair value of options granted for the period from
inception to December 31, 1997 and during the year ended December 31, 1998 was
$0.01 and $0.16, respectively.
The effect on pro forma net loss is not necessarily indicative of the effect
on pro forma net loss in 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 reserved shares of capital stock for
future issuance as follows:
<TABLE>
<CAPTION>
PREFERRED
COMMON STOCK STOCK
-------------- --------------
<S> <C> <C>
Convertible preferred stock, including effect of preferred
stock warrants............................................. 10,663,171 10,157,671
Warrants to purchase stock................................... -- 505,500
Stock options outstanding.................................... 1,749,230 --
Stock options and shares available for grant................. 300,770 --
-------------- --------------
12,713,171 10,663,171
-------------- --------------
-------------- --------------
</TABLE>
WARRANTS
The Company had the following warrants outstanding at December 31, 1998 to
purchase shares of stock:
<TABLE>
<CAPTION>
PREFERRED EXERCISE PRICE
NUMBER OF SHARES STOCK PER SHARE EXPIRATION OF WARRANTS
- ----------------- ---------- --------------- -------------------------------------------------------------------
<C> <C> <C> <S>
250,000 Series B $ 3.00 May 2003
250,000 Series B 3.50 May 2003
5,500 Series D 5.00 Earlier of November 2005 or close of an initial public offering
-------
505,500
-------
-------
</TABLE>
F-16
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAXES
Significant components of the Company's deferred tax assets are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
--------- ---------
<S> <C> <C>
Net operating loss carryforwards........................................... $ 138 $ 1,633
Accrued compensation....................................................... 82 101
Other...................................................................... -- 118
--------- ---------
Total deferred tax assets.................................................. 220 1,852
Valuation allowance........................................................ (220) (1,852)
--------- ---------
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 approximately $220,000 and $1,632,000 in the years ended
December 31, 1997 and 1998, respectively.
At December 31, 1997 and 1998, the Company had net operating loss
carryforwards for federal income tax purposes of approximately $344,000 and
$4,082,000, respectively, which expire in tax years 2012 through 2018.
Utilization of the net operating losses may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986. The annual limitation may result in the expiration of net
operating losses before utilization.
5. COMMITMENTS AND CONTINGENCIES
The Company leases its office facility and certain office equipment under
non-cancelable lease agreements, which require the Company to pay a portion of
operating costs, including property taxes, insurance, and normal maintenance.
Rent expense amounted to approximately $41,000 and $206,000 for the period from
June 25, 1997 (inception) through December 31, 1997 and the year ended December
31, 1998, respectively.
Capital lease obligations represent the present value of future rental
payments under capital lease agreements for equipment. The original cost of the
equipment under capital leases is $390,000 at December 31, 1998 (none in 1997) .
The related amortization is included with depreciation expense.
F-17
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum payments under capital and operating leases are as follows
(in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31: LEASES LEASES
- ------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1999................................................................... $ 142 $ 244
2000................................................................... 149 244
2001................................................................... 146 240
2002................................................................... 1 156
----- -----
Total minimum lease payments............................................. 438 $ 884
-----
-----
Less amount representing interest........................................ (51)
-----
Present value of minimum lease payments.................................. 387
Less current portion of capital lease obligations........................ (118)
-----
$ 269
-----
-----
</TABLE>
As of June 30, 1999, the Company has obtained credit lines from a number of
lease finance companies for the purpose of acquiring computer and network
equipment in schools. In aggregate, the Company has entered into lease finance
agreements which allow for borrowings of up to approximately $20,145,000, bear
per annum interest rates from 10.5% to 18%, and have terms ranging from 24 to 36
months. In addition, the Company has issued a letter of credit to two companies
as security against the leases. As of June 30, 1999, the Company has drawn down
approximately $6,768,000 from these credit lines. One of the Company's loan
agreements prohibits the payment of dividends.
The Company is a party to an arbitration and related counterclaim with a
former officer of the Company relating to this officer's employment with the
Company. Management believes the Company is adequately covered by insurance, or
that the ultimate liability, if any, would not have a materially adverse effect
on the Company's results of operations or financial position. However, depending
on the amount and timing, an unfavorable resolution of these matters could
materially affect the Company's future results of operations or cash flows in a
particular period.
6. NOTES RECEIVABLE FROM STOCKHOLDER
During the year ended December 31, 1998, the Company loaned an officer
$125,000 in exchange for a promissory note. The unsecured note bears interest at
5.35% per annum, with interest and principal due December 31, 1999.
7. RELATED PARTY TRANSACTIONS
An officer of the Company owns other businesses which engage in financing
transactions with the Company. Amounts paid to these related entities were
approximately $12,000 and $163,000 for the period from June 25, 1997 (inception)
through December 31, 1997 and during the year ended December 31, 1998,
respectively.
F-18
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
Between June and October 1997, the Company issued promissory notes to an
officer of the Company aggregating approximately $156,000, which bore interest
at 12.0% per annum and was repaid, along with accrued interest, in September
1998.
In March 1999, the Company entered into an agreement with a stockholder in
which the Company has granted the stockholder an exclusive right to deliver
certain products and services on the Company's systems in schools. The Company
will earn fees based upon the achievement of certain milestones. The initial
term of the agreement will expire on December 31, 2003 with a five year renewal
option subject to the Company earning certain minimum fees from the agreement.
As consideration for the agreement, the Company issued the stockholder a warrant
to purchase 150,000 shares of the Company's common stock at $5.00 per share. The
warrant is exercisable in whole if the stockholder achieves certain milestones
by December 31, 2003. The Company will recognize a charge to operations based on
the value of the warrant at the time the milestones are achieved.
The Company purchases certain data communications equipment from one of its
stockholders. Through June 30, 1999, the Company has paid approximately $1.8
million to the stockholder for equipment, consulting services, and software
license fees.
8. SUBSEQUENT EVENTS
PROPOSED PUBLIC OFFERING OF COMMON STOCK
In August 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, all of the outstanding preferred stock
will automatically convert into 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 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 200,000,000 and an increase in the number of authorized
shares of preferred stock to 23,357,671 shares, subject to stockholder approval.
Effective immediately prior to the closing 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.
OPTION PLAN
In August 1999, the Company's Board of Directors approved, subject to
stockholder approval, the amended and restated 1998 Stock Plan. The plan allows
for the addition of 1,500,000 shares of common stock to be offered under the
plan as well as an annual increase commencing January 1, 2000 equal to the
lowest of 2,000,000, 5% of the outstanding shares of the Company's common stock
on the first day of the fiscal year, or such other amount as determined by the
Board of Directors.
F-19
<PAGE>
ZAPME! CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SUBSEQUENT EVENTS (CONTINUED)
1999 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors in August 1999 to be effective upon the completion of the Company's
initial public offering of its common stock, subject to stockholders' approval.
The Company has reserved a total of 500,000 shares of common stock for issuance
under this plan. Eligible employees may purchase common stock at 15% 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 at the date of purchase. In
addition, the plan provides for automatic annual increases in the number of
shares available for issuance on the first day of each fiscal year equal to the
lowest of 1,000,000, 2% of the outstanding shares of the Company's common stock
on the first day of the fiscal year, or such other amount as determined by the
Board of Directors.
SERIES E PREFERRED STOCK
In August 1999, the Board of Directors authorized 2,030,000 shares of Series
E preferred stock. The holders of Series E preferred stock are entitled to
dividends when and if they are declared by the Board of Directors prior to and
in preference to any dividend or common stock. In the event of any liquidation,
dissolution, or winding up of the Company, the holders of the Series E preferred
stock have a liquidation preference of $5.00 over holders of common stock plus
any declared but unpaid dividends. The holders of Series E preferred stock are
entitled to a mandatory rate increase of 7.5% per annum of the liquidation
preference, compounded quarterly. In the event of an initial public offering of
the Company's common stock, the liquidation value per share will be issued in
shares of common stock at a conversion price of $5.00. In August 1999, the
Company issued 2,030,000 shares of Series E preferred stock, with gross proceeds
to the Company of approximately $10,150,000.
WARRANTS
The Company has agreed to issue warrants to a number of lease financing
companies. As of June 30, 1999, the Company is obligated to issue warrants for
100,000 shares of Series D convertible preferred stock and 140,000 shares of
common stock. The value of the warrants, if any, will be determined by
management at the issuance date.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH AND INCLUDING , 1999, (THE 25(TH) DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[ ] SHARES
[LOGO]
COMMON STOCK
--------------
P R O S P E C T U S
--------------
MERRILL LYNCH & CO.
DEUTSCHE BANC ALEX. BROWN
THOMAS WEISEL PARTNERS LLC
WIT CAPITAL CORPORATION
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, commissions and certain accountable expenses, payable by
the Registrant in connection with the sale of Common Stock being registered. All
amounts are estimates except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market Initial Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee............................................... $ 27,800
NASD Filing Fee.................................................... 10,500
Nasdaq National Market Initial Listing Fee......................... 1,000
Printing Fees and Expenses.........................................
Legal Fees and Expenses............................................
Accounting Fees and Expenses.......................................
Blue Sky Fees and Expenses.........................................
Transfer Agent and Registrar Fees..................................
Miscellaneous......................................................
---------
Total............................................................ $
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our bylaws provide that we will indemnify our directors and executive
officers and may indemnify our other officers, employees and other agents to the
fullest extent permitted by the General Corporations Law of the State of
Delaware, as amended. We are also empowered under our bylaws to enter into
indemnification agreements with our directors and officers and to purchase
insurance on behalf of any person whom we are required or permitted to
indemnify. We have entered into indemnification agreements with each of our
directors and executive officers and intend to obtain a policy of directors' and
officers' liability insurance that insures such persons against the cost of
defense, settlement or payment of a judgment under certain circumstances.
We have entered into agreements with our directors and executive officers
regarding indemnification. Under these agreements we are required to indemnify
them against expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred (including expenses of a derivative action) in
connection with an actual, or a threatened, proceeding if any of them may be
made a party because he or she is or was one of our directors or officers. We
are obligated to pay these amounts only if the officer or director acted in good
faith and in a manner that he or she reasonably believed to be in (or not
opposed to) our best interests. With respect to any criminal proceeding, we are
obligated to pay these amounts only if the officer or director had no reasonable
cause to believe his or her conduct was unlawful. The indemnification agreements
also set forth procedures that will apply in the event of a claim for
indemnification thereunder.
In addition, our amended and restated certificate of incorporation filed in
connection with this offering provides that the liability of our directors for
monetary damages shall be eliminated to the fullest extent permissible under the
General Corporation Law of the State of Delaware, as amended. This provision in
our amended and restated certificate of incorporation does not eliminate a
director's duty of care, and, in appropriate circumstances, equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available. Each director will continue to be subject to liability for breach of
the director's duty of loyalty to us, for acts or omissions not in good faith or
involving intentional misconduct or knowing violations of law, for acts or
omissions that the director believes to be contrary to our best interests or our
stockholders, for any transaction from which the
II-1
<PAGE>
director derived an improper personal benefit, for improper transactions between
the director and us and for improper distributions to stockholders and loans to
directors and officers. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have 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.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought, nor are we aware of any
pending or threatened litigation that may result in claims for indemnification
by any director or officer.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since June 1997 (inception), we issued and sold the following unregistered
securities:
1. On June 25, 1997 we issued and sold an aggregate of 5,000,000
shares of common stock to Lance Mortensen for an aggregate purchase
price of $50,000. On September 3, 1998, we issued an aggregate of
929,365 shares of common stock to two additional persons in lieu of
wages owed. On June 1, 1998 these shares were split two-for-one
pursuant to a stock dividend.
2. On August 1, 1997, October 17, 1997, December 22, 1997, January 22,
1998, March 23, 1998 and June 9, 1998, we issued convertible
promissory notes for an aggregate amount of $900,000. On August 5,
1998, the principal of the notes and the interest which had accrued
converted into 9,097,671 shares of our Series A preferred stock.
3. On May 7, 1998 we issued a warrant to Wharton Capital Partners,
Ltd. to purchase up to 500,000 shares of our Series B preferred
stock, 250,000 of which at an exercise price of $3.00 per share and
250,000 of which at an exercise price of $3.50 per share.
4. On August 5, 1998, we issued and sold 160,000 shares of our Series
B preferred stock for an aggregate purchase price of $400,000.
5. On August 27, 1998, we issued and sold 600,000 shares of our Series
C preferred stock for an aggregate purchase price of $3,000,000.
6. On December 3, 1998, February 1, 1999, March 31, 1999 and May 28,
1999, we issued and sold an aggregate of 5,894,110 shares of our
Series D preferred stock for an aggregate purchase price of
$29,470,550.
7. On November 30, 1998 and March 9, 1999, in connection with the
execution of an equipment financing agreement, we issued warrants
to FirstCorp to purchase up to an aggregate of 5,890 shares of
Series D preferred stock at an exercise price of $5.00 per share.
8. On March 9, 1999, we issued a warrant to Sylvan Learning Systems,
Inc., a corporate partner, to purchase up to 150,000 shares of
common stock at an exercise price of $5.00 per share.
9. On August 4, 1999, we issued and sold an aggregate of 2,030,000
shares of our Series E preferred stock for an aggregate purchase
price of $10,150,000.
10. From October 15, 1997 to June 30, 1999 we granted options and
rights under our 1997 Stock Option Plan and 1998 Stock Plan to
purchase an aggregate of 5,383,176 shares of
II-2
<PAGE>
our common stock at exercise prices ranging from $0.015 to $4.00 to
employees, directors and consultants.
11. From August 6, 1998 through June 30, 1999 an aggregate of 2,500,650
shares of common stock were issued pursuant to option and right
exercises at exercise prices ranging from $0.015 to $0.25 to
employees, directors and consultants.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to information
about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER
--------
<C> <S>
1.1(*) Form of Underwriting Agreement.
2.1(*) Agreement and Plan of Merger dated , 1999 of ZapMe! Delaware Corporation, a Delaware corporation, and
ZapMe! Corporation, a California corporation.
3.1 Amended and Restated Articles of Incorporation effective prior to reincorporation of the Company in Delaware.
3.2(*) Bylaws effective prior to reincorporation of the Company in Delaware.
3.3(*) Form of Amended and Restated Certificate of Incorporation to be filed and become effective prior to
effectiveness of this Registration Statement.
3.4(*) Form of Bylaws to become effective prior to effectiveness of this Registration Statement.
3.5(*) Form of Second Amended and Restated Certificate of Incorporation to be filed and become effective upon the
closing of this offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate of Registrant.
5.1(*) Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, with respect to the securities being
issued.
10.1 Fourth Amended and Restated Investors' Rights Agreement.
10.2 ZapMe! Corporation f.k.a. Satellite Online Solutions Corporation, 1997 Employee Stock Option Plan and form of
Agreement.
10.3 ZapMe! Corporation 1998 Stock Plan, as amended and restated August 2, 1999, and forms of Agreement.
10.4 ZapMe! Corporation 1999 Employee Stock Purchase Plan and form of Agreement.
10.5 Common Stock Purchase Agreement dated September 1, 1997 by and between the Company and John Evleth.
10.6 Common Stock Purchase Agreement dated September 1, 1997 by and between the Company and Darryl Deaton.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER
--------
<C> <S>
10.7 Employment Agreement dated June 1, 1997 by and between the Company and Darryl N. Deaton.
10.8 Employment Offer Letter dated March 24, 1999 between the Company and Robert J. Rudy.
10.9 Employment Offer Letter dated April 7, 1999 between the Company and Donald D. Kingsborough.
10.10 Settlement Agreement and Mutual Release dated January 29, 1999 between the Company and Joshua K. Marks.
10.11 Warrant Agreement between the Company and FirstCorp, dated as of November 30, 1998.
10.12 Warrant Agreement between the Company and Sylvan Learning Systems dated as of March 3, 1999.
10.13 Warrant Agreement between the Company and FirstCorp, dated as of February 23, 1999.
10.14 Warrant Agreement between the Company and Barry R. Minsky, dated as of May 7, 1998.
10.15 Office Lease between the Company and Alexander Properties Company, dated August 6, 1997, and Addendums dated
August 7, 1998, September 15, 1998, October 14, 1998, October 22, 1998 and April 16, 1999.
10.16 Form of School Subscription Agreement.
10.17 Form of Indemnification Agreement entered into between the Registrant and its directors and officers.
+10.18 Letter Services Agreement between the Company and Spacenet, Inc., dated February 10, 1999, Service Agreement
dated June 11, 1999 and Amendment No. 1 to Services Agreement dated July 19, 1999.
+10.19 Products and Services Agreement between the Company and Sylvan Learning Systems, Inc., dated March 3, 1999.
+10.20 Letter of Understanding between the Company and Microsoft Corporation, dated November 13, 1998.
+10.21 Marketing Agreement between the Company and New Sub Services, dated August 3, 1999.
+10.22 Memorandum of Understanding between the Company and School Specialty, Inc.
10.23 Advertising Pilot Agreement between the Company and Xerox Channels Group, dated June 30, 1999.
10.24(*) Voting Agreement among the Company, Lance Mortensen and QuestMark Partners, L.P., dated May 28, 1999.
21.1(*) Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (see Page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
II-4
<PAGE>
(*) To be filed by amendment.
(b) Financial Statement Schedules
Schedules have been omitted because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
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 referenced in Item 14 of this Registration
Statement 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 hereunder,
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:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereto which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of San
Ramon, State of California, on the 4th day of August, 1999.
<TABLE>
<S> <C> <C>
ZAPME! CORPORATION
By /s/ LANCE MORTENSEN
-----------------------------------------
Name: Lance Mortensen
Title: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Lance Mortensen and Robert Stoffregen and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and re-substitution, for him in his name, place and stead,
in any and all capacity, in connection with this Registration Statement,
including to sign and file in the name and on behalf of the undersigned as
director or officer of the Registrant (i) any and all amendments or supplements
(including any and all stickers and post-effective amendments) to this
Registration Statement, with all exhibits thereto, and other documents in
connection therewith, and (ii) any and all additional registration statements,
and any and all amendments thereto, relating to the same offering of securities
as those that are covered by this Registration Statement that are filed pursuant
to Rule 462(b) promulgated under the Securities Act of 1933, with the Securities
and Exchange Commission and any applicable securities exchange or securities
self-regulatory body, granting unto said attorney-in-fact and agents, and each
of them full power and authority to do and perform each and every act and things
requisite or 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 any
of them, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON AUGUST 4,
1999 IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ LANCE MORTENSEN Chairman and Chief
- ------------------------------ Executive Officer,
Lance Mortensen Director
/s/ ROBERT STOFFREGEN
- ------------------------------ Chief Financial Officer
Robert Stoffregen and Assistant Secretary
/s/ DARRYL DEATON
- ------------------------------ Vice President and
Darryl Deaton Director
/s/ MICHAEL ARNOUSE
- ------------------------------ Director
Michael Arnouse
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ DOUGLAS BECKER
- ------------------------------ Director
Douglas Becker
/s/ YOEL GAT
- ------------------------------ Director
Yoel Gat
/s/ THOMAS HITCHNER
- ------------------------------ Director
Thomas Hitchner
/s/ JACK KEMP
- ------------------------------ Director
Jack Kemp
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER
--------
<C> <S>
1.1(*) Form of Underwriting Agreement.
2.1(*) Agreement and Plan of Merger dated , 1999 of ZapMe! Delaware Corporation, a Delaware corporation, and
ZapMe! Corporation, a California corporation.
3.1 Amended and Restated Articles of Incorporation effective prior to reincorporation of the Company in Delaware.
3.2(*) Bylaws effective prior to reincorporation of the Company in Delaware.
3.3(*) Form of Amended and Restated Certificate of Incorporation to be filed and become effective prior to
effectiveness of this Registration Statement.
3.4(*) Form of Bylaws to become effective prior to effectiveness of this Registration Statement.
3.5(*) Form of Second Amended and Restated Certificate of Incorporation to be filed and become effective upon the
closing of this offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate of Registrant.
5.1(*) Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, with respect to the securities being
issued.
10.1 Fourth Amended and Restated Investors' Rights Agreement.
10.2 ZapMe! Corporation f.k.a. Satellite Online Solutions Corporation, 1997 Employee Stock Option Plan and form of
Agreement.
10.3 ZapMe! Corporation 1998 Stock Plan, as amended and restated August 2, 1999, and forms of Agreement.
10.4 ZapMe! Corporation 1999 Employee Stock Purchase Plan and form of Agreement.
10.5 Common Stock Purchase Agreement dated September 1, 1997 by and between the Company and John Evleth.
10.6 Common Stock Purchase Agreement dated September 1, 1997 by and between the Company and Darryl Deaton.
10.7 Employment Agreement dated June 1, 1997 by and between the Company and Darryl N. Deaton.
10.8 Employment Offer Letter dated March 24, 1999 between the Company and Robert J. Rudy.
10.9 Employment Offer Letter dated April 7, 1999 between the Company and Donald D. Kingsborough.
10.10 Settlement Agreement and Mutual Release dated January 29, 1999 between the Company and Joshua K. Marks.
10.11 Warrant Agreement between the Company and FirstCorp, dated as of November 30, 1998.
10.12 Warrant Agreement between the Company and Sylvan Learning Systems dated as of March 3, 1999.
10.13 Warrant Agreement between the Company and FirstCorp, dated as of February 23, 1999.
10.14 Warrant Agreement between the Company and Barry R. Minsky, dated as of May 7, 1998.
10.15 Office Lease between the Company and Alexander Properties Company, dated August 6, 1997, and Addendums dated
August 7, 1998, September 15, 1998, October 14, 1998, October 22, 1998 and April 16, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER
--------
<C> <S>
10.16 Form of School Subscription Agreement.
10.17 Form of Indemnification Agreement entered into between the Registrant and its directors and officers.
+10.18 Letter Services Agreement between the Company and Spacenet, Inc., dated February 10, 1999, Service Agreement
dated June 11, 1999 and Amendment No. 1 to Services Agreement dated July 19, 1999.
+10.19 Products and Services Agreement between the Company and Sylvan Learning Systems, Inc., dated March 3, 1999.
+10.20 Letter of Understanding between the Company and Microsoft Corporation, dated November 13, 1998.
+10.21 Marketing Agreement between the Company and New Sub Services, dated August 3, 1999.
+10.22 Memorandum of Understanding between the Company and School Specialty, Inc.
10.23 Advertising Pilot Agreement between the Company and Xerox Channels Group, dated June 30, 1999.
10.24(*) Voting Agreement among the Company, Lance Mortensen and QuestMark Partners, L.P., dated May 28, 1999.
21.1(*) Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1).
24.1 Power of Attorney (see Page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(*) To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
ZAPME! CORPORATION
Lance Mortensen and Bruce D. Bower hereby certify that:
1. They are the Chief Executive Officer and Secretary, respectively, of
ZapMe! Corporation, a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
ARTICLE I
The name of this corporation is ZapMe! Corporation.
ARTICLE 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 trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
ARTICLE IV
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the Corporations Code) through bylaws provisions,
agreements with agents, vote of shareholders or disinterested directors or
otherwise, in excess of the indemnification otherwise permitted by Section 317
of the Corporations Code, subject only to the limits on such excess
indemnification set forth in Section 204 of the Corporations Code.
<PAGE>
ARTICLE V
A. The corporation is authorized to issue two classes of shares, to
be designated respectively Common Stock ("Common") and Preferred Stock
("Preferred"). The total number of shares of Common the corporation shall
have authority to issue is 50,000,000 and the total number of shares of
Preferred the corporation shall have authority to issue is 20,417,671. The
par value of the Common shall be $0.01 per share, and the par value of the
Preferred shall be $0.01 per share.
The corporation from time to time in accordance with the laws of the
State of California shall increase the authorized amount of its Common if at
any time the number of shares of Common remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred.
The Preferred may be issued from time to time in one or more series.
The Board of Directors is hereby authorized to fix or alter the dividend
rights, dividend rate, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption price or prices,
and the liquidation preferences of any wholly unissued series of Preferred,
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 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 so decreased, 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.
B. The Preferred authorized by these Articles of Incorporation shall
be issued in series as set forth herein. The first series of Preferred shall
be designated Series A Preferred Stock ("Series A Preferred") and shall
consist of 9,097,671 authorized shares. The second series of Preferred shall
be designated Series B Preferred Stock ("Series B Preferred") and shall
consist of 660,000 authorized shares. The third series of Preferred shall be
designated Series C Preferred Stock ("Series C Preferred") and shall consist
of 600,000 authorized shares. The fourth series of Preferred Stock shall be
designated Series D Preferred Stock ("Series D Preferred") and shall consist
of 8,030,000 authorized shares. The fifth series shall be designated Series E
Preferred Stock ("Series E Preferred") and shall consist of 2,030,000
authorized shares. The shares of each series of Preferred have the rights,
preferences, privileges and restrictions set forth below.
SECTION 1. GENERAL DEFINITIONS. For purposes of this Article the
following definitions shall apply:
(a) "IPO" shall mean the first closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933,
-2-
<PAGE>
as amended, covering the offer and sale of Common for the account of the
corporation to the public.
(b) "JUNIOR PREFERRED" shall mean the Series A Preferred and
the Series B Preferred.
(c) "LIQUIDATION EVENT" shall be deemed to be occasioned by
and to include a liquidation, dissolution or winding up of the corporation,
whether voluntary or involuntary, other than a liquidation, dissolution or
winding up effected in connection with a Merger Event.
(d) "MERGER EVENT" shall mean the occurrence of any
transaction to which the corporation is a party pursuant to which all Common is
converted into the right to receive other securities, cash or other property
(including, without limitation, any recapitalization or reclassification of the
Common (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination
of the Common), any consolidation of the corporation with, or merger of the
corporation into, any other Person, any merger of another Person into the
corporation (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common) or any
sale or transfer of all or substantially all of the assets of the corporation to
any other Person or any compulsory share exchange).
(e) "PERSON" shall mean any individual, corporation, limited
liability company, partnership, joint venture, association, business trust,
joint stock company, trust, unincorporated organization or government or agency
or political subdivision thereof.
(f) "PREFERRED LIQUIDATION AMOUNT" shall mean at any date: (i)
$0.10016827 per share of Series A Preferred, (ii) $2.50 per share of Series B
Preferred, (iii) $5.00 per share of Series C Preferred, (iv) $5.00 per share of
Series D Preferred, and (v) $5.00 per share of Series E Preferred; plus, (w) in
the case of the Series D Preferred, at any date of determination, an amount
equal to 15% per annum of the Preferred Liquidation Amount (as in effect from
time to time) accruing on a daily basis, but calculated with the effect of
compounding on a quarterly basis as of each Quarterly Payment Date, for the
period from March 10, 1999 through and including the date of determination, (x)
in the case of the Series E Preferred, at any date of determination, an amount
equal to 7.5% per annum of the Preferred Liquidation Amount (as in effect from
time to time) accruing on a daily basis, but calculated with the effect of
compounding on a quarterly basis as of each Quarterly Payment Date, for the
period from August 4, 1999 through and including the date of determination, (y)
in the case of all shares of Preferred (including the Series D Preferred), an
amount equal to all declared and unpaid dividends on such share and (z) in the
case of the Series C Preferred, at any date of determination, an amount equal to
all PIK Dividends pursuant to and in accordance with Section 2(b) or any
prorated PIK Dividend to the extent such determination date is on a date other
than a Quarterly Payment Date. The Preferred Liquidation Amount of each series
of Preferred shall be appropriately adjusted in each case for stock splits,
reverse stock splits, stock dividends, stock combinations, and other events with
-3-
<PAGE>
similar effect (any such event, a "Recapitalization") that are declared or
effected with respect to such shares from March 10, 1999 through and including
the date of determination.
(g) "QUARTERLY PAYMENT DATE(S)" shall mean April 1, July
1, October 1 and January 1 of each year.
(h) "SENIOR PREFERRED" shall mean the Series C Preferred, the
Series D Preferred and Series E Preferred.
(i) "SUBSIDIARY" shall mean any Person at least 50% of whose
outstanding voting equity interests shall at the time be owned by such Person or
by one or more of such Subsidiaries.
SECTION 2. DIVIDEND RIGHTS.
(a) PREFERENCE ON DIVIDENDS. The holders of Preferred shall be
entitled to receive, when, as and if declared by the Board of Directors of the
corporation, dividends prior and in preference to payment of any dividend with
respect to the Common (other than dividends payable solely in Common and, with
respect to the Senior Preferred, prior and in preference to payment of any
dividend with respect to the Junior Preferred); PROVIDED that the Cash Dividends
or PIK Dividends paid to the holders of Series C Preferred pursuant to paragraph
(b) below shall be mandatory and senior to all other dividend rights of any
other holder of shares of Common or Preferred. Without limitation of the
preceding sentence, no dividend or distribution shall be declared or paid on any
shares of Common (other than dividends payable solely in Common) unless at the
same time an equivalent dividend or distribution is paid or declared and set
aside for payment on the Preferred (on an as converted to Common basis) and all
accrued but unpaid dividends on the Preferred have been paid.
(b) MANDATORY DIVIDENDS FOR SERIES C PREFERRED. On each
Quarterly Payment Date, the corporation shall pay, and the holders of shares of
Series C Preferred shall be entitled to receive, out of the assets of the
corporation legally available therefor, a dividend on each share of Series C
Preferred at a rate per annum equal to ten percent (10%) of the Preferred
Liquidation Amount (in effect immediately prior to such dividend) of such share
(as may be increased from time to time pursuant to this paragraph (b)), which
amount (the "Dividend Amount") may be paid to the holder of such share in cash
(a "Cash Dividend"). In the event the corporation does not pay a Cash Dividend
on a Quarterly Payment Date with respect to any shares of Series C Preferred,
the Preferred Liquidation Amount of each such share (in effect immediately prior
to such dividend) automatically shall be increased in an amount equal to the
Dividend Amount (such increase is referred to in this Article V(B) as a "PIK
Dividend"), which increase shall be in lieu of the payment of a Cash Dividend
and shall be deemed to be a dividend that has been paid. The Board of Directors
shall declare such dividends on each Quarterly Payment Date.
SECTION 3. LIQUIDATION PREFERENCE.
-4-
<PAGE>
(a) SENIOR PREFERRED. Upon the occurrence of a Liquidation
Event, each holder of Senior Preferred shall be entitled to receive, prior and
in preference to any distribution or payment of any of the assets or surplus
funds of the corporation to the holders of the Junior Preferred or the Common by
reason of their ownership of such stock, an amount in cash equal to the greater
of: (i) the aggregate Preferred Liquidation Amount of all shares of Senior
Preferred held by such holder, and (ii) the amount receivable upon such
Liquidation Event by a holder of the number of shares of Common into which such
shares of Senior Preferred would have been converted if all shares of Preferred
were converted into Common pursuant to Section 4(a) hereof immediately prior to
the Liquidation Event. The holders of Senior Preferred shall not thereafter be
entitled to any further payment. If, upon any such Liquidation Event, the
corporation's assets to be distributed among the holders of the Senior Preferred
are insufficient to permit payment to such holders of the aggregate amounts to
which they are entitled to receive under this paragraph (a), then the entire
assets available to be distributed to the corporation's shareholders shall be
distributed pro rata among the holders of Senior Preferred in proportion to the
full aforesaid preferential amounts to which each such holder is entitled. The
corporation shall provide each holder of Senior Preferred with a calculation of
the Preferred Liquidation Amount for each series of Senior Preferred prior to
any distributions arising from the applicable Liquidation Event.
(b) JUNIOR PREFERRED. Upon the occurrence of a Liquidation
Event, and after payment of the full preferential amounts payable to the holders
of the Senior Preferred under paragraph (a), each holder of Junior Preferred
shall be entitled to receive, prior and in preference to any distribution or
payment of any of the assets or surplus funds of the corporation to the holders
of the Common by reason of their ownership of such stock, an amount in cash
equal to the aggregate applicable Preferred Liquidation Amount for all shares of
Junior Preferred held by them, and the holders of Junior Preferred shall not be
entitled to any further payment. If, upon any such Liquidation Event and after
payment of the full preferential amounts payable to the holders of the Senior
Preferred under paragraph (a), the corporation's remaining assets to be
distributed among the holders of the Junior Preferred are insufficient to permit
payment to such holders of the full aggregate amounts to which they are entitled
to receive under this paragraph (b), then the entire remaining assets available
for distribution shall be distributed ratably among the holders of the Junior
Preferred in proportion to the full aforesaid preferential amounts to which each
such holder is entitled.
(c) PAYMENT TO COMMON. Upon the occurrence of a Liquidation
Event, and after payment has been made to the holders of the Preferred of the
full aggregate amounts to which they shall be entitled as set forth above, then
the entire remaining assets of the corporation available for distribution, if
any, shall be distributed ratably among the holders of the Common based on the
number of shares of Common held by such holders.
(d) VALUATION. For purposes of this Section 3, if the
distributions or consideration received by the shareholders of the
corporation is other than cash or publicly traded securities listed on an
exchange or transaction reporting system, its fair market value will be
-5-
<PAGE>
determined in good faith by the Board of Directors of the corporation, or, if
appropriate, by the court or Person acting as a liquidator; PROVIDED,
HOWEVER, that if property other than cash or publicly-traded securities with
a purported aggregate value of at least $25 million is involved, the value of
such other property shall be determined by an independent appraiser or
independent financial advisor qualified to value the subject property
selected by the corporation but subject to the reasonable approval of the
holders of a majority of the Senior Preferred, voting as a single class. In
the case of publicly traded securities listed on an exchange, fair market
value shall mean the average last closing sale price as reported by such
exchange or by a consolidated transaction reporting system for the five
trading-day period immediately preceding the date such Liquidation Event is
consummated. In the case of publicly traded securities not listed on an
exchange, fair market value shall mean the average last closing bid price as
reported by the National Association of Securities Dealers Automatic
Quotation System, Inc. or such successor or similar organization, for the
five trading-day period immediately preceding the date on which such
Liquidation Event is consummated.
SECTION 4. CONVERSION. The holders of the Preferred shall have conversion
rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Preferred shall be
convertible, at the option of the holder thereof, at any time or from time to
time after the date of issuance of such share at the office of the
corporation of any transfer agent for the Preferred, into such number of
fully paid and nonassessable shares of Common, as is determined by dividing
(i) the applicable Preferred Liquidation Amount for each share of Preferred
in effect at the time of conversion, by (ii) the applicable Conversion Price
(determined as hereinafter provided) in effect at the time of conversion. The
initial price at which shares of Common shall be deliverable upon conversion
(the "Conversion Price") shall be $0.10016827 for each share of Series A
Preferred, $2.50 for each share of Series B Preferred and $5.00 for each
share of Senior Preferred, in each case per share of Common. Such Conversion
Price shall be subject to adjustment as hereinafter provided. In no event
shall any adjustment hereunder be made to the Conversion Price to reflect the
issuance of any additional shares of Common pursuant to Section 5(b) of this
Article V(B).
(b) AUTOMATIC CONVERSION.
(i) Each share of Preferred automatically shall be converted
into shares of Common at the then effective and applicable Conversion Price
upon the earlier to occur of: (x) the closing date of an IPO at an aggregate
offering price of not less than forty million dollars ($40,000,000) (before
deducting underwriter's discounts and commissions) at a share price to the
public of at least $10 per share (as adjusted for any Recapitalization
declared or effected with respect to the Common after March 10, 1999 and
recalculated to disregard the effect of any additional shares which may
become issuable as a result of the provisions of Section 5(b) of this Article
V(B)) (hereinafter, a "Qualified Public Offering"), and (y) the date
specified in a written consent signed by (A) the holders of a majority of the
shares of Preferred then outstanding and (B) the holders of a majority of the
shares of Series C Preferred, Series D
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Preferred and Series E Preferred, each voting as a separate class. The
holders of Series C Preferred or Series D Preferred may be entitled to
receive additional shares of Common in connection with the conversion of
their shares as set forth in Section 5(b) of this Article V(B).
(ii) Each share of Series E Preferred automatically
shall be converted into a share of Series D Preferred upon the earlier to
occur of: (x) January 1, 2000, and (y) an issuance of any Common or security
convertible into Common at a price per share less than the Preferred
Liquidation Amount of the Series E Preferred. Should the Series E convert
pursuant to this section 4(b)(ii), the shares converted into Series D
Preferred shall be treated as having been issued as Series D Preferred from
their original date of issuance.
(c) MECHANICS OF CONVERSION. No fractional shares or scrip
representing fractional shares shall be issued upon the conversion of any
share of Preferred. If, upon conversion of all of the shares of Preferred
held by a registered holder which are being converted, except for the
provisions of this Section 4(c), the registered holder would be entitled to
receive a fractional share of Common, then an amount equal to such fractional
share multiplied by the then fair market value (as determined in good faith
by the corporation's Board of Directors) of a share of the corporation's
Common shall be paid by the corporation in cash to such registered holder.
Before any holder of Preferred shall be entitled to convert the same into
shares of Common or Preferred, as applicable, the holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
corporation or of any transfer agent for the Preferred, and shall give
written notice to the corporation at such office that the holder elects to
convert the same; provided that (1) in the case of an automatic conversion as
provided in Section 4(b)(i)(x) or 4(b)(ii) the Preferred shall nonetheless be
deemed converted when as set forth therein and the certificates therefor
shall be deemed to represent the underlying Common or Preferred, as
applicable, until such time as the certificates are delivered at the office
of the corporation or the transfer agent and (2) a written notice of
conversion may be given in connection with a conversion as provided in
Section 4(a) or Section 4(b)(i)(y) conditioned upon, and with effect
immediately prior to, the occurrence of a particular event. The corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder of Preferred, a certificate or certificates for the number of
shares of Common or Preferred, as applicable, to which the holder shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of
Preferred to be converted, or in the case of automatic conversion as provided
in Section 4(b)(i)(x), on the closing date of the offering, and the person or
persons entitled to receive the shares of Common issuable upon such
conversion shall be treated for all purposes as the record holder or holders
of such shares of Common on such date.
(d) ADJUSTED FOR SUBDIVISIONS AND COMBINATIONS. If the
corporation at any time or from time to time after the filing of these
Restated Articles of Incorporation effects a subdivision of the outstanding
Common, without a corresponding subdivision with respect to the Preferred,
the Conversion Price of each series of Preferred then in effect immediately
before that
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<PAGE>
subdivision shall be proportionately decreased, and, conversely, if the
corporation at any time or from time to time combines the outstanding shares
of Common, without a corresponding combination with respect to the Preferred,
the Conversion Price of each series of preferred then in effect immediately
before the combination shall be proportionately increased. Any adjustment of
the Conversion Price of any series of Preferred under this Section 4(d) shall
become effective simultaneously with the subdivision or combination
triggering such adjustment.
(e) ADJUSTMENTS TO CONVERSION PRICES FOR CERTAIN DIVIDENDS AND
DISTRIBUTIONS.
(i) In the event the corporation at any time or from time to
time after the filing of these Restated Articles of Incorporation makes, or
fixes a record date for the determination of holders of Common entitled to
receive, a dividend or other distribution payable in additional shares of
Common, without a corresponding dividend with respect to the Preferred, then
and in each such event the Conversion Price then in effect for each series of
Preferred shall be decreased as of the time of such issuance or, in the event
such a record date is fixed, as of the close of business on such record date,
by multiplying the Conversion Price then in effect by a fraction (x) the
numerator of which is the total number of shares of Common issued and
outstanding immediately prior to the time of such issuance on the close of
business on such record date and (y) the denominator of which is the total
number of shares of Common issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date PLUS the
number of shares of Common issuable in payment of such dividend or
distribution; PROVIDED, HOWEVER, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter the Conversion
Price shall be adjusted pursuant to this Section 4(e) as of the time of
actual payment of such dividends or distributions.
(ii) For purposes of this Section 4(e), the number of shares
of Common at any time issued and outstanding shall not include shares held in
the treasury of the corporation.
(f) ADJUSTMENTS FOR OTHER DIVIDENDS OR DISTRIBUTIONS. In the
event the corporation at any time or from time to time after the filing of
these Restated Articles of Incorporation makes or fixes a record date for the
determination of holders of shares of Common entitled to receive a dividend
or other distribution payable in securities or other property of the
corporation (other than shares of Common adjusted under Section 4(e)) without
a corresponding dividend or distribution with respect to the Preferred, then,
and in each such event, provision shall be made so that the holders of shares
of Preferred shall receive upon conversion thereof, in addition to the number
of shares of Common receivable thereupon, the amount of securities and other
property of the corporation which they would have received had their shares
of Preferred been converted into shares of Common on the date of such event
and had they thereafter, during the period from the date of such event to and
including the date of conversion, retained such
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securities and other property receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 4 with respect to the rights of the holders of shares of
Preferred.
(g) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If the shares of Common issuable upon conversion of the
Preferred shall be changed into the same or a different number of shares of
any other class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of
shares, stock dividend, reorganization, merger, consolidation or sale of
assets as provided for elsewhere in this Section 4), then and in any such
event each holder of Preferred thereafter shall have the right to convert
such stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other
change, by holders of the number of shares of Common into which such shares
of Preferred might have been converted immediately prior to such
recapitalization, reclassification or change, all subject to such further
adjustments applicable as specified herein.
(h) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time there is a capital reorganization
of or change in the Common (other than a recapitalization, subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section 4) or a merger or consolidation of the corporation with or into
another Person, or the voluntary direct or indirect sale of all or
substantially all of the corporation's properties and assets to any other
Person (except an event which is governed under Section 3 or Section 6),
then, as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holders of the Preferred thereafter shall
be entitled to receive, upon conversion of the Preferred, the number of
shares of stock or other securities or property of the corporation, or of
such successor Person resulting from such reorganization, merger,
consolidation or sale, to which a holder of Common deliverable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 4 with respect to the
rights of the holders of the Preferred after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and number of
shares issuable upon conversion of the Preferred) shall be applicable after
that event and be as nearly equivalent to the provisions hereof as may be
practicable. This Section 4(h) shall similarly apply to successive
reorganizations, mergers, consolidations and sales.
(i) RESERVATION OF COMMON ISSUABLE UPON CONVERSION. The
corporation shall at all times reserve and keep available out of its
authorized but unissuable shares of Common or otherwise take such action, or
cause to be taken such action, as may be necessary for the purpose of
effecting the conversion of the shares of the Preferred and the performance
of the corporation's obligations under Section 5(b) such number of its shares
of Common or other securities or property as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the
Preferred; and if at any time the number of authorized but unissued shares of
Common or
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other securities of this corporation shall not be sufficient to effect the
conversion of all outstanding shares of the Preferred, in addition to such
other remedies as shall be available to the holder of such Preferred, this
corporation will take such corporate action as may be necessary to increase
its authorized but unissued shares of Common to such number of shares of
Common to such number of shares as shall be sufficient for such purposes.
(j) NO IMPAIRMENT. The corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action or omission, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
corporation, and will at all times in good faith assist in carrying out of all
provisions hereof, including without limitation this Section 4, and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of the Preferred against impairment, or
dilution in accordance with the provisions hereof.
(k) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of any Conversion Price for any series of
Preferred pursuant to this Section 4, the corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of the Preferred a certificate
executed by the corporations's president or chief financial officer setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The corporation shall, upon the
written request at any time of any holder of Preferred, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the conversion price for such series of Preferred at
such time in effect, and (iii) the number of share of Common Stock which at the
time would be received upon the conversion of such series of Preferred.
SECTION 5. ADDITIONAL RIGHTS OF SENIOR PREFERRED
(a) SERIES C REDEMPTION RIGHTS.
(i) On August 27, 2001 (the "First Redemption Date"), and on each six
month anniversary of the First Redemption Date (the First Redemption Date and
each such additional date, a "Redemption Date"), at the individual option of
each holder of shares of Series C Preferred, the corporation shall redeem for
cash the number of shares of Series C Preferred held by such holder that is
specified in a request for redemption delivered to the corporation by the
holder at least ten (10) days prior to the applicable Redemption Date, out of
any funds legally available therefor, at a price per share equal to twice the
Preferred Liquidation Amount then in effect for each such share.
(ii) If the funds of the corporation legally available for redemption of
shares of Series C Preferred at the applicable Redemption Date are insufficient
to redeem the total number shares of Series C Preferred to be redeemed on such
date, those funds
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which are legally available will be used to redeem the maximum possible
number of such shares ratably among the holders such shares to be redeemed
based upon the total number of shares then requested to be redeemed by each
such holder.
(iii) The shares of Series C Preferred not redeemed upon an
applicable Redemption Date because of the failure of the holder thereof to so
elect and the shares of Series C Preferred not redeemed upon an applicable
Redemption Date because of an insufficiency as described in paragraph (ii)
above shall remain outstanding and entitled to all the rights and preferences
provided herein, including the right to receive mandatory dividends as
provided in Section 2(b).
(b) ISSUANCE OF ADDITIONAL SHARES OF COMMON UPON PUBLIC OFFERING.
(i) FORMULA. In the event of an IPO (which may include shares
sold for the account of Persons other than the corporation) where the
offering price to the public per share of Common (as appropriately adjusted
for any Recapitalization effected with respect to the Common after March 10,
1999 and through and including the closing of the IPO) (the "IPO Price") is
less than the Minimum Price (as defined in clause (bb) below), each holder of
Series C Preferred or Series D Preferred will be entitled, effective
immediately prior to the IPO, to receive immediately upon the occurrence of
the IPO newly issued additional shares of fully paid and nonassessable Common
as determined by the following formula:
func AS~=~{(MP-X)Y} over {X}
where:
(aa) AS = the number of additional shares of Common to be issued to
such holder in connection with the conversion of such holder's
shares of Series C Preferred or Series D Preferred;
(bb) MP = the "Minimum Price" which (A) in the case of shares of
Series C Preferred, shall be equal to $15.00, and (B) in the
case of shares of Series D Preferred, shall be equal to $10.00
(in either case, as appropriately adjusted for any
Recapitalization effected or declared with respect to the
Common);
(cc) X = the IPO Price; and
(dd) Y = the number of shares of Common into which such holder's
shares of Series C Preferred or Series D Preferred were
convertible pursuant to Section 4(a) hereof immediately prior
to and taking account of the IPO.
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(ii) FRACTIONAL SHARES. No fractional shares of Common shall
be issued pursuant to paragraph (i) above, but in lieu thereof, the
corporation shall pay the holder entitled thereto an amount of cash equal to
such fraction, multiplied by the IPO Price.
SECTION 6. SPECIAL PROVISIONS FOR MERGER EVENTS.
(a) DISTRIBUTIONS ON MERGER EVENTS.
(i) The corporation shall not undertake a Merger
Event unless as a condition and term of the Merger Event, each holder of
outstanding Senior Preferred shall be entitled to receive, upon the
occurrence of the Merger Event, the cash or securities payable in such Merger
Event in an amount equal to the aggregate Senior Preferred Merger Amount, as
defined in Section 6(b), of the shares of Senior Preferred then held by such
holder.
(ii) If, after payment of the Senior Preferred
Merger Amount to the holders of Senior Preferred pursuant to Section 6(a)(i),
any proceeds remain available for distribution in respect of the Merger
Event, the holders of Junior Preferred shall be entitled to receive in cash
or in securities received from the acquiring corporation, or in a combination
thereof, at the closing of any such transaction constituting a Merger Event,
an amount equal to the aggregate Preferred Liquidation Amount of the shares
of Junior Preferred held by each such holder. In the event the full Preferred
Liquidation Amount for the outstanding shares of Junior Preferred is not paid
in accordance herewith, then the entire remaining amount payable in respect
of the Merger Event shall be distributed ratably among the holders of the
Junior Preferred in proportion to the aggregate Preferred Liquidation Amount
of the shares of Junior Preferred held by each such holder.
(iii) Following the payments to the holders of
Preferred as set forth above, the remaining proceeds of the Merger Event (if
any) shall be distributed to the holders of Common ratably in proportion to
the number of shares of Common held by each such holder.
(iv) In no event shall the corporation undertake
any Merger Event in which the form of the consideration payable to holders of
Common or Junior Preferred is different from the form of the consideration
payable to holders of Senior Preferred.
(b) "SENIOR PREFERRED MERGER AMOUNT" DEFINED. For
purposes of this Section 6, the "Senior Preferred Merger Amount" shall mean:
(i) in the case of a share of Series C Preferred,
at the date of a Merger Event, the greater of (A) the Preferred Liquidation
Amount of such share on the date of such Merger Event, multiplied by three,
and (B) the amount receivable upon such Merger Event by a holder of the
number of shares of Common into which such share of Series C Preferred would
have been converted if all shares of Preferred were converted into Common
pursuant to Section 4(a) immediately prior to such Merger Event.
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(ii) in the case of a share of Series D Preferred
at the date of a Merger Event, the greater of (A) the Preferred Liquidation
Amount of such share on the date of such Merger Event, multiplied by two, and
(B) the amount receivable upon such Merger Event by a holder of the number of
shares of Common into which such share of Series D Preferred would have been
converted if all shares of Preferred were converted into Common pursuant to
Section 4(a) immediately prior to such Merger Event.
(iii) in the case of a share of Series E Preferred
at the date of a merger Event, the greater of (A) the Preferred Liquidation
Amount of such share on the date of such Merger Event, multiplied by two, and
(B) the amount receivable upon such Merger Event by a holder of the number of
shares of Common into which such share of Series E Preferred would have been
converted if all shares of Preferred were converted into Common pursuant to
Section 4(a) immediately prior to such Merger Event.
(c) VALUATION. For purposes of this Section 6, if the
distributions or consideration received by the shareholders of the
corporation upon a Merger Event is other than cash or publicly traded
securities listed on an exchange or transaction reporting system, its fair
market value will be determined in good faith by the Board of Directors of
the corporation, or, if appropriate, by the court or Person acting as a
liquidator; PROVIDED, HOWEVER, that if property other than cash or
publicly-traded securities with a purported aggregate value of at least $25
million is involved, the value of such other property shall be determined by
an independent appraiser or independent financial advisor qualified to value
the subject property selected by the corporation but subject to the
reasonable approval of the holders of a majority of the Senior Preferred,
voting as a single class. In the case of publicly traded securities listed on
an exchange, fair market value shall mean the average last closing sale price
as reported by such exchange or by a consolidated transaction reporting
system for the five trading-day period immediately preceding the date such
Merger Event is consummated. In the case of publicly traded securities not
listed on an exchange, fair market value shall mean the average last closing
bid price as reported by the National Association of Securities Dealers
Automatic Quotation System, Inc. or such successor or similar organization,
for the five trading-day period immediately preceding the date on which such
Merger Event is consummated.
SECTION 7. VOTING RIGHTS.
(a) GENERAL. Except as otherwise expressly provided
herein or as required by law, the holders of issued and outstanding Common
and the holders of issued and outstanding Preferred shall have one vote for
each share of Common then held or deemed to be held (assuming the conversion
into Common of all then-outstanding shares of Preferred), voting together as
a single class, at the record date for determination of the stockholders
entitled to vote on such matters, or, if no such record date is established,
at the date such vote is taken or any written consent of stockholders is
solicited, such votes to be counted together with all other shares of stock
of the corporation having general voting power and not separately as a class.
Holders of shares of Common and Preferred shall be entitled to notice of any
stockholders'
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meeting in accordance with the Bylaws of the corporation. No fractional votes
shall be permitted, and any fractional voting rights resulting from the above
formula (after aggregating all shares of Common into which shares of Preferred
held by each holder could be converted) shall be rounded to the nearest whole
number (with one-half being rounded upward).
(b) VOTING FOR THE ELECTION OF DIRECTORS. The Series D
Preferred, voting separately as a class, shall be entitled to elect one (1)
director (the "Series D Preferred Director") of the corporation at each annual
election (and to fill any vacancies with respect thereto), which right shall
expire on the consummation of an IPO. All other directors shall be elected by
the holders of Preferred and Common, voting together as a single class.
SECTION 8. COVENANTS.
(a) In addition to any other rights provided by law, the
corporation shall not, without first obtaining the affirmative vote or
written consent of (i) the holders of Preferred holding not less than a
majority of the outstanding Preferred, voting together as a single class,
(ii) the holders of the Series C Preferred holding not less than a majority
of the outstanding Series C Preferred, voting together as a separate class,
(iii) the holders of the Series D Preferred holding not less than a majority
of the outstanding Series D Preferred, voting together as a separate class
and (iv) the holders of the Series E Preferred holding not less than a
majority of the outstanding Series E Preferred, voting together as a separate
class, in each case determined on an as-converted into Common basis:
(i) increase or decrease the authorized number of
shares of the Preferred or any series of Preferred;
(ii) authorize or issue shares of any class or series
having any preference or priority superior to or on a parity with any such
preference or priority of any issued and outstanding series of Preferred;
(iii) reclassify any Common or other shares of the
corporation which do not have a preference or priority over or with any
series of Preferred into shares having any preference or priority as to
dividends, liquidation rights or voting rights superior to or on a parity
with any such preference or priority of any series of Preferred;
(iv) pay or declare any dividend or make any other
distribution on any shares of Common or Junior Preferred (except dividends
payable in kind) or repurchase or redeem any outstanding Common;
(v) pay or declare any dividend or make any other
distribution on any shares of Senior Preferred (except Cash Dividends or PIK
Dividends payable in respect of shares of Series C Preferred) provided that
no vote of the Junior Preferred shall be required for any dividend or
distribution made solely to the Senior Preferred;
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(vi) repurchase, redeem or retire any shares of
capital stock of the corporation, other than repurchases described in Section
9 below; provided that no vote of the Junior Preferred shall be required for
any repurchase, redemption or retirement of solely Senior Preferred;
(vii) (A) effect any Merger Event or (B) permit any
recapitalization, reorganization or reclassification; or
(viii) take action which would have a material and
adverse alteration or change of the rights, preferences or privileges of any
series of Senior Preferred.
(b) Other than matters addressed by Section 8(a)(i)
through (vi) or 8(a)(vii)(A), which matters shall be governed by Section
8(a), the corporation shall not, without first obtaining the affirmative vote
or written consent of (i) the holders of Series D Preferred holding not less
than two-thirds (66.66%) of the outstanding Series D Preferred and (ii) the
holders of Series E Preferred holding not less than two-thirds (66.66%) of
the outstanding Series E Preferred, each voting as separate series, make any
change or modification of the terms, rights or privileges of the Series D
Preferred or the Series E Preferred, as the case may be, that is adverse in
any respect to the terms, rights or privileges of the Series D Preferred or
the Series E Preferred, as the case may be.
(c) The corporation shall not grant or sell to any Person
(other than a wholly owned subsidiary of the corporation so long as it
remains such) any Common or any securities convertible into, or exchangeable
or exercisable for any Common, at a price per share of Common that is less
than the greater of (x) the Preferred Liquidation Amount of (i) the Series D
Preferred or (ii) the Series E Preferred or (y) the "Current Value" (as
defined below) of the Common (other than pursuant to employee stock options
not to exceed 5,400,000 shares of Common or pursuant to Preferred outstanding
or issued in connection with the filing of the Amended and Restated Articles
of Incorporation) without first obtaining the affirmative vote or written
consent of the holders of the Series D Preferred holding not less than a
majority of the outstanding Series D Preferred and the holders of the Series
E Preferred holding not less than a majority of the outstanding Series E
Preferred, each voting as separate series (but excluding, for purposes of
such calculation, the shares of Series D Preferred or Series E Preferred, as
the case may be, of any Series D holder or Series E holder, as the case may
be, to whom the grant or sale in question is proposed to be made).
"Current Value" of a share of Common, for purposes of the
preceding paragraph, shall be determined by the Board of Directors of the
corporation acting in good faith and with reference to any recent sales or
transfers of Common or securities convertible, exchangeable or exercisable
into Common to the extent reasonable.
SECTION 9. CONSENT FOR CERTAIN REPURCHASES OF COMMON STOCK DEEMED TO BE
DISTRIBUTIONS. Each holder of an outstanding share of Preferred shall be
deemed to have
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consented, for purposes of Sections 502, 503 and 506 of the General Corporation
Law, to distributions made by the corporation in connection with the repurchase
at cost of shares of Common issued to or held by employees, officers, directors,
consultants or other persons performing services for the corporation or any
Subsidiary upon termination of their employment or services pursuant to
agreements providing for the right of said repurchase between the corporation
and such persons; PROVIDED, HOWEVER, that the amount of such repurchases does
not exceed $50,000 in the aggregate in any one fiscal year.
SECTION 10. RESIDUAL RIGHTS. All rights accruing to the outstanding shares
of the corporation not expressly provided for to the contrary herein shall be
vested in the Common.
SECTION 11. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Preferred shall be redeemed or converted, the shares so converted
or redeemed shall be canceled and shall not have the status of authorized but
unissued shares of Preferred and shall not be issuable by the corporation and
the Articles of Incorporation of this corporation shall be amended to effect
the corresponding reduction in the corporation's capital stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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3. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the Board of Directors of the corporation.
4. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Sections 902 and 903 of the Corporations Code. The number of shares of voting in
favor of the amendment and restatement equaled or exceeded the vote required,
such required vote being a majority of the outstanding shares of Common Stock
and Preferred Stock, voting together as a single class, a majority of the
outstanding shares of Common Stock, voting as a separate class, a majority of
the outstanding shares of Preferred Stock, voting as a separate class, and a
majority of the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, each
voting as a separate series. The total number of outstanding shares of the
corporation is 14,359,380 shares of Common Stock, 9,097,671 shares of Series A
Preferred Stock, 160,000 shares of Series B Preferred Stock, 600,000 shares of
Series C Preferred Stock and 5,894,110 shares of Series D Preferred Stock.
/s/ Lance Mortensen
----------------------------------
Lance Mortensen
Chief Executive Officer
/s/ Bruce D. Bower
----------------------------------
Bruce D. Bower
Secretary
The undersigned further declare under penalty of perjury that the
matters set forth in the foregoing certificate are true of their own knowledge.
Executed at San Ramon, California on August 2, 1999.
/s/ Lance Mortensen
----------------------------------
Lance Mortensen
Chief Executive Officer
/s/ Bruce D. Bower
----------------------------------
Bruce D. Bower
Secretary
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Exhibit 4.2
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COMMON STOCK [ZAPME! LOGO] COMMON STOCK
NUMBER SHARES
C-
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP (to come)
NEW YOR, N.Y. OR BOSTON, MA. SEE REVERSE FOR CERTAIN DEFINITIONS
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT
is the Record Holder of
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE $0.01 PER SHARE, OF
ZAPME! CORPORATION
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
Witness the facsimile seal of said Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
/s/ Bruce D. Bower [ZAPME! SEAL] /s/ Lance Mortensen
SECRETARY CHIEF EXECUTIVE OFFICER
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COUNTERSIGNED AND REGISTERED
BANKBOSTON, N.A.
TRANSFER AGENT
AND REGISTRAR.
By /s/ Mary Penzic
AUTHORIZED SIGNATURE
<PAGE>
ZAPME! CORPORATION
Keep this Certificate in a safe place. If it is lost, stolen or
destroyed, the Corporation will require a bond of indemnity as a condition to
the issuance of a replacement certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ________ Custodian ________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _______________________
in common (State)
UNIF TRF MIN ACT -- ________ Custodian (until age__)
(Cust)
________ under Uniform Transfers
(Minor)
to Minors Act _____________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
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- --------------------------------------
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PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCUDING ZIP CODE, OF ASSIGNEE)
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Shares
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of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
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to transfer the said stock on the books of the within named Corporation, with
full power of substitution in the premises.
Dated ____________________________
X ________________________________
X ________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED:
BY ____________________________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
ZAPME! CORPORATION EXHIBIT 10.1
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Fourth Amended and Restated Investors' Rights Agreement (this
"Agreement") is dated as of August 4, 1999 by and among ZapMe! Corporation (the
"Company"), and the individuals and entities set forth on EXHIBIT A hereto
(individually an "Investor" and collectively, the "Investors").
RECITALS
WHEREAS, certain of the Investors (the "Prior Holders") and the Company
are parties to that certain Third Amended and Restated Investors' Rights
Agreement dated as of March 31, 1999 (the "Prior Agreement"), and were granted
pursuant thereto certain rights regarding, among other things, financial
information, Company Board Meeting visitation, registration of the Company's
securities under the Securities Act and Company records inspection
(collectively, the "Rights");
WHEREAS, pursuant to Section 3.4 of the Prior Agreement, the Majority
Holders (as defined in the Prior Agreement) may, with the written consent of the
Company, amend or waive on behalf of all Holders any provision of the Prior
Agreement so long as the effect thereof will not be adverse to the relative
rights of a particular class of Holders (as defined in the Prior Agreement) or
amend or waive certain rights of Ares or the Ares Affiliates (each as defined in
the Prior Agreement);
WHEREAS, the Investors set forth on Exhibit A under the caption "New
Investors" (the "New Investors") in connection with their proposal to purchase
shares of the Company's Series E Preferred Stock pursuant to that certain Series
E Preferred Stock Purchase Agreement dated of even date herewith (the "Purchase
Agreement"), desire to obtain the types of Rights referenced above;
WHEREAS, the Company and the Prior Holders, to induce the New Investors
to purchase the Series E Preferred Stock pursuant to the Purchase Agreement,
desire to grant the New Investors the types of Rights referenced above and to
amend and restate the Prior Rights Agreement as provided herein;
WHEREAS, the Company has entered into an agreement with Pacesetter
Capital Corporation ("Pacesetter") dated December 11, 1998 (the "Pacesetter
Agreement") whereby Pacesetter has arranged, and may in the future arrange,
lease or other specific equipment financing for the Company (collectively, the
"Lease Transactions") with various lessors (the "Lessors");
WHEREAS, the Lease Transactions arranged pursuant to the Pacesetter
Agreement require the Company to issue certain warrants (the "Warrants") to the
Lessors which may be issued to or transferred in full or in part to Pacesetter;
WHEREAS, the terms of the Warrants provide that the securities issuable
upon exercise of the Warrants (the "Warrant Securities") shall have registration
rights;
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
1. RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; REGISTRATION RIGHTS.
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
(a) "Ares Affiliate" shall mean (i) Ares Leveraged Investment
Fund, L.P., Ares Leveraged Investment Fund II, L.P. and ZM Co-Investments LLC
(collectively, "Ares"); (ii) any affiliate of Ares (provided that any other
person whose investment activities are managed or advised under contract by
either Ares or another person who manages or advises the investment
activities of Ares (a "Manager") or an affiliate of a Manager shall be deemed
to be an affiliate of such holder for purposes of this clause ); provided
that such person shall only be an Ares Affiliate for so long as such person
is an affiliate of Ares or a person the investment or management activities
of which are managed or advised by any of the foregoing; (iii) in the event
of the dissolution, liquidation or winding up of Ares or other Ares Affiliate
that is a corporation or a partnership, the stockholders of any such
corporation or the partners of any such partnership, all of the stockholders
which in the case of a corporation or all of the partners of which in the
case of a partnership are the persons who were the stockholders of any such
corporation or the partners of any such partnership immediately prior to the
dissolution, liquidation or winding up of such person; or (iv) a trust
transferee established to hold Restricted Securities for the benefit of Ares
or by an affiliate of Ares.
(b) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
(c) "Common Stock" means the Company's Common Stock, par value
$0.01 per share.
(d) "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.
(e) "Holder" shall mean each Investor which holds Registrable
Securities and any assignee or successor thereof which has been transferred
Registrable Securities and the rights hereunder in accordance with the
provisions hereof.
(f) "Initiating Holders" shall mean the Investors who, in the
case of a demand registration under Section 1.4, are in the aggregate Holders
of not less than twenty-five percent (25%) of the outstanding Series C
Registrable Securities and Series D Registrable Securities then held by the
Holders of Series C Registrable Securities and Series D Registrable
Securities; PROVIDED, HOWEVER, that whether or not they are Holders of not
less than twenty-five percent (25%) of the outstanding Series C Registrable
Securities and Securities Series D Registrable Securities then held by the
Holders of Series C Registrable Securities and Series D Registrable
Securities, (i) one (1) of
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<PAGE>
the three demand registrations available under Section 1.4 may only be
exercised by one or more Ares Affiliates for as long as the Ares Affiliates
are Holders of not less than 15% of the Series D Registrable Securities
originally issued to them on March 31, 1999 and May 28, 1999 (as if the
Series D Preferred Stock converted into Common Stock and subject to
subsequent adjustment for stock splits, stock dividends, reverse stock
splits, recapitalizations and the like) and (ii) one (1) of the three demand
registrations available under Section 1.4 may only be exercised by one or
more Holders of Series C Registrable Securities who are, in the aggregate,
Holders of not less than fifty percent (50%) of the outstanding Series C
Registrable Securities then held by the Holders of Series C Registrable
Securities for as long as the Holders of Series C Registrable Securities are
Holders of not less than 15% of the Series C Registrable Securities
originally issued to them on August 27, 1998 (as if the Series C Preferred
Stock converted into Common Stock and subject to subsequent adjustment for
stock splits, stock dividends, reverse stock splits, recapitalizations and
the like).
(g) "Investors" and "Investor" are defined in the preamble and
shall include any transferee of Restricted Securities in a transfer permitted
hereunder.
(h) "Majority Holders" shall mean the Investor or Investors
who in the aggregate hold (or are deemed to hold) EACH OF (i) greater than
fifty percent (50%) of the Series C Registrable Securities, (ii) greater than
fifty percent (50%) of the Series D Registrable Securities and (iii) greater
than fifty percent (50%) of the Series E Registrable Securities.
(i) "Registrable Securities" shall mean (i) the Wharton Note
Shares, (ii) the Series C Registrable Securities, (iii) the Series D
Registrable Securities, (iv) the Series E Registrable Securities, (v) only
for purposes of all registrations pursuant to Section 1.5 following the first
registration thereunder and all registrations on Form S-3 under Section 1.7,
the Wharton Warrant Shares, (vi) all shares of Common Stock of the Company
now or hereafter held by Pacesetter, Leasing Technologies International, Inc.
("LTI"), Imperial Bank, or any of the Lessors, including, without limitation,
the shares of Common Stock issued or issuable upon conversion of the shares
of Series D Preferred Stock now or hereafter held by any Lessor (including
the Series D Preferred Stock or other securities issued or issuable upon
exercise of the warrants to purchase Series D Preferred Stock held by any
Lessor) or any shares of Common Stock otherwise issuable under warrants held
by any Lessor, and (vii) 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)-(vi) above, provided, however, that Registrable
Securities shall not include shares of Common Stock which have previously
been registered or which have been sold to the public either pursuant to a
registration statement or Rule 144, or which have been sold in a private
transaction in which the transferor's rights under this Agreement are not
assigned.
(j) 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.
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<PAGE>
(k) "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, reasonable fees and disbursements of counsel,
including one counsel for all Holders participating in such registration,
blue sky fees and expenses, and expenses of any regular or special audits
incident to or required by any such registration, but shall not include
Selling Expenses.
(l) "Restated Articles" shall mean the Amended and Restated
Articles of Incorporation of the Company.
(m) "Restricted Securities" shall mean the Registrable
Securities, shares of Series C Preferred Stock, shares of Series D Preferred
Stock, shares of Series E Preferred Stock and the Wharton Warrant.
(n) "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.
(o) "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.
(p) "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.
(q) "Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the sale of
Registrable Securities.
(r) "Series C Registrable Securities" shall mean (i) the
shares of Common Stock issued upon conversion or issuable assuming the
conversion of the Company's Series C Preferred Stock and any additional
shares of Common Stock issued to the holders of the Company's Series C
Preferred Stock pursuant to Section 5(b) of Article V(B) of the Restated
Articles and (ii) any other shares of capital stock of the Company issued in
exchange for any such shares of Common Stock or other shares of capital stock
of the Company referred to in this clause (ii) upon a reclassification,
merger or other transaction involving the exchange of equity interests in the
Company for Common Stock or other shares of capital stock of the Company
referred to in this clause (ii) or issued as a distribution thereon.
(s) "Series D Registrable Securities" shall mean (i) the
shares of Common Stock issued upon conversion or issuable assuming the
conversion of the Company's Series D Preferred Stock and any additional
shares of Common Stock issued to the holders of the Company's Series D
Preferred Stock pursuant to Section 5(b) of Article V(B) of the Restated
Articles and (ii) any other shares of capital stock of the Company issued in
exchange for any such shares of Common Stock or other shares of capital stock
of the Company referred to in this clause (ii) upon a reclassification,
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<PAGE>
merger or other transaction involving the exchange of equity interests in the
Company for Common Stock or other shares of capital stock of the Company
referred to in this clause (ii) or issued as a distribution thereon.
(t) "Series E Registrable Securities " shall mean (i) the
shares of Common Stock issued upon conversion or issuable assuming the
conversion of the Company's Series E Preferred Stock and (ii) any other
shares of capital stock of the Company issued in exchange for any such shares
of Common Stock or other shares of capital stock of the Company referred to
in this clause (ii) upon a reclassification, merger or other transaction
involving the exchange of equity interests in the Company for Common Stock or
other shares of capital stock of the Company referred to in this clause (ii)
or issued as a distribution thereon.
(u) "Wharton Note Shares" shall mean the shares of Common
Stock issuable directly or indirectly upon conversion of the note issued to
Wharton Capital Partners, Ltd. pursuant to the Wharton Purchase Agreement.
(v) "Wharton Purchase Agreement" shall mean that certain
Convertible Note and Warrant Purchase Agreement dated May 7, 1998 pursuant to
which a note and warrant were issued by the Company to Wharton Capital
Partners, Ltd.
(w) "Wharton Warrant" shall mean that certain warrant issued
to Wharton Capital Partners, Ltd. pursuant to the Wharton Purchase Agreement.
(x) "Wharton Warrant Shares" shall mean the shares of Common
Stock issuable directly or indirectly upon exercise of the Wharton Warrant.
1.2 RESTRICTIONS ON TRANSFER.
(a) Each Investor agrees not to make any disposition of all or
any portion of the Restricted Securities held by such Investor unless and
until the transferee has agreed in writing for the benefit of the Company to
be bound by this Section 1.2, provided and to the extent such Section is then
applicable, and:
(i) 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
(ii) (A) 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
(B) 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;
Notwithstanding the provisions of paragraphs (i) and (ii) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by an Investor which is (A) by a
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<PAGE>
partnership to its partners or retired partners in accordance with partnership
interests, (B) by a corporation to its shareholders in accordance with their
interest in the corporation or to any majority-owned subsidiary, (C) by a
limited liability company to its members or former members in accordance with
their interest in the limited liability company, (D) by an Investor to such
Investor's family member or a trust for the benefit of such Investor, (E) in
the case of Gilat Satellite Networks, Ltd. only, to a Gilat Affiliate (as
defined in the Series D Preferred Stock Purchase Agreement between Gilat and
the Company dated as of December 3, 1998), (F) in the case of an Ares
Affiliate, to another Ares Affiliate, or (G) in the case of Dell USA L.P., to
any of its affiliates, provided, in any such case, that the transferee will
be subject to the terms of this Section 1.2 to the same extent as if such
transferee were an original Investor hereunder.
(b) Each certificate representing Restricted Securities shall
(unless otherwise permitted by the provisions of this Agreement) be stamped
or otherwise imprinted with a legend substantially similar to the following
(in addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT
OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE,
SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel at such Investor's expense (which
counsel may be counsel to the Company) reasonably acceptable to the Company
to the effect that the securities proposed to be disposed of may lawfully be
so disposed of without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
1.3 COMPANY RIGHT OF FIRST REFUSAL. In addition to the provisions
of Section 1.2 hereof, each Investor agrees not to assign, encumber or
dispose of any interest in Restricted Securities except as provided by this
Section 1.3.
(a) RIGHT OF FIRST REFUSAL.
(i) In the event that an Investor desires (or is
required) to sell or transfer any Restricted Securities, such Investor shall
first offer such Restricted Securities for sale to the Company upon the terms
and conditions specified herein (the "Right of First Refusal") by delivering
a notice (the "Notice") to the Company stating (1) the Investor's bona fide
intention to sell or otherwise transfer such Restricted Securities, (2) the
number of Restricted Securities to be sold or otherwise transferred, (3) the
price for which the Investor proposes to sell such Restricted Securities
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<PAGE>
and (4) all additional material terms and conditions, if any, of the proposed
sale or transfer. The Notice shall also state the name of the proposed buyer
or transferee, if known. If the proposed buyer or transferee is unknown at
the time such notice is given, the Investor shall so state in the Notice;
PROVIDED, HOWEVER, that the Investor may not sell or transfer any Restricted
Securities to any competitor of the Company or any party whose interests are
materially adverse to the Company, each as determined in good faith by the
Board of Directors. The Investor shall attach to the Notice a copy of the
written offer, if any, reflecting the terms and conditions of the proposed
sale or transfer of the Restricted Securities to the third party.
(ii) Within fifteen (15) days following receipt by the
Company of the Notice (the "Acceptance Period"), the Company may elect to
purchase all but not less than all of the Restricted Securities to which the
Notice refers, at the price per share and on the same terms and conditions
(including as to form of consideration) as set forth in the Notice.
(iii) If the Company elects to purchase such Restricted
Securities hereunder, it shall notify the Investor in writing of its
intention to purchase such Restricted Securities hereunder and either (1) set
a date for the closing of the transaction at a place to be mutually agreed to
by the Investor and the Company not later than ten (10) days from the date of
such notice at which time the Company shall tender payment for the Restricted
Securities so purchased, or (2) include payment in immediately available
funds for the Restricted Securities with the Company's notice to the
Investor. At such closing, the certificate(s) representing the Restricted
Securities so purchased shall be delivered to the Company and canceled or, in
the case of payment by the Company by mail, such certificate(s) shall be
deemed canceled as of the date of the mailing of the Company's notice and,
thereafter, shall be promptly returned by the Investor to the Company by
certified or registered mail.
(iv) If the Company does not elect to purchase all of
the shares to which the Notice refers or does not purchase all of the shares
within the required time, the Investor may sell or otherwise transfer such
Restricted Securities at the price and on substantially the same terms and
conditions specified in the Notice or at a higher price, provided that such
sale or transfer is consummated within one hundred and twenty (120) days from
the earlier of (1) the lapse of the Acceptance Period or (2) the date of the
Company's notice, whether written or oral, advising the Investor that the
Company does not intend to purchase the Restricted Securities hereunder; and
provided further, that any such sale or transfer is made in accordance with
all of the terms and conditions set forth in this Agreement. In the event the
Restricted Securities are not disposed of by the Purchaser within such one
hundred and twenty (120) day period, such Restricted Securities shall once
again be subject to the Right of First Refusal herein provided.
(b) INVOLUNTARY TRANSFER.
(i) In the event of any transfer by operation of law or
other involuntary transfer of all, or a portion, of the Restricted Securities
held by an Investor, the Company shall have an option to purchase all of the
Restricted Securities so transferred (the "Involuntary Transfer Option") at a
price determined in good faith by the Board of Directors of the Company to
represent the then-current market value of the Restricted Securities. Upon
such a transfer, the person
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<PAGE>
acquiring the subject shares shall promptly notify the Secretary of the
Company of such transfer. Notwithstanding the foregoing, an Investor shall
not be required to comply with this Section 1.3(b) if such compliance would
conflict with any law, Rule or regulation.
(ii) The Company shall notify the Investor and the person
acquiring the Restricted Securities as to whether the Company wishes to
purchase the Restricted Securities pursuant to the Involuntary Transfer
Option within fifteen (15) days following the date on which the Company was
notified of the transfer. If the Company elects to purchase such shares
hereunder, it shall set a date for the closing of the transaction at a place
specified by the Company not later than ten (10) days from the date of the
Company's notice to the Investor and the person acquiring the Restricted
Securities. At such closing, the Company shall tender payment for the
Restricted Securities in the form of a check and the certificate(s)
representing the shares so purchased shall be canceled.
(c) RESTRICTION ON ALIENATION. Each Investor agrees that it
will not sell, transfer, or otherwise dispose of any of the Restricted
Securities unless it complies with the provisions of this Section 1.3, if
applicable. Any sale, transfer or disposition or purported sale, transfer or
disposition of any Restricted Securities by an Investor shall be null and
void unless the terms, conditions and provisions of this Section 1.3, if
applicable, are complied with. Each Investor further authorizes the Company
to refuse, or to cause its Transfer Agent to refuse, to transfer or record
any Restricted Securities to be transferred in violation of this Agreement.
(d) OBLIGATIONS BINDING UPON TRANSFEREES. All transferees of
Restricted Securities or any interest therein will receive and hold such
Restricted Securities or interests subject to the provisions of this
Agreement, including, insofar as applicable, the Company's Right of First
Refusal and Involuntary Transfer Option under this Section 1.3.
(e) TERMINATION OF RESTRICTIONS. The Right of First Refusal
and Involuntary Transfer Option granted by this Section 1.3 shall terminate
at such time as any registered initial public offering of Common Stock of the
Company, Merger Event or Liquidation Event occurs, as "Merger Event" or
"Liquidation Event" are defined in the Restated Articles.
(f) EXCLUDED TRANSFERS. The restrictions on transfer of this
Article 1.3 shall not apply to a transfer by an Investor which is (A) a
partnership to its partners or retired partners in accordance with
partnership interests, (B) a corporation to its shareholders in accordance
with their interest in the corporation or to a majority-owned subsidiary,
(C) a limited liability company to its members or former members in
accordance with their interest in the limited liability company, (D) to the
Investor's family member or trust for the benefit of an individual Investor,
(E) made by way of inheritance or bequest, (F) made, in the case of Gilat
Satellite Networks, Ltd. only, to a Gilat Affiliate (as defined in the Series D
Preferred Stock Purchase Agreement between Gilat and the Company dated as of
December 3, 1998), (G) made, in the case of an Ares Affiliate only, to
another Ares Affiliate or (H) made, in the case of Dell USA L.P., to one of
its affiliates, provided, in any such case, that the transferee will be
subject to the terms of this Section 1.3 to the same extent as if such
transferee were an original Investor hereunder.
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<PAGE>
1.4 DEMAND REGISTRATION.
(a) DEMAND FOR REGISTRATION. In case the Company shall receive
from the Initiating Holders a written demand that the Company effect any
registration, qualification or compliance with respect to all or a part of
the Registrable Securities, and only in the event that the aggregate offering
price of the Registrable Securities proposed to be registered equals or
exceeds two million dollars ($2,000,000) (provided that the determination of
the aggregate offering price of the Registrable Securities proposed to be
registered shall be made by the Initiating Holders in good faith), the
Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders, which notice, in any event,
shall be given at least twenty (20) business days before the effectiveness of
any registration under this Section 1.4; and
(ii) use its best efforts to effect such registration,
qualification or compliance as soon as practicable (including, without
limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations), in respect of such Registrable Securities and as may be so
requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such
request in writing received by the Company within twenty (20) days after
receipt of such written notice from the Company; PROVIDED, that the Company
shall NOT be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 1.4:
(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) Before the earlier to occur of March 31, 2004 or six
(6) months after the effective date of the Company's first registered
offering to the general public of its securities for its own account;
(C) After the Company has effected three registrations
pursuant to this Section 1.4(a), so long as such registrations have been
declared or ordered effective and the securities offered pursuant to such
registrations have been sold.
Subject to the foregoing clauses (A) through (C), the Company shall
file a registration statement covering the Registrable Securities so demanded
pursuant to this Section 1.4(a); PROVIDED, HOWEVER, that if the Company shall
furnish to the Initiating Holders a certificate signed by the President of the
Company stating that, in the good faith judgment of the Board of Directors, it
would be seriously detrimental to the Company and its shareholders for such
registration statement to be filed the Company shall have the right to defer
such filing for a period of not more than ninety (90)
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<PAGE>
days after receipt of the demand of the Initiating Holders; PROVIDED,
HOWEVER, that the Company may not utilize this right more than once in any
twelve month period.
(b) UNDERWRITING. The Initiating Holders of any given demand
registration pursuant to this Section 1.4 shall determine the method of
distribution. If the Initiating Holders intend to distribute the Registrable
Securities covered by their demand by means of an underwriting, they shall so
advise the Company as part of their demand made pursuant to Section 1.4 and
the Company shall include such information in the written notice referred to
in this Section 1.4(a)(i). The right of any Holder to registration pursuant
to Section 1.4 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 requested and provided herein.
The Company shall (together with all Holders and other parties
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative(s) of an
underwriter or underwriters of recognized national standing (the "Underwriter's
Representative") selected for such underwriting by the Company, subject to the
approval of the Initiating Holders, which shall not be unreasonably withheld.
Notwithstanding any other provision of this Section 1.4, if the Underwriter's
Representative advises the Company and the Initiating Holders in writing at any
time prior to effectiveness that marketing factors require a limitation of the
number of shares to be underwritten, the Company shall so advise all holders of
Registrable Securities, and the Underwriter's Representative may limit the
number of Registrable Securities to be included in the registration and
underwriting; PROVIDED, HOWEVER, that if the registration was demanded (i) by
the Holders of not less than twenty-five (25%) of the outstanding Series C
Registrable and Securities Series D Registrable Securities then any such
limitation will first exclude securities that are not Series C Registrable
Securities or Series D Registrable Securities, and to the extent Series C
Registrable Securities and/or Series D Registrable Securities are excluded, they
shall be excluded on a pro-rata basis in proportion to the number of Series C
Registrable Securities and/or Series D Registrable Securities held by each such
Holder; or (ii) by one or more Holders of Series C Registrable Securities or by
one or more Ares Affiliates, then any such limitation will first exclude
securities that are not Series C Registrable Securities or Series D Registrable
Securities held by an Ares Affiliate, and to the extent Series C Registrable
Securities and/or Series D Registrable Securities held by an Ares Affiliate are
excluded, they shall be excluded on a pro-rata basis in proportion to the number
of Series C Registrable Securities and/or Series D Registrable Securities held
by each such Holder. The Company and/or the Underwriters's Representative may,
in their sole discretion, round the number of securities offered hereunder to
the nearest 100 shares. No securities excluded from the underwriting by reason
of the Underwriter's Representative marketing limitation shall be included in
such registration.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the Underwriter's Representative and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration; PROVIDED, HOWEVER, that, if by the withdrawal of
such Registrable Securities a greater number of Registrable Securities held by
other participating Holders may be included in such registration (up to the
maximum of any limitation imposed by the
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Underwriter's Representative), then the Company shall allocate such greater
number of Registrable Securities first to the Initiating Holders of such
registration, on a pro-rata basis in proportion to the number of Registrable
Securities then held by each such Initiating Holder, and second to such other
Holders on a pro rata basis in proportion to the number of shares of
Registrable Securities requested by such other Holders. Any Registrable
Securities so withdrawn from registration shall be subject to the market
standoff provisions set forth in Section 1.14 hereof.
If the Underwriter's Representative has not limited the number of
Registrable Securities to be underwritten, the Company may include securities
for its own account or for the account of other shareholders of the Company in
such registration if the Underwriter's Representative so agrees.
(c) WITHDRAWAL. The Initiating Holders at any time prior to the
effective date of any registration pursuant to this Section 1.4 may withdraw
its demand for such registration by giving written notice to the Company and
such registration shall not count towards determining if the Company has
effected three registrations pursuant to Section 1.4(a)(ii)(C); PROVIDED,
HOWEVER, that the Initiating Holders shall be responsible for the reasonable
expenses of such registration so long as the Company shall have complied in
good faith with its obligations hereunder to effect such registration as soon
as practicable after the demand of the Initiating Holders, and, PROVIDED,
FURTHER, that the Initiating Holders will not be responsible for any such
expenses if they withdraw their demand within ten (10) business days after
the end of a registration deferral period effected by the Company pursuant to
Section 1.4(a)(ii).
1.5 COMPANY REGISTRATION.
(a) If at any time or from time to time 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 registration rights pursuant
to Section 1.4 or 1.7, other than (i) a registration relating solely to
employee benefit plans or a registration relating to a corporate
reorganization or other transaction under Rule 145, or (ii) a registration in
which the only equity security being registered is Common Stock issuable upon
conversion of debt securities which are also being registered, the Company
will:
(i) promptly give to each Holder written notice thereof, which
notice, in any event, shall be given at least twenty (20) business days
before the effectiveness of any registration under this Section 1.5; 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 1.5(b) below, and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests,
made by any Holder and received by the Company within twenty (20) days after
the written notice from the Company described in clause (i) above is mailed
or delivered by the Company. 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
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part of the written notice given pursuant to Section 1.5(a)(i). In such
event, the right of any Holder to registration pursuant to this Section 1.5
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
other holders of 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 1.5, if the
representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, and the Company so advises the Holders of Registrable
Securities, the representative may (subject to the limitations set forth
below) limit the number of Registrable Securities to be included in, the
registration and underwriting; PROVIDED, HOWEVER, that such underwriting
limitation shall be applied first to exclude shares that are not Registrable
Securities, and any balance of the shares to be excluded then shall be
allocated pro rata among the Holders of Registrable Securities in proportion
to the number of Registrable Securities requested by each such Holder to be
included in such registration and underwriting, except that the underwriter's
representative may (i) in the case of the Company's initial registered public
offering, exclude some or all Registrable Securities from such registration
and underwriting on a pro rata basis as described above and (ii) in the case
of any subsequent registered public offering (other than a registered public
offering effected pursuant to Section 1.4), not limit the number of shares of
Registrable Securities to be included in such registration and underwriting
to less than thirty-five percent (35%) of the securities included in such
public offering (based on aggregate market values). 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. Any Registrable
Securities so withdrawn shall be subject to the market standoff provisions of
Section 1.14 hereof.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.5 prior to the effectiveness of such registration whether or not
any Holder has elected to include Registrable Securities in such registration.
1.6 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 1.4, 1.5 and 1.7 hereof shall be paid by the Company.
1.7 REGISTRATION ON FORM S-3 AND FOLLOWING THE INITIAL PUBLIC
OFFERING OF THE COMPANY. After its initial public offering, the Company shall
use its best efforts to qualify for registration on
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Form S-3 under the Securities Act 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 demand
registrations on Form S-3; PROVIDED, HOWEVER, that the proposed aggregate
offering price to the public of the securities to be so registered (net of
underwriting discounts and commissions, if any) would exceed $2,000,000
(provided that the determination of the aggregate offering price of the
Registrable Securities proposed to be registered shall be made by the Holders
demanding such registration in good faith); and, PROVIDED FURTHER, that the
Company shall not be required to effect more than two registrations pursuant
to this Section 1.7 in any twelve (12) month period. In the event the
registration is proposed by the Holders of a majority of the Registrable
Securities to be included in such registration to be part of a firm
commitment underwritten public offering, (i) the substantive provisions of
Section 1.5(b) shall be applicable to each such registration initiated under
this Section 1.7, and (ii) subject to the reasonable approval of the Holders
of a majority of the Registrable Securities to be included in such
registration, the Company shall be entitled to select the underwriter, which
shall be an investment bank of recognized national standing.
Notwithstanding the foregoing, the Company shall not be obligated to
take any action pursuant to this Section 1.7:
(a) in any particular jurisdiction in which the Company would be
required to execute a general consent to service or 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) if the Company, within ten (10) days of the receipt of the
request of the Holders, gives notice of its BONA FIDE intention to effect the
filing of a registration statement with the Commission within ninety (90)
days of receipt of such demand (other than with respect to a registration
statement relating to Rule 145 transaction, an offering solely to employees,
or any other registration which is similarly not appropriate for the
registration of Registrable Securities);
(c) on the date filing of, and ending on the date six (6) months
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan or any other registration which is similarly not appropriate for the
registration of Registrable Securities); or
(d) if the Company shall furnish to the Holders proposing to
distribute Registrable Securities a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors
it would be seriously detrimental to the Company or its shareholders for
registration statements to be filed in the near future, then the Company's
obligation to use its reasonable best efforts to file a registration
statement shall be deferred for a period not to exceed 90 days from the
receipt of the demand to file such registration by such Holders, provided
that the Company may not exercise this deferral right more than once in any
twelve (12) month period with respect to any one such demand for registration.
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1.8 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to Section 1, the Company will prepare and
file with the Commission a registration statement on an appropriate term
including the Registrable Securities being registered and, subject to Section
1.5(c), will use its best efforts to cause such registration statement to
become effective and 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 continuously effective for a period of
one hundred and eighty (180) days or until the Holder or Holders have
completed the distribution described in the registration statement relating
thereto, whichever first occurs; provided, however, that such 180 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;
(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 and so that such
registration statement and prospectus shall not include an untrue statement
of a material 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;
(c) Furnish such number of prospectuses and other documents
incident thereto, including 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 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 to such registration statement and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration;
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(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; and
(h) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1 hereof, the Company will
enter into an underwriting agreement in form 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 and indemnification provisions. The Company will retain the
necessary counsel and accountants in order to provide the legal opinions on
behalf of the Company and comfort letters required by such underwriting
agreement and shall provide copies thereof to each seller of Registrable
Securities who so requests.
1.9 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its officers,
directors, partners, members, 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, if any, and
each person who controls any such underwriter within the meaning of Section
15 of the Securities Act, 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 prospectus, 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 or the
Exchange Act 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, members, 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 any Holder
or underwriter 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
underwriter and stated to be specifically for use therein. It is agreed that
the indemnity agreement contained in this Section 1.9(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).
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(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification,
or compliance is being effected, indemnify (severally, but not jointly) the
Company, each of its directors, officers, partners, members 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 each of their officers, directors, partners and
members, and each person controlling such Holder, against all claims, losses,
damages and liabilities (or actions 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, 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, directors, officers, partners, members, 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 and stated to be
specifically for use therein, 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).
(c) Each party entitled to indemnification under this Section 1.9
(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 such claim
or any litigation resulting therefrom, PROVIDED, HOWEVER, 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, to the extent such failure is not materially prejudicial; and
PROVIDED FURTHER, that the Indemnifying Party shall not assume the defense
for matters as to which representation of both the Indemnifying Party and the
Indemnified Party by the same counsel would be inappropriate due to actual or
potential differing interests between them or if the Indemnified Party has
reasonably concluded that there may be one or more legal defenses available
to it which are different from or additional to those available to the
Indemnifying Party, but shall instead in such event pay the fees and costs of
separate counsel for the Indemnified Party or any other Indemnified Party. 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 that: (i) contains an admission of
fault on the part of any Indemnified Party; or (ii) does not include as an
unconditional term thereof the giving by the claimant or plaintiff to each
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
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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 1.9 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 that 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
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 of omission.
(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.
1.10 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 may reasonably request in
writing and as shall be reasonably required in connection with any
registration, qualification, or compliance referred to in this Section 1.
1.11 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written
consent of the Majority Holders, enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder any registration rights which are senior or more
advantageous in any respects to the rights granted hereunder.
1.12 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission that 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 regarding the Company
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after ninety (90) days 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; and
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(c) So long as a Investor owns any Restricted Securities, furnish
to the Investor 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 Investor may reasonably request in
availing itself of any Rule or regulation of the Commission allowing a
Investor to sell any such securities without registration.
1.13 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities granted to a Holder by the
Company under this Section 1 may be transferred or assigned by a Holder in
connection with the transfer of such Registrable Securities, 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 the
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 assumes in writing
the obligations of such Holder under this Section 1; and provided further
that such transferee acquires at least 50,000 shares of Registrable
Securities (as presently constituted and subject to subsequent adjustment for
stock splits, stock dividends, reverse stock splits, recapitalizations and
the like) or all remaining shares held by any Holder
1.14 MARKET STANDOFF AGREEMENT. In connection with any firm commitment
underwritten initial public offering of the Company's securities in
connection with an effective registration statement under the Securities Act,
each Holder agrees, upon the request of the underwriters managing such
underwritten offering of the Company's securities, not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any securities of the Company (other than those included in the
registration) without the prior written consent of such underwriters for such
period of time not to exceed one hundred eighty (180) days from the effective
date of such registration, as may be requested by the underwriters, provided
that the officers and directors of the Company and any beneficial holders of
five percent (5%) or more of the number of shares of outstanding Common Stock
also agree to such restrictions. With respect to any other firm commitment
underwritten public offering of the Company's securities in connection with
an effective registration statement under the Securities Act, upon the
request of the underwriters managing such underwritten offering of the
Company's securities, each Holder who is an officer, director or affiliate
(as that term is defined in Rule 144) of the Company or is a beneficial
holder of five percent (5%) or more of the number of shares outstanding
Common Stock agrees not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any securities of the
Company (other than those included in the registration) without the prior
written consent of such underwriters for such period of time not to exceed
ninety (90) days from the effective date of such registration, as may be
requested by the underwriters, provided that the officers and directors of
the Company and any beneficial holders of five percent (5%) or more of the
number of shares of outstanding Common Stock also agree to such restrictions.
Each Holder agrees
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that the Company may instruct its transfer agent to place stop-transfer
notations in its records to enforce the provisions of this Section 1.14.
1.15 TERMINATION OF REGISTRATION RIGHTS. The rights granted pursuant to
Sections 1.4, 1.5 and 1.7 of this Agreement shall terminate as to any Holder
upon the earlier of (i) the date five (5) years after the effective date of
the initial registered public offering of the Common Stock of the Company or
(ii) the date one (1) year after such time that such Holder may sell all the
Registrable Securities held by such Holder under Rule 144(k), so long as the
Company's Common Stock is traded on either the New York Stock Exchange or on
NASDAQ, or any successor exchange or listing thereto.
2. COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees as follows:
2.1 BASIC FINANCIAL INFORMATION. The Company will furnish the
following reports to each Investor:
(a) As soon as practicable after the end of each fiscal year of
the Company (including, without limitation, fiscal 1998), and in any event
within ninety (90) days thereafter, an audited consolidated balance sheet of
the Company and its subsidiaries, if any, as at the end of such fiscal year,
and audited consolidated statements of income and cash flows of the Company
and its subsidiaries, if any, for such year, prepared in accordance with
generally accepted accounting principles consistently applied and setting
forth in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and certified by independent public
accountants of recognized 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, a consolidated
balance sheet of the Company and its subsidiaries, if any, as of the end of
each such quarterly period, and consolidated statements of income and 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 financial
statements need not contain the notes required by generally accepted
accounting principles.
2.2 ADDITIONAL INFORMATION AND RIGHTS.
(a) The Company will permit any Investor or its representative,
so long as such Investor or its representative either (i) owns at least
50,000 shares of Restricted Securities (subject to subsequent adjustment for
stock splits, stock dividends, reverse stock splits, recapitalizations and
the
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like) or (ii) represents that it is a "venture capital operating company" for
purposes of Department of Labor Regulation Section 2510.3-101 (each, a
"Significant Holder"), and provided such Investor is not reasonably
identified by the Board of Directors of the Company as a competitor of the
Company, 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) The Company will deliver the reports described below in this
Section 2.2 to each Significant Holder:
(i) Annually (and in any event no later than ten (10)
days after adoption by the Board of Directors 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 at least a
projection of income and a projected cash flow statement for each fiscal
quarter in such fiscal year and a projected balance sheet as of the end of
each fiscal quarter in such fiscal year. Any material changes in such
financial plan shall be delivered to each Significant Holder as promptly as
practicable after such changes have been approved by the Board of Directors
of the Company.
(ii) With reasonable promptness, such other information
and data with respect to the Company and its subsidiaries as any such person
may from time to time reasonably request.
(iii) As soon as practicable after transmission or
occurrence and in any event within ten (10) days thereof, copies of any
response or communications delivered to any class of the Company's security
holders or broadly to the financial community, including any filings by the
Company with any securities exchange, the Securities and Exchange Commission
or the National Association of Securities Dealers, Inc.
(c) The provisions of Section 2.1 and this Section 2.2 shall not
be in limitation of any rights which any Investor 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.
(d) Anything in Section 2 to the contrary notwithstanding, no
Investor or Significant Holder by reason of this Agreement shall have access
to any trade secrets or confidential information of the Company. Each
Significant Holder hereby agrees to hold in confidence and trust and not to
misuse or disclose any confidential information provided pursuant to this
Section 2.2 or obtained pursuant to Section 2.12. Notwithstanding the
foregoing sentence, a Significant Holder may disclose confidential
information obtained pursuant to this Section 2.2 or Section 2.12 if the
Company has previously made such information available to the public
generally or if required by law or regulation or to assert a claim or
defense, provided the Company is given reasonable advance notice of the
intended disclosure and an opportunity to seek confidential treatment or an
appropriate court order preventing public disclosure.
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(e) From the date the Company becomes subject to the reporting
requirements of the Exchange Act (which shall include any successor federal
statute), and in lieu of the financial information required pursuant to
Sections 2.1 and 2.2, copies of its annual reports on Form 10-K and its
quarterly reports on Form 10-Q, respectively.
(f) Each Investor who represents to the Company that it is a
"venture capital operating company" for purposes of Department of Labor
Regulation Section 2510.3-101 shall in addition have the right to consult
with and advise the officers of the Company as to the management of the
Company.
(g) The information and other rights granted to an Investor under
Section 2.1 and 2.2 may be transferred or assigned by an Investor in
connection with the transfer of Restricted Securities, 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 the
transferee or assignee and identifying the securities with respect to which
such rights are being transferred or assigned, and, provided further, that
the transferee or assignee of such rights is not reasonably deemed to be a
competitor of the Company; and provided further that such transferee acquires
at least 50,000 shares of Restricted Securities (as presently constituted and
subject to subsequent adjustment for stock splits, stock dividends, reverse
stock splits, recapitalizations and the like) or all remaining shares held by
any Investor.
2.3 RIGHT OF FIRST REFUSAL. The Company hereby grants to each Holder
of at least 50,000 Registrable Securities (as presently constituted and
subject to subsequent adjustment for stock splits, stock dividends, reverse
stock splits, recapitalizations and the like) the right of first refusal to
purchase a pro rata share of New Securities (as defined in this Section 2.3)
which the Company may, from time to time, propose to sell and issue. A
Holder's pro rata share, for purposes of this right of first refusal, is the
ratio of the number of shares of Common Stock owned by such Holder
immediately prior to the issuance of New Securities, assuming full conversion
of all Preferred Stock, to the total number of shares of Common Stock
beneficially held by all Holders immediately prior to the issuance of New
Securities, assuming full conversion of all Preferred Stock and exercise of
all outstanding rights, options and warrants to acquire Common Stock of the
Company held by all Holders. Each Holder of at least 50,000 Registrable
Securities (as presently constituted and subject to subsequent adjustment for
stock splits, stock dividends, reverse stock splits, recapitalizations and
the like) shall have a right of over-allotment such that if any Holder fails
to exercise its right hereunder to purchase its pro rata share of New
Securities hereunder, the other Holders may purchase the non-purchasing
Holder's portion on a pro rata basis within ten (10) days from the date such
non-purchasing Holder fails to exercise its right hereunder to purchase its
pro rata share of New Securities. This right of first refusal shall be
subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including
Common Stock and/or Preferred Stock) of the Company whether now authorized or
not, and rights, options or warrants to purchase such capital stock, and
securities of any type whatsoever that are, or may become, convertible into
capital stock; provided that the term "New Securities" does not include (i)
any securities issued pursuant to the Purchase Agreement or outstanding on
the date of this
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Agreement; (ii) securities issued upon conversion of the Company's Preferred
Stock; (iii) any additional shares of Common Stock issued pursuant to Section
5(c) of Article V(B) of the Restated Articles; (iv) securities issued
pursuant to the acquisition of another business entity or business segment of
any such entity by the Company by merger, purchase of substantially all the
assets or other reorganization whereby the Company will own more than fifty
percent (50%) of the voting power of such business entity or business segment
of any such entity; (v) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of
debt instrument, provided such borrowings do not have any equity features
including warrants, options or other rights to purchase capital stock and are
not convertible into capital stock of the Company; (vi) securities issued to
employees, consultants, officers or directors of the Company pursuant to any
stock option, stock purchase or stock bonus plan, agreement or arrangement
approved by the Board of Directors; (vii) securities issued to vendors or
customers or to other persons in similar commercial situations with the
Company if such issuance is approved by the Board of Directors; (viii)
securities issued in connection with obtaining lease financing, whether
issued to a lessor, guarantor or other person; (ix) securities issued in an
underwritten public offering pursuant to a registration under the Securities
Act; (x) securities issued in connection with any stock split, stock dividend
or recapitalization of the Company; (xi) securities issued to strategic
investors in connection with corporate partnering transactions not
principally designed to raise capital, up to an aggregate of $50,000,000 on
terms approved by the Board of Directors; and (xii) any right, option or
warrant to acquire any security convertible into the securities excluded from
the definition of New Securities pursuant to subsections (i) through (xi)
above.
(b) In the event the Company proposes to undertake an issuance of
New Securities, it shall give each Holder of at least 50,000 Registrable
Securities (as presently constituted and subject to subsequent adjustment for
stock splits, stock dividends, reverse stock splits, recapitalizations and
the like) written notice of its intention, describing the type of New
Securities, and their price and the general terms upon which the Company
proposes to issue the same. Each such Holder shall have twenty (20) days
after any such notice is mailed or delivered to agree to purchase such
Holder's pro rata share of such New Securities for the price and upon the
terms (including as to form of consideration) specified in the notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased.
(c) In the event the Holders of at least 50,000 Registrable
Securities (as presently constituted and subject to subsequent adjustment for
stock splits, stock dividends, reverse stock splits, recapitalizations and
the like) fail to exercise fully their right of first refusal within said
twenty (20) day period and after the expiration of the 10-day period for the
exercise of the over-allotment provisions of this Section 2.3, the Company
shall have one hundred twenty (120) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall
be closed, if at all, within one hundred twenty (120) days from the date of
said agreement) to sell the New Securities in respect of which such Holders'
right of first refusal option set forth in this Section 2.3 was not
exercised, at a price and upon terms (including as to form of consideration)
no more favorable to the purchasers thereof than specified in the Company's
notice to the Holders pursuant to Section 2.3(b). In the event the Company
has not sold within said 120-day
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period or entered into an agreement to sell the New Securities in accordance
with the foregoing within one hundred twenty (120) days from the date of said
agreement, the Company shall not thereafter issue or sell any New Securities,
without first again offering such securities to the Holders in the manner
provided in Section 2.3(b) above.
(d) The right of first refusal granted to a Holder under this
Section 2.3 may be transferred or assigned by such Holder in connection with
the transfer of Registrable Securities, 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 the transferee or assignee and
identifying the securities with respect to which such rights are being
transferred or assigned, and, provided further that such transferee acquires
at least 50,000 shares of Registrable Securities (as presently constituted
and subject to subsequent adjustment for stock splits, stock dividends,
reverse stock splits, recapitalizations and the like) or all remaining shares
held by any Holder.
2.4 PROMPT PAYMENT OF TAXES, ETC. The Company will timely file all
required tax returns and reports and will promptly pay and discharge, or
cause to be paid and discharged, when due and payable (or prior to the
expiration of any applicable extensions therefor), 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 in accordance with generally accepted
accounting principles, 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.
2.5 MAINTENANCE OF PROPERTIES AND LEASES. 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 business, assets,
operations, condition (financial or otherwise) or results of operations of
the Company.
2.6 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 similarly situated
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
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<PAGE>
property to the extent and in the manner customary for companies in similar
businesses similarly situated.
2.7 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.
2.8 INDEPENDENT ACCOUNTANTS. The Company will retain independent
public accountants of recognized national standing who shall audit and
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 Investors and
will request the firm of independent public accountants whose services are
terminated to deliver to the Investors 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 Investors 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.
2.9 COMPLIANCE WITH REQUIREMENTS OF GOVERNMENT AUTHORITIES. The
Company and all its subsidiaries shall duly observe and conform to all laws,
statutes, rules, regulations and valid requirements of governmental
authorities relating to the conduct of their businesses or to their
properties or assets.
2.10 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,
licenses, 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
its business.
2.11 EMPLOYEE AND OTHER STOCK ARRANGEMENTS. The Company will not,
without the written approval of the Majority Holders, 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 except for (a) the issuance of up to
5,400,000 shares of Common Stock under the Company's 1997 and 1998 Stock
Option Plans and (b) the issuance of additional shares of additional Common
Stock or options or rights exercisable for shares of Common Stock, such
additional shares not to exceed on an aggregate basis 5% of the outstanding
Common Stock of the Company as of the date hereof on a fully diluted basis.
2.12 ATTENDANCE AT BOARD MEETINGS. Each Significant Holder or its
representative shall have the right to attend all meetings of the Board of
Directors in a nonvoting observer capacity, to receive notice of such
meetings and to receive the information provided by the Company to the Board
of Directors; provided, however, that the Company may require as a condition
precedent to any Significant Holder's rights under this Section 2.12 that
each person proposing to attend any meeting of the Board of Directors and
each person to have access to any of the information provided
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<PAGE>
by the Company to the Board of Directors shall agree to abide by the
confidentiality provisions set forth in Section 2.2(d) with respect to all
information so received during such meetings or otherwise; and, provided
further, that the Company reserves the right not to provide information and
to exclude such Significant Holder (or its representative) from any meeting
of its Board of Directors if delivery of such information or attendance at
such meeting by such Significant Holder (or its representative) would result
in disclosure of trade secrets to such Significant Holder or its representative
or would adversely affect the attorney-client privilege between the Company
and its counsel or if such Significant Holder or its representative is a
direct competitor of the Company.
2.13 TRANSACTIONS WITH AFFILIATES. The Company shall not, without the
approval of the disinterested members of the Company's Board of Directors ,
engage in any loans, leases, contracts or other transactions with any
director, officer, key employee or other affiliate 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 obtain in a transaction with an unrelated party, as
determined in good faith by the Board of Directors.
2.14 OTHER CAPITAL STOCK. The Company shall not issue any other capital
stock of the Company other than the Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or capital stock which is junior in
all respects to the Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock without the written prior approval of the Majority
Holders.
2.15 PUBLIC COMPANY. The Company shall exert reasonable best efforts to
complete a Qualified Public Offering, as such term is defined in Section 4(b)
of Article V(B) set forth in the Restated Articles, as soon as possible
following the date hereof.
2.16 TERMINATION OF COVENANTS. The covenants set forth in this Section 2
shall terminate and be of no further force and effect after the closing of a
Qualified Public Offering, as such term is defined in Section 4(b) of
Article V(B) set forth in the Restated Articles.
3. MISCELLANEOUS.
3.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California, as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.2 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.
3.3 ENTIRE AGREEMENT. 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.
3.4 AMENDMENT; WAIVER. Except as otherwise provided above, any
provision of this Agreement may be amended or the observance thereof may be
waived (either generally or in a
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<PAGE>
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Majority Holders. Notwithstanding the
foregoing, (i) no amendment shall be made to this Agreement which adversely
affects the relative rights and preferences of a particular class of Holders
(i.e., the Series C Registrable Securities, the Series D Registrable
Securities, the Series E Registrable Securities, the Wharton Note Shares or
the Wharton Warrant Shares) without the written consent of a majority of the
Registrable Securities held by the Holders in such adversely affected class
and (ii) in no event shall the rights of Ares or an Ares Affiliate under
Section 1.1(f) (as applied in Section 1.4), Section 1.2, Section 1.3(f) or
this Section 3.4 be amended or waived, except upon the written consent of
Ares or such Ares Affiliate. Any amendment or waiver effected in accordance
with this Section 3.4, as applicable, shall be binding upon each Investor,
Holder of Registrable Securities at the time outstanding, each future holder
of any of such securities, and the Company.
3.5 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, sent by facsimile or delivered personally
by hand or nationally recognized courier, addressed (a) if to an Investor, as
indicated on the list of Investors attached hereto as EXHIBIT A, or at such
other address as such holder or permitted assignee shall have furnished to
the Company in writing, or (b) if to the Company, at such address or
facsimile number set forth on Exhibit A or as the Company shall have
furnished to each Investor in writing. All such notices and other written
communications shall be effective on the date of mailing, facsimile transfer
or delivery.
3.6 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 Investor 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 therefore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any Investor of any breach or default under this
Agreement or any waiver on the part of any Investor 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 Investor,
shall be cumulative and not alternative.
3.7 RIGHTS; SEPARABILITY. Unless otherwise expressly provided herein,
an Investor's rights hereunder are several rights, not rights jointly held
with any of the other Investors. 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.
3.8 CONFIDENTIAL INFORMATION. Each Investor acknowledges that the
information received by them pursuant hereto may be confidential and for its
use only, 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 employees or agents having a need to know
the contents of such information, and its attorneys) except in connection
with the exercise of rights
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<PAGE>
under this Agreement. Notwithstanding the foregoing sentence, an Investor may
disclose such confidential information if the Company has previously made
such information available to the public generally or if required by law or
regulation or to assert a claim or defense, provided the Company is given
reasonable advance notice of the intended disclosure and an opportunity to
seek confidential treatment or an appropriate court order preventing public
disclosure.
3.9 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 or interpreting this Agreement.
3.10 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. Counterparts may be executed and delivered
by facsimile, provided that such delivery is promptly followed by the
delivery of hard copy of the same.
3.11 PRIOR AGREEMENT. Upon the execution of this Agreement by (i) the
Company, (ii) the New Investors, (iii) the Warrant Holders and (iv) the
holders of a majority of the Series C Registrable Securities and the holders
of a majority of the Series D Registrable Securities, this Agreement shall
supersede and replace the Prior Agreement, which shall be terminated and
cease to have any further force and effect. Each Series C Holder and Series D
Holder executing this Agreement hereby waives any and all rights of the
Holders of Registrable Securities granted pursuant to Section 2.3 of the
Prior Agreement with respect to all shares of the Company's Series E
Preferred Stock to be issued pursuant to the Purchase Agreement. Each Series C
Holder and Series D Holder executing this Agreement hereby consents, pursuant
to the terms of Section 2.14 of the Prior Agreement, to the issuance of the
Series E Preferred Stock.
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<PAGE>
3.12 NEW HOLDERS. If a warrant to purchase the Company's Series D
Preferred Stock or Common Stock is granted by the Company to a Lessor, then,
notwithstanding anything in Section 3.4 to the contrary, no consent of any
Holder shall be required to add such Lessor as a party to this Agreement.
Each such Lessor shall execute a counterpart to this Agreement in
substantially the form attached hereto as EXHIBIT B and, upon execution by
such Lessor and by the Company, shall be considered a 'Holder' and an
'Investor' for purposes of this Agreement and shall be added to EXHIBIT A
under the caption 'Warrant Investors.'
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Fourth
Amended and Restated Investor's Rights Agreement effective as of the day and
year first above written.
ZAPME! CORPORATION DELL USA L.P.
BY DELL GEN. P. CORP., ITS GENERAL PARTNER
By: /s/ Lance Mortensen By: /s/ Thomas H. Welch
------------------------- ---------------------------------------
Chairman and Chief
Title: Executive Officer Print your name: Thomas H. Welch
---------------------- --------------------------
Title: Vice President and Assistant
Secretary
------------------------------------
INVESTOR
By: /s/ Richard Gadbois
---------------------------------------
Print your name: Richard Gadbois
--------------------------
PACESETTER CAPITAL CORPORATION
By:
---------------------------------------
Print your name:
--------------------------
Title:
------------------------------------
LEASING TECHNOLOGIES INTERNATIONAL, INC.
By:
---------------------------------------
Print your name:
--------------------------
Title:
------------------------------------
EXISTING INVESTOR
Entity Name:
------------------------------
By:
---------------------------------------
Print your name:
--------------------------
Title:
------------------------------------
(SIGNATURE PAGE TO THE FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT)
<PAGE>
IMPERIAL BANK
By:
---------------------------------------
Print your name:
--------------------------
Title:
------------------------------------
(SIGNATURE PAGE TO THE FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT)
<PAGE>
EXHIBIT A
INVESTOR ("PRIOR HOLDERS")
JNC STRATEGIC FUND, LTD.
Address: c/o Olympia Capital (Cayman) Ltd.
Williams House, 20 Reid Street
Hamilton HM 11, Bermuda
Attn: Thomas Davis
with a copy to:
Christy Constabile
Encore Capital Management LLC
12007 Sunrise Valley Drive, Suite 460
Reston, VA 20191
RESONANCE LIMITED
Address: c/o Pergrine Corporate Service Limited
Burleigh Manor, Peel Road
Douglas, Isle of Man IM15EP
British Isles
Tel: 011-44-624-626-586
Fax: 011-44-624-612-960
JULES NORDLICHT
Address: 255 West Beach Street
Long Beach, NY 11561
Tel: ( ) 432-4636
BRIAN HERRERA
Address: 4350 Rosewood Drive
Pleasanton, CA 94588
Tel: (925) 416-1100
CAVCO OF NORTH FLORIDA, INC.
Address: 9250 Baymeadows Road
Suite 220
Jacksonville, FL 32256
Attn: Charles C. Appleby
Tel: (904) 636-0032
Fax: (904) 636-0699
<PAGE>
BARRY MINSKY
Address: c/o Wharton Capital Partners, Ltd.
545 Madison Avenue
New York, NY 10022
GILAT SATELLITE NETWORKS LTD.
Address: Gilat House
Yegia Kapayim Street,
Daniv Park
Kiryat Arye,
Petach Tikva 49130
Israel
Attn: Ami Samuels
Tel: 011-972-3-925-2000
Fax: 011-972-3-925-2222
ARES LEVERAGED INVESTMENT FUND, L.P.
Address: 1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
Attn: Eric Beckman
Tel: (301) 201-4215
Fax: (301) 201-4171
ARES LEVERAGED INVESTMENT FUND II, L.P.
Address: 1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
Attn: Eric Beckman
Tel: (301) 201-4215
Fax: (301) 201-4171
SYLVAN LEARNING SYSTEMS, INC.
Address: 1000 Lancaster St.,
Baltimore, MD 21202
Attn: Bob Zentz
Tel: (410) 843-8000
Fax: (401) 843-8060
RICK INATOME
Address: 1800 West Maple Road,
Troy, MI 48084
Tel:
Fax:
<PAGE>
SALLY MCGUIRE
Address: 7803 Glenroy Rd., Suite 300
Bloomington, MN 55439
Tel:
Fax:
J. P. SAMPER
Address: 505 Hamilton Avenue,
Palo Alto, CA 94301
Tel:
Fax:
STERLING ZAPME LLC
Address: 650 Dundee Rd., Suite 370
Northbrook, IL 60062
Attn: Steven M. Taslitz
Tel:
Fax:
TROCADERO GROUP LLC
Address: 7803 Glenroy Road
Suite 300
Bloomington, MN 55439
Tel:
Fax:
QUINCE ASSOCIATES, L.P.
Address: 555 Zang Street, Suite 300
Lakewood, CO 80228
Tel:
Fax:
DRAKE HOLDINGS LIMITED
Address: 33 Yonge Street, Suite 300
Toronto, Ontario, M5E1G4, Canada
Tel:
Fax:
ENCORE CAPITAL MANAGEMENT, LLC
Address: 12007 Sunrise Drive
Reston, VA 20191
Tel:
Fax:
<PAGE>
STRONG RIVER INVESTMENTS LTD
Address: 630 Fifth Avenue, 20th Floor
New York, NY 10111
Tel:
Fax:
HEADWATERS CAPITAL
Address: 220 Montgomery Street, Suite 500
San Francisco, CA 94104
Attn: Tim Keating
Tel:
Fax:
JOEL KIRSCHBAUM
Address: Kirkland Investors LLC
527 Madison Ave., 17th Floor
New York, NY 10022
Tel:
Fax:
ANTHONY L. DICESARE
Address: Kirkland Investors LLC
527 Madison Ave., 17th Floor
New York, NY 10022
Tel:
Fax:
STEPHEN C. PERRY
Address: Kirkland Investors LLC
527 Madison Ave., 17th Floor
New York, NY 10022
Tel:
Fax:
WS INVESTMENT COMPANY 99A
Address: 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
JAMES N. STRAWBRIDGE
Address: Centraal Corporation
2 Circle Star Way, 2nd Floor
San Carlos, CA 94070-1350
Tel: (650) 298 8080
<PAGE>
Fax: (650) 298 8085
SUZANNE BELL
Address: 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
QUESTMARK PARTNERS, L.P.
Address: c/o QuestMark Management Co., Inc.
One South Street, Suite 800
Baltimore, MD 21202
Attn: Tim Krongard
Tel: ( )
Fax: ( )
ZM CO-INVESTMENT LLC
Address: 1999 Avenue of the Stars, Suite 1900
Los Angeles, CA 90067
Attn: Eric Beckman
Tel: ( )
Fax: ( )
LANCASTER EQUITIES, LLC
Address: 1000 Lancaster St.
Baltimore, MD 21202
Attn: Thomas McCord
Tel: ( )
Fax: ( )
ZAP INVESTMENTS, LLC
Address: 1000 Lancaster St.
Baltimore, MD 21202
Attn: William F. Achtmeyer
Tel: ( )
Fax: ( )
PHOENIX WORLDWIDE LIMITED
Address: c/o Kleinhadler Halevy Law Firm
30 Kalisher Street
Tel Aviv, 65257, Isreal
Attn: Amir Halevy
Tel: ( )
Fax: ( )
<PAGE>
MAPLE PROPERTIES LIMITED
Address: c/o Kleinhadler Halevy Law Firm
30 Kalisher Street
Tel Aviv, 65257, Isreal
Attn: Amir Halevy
Tel: ( )
Fax: ( )
AMI SAMUELS
Address: c/o Gilat Satellite Networks, Ltd.
Yegia Kapayim Street
Kiryat Arye, Petah Tikva, 49130, Isreal
Tel: ( )
Fax: ( )
EL QUESTOR LIMITED
Address: c/o Kleinhadler Halevy Law Firm
30 Kalisher Street
Tel Aviv, 65257, Isreal
Attn: Amir Halevy
Tel: ( )
Fax: ( )
MORENO LTD.
Address: c/o Kleinhadler Halevy Law Firm
30 Kalisher Street
Tel Aviv, 65257, Isreal
Attn: Amir Halevy
Tel: ( )
Fax: ( )
YOUNG PROPERTIES LIMITED
Address: c/o Kleinhadler Halevy Law Firm
30 Kalisher Street
Tel Aviv, 65257, Isreal
Attn: Amir Halevy
Tel: ( )
Fax: ( )
GARCIA LIMITED
Address: c/o Kleinhadler Halevy Law Firm
30 Kalisher Street
Tel Aviv, 65257, Isreal
Attn: Amir Halevy
Tel: ( )
<PAGE>
Fax: ( )
MICHAEL TSUK
Address: 7 Aliya St.
Ramat-Hasharon 47249, Isreal
Tel: ( )
Fax: ( )
SHELDON REVKIN
Address: 11900 Gainsborough Road
Potomac, Maryland 20854
Tel: ( )
Fax: ( )
DAVID SHIFF
Address: 8510 Garfield St.
Bethseda, MD 20817
Tel: ( )
Fax: ( )
DANIEL J. BERGESON
Address: Ten Almaden Blvd., Suite 200
San Jose, CA 95113
Tel: (408)
Fax: (408)
DAVID J. BERGER
Address: 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-
THOMAS G. BROWN
Address: 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
ANDREW P. BRIDGES
Address: 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
<PAGE>
JAMES A. DIBOISE
Address: 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
MICHAEL S. ELLIS
Address: 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
ANDREW HIRSCH
Address: 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
TIMOTHY T. SCOTT
Address: 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
TIMOTHY V. SPARKS
Address: 650 Page Mill Road
Palo Alto, CA 94304
Tel: (650) 493-9300
Fax: (650) 493-6811
RICHARD STEELE
Address: Centraal Corporation
2 Circle Star Way, 2nd Floor
San Carlos, CA 94070-1350
Tel: (650) 298 8080
Fax: (650) 298 8085
<PAGE>
INVESTOR ("NEW INVESTORS")
DELL USA L.P.
Address: One Dell Way
Round Rock, Texas 78682
Attn: Vice President, Business Development
Tel:
Fax:
RICHARD GADBOIS
Address: 4000 MacArthur Court
Newport Beach, CA 92660
Tel: (800) 814-5666
Fax: (949) 955-6079
<PAGE>
INVESTOR ("WARRANT HOLDERS")
PACESETTER CAPITAL CORPORATION
Address: 351 California Street Suite 1600
San Francisco, CA 94104-2412
Attn: Mr. Max E. LaCounte, President
Tel: (415) 834-0773
Fax: (415) 834-0774
LEASING TECHNOLOGIES INTERNATIONAL, INC.
Address:
Tel: ( )
Fax: ( )
IMPERIAL BANK
Address:
Tel: ( )
Fax: ( )
COMPANY
ZAPME! CORPORATION:
3000 Executive Parkway, Suite 150
San Ramon, CA 94583
Tel: (925) 543-0300
Facsimile: (925) 543-0301
Attn: Bruce D. Bower,
Vice President, Business Development
General Counsel and Secretary
<PAGE>
EXHIBIT B
IN WITNESS WHEREOF, pursuant to Section 3.12 of the Fourth Amended and
Restated Investors' Rights Agreement (the "Agreement") the parties have executed
this signature page to the Agreement this ___ day of _______, ____.
ZAPME! CORPORATION
By:
----------------------------------
Title:
-------------------------------
[WARRANT INVESTOR]
Name:
--------------------------------
Signature:
---------------------------
Print your name:
---------------------
Title (if applicable):
---------------
<PAGE>
Exhibit 10.2
SATELLITE ONLINE SOLUTIONS CORPORATION
1997 EMPLOYEE STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to advance the interests of
SATELLITE ONLINE SOLUTIONS CORPORATION (the "Company") by providing an
opportunity to its selected key employees (as defined in Paragraph 2(b)),
consultants (as defined in Paragraph 2(a)), and directors (as defined in
Paragraph 2(d)), to purchase shares (the "Shares") of the Common Stock, par
value $.01 per share (the "Common Stock"), of the Company. By encouraging
stock ownership, the Company seeks to attract, retain and motivate key
employees, consultants and directors. It is intended that this purpose will
be effected by the granting of (i) incentive stock options ("Incentive
Options") as described in Section 422A of the Internal Revenue Code of 1986,
as amended (the "Code"); and (ii) nonqualified stock options ("Nonqualified
Options") as provided herein.
2. DEFINITIONS.
(a) The term "consultants" means those persons, other than employees of
the Company, who provide services to the Company, including members of an
advisory board of the Company and nonemployee directors of the Company, and who
are determined by the Compensation Committee to be eligible under this Plan.
(b) The term "key employees" means those executive, administrative,
operational, engineering or managerial employees who are determined by the
Compensation Committee to be eligible under this Plan.
(c) The term "optionee" means an individual to whom an option is granted
under this Plan.
(d) The term "director" means those members of the Company's Board of
Directors.
3. EFFECTIVE DATE. This Plan will become effective on October 15, 1997.
4. STOCK SUBJECT TO THE PLAN. The Shares that may be purchased through
the exercise of options under this Plan shall not exceed in the aggregate
1,363,730 Shares. If any options granted under the Plan shall terminate,
expire or be cancelled as to any Shares, new options may thereafter be
granted covering such Shares. In addition, any Shares purchased under this
Plan subsequently repurchased by the Company pursuant to the terms hereof may
again be granted under the Plan. The Shares issued upon exercise of options
under this Plan may, in whole or in part, be either authorized but unissued
Shares or issued Shares reacquired by the Company. Notwithstanding any other
provisions of this Plan, the aggregate number of Shares subject to
outstanding options granted under the Plan, plus the aggregate number of
Shares issued upon the exercise of all options granted under the Plan, shall
never be permitted to exceed the number of Shares specified in the first
sentence of section 4, except in accordance with subsection 8(a) below.
5. ADMINISTRATION. The Plan shall be administered by the Board of
Directors of the
<PAGE>
Company (the "Board"), or by a committee appointed by the Board which shall
not have less than two (2) members (in either case, the "Compensation
Committee"). The Compensation Committee may delegate nondiscretionary
administrative duties to such employees of the Company as it deems proper.
Subject to the provisions of the Plan, the Compensation Committee shall have
the sole authority, in its discretion:
(a) to determine to which of the eligible individuals, and the
time or times at which, options to purchase Common Stock of the Company shall be
granted;
(b) to determine the number of shares of Common Stock to be
subject to options granted to each eligible individual;
(c) to determine the price to be paid for the shares of Common
Stock upon the exercise of each option;
(d) to determine the term and the exercise schedule of each
option;
(e) to determine the terms and conditions of each stock option
agreement (which need not be identical) entered into between the Company and any
eligible individual to whom the Compensation Committee has granted an option;
(f) to interpret the Plan; and
(g) to make all determinations deemed necessary or advisable for
the administration of the Plan.
The Compensation Committee, if any, shall be appointed by and shall
serve at the pleasure of the Board of Directors of the Company. No member of the
Compensation Committee shall be liable for any action or determination made with
respect to the Plan.
6. ELIGIBLE EMPLOYEES, CONSULTANTS AND DIRECTORS. Incentive Options may
be granted to such key employees of the Company, including members of the
Board of Directors who are also employees of the Company, as are selected by
the Compensation Committee or Board of Directors. Nonqualified Options may be
granted to such key employees and consultants of the Company, including
members of the Board of Directors, as are selected by the Compensation
Committee or the Board of Directors. The term "employee" includes an officer
or director who is an employee of the Company or a parent or subsidiary of
it, as well as a nonofficer, nondirector employee of the Company or a parent
or subsidiary of it.
7. DURATION OF THE PLAN. This Plan shall terminate ten (10) years from
the effective date of this Plan, unless terminated earlier pursuant to
Paragraph 13 hereof, and no options may be granted after such termination.
8. RESTRICTIONS ON INCENTIVE OPTIONS. Incentive Options (but not
Nonqualified Options) granted under this Plan shall be subject to the
following restrictions:
<PAGE>
(a) Limitation on Number of Shares. The aggregate fair market
value, determined as of the date the Incentive Option is granted, of the
Shares with respect to which Incentive Options are exercisable for the first
time by an employee during any calendar year shall not exceed $100,000. If an
employee is eligible to participate in any other incentive stock option plans
of the Company which are also intended to comply with the provisions of
Section 422A of the Code, the applicable annual limitation shall apply to the
aggregate number of Shares for which Incentive Options may be granted under
all such plans. An Incentive Option may be granted which exceeds the $100,000
limitation, as long as under then applicable law the portion of such Option
which is exercisable for shares in excess of the $100,000 limitation shall be
treated as a nonqualified option. No Incentive Options may be exercised until
and unless the Plan is approved by the shareholders within one year of the
date hereof, such approval to be expressed in any legal way under California
law.
(b) 10% Stockholder. If any employee to whom an Incentive Option
is granted pursuant to the provisions of the Plan is on the date of grant the
owner of stock (as determined under Section 425(d) of the Code) possessing more
than 10% of the total combined voting power of all classes of stock of the
Company (or of any parent or subsidiary of the Company), then the following
special provisions shall be applicable to the Incentive Option granted to such
individual:
(i) The option price per Share subject to such Incentive
Option shall not be less than 110% of the fair market value of one Share on the
date of grant; and
(ii) The Incentive Option shall not have a term in
excess of ten (10) years from the date of grant.
In determining stock ownership, an Optionee shall be considered as owning the
voting capital stock owned, directly or indirectly, by or for his brothers and
sisters, spouse, ancestors, and lineal descendants. Voting capital stock owned,
directly or indirectly, by or for a corporation, partnership, estate or trust
shall be considered as being owned proportionately by or for its shareholders,
partners, or beneficiaries, as applicable. Common Stock with respect to which
any such Optionee holds an option shall not be counted. Additionally,
outstanding capital stock shall include all capital stock actually issued and
outstanding immediately after the grant of the option to the optionee.
Outstanding capital stock shall not include capital stock authorized for issue
under outstanding options held by the Optionee or by any other person.
9. TERMS AND CONDITIONS OF OPTIONS. Incentive and Nonqualified Options
granted under this Plan shall be evidenced by stock option agreements in such
form and not inconsistent with the Plan as the Compensation Committee or the
Board of Directors shall approve from time to time, which agreements shall
evidence the following terms and conditions:
(a) Price.
(i) Incentive Options. Subject to the condition of
subparagraph (b)(i) of Paragraph 8, if applicable, with respect to each
Incentive Option, the purchase price per Share payable upon the exercise of each
Incentive Option granted hereunder shall be determined by the
<PAGE>
Compensation Committee or the Board of Directors and shall be not less than
100% of the fair market value of one Share on the day the option is granted.
(ii) Nonqualified Options. With respect to each
Nonqualified Option, the purchase price per Share payable upon the exercise
of each Nonqualified Option granted hereunder shall be determined by the
Compensation Committee or the Board of Directors at the time the Nonqualified
Option is granted, but shall not be less than 100% of fair market value at
the time of grant.
(b) Number of Shares. Each option agreement shall specify the
number of Shares to which it pertains.
(c) Exercise. Subject to the conditions of subparagraphs (a) and
(b)(ii) of Paragraph 8, if applicable, each option shall be exercisable for the
full amount or for any part thereof and at such intervals or in such
installments as the Compensation Committee or the Board of Directors may
determine at the time it grants such option; provided, however, that no option
shall be exercisable with respect to any Shares later than ten (10) years after
the date of the grant of such option.
(d) Notice of Exercise and Payment. An option shall be
exercisable only by delivery of a written notice to the Compensation Committee
or any other officer of the Company designated by the Compensation Committee or
the Board of Directors to accept such notices on its behalf, specifying the
number of Shares for which it is exercised. If such Shares are not at the time
effectively registered under the Securities Act of 1933, as amended, the
Optionee shall include with such notice a letter, in form and substance
satisfactory to the Company, confirming that such Shares are being purchased for
the optionee's own account for investment and not with a view to the resale or
distribution thereof. Payment shall be made in full at the time of delivery to
the optionee of a certificate or certificates covering the number of Shares for
which the option was exercised. Payment shall be made (i) by cash or check, (ii)
if permitted by the Compensation Committee or the Board of Directors, by
delivery and assignment to the Company of shares of the Company's stock having a
fair market value (as determined by the Compensation Committee) equal to the
exercise price, (iii) if permitted by the Compensation Committee or the Board of
Directors, by a promissory note, or (iv) by a combination of (i), (ii), and
(iii). The value of the shares of the Company's stock for such purpose shall be
its fair market value as of the date the option is exercised, as determined in
accordance with procedures to be established by the Compensation Committee.
(e) Withholding Taxes; Delivery of Shares. The Company's
obligation to deliver Shares upon exercise of a Nonqualified Option, in whole or
in part, shall be subject to the Optionee's satisfaction of all applicable
federal, state, and local income and employment tax withholding obligations. The
Optionee may satisfy the obligation, in whole or in part, by electing to have
the Company withhold Shares having a value equal to the amount required to be
withheld. The value of Shares to be withheld shall be based on the fair market
value of the Shares on the date the amount of tax to be withheld is to be
determined. If Common Stock acquired by exercise of an incentive stock option
granted pursuant to this Plan is disposed of within two (2) years from the date
of grant of the option or within one (1) year after the transfer
<PAGE>
of the Common Stock to the optionee, the holder of the Common Stock
immediately prior to the disposition shall promptly notify the Company in
writing of the date and terms of the disposition and shall provide such other
information regarding the disposition as the Company may reasonably require.
(f) Nontransferability. No option shall be transferable by the
Optionee otherwise than by will or the laws of descent or distribution, and each
option shall be exercisable during his lifetime only by him (except as otherwise
provided for in subparagraph (g) below).
(g) Termination of Options. Each option shall terminate and may
no longer be exercised thirty (30) days after the Optionee ceases for any reason
to be an employee or director of, or consultant to, the Company, except that:
(i) if the Optionee's performance of services shall have
been terminated because of disability within the meaning of Section 22(e)(3)
of the Internal Revenue Code, the Optionee may, at any time within a period
of one (1) year after the termination of performance of services, exercise
his option to the extent that the option was exercisable by him on the date
of termination of his employment or performance of services; and
(ii) if the Optionee dies at a time when the option was
exercisable by him, then his estate, personal representative or beneficiary
to whom it has been transferred may, at any time within a period of one (1)
year following his death if the Optionee's performance of services shall have
been terminated by his death, or for the period following the termination of
his performance of services during which the option would have remained
exercisable under clauses (i) or (ii) above if the Optionee's performance of
services shall have been terminated prior to his death, exercise the option
to the extent the Optionee might have exercised it at the time of his death;
provided, however, that no option may be exercised to any extent by anyone
after the date of expiration of the option.
(h) Rights as Stockholder. The Optionee shall have no rights as
a stockholder with respect to any Shares covered by his option until the date of
issuance of a stock certificate to him for such Shares.
(i) Repurchase of Shares by the Company. Any Shares purchased by
an Optionee upon exercise of an option may in the discretion of the Compensation
Committee or the Board of Directors be subject to repurchase by the Company if
and to the extent specifically set forth in the agreement pursuant to which the
Shares were purchased.
10. STOCK DIVIDENDS; STOCK SPLITS; STOCK COMBINATIONS; RECAPITALIZATIONS.
Appropriate adjustment shall be made in the maximum number of Shares of
Common Stock subject to the Plan and in the number, kind and price of Shares
covered by any option granted hereunder to give effect to any stock dividends
or other distributions, stock splits, stock combinations, recapitalizations
and other similar changes in the capital structure of the Company after the
effective date of the Plan.
<PAGE>
11. MERGER; SALE OF ASSETS; DISSOLUTION. In the event of a change of the
Common Stock resulting from a merger or similar reorganization as to which
the Company is the surviving corporation, the number and kind of shares which
thereafter may be subject to options granted under this Plan and the number,
kind and price of Shares then subject to options shall be appropriately
adjusted in such manner as the Compensation Committee or the Board of
Directors may deem equitable to prevent substantial dilution or enlargement
of the rights available or granted hereunder. Except as otherwise determined
by the Board of Directors of the Company, a merger or a similar
reorganization that the Company does not survive, or a sale of all or
substantially all of the assets of the Company, shall cause every Incentive
Option and Nonqualified Option outstanding hereunder to terminate, to the
extent not then exercised, unless any surviving entity agrees to assume the
obligations hereunder.
12. NO RIGHTS. Except as hereinabove expressly provided in Sections 10
and 11, no optionee shall have any rights by reason of any subdivision or
consolidation of shares of the capital stock of any class or the payment of
any stock dividend or any other increase or decrease in the number of shares
of any class or by reason of any dissolution, liquidation, merger or
consolidation or spin-off of assets or stock of another corporation, and any
issue by the Company of shares of stock of any class or of securities
convertible into shares of stock of any class shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to any option granted hereunder. The grant of an
option pursuant to this Plan shall not affect in any way the right or power
of the Company to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure or to merge or consolidate or to
dissolve, liquidate, sell, or transfer all or any part of its business or
assets.
13. COMPLIANCE WITH APPLICABLE LAWS. Notwithstanding any other provision
of the Plan, the Company shall have no liability to issue any shares under
the Plan unless such issuance would comply with all applicable laws and the
applicable requirements of any securities exchange or similar entity. Prior
to the issuance of any shares under the Plan, the Company may require a
written statement that the recipient is acquiring the shares for investment
and not for the purpose or with the intention of distributing the shares.
14. DEATH OF A PARTICIPANT. In the event of the death of an Optionee, any
options which the Optionee was entitled to exercise on the date immediately
preceding his death shall be exercisable by the person or persons to whom
those rights pass by will or by the laws of descent and distribution. Any
such exercise shall be by written notice thereof filed with the Secretary of
the Company at the Company's corporate headquarters prior to the option's
expiration date, and any person exercising such an option shall be treated as
an Optionee for purposes of the provisions of this Plan.
15. EMPLOYMENT AND SHAREHOLDER STATUS. The Plan does not constitute a
contract of employment, and selection as an Optionee will not give any
employee the right to be retained in the employ of the Company. The grant of
an option under the Plan shall not confer upon the holder thereof any right
as a shareholder of the Company. As of the date on which an Optionee
exercises an option, the Optionee shall have all rights of a stockholder of
record with respect to the number of shares of Common Stock as to which the
option is exercised, irrespective of whether certificates to evidence the
shares of stock have been issued on such date.
<PAGE>
If the redistribution of shares is restricted pursuant to Paragraph 13,
certificates representing such shares may bear a legend referred to such
restrictions.
16. TERMINATION OR AMENDMENT OF PLAN. The Board of Directors may at any
time terminate this Plan or make such changes in or additions to the Plan as
it deems advisable without further action on the part of the stockholders of
the Company, provided that no such termination or amendment shall adversely
affect or impair any then outstanding Stock Incentive without the consent of
the person holding such Stock Incentive.
17. TERMINATION. The Plan shall terminate automatically on October 15,
2007, and may be terminated at any earlier date by the Board. No option shall
be granted hereunder after termination of the Plan, but such termination
shall not affect the validity of any option then outstanding.
18. TIME OF GRANTING OPTIONS. The date of grant of an option hereunder
shall, for all purposes, be the date on which the Compensation Committee
makes the determination granting such option.
19. RESERVATION OF SHARES. The Company, during the terms of this Plan,
will at all times reserve and keep available such number of shares of its
Common Stock as shall be sufficient to satisfy the requirements of the Plan.
20. EFFECTIVE DATE. This Plan was adopted by the Board of Directors in
accordance with the requirements of the Internal Revenue Code and the
California Department of Corporations of the Company effective as of October
15, 1997, provided the Plan is approved by the shareholders within twelve
(12) months of said date. Options may be granted, but may not be exercised,
prior to the date of such shareholder approval.
<PAGE>
SATELLITE ONLINE SOLUTIONS CORPORATION
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
----------------------
----------------------
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Grant Number
------------------------------
Date of Grant
------------------------------
Vesting Commencement Date
------------------------------
Exercise Price per Share $
------------------------------
Total Number of Shares Granted
------------------------------
Total Exercise Price $
------------------------------
Type of Option: X Incentive Stock Option
---
Nonstatutory Stock Option
---
Term/Expiration Date:
------------------------------
VESTING SCHEDULE:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
1/3 of the Shares subject to the Option shall vest on each anniversary of
the Vesting Commencement Date, subject to Optionee's continuing to be a Service
Provider on such dates.
<PAGE>
TERMINATION PERIOD:
This Option shall terminate and no longer be exercisable after the
Term/Expiration Date as provided above, or such earlier date as is required
pursuant to Section 9(g) of the Plan.
II. AGREEMENT
---------
1. GRANT OF OPTION. The Plan Administrator of the Company hereby
grants to the Optionee named in the Notice of Grant (the "Optionee"), an
option (the "Option") to purchase the number of Shares set forth in the
Notice of Grant, at the exercise price per Share set forth in the Notice of
Grant (the "Exercise Price"), and subject to the terms and conditions of the
Plan, which is incorporated herein by reference. In the event of a conflict
between the terms and conditions of the Plan and this Option Agreement, the
terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant
and with the applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
delivery of an exercise notice in the form attached as EXHIBIT A (the
"Exercise Notice") which shall state the election to exercise the Option, the
number of Shares with respect to which the Option is being exercised, and
such other representations and agreements as may be required by the Company.
The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares. This Option shall be deemed to be exercised
upon receipt by the Company of such fully executed Exercise Notice
accompanied by the aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this
Option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Option, deliver
to the Company his or her Investment Representation Statement in the form
attached hereto as EXHIBIT B.
-2-
<PAGE>
4. LOCK-UP PERIOD. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Securities Act, Optionee shall not sell
or otherwise transfer any Shares or other securities of the Company during
the 180-day period (or such other period as may be requested in writing by
the Managing Underwriter and agreed to in writing by the Company) (the
"Market Standoff Period") following the effective date of a registration
statement of the Company filed under the Securities Act. Such restriction
shall apply only to the first registration statement of the Company to become
effective under the Securities Act that includes securities to be sold on
behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such Market Standoff Period.
5. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of the Plan and this Option Agreement shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.
8. TERM OF OPTION. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
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<PAGE>
(a) EXERCISE OF ISO. If this Option qualifies as an ISO, there will
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the
date of exercise over the Exercise Price will be treated as an adjustment to
the alternative minimum tax for federal tax purposes and may subject the
Optionee to the alternative minimum tax in the year of exercise.
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. There may be a regular
federal income tax liability upon the exercise of a Nonstatutory Stock
Option. The Optionee will be treated as having received compensation income
(taxable at ordinary income tax rates) equal to the excess, if any, of the
Fair Market Value of the Shares on the date of exercise over the Exercise
Price. If Optionee is an Employee or a former Employee, the Company will be
required to withhold from Optionee's compensation or collect from Optionee
and pay to the applicable taxing authorities an amount in cash equal to a
percentage of this compensation income at the time of exercise, and may
refuse to honor the exercise and refuse to deliver Shares if such withholding
amounts are not delivered at the time of exercise.
(c) DISPOSITION OF SHARES. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the Shares
will be treated as long-term capital gain for federal income tax purposes. In
the case of an ISO, if Shares transferred pursuant to the Option are held for
at least one year after exercise and of at least two years after the Date of
Grant, any gain realized on disposition of the Shares will also be treated as
long-term capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within one year after exercise or two years
after the Date of Grant, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the
extent of the difference between the Exercise Price and the lesser of (1) the
Fair Market Value of the Shares on the date of exercise, or (2) the sale
price of the Shares. Any additional gain will be taxed as capital gain,
short-term or long-term depending on the period that the ISO Shares were held.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (1) the date two years after the Date of Grant, or (2)
the date one year after the date of exercise, the Optionee shall immediately
notify the Company in writing of such disposition. Optionee agrees that
Optionee may be subject to income tax withholding by the Company on the
compensation income recognized by the Optionee.
10. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in
their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by
the Company and Optionee. This agreement is governed by the internal
substantive laws but not the choice of law rules of California.
11. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL
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<PAGE>
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION
OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING
SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF
CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY
PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE SATELLITE ONLINE SOLUTIONS
CORPORATION
- -------------------------------- --------------------------------
Signature By
- -------------------------------- --------------------------------
Print Name Title
- --------------------------------
- --------------------------------
Residence Address
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<PAGE>
EXHIBIT A
---------
1997 STOCK OPTION PLAN
EXERCISE NOTICE
Satellite Online Solutions Corporation
3000 Executive Parkway, Suite 150
San Ramon, CA 94583
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to
purchase _________ shares of the Common Stock (the "Shares") of Satellite
Online Solutions Corporation (the "Company") under and pursuant to the 1997
Stock Option Plan (the "Plan") and the Stock Option Agreement dated ________,
19__ (the "Option Agreement").
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance of the Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to
the Optioned Stock, notwithstanding the exercise of the Option. The Shares
shall be issued to the Optionee as soon as practicable after the Option is
exercised. No adjustment shall be made for a dividend or other right for
which the record date is prior to the date of issuance except as provided in
Section 12 of the Plan.
5. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by
Optionee or any transferee (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section (the "Right of First Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii)
the name of each proposed purchaser or other transferee ("Proposed
Transferee"); (iii) the number of Shares to be transferred to each Proposed
Transferee; and (iv) the bona fide cash price or other consideration for
which the Holder proposes to transfer the
<PAGE>
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not
less than all, of the Shares proposed to be transferred to any one or more of
the Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) PURCHASE PRICE. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the
Company (or, in the case of repurchase by an assignee, to the assignee), or
by any combination thereof within 30 days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice, that
any such sale or other transfer is effected in accordance with any applicable
securities laws and that the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Shares in the hands
of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall
be given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or
all of the Shares during the Optionee's lifetime or on the Optionee's death
by will or intestacy to the Optionee's immediate family or a trust for the
benefit of the Optionee's immediate family shall be exempt from the
provisions of this Section. "Immediate Family" as used herein shall mean
spouse, lineal descendant or antecedent, father, mother, brother or sister.
In such case, the transferee or other recipient shall receive and hold the
Shares so transferred subject to the provisions of this Section, and there
shall be no further transfer of such Shares except in accordance with the
terms of this Section.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock
of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
<PAGE>
6. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the
Shares together with any other legends that may be required by the Company or
by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL
HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE
EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement
shall inure to the benefit of the
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<PAGE>
successors and assigns of the Company. Subject to the restrictions on
transfer herein set forth, this Agreement shall be binding upon Optionee and
his or her heirs, executors, administrators, successors and assigns.
9. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator which shall review such dispute at its next regular meeting.
The resolution of such a dispute by the Administrator shall be final and
binding on all parties.
10. GOVERNING LAW; SEVERABILITY. This Agreement is governed by the
internal substantive laws but not the choice of law rules, of California.
11. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated
herein by reference. This Agreement, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee
with respect to the subject matter hereof, and may not be modified adversely
to the Optionee's interest except by means of a writing signed by the Company
and Optionee.
Submitted by: Accepted by:
OPTIONEE SATELLITE ONLINE SOLUTIONS
CORPORATION
- ----------------------------------- -----------------------------------
Signature By
- ----------------------------------- -----------------------------------
Print Name Title
Address: Address:
- ------- -------
3000 Executive Parkway, Suite 150
- ----------------------------------- San Ramon, CA 94583
- -----------------------------------
-----------------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: SATELLITE ONLINE SOLUTIONS CORPORATION
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee 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 Securities. Optionee is
acquiring these Securities for investment for Optionee'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 of 1933, as amended (the
"Securities Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be
unavailable if Optionee's representation was predicated solely upon a present
intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase
or decrease in the market price of the Securities, or for a period of one
year or any other fixed period in the future. Optionee further understands
that the Securities must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Optionee further acknowledges and understands that the Company is
under no obligation to register the Securities. Optionee understands that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, 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 the grant of the Option to the
Optionee, the exercise 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, ninety (90)
days thereafter (or such longer period as any market stand-off agreement may
require) the Securities exempt under Rule 701 may be resold, subject to the
satisfaction of certain of the conditions specified by Rule 144,
<PAGE>
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as
said term is defined under the Securities Exchange Act of 1934); and, in the
case of an affiliate, (2) the availability of certain public information
about the Company, (3) the amount of Securities being sold during any three
month period not exceeding the limitations specified in Rule 144(e), and (4)
the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
the resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by
an affiliate of the Company, within the meaning of Rule 144; and, in the case
of acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of
the conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact
that Rules 144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and
otherwise than pursuant to Rules 144 or 701 will have a substantial burden of
proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk. Optionee
understands that no assurances can be given that any such other registration
exemption will be available in such event.
Signature of Optionee:
Date: , 19
----------------------- --
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<PAGE>
Exhibit 10.3
ZAPME! CORPORATION
1998 STOCK PLAN
(AS AMENDED AND RESTATED AUGUST 2, 1999)
1. PURPOSES OF THE PLAN. The purposes of this 1998 Stock Plan are:
- to attract and retain the best available personnel for positions of
substantial responsibility,
- to provide additional incentive to Employees, Directors and
Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options or Stock Purchase Rights
are, or will be, granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a committee of Directors appointed by the
Board in accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means ZapMe! Corporation, Inc., a California
corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "DIRECTOR" means a member of the Board.
<PAGE>
(j) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety (90)
days, unless reemployment upon expiration of such leave is guaranteed by
statute or contract. If reemployment upon expiration of a leave of absence
approved by the Company is not so guaranteed, on the 181st day of such leave
any Incentive Stock Option held by the Optionee shall cease to be treated as
an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment"
by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day prior to the time of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value
of a Share of Common Stock shall be the mean between the high bid and low
asked prices for 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 Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "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.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "NOTICE OF GRANT" means a written or electronic notice
evidencing certain times and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
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<PAGE>
(q) "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.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "OPTIONEE" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(x) "PARENT" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "PLAN" means this 1998 Stock Plan, as amended and restated.
(z) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(aa) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(bb) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(cc) "SECTION 16(b)" means Section 16(b) of the Exchange Act.
(dd) "SERVICE PROVIDER" means an Employee, Director or Consultant.
(ee) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.
(ff) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(gg) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
-3-
<PAGE>
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 14
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is [5,536,270] Shares, plus (a) any Shares which were
reserved but unissued under the Company's 1997 Stock Option Plan ("1997
Plan") as of the date of stockholder approval of the original adoption of
this Plan, (b) any Shares subsequently returned to the 1997 Plan as a result
of termination of options or repurchase of Shares issued under the 1997 Plan,
and (c) an annual increase to be added on the first day of the Company's
fiscal year beginning in fiscal year 2000 equal to the lesser of (i)
2,000,000 shares, (ii) 5% of the outstanding shares on such date, or (iii) an
amount determined by the Board. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated); PROVIDED, however, that Shares that
have actually been issued under the Plan, whether upon exercise of an Option
or Stock Purchase Right, shall not be returned to the Plan and shall not
become available for future distribution under the Plan, except that if
Shares of Restricted Stock are repurchased by the Company at their original
purchase price, such Shares shall become available for future grant under the
Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of
Service Providers.
(ii) SECTION 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
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<PAGE>
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value
of the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 16(c) of the Plan), including the discretionary authority
to extend the post-termination exercisability period of Options longer than
is otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date
that the amount of tax to be withheld is to be determined. All elections by
an Optionee to have Shares withheld for this purpose shall be made in such
form and under such conditions as the Administrator may deem necessary or
advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
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(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on
all Optionees and any other holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted
only to Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere
in any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 1,000,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000
Shares, which shall not count against the limit, set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 14.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 14), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 20 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 16 of
the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided
in the Option Agreement. Moreover, in the case of an
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Incentive Stock Option granted to an Optionee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company or
any Parent or Subsidiary, the term of the Incentive Stock Option shall be
five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share
on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value
per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions that must be satisfied before
the Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
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(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (B) have a Fair Market Value on the
date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and
at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by
the Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the Optionee
or, if requested by the Optionee, in the name of the Optionee and his or her
spouse. Until the Shares are issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued)
such Shares promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the Shares are issued, except as provided in Section 14 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale
under the Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. Subject to
Section 14, if an Optionee ceases to be a Service Provider (but not in the
event of an Optionee's change of status from Employee to Consultant (in which
case an Employee's Incentive Stock Option shall automatically convert to a
Nonstatutory Stock Option on the ninety-first (91st) day following such
change of status) or from Consultant to Employee), such Optionee may, but
only within such period
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of time as is specified in the Option Agreement (but in no event later than
the expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was
entitled to exercise it at the date of such termination. In the absence of a
specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her Option
within the time specified by the Administrator, the Option shall terminate,
and the Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may, but only
within twelve (12) months from the date of such termination (and in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option the extent the Option is vested
on the date of termination. If, on the date of termination, the Optionee is
not vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by
bequest or inheritance, but only to the extent that the Option is vested on
the date of death. If, at the time of death, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall immediately revert to the Plan. The Option may be exercised by
the executor or administrator of the Optionee's estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee's will or the
laws of descent or distribution. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of
Grant, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to
purchase, the price to be paid, and the time within which the offeree must
accept such offer. The offer shall be accepted by execution of a Restricted
Stock Purchase Agreement in the form determined by the Administrator.
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(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's service with the Company for any reason (including death
or Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate
determined by the Administrator.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Administrator in its sole
discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 14 of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Optionee, only by the
Optionee. If the Administrator makes an Option or Stock Purchase Right
transferable, such Option or Stock Purchase Right shall contain such
additional terms and conditions as the Administrator deems appropriate.
13. FORMULA OPTION GRANTS TO OUTSIDE DIRECTORS. Outside Directors shall
be automatically granted Options each year in accordance with the following
provisions:
(a) All Options granted pursuant to this Section shall be
Nonstatutory Stock Options and, except as otherwise provided herein, shall be
subject to the other terms and conditions of the Plan.
(b) Each Outside Director shall be automatically granted an Option
to purchase 7,500 Shares (each an "Option") following each annual meeting of
the stockholders of the Company.
(c) Any exercise of an Option granted before the Company has
obtained stockholder approval of the Plan in accordance with Section 20
hereof shall be conditioned upon obtaining such stockholder approval of the
Plan in accordance with Section 20 hereof.
(d) The terms of each Option granted pursuant to this Section
shall be as follows:
(i) the term of the Option shall be ten (10) years.
(ii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
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(iii) the Option shall be fully vested and exercisable as to
100% of the Shares subject to the Option on its date of grant.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR
ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by
the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, the number of shares of
Common Stock covered by First Options and Subsequent Options to be granted
under the Plan, the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options or Stock
Purchase Rights have yet been granted or which have been returned to the Plan
upon cancellation or expiration of an Option or Stock Purchase Right and the
number of shares of Common Stock which may be added to the Plan each fiscal
year (pursuant to Section 3), as well as the price per share of Common Stock
covered by each such outstanding Option or Stock Purchase Right, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until ten (10) days
prior to such transaction as to all of the Optioned Stock covered thereby,
including Shares as to which the Option would not otherwise be exercisable.
In addition, the Administrator may provide that any Company repurchase option
applicable to any Shares purchased upon exercise of an Option or Stock
Purchase Right shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option
or Stock Purchase Right will terminate immediately prior to the consummation
of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the
assets of the Company, each outstanding Option and Stock Purchase Right shall
be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested
or exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets, the Administrator shall notify the Optionee in writing or
electronically that the Option or Stock Purchase Right shall be fully
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vested and exercisable for a period of fifteen (15) days from the date of
such notice, and the Option or Stock Purchase Right shall terminate upon the
expiration of such period. For the purposes of this paragraph, the Option or
Stock Purchase Right shall be considered assumed if, following the merger or
sale of assets, the option or right confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option or Stock Purchase
Right immediately prior to the merger or sale of assets, the consideration
(whether stock, cash, or other securities or property) received in the merger
or sale of assets by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the merger or sale of assets is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent
of the successor corporation, provide for the consideration to be received
upon the exercise of the Option or Stock Purchase Right, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in
the merger or sale of assets.
15. DATE OF GRANT. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes
the determination granting such Option or Stock Purchase Right, or such other
later date as is determined by the Administrator. Notice of the determination
shall be provided to each Optionee within a reasonable time after the date of
such grant.
16. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to
Options granted under the Plan prior to the date of such termination.
17. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of
an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at
the time of any such exercise that the Shares are being
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purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
18. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
19. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan.
20. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan
is adopted. Such shareholder approval shall be obtained in the manner and to
the degree required under Applicable Laws.
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ZAPME! CORPORATION
1998 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the
Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number _________________________________
Date of Grant _________________________________
Vesting Commencement Date _________________________________
Exercise Price per Share $________________________________
Total Number of Shares Granted _________________________________
Total Exercise Price $________________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________________
VESTING SCHEDULE:
Subject to accelerated vesting as set forth in the Plan, this Option
may be exercised, in whole or in part, in accordance with the following
schedule:
One-third (1/3) of the Shares subject to the Option shall vest
twelve months after the Vesting Commencement Date, and 1/36 of the Shares
subject to the Option shall vest each month thereafter, provided that on such
dates the Optionee remains in Continuous status as a Service Provider on such
dates.
<PAGE>
TERMINATION PERIOD:
This Option may be exercised for three (3) months after Optionee
ceases to be a Service Provider. Upon the death or Disability of the
Optionee, this Option may be exercised for twelve (12) months after Optionee
ceases to be a Service Provider. In no event shall this Option be exercised
later than the Term/Expiration Date as provided above.
II. AGREEMENT
A. GRANT OF OPTION.
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option is exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and
the applicable provisions of the Plan and this Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of
an exercise notice, in the form attached as Exhibit A (the "Exercise
Notice"), which shall state the election to exercise the Option, the number
of Shares in respect of which the Option is being exercised (the "Exercised
Shares"), and such other representations and agreements as may be required by
the Company pursuant to the provisions of the Plan. The Exercise Notice shall
be completed by the Optionee and delivered to the Stock Plan Administrator of
the Company. The Exercise Notice shall be accompanied by payment of the
aggregate Exercise Price as to all Exercised Shares. This Option shall be
deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this
Option unless such issuance and exercise complies with Applicable Laws.
Assuming such compliance, for income tax purposes the Exercised Shares shall
be considered transferred to the Optionee on the date the Option is exercised
with respect to such Exercised Shares.
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C. METHOD OF PAYMENT.
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
2. check; or
3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
4. surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
D. NON-TRANSFERABILITY OF OPTION.
This Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during
the lifetime of Optionee only by the Optionee. The terms of the Plan and this
Option Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
E. TERM OF OPTION.
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance
with the Plan and the terms of this Option Agreement.
F. TAX CONSEQUENCES.
Some of the federal tax consequences relating to this Option, as of
the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE
OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
G. EXERCISING THE OPTION.
1. NONSTATUTORY STOCK OPTION. The Optionee may incur regular
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income
tax rates) equal to the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price.
If the Optionee is an Employee or a former Employee, the Company will be
required to withhold from his or her compensation or collect from Optionee
and pay to the applicable taxing authorities an amount in cash equal to a
percentage of this compensation income at the time of exercise, and may
refuse to
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honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.
2. INCENTIVE STOCK OPTION. If this Option qualifies as an ISO,
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price
will be treated as an adjustment to alternative minimum taxable income for
federal tax purposes and may subject the Optionee to alternative minimum tax
in the year of exercise. In the event that the Optionee ceases to be an
Employee but remains a Service Provider, any Incentive Stock Option of the
Optionee that remains unexercised shall cease to qualify as an Incentive
Stock Option and will be treated for tax purposes as a Nonstatutory Stock
Option on the date three (3) months and one (1) day following such change of
status.
3. DISPOSITION OF SHARES.
(a) NSO. If the Optionee holds NSO Shares for at least one
year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least one year
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for
federal income tax purposes. If the Optionee disposes of ISO Shares within
one year after exercise or two years after the grant date, any gain realized
on such disposition will be treated as compensation income (taxable at
ordinary income rates) to the extent of the excess, if any, of the lesser of
(A) the difference between the Fair Market Value of the Shares acquired on
the date of exercise and the aggregate Exercise Price, or (B) the difference
between the sale price of such Shares and the aggregate Exercise Price. Any
additional gain will be taxed as capital gain, short-term or long-term
depending on the period that the ISO Shares were held.
(c) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Optionee sells or otherwise disposes of any of the Shares acquired pursuant
to an ISO on or before the later of (i) two years after the grant date, or
(ii) one year after the exercise date, the Optionee shall immediately notify
the Company in writing of such disposition. The Optionee agrees that he or
she may be subject to income tax withholding by the Company on the
compensation income recognized from such early disposition of ISO Shares by
payment in cash or out of the current earnings paid to the Optionee.
H. ENTIRE AGREEMENT; GOVERNING LAW.
The Plan is incorporated herein by reference. The Plan and this
Option Agreement constitute the entire agreement of the parties with respect
to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof, and may not be modified adversely to the Optionee's
interest except by means of a writing signed by the Company and Optionee.
This agreement is governed by the internal substantive laws, but not the
choice of law rules, of California.
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<PAGE>
I. NO GUARANTEE OF CONTINUED SERVICE.
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and
governed by the terms and conditions of the Plan and this Option Agreement.
Optionee has reviewed the Plan and this Option Agreement in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing
this Option Agreement and fully understands all provisions of the Plan and
Option Agreement. Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Administrator upon any
questions relating to the Plan and Option Agreement. Optionee further agrees
to notify the Company upon any change in the residence address indicated
below.
OPTIONEE: ZapMe! CORPORATION
- ------------------------------ ------------------------------
Signature By
- ------------------------------ ------------------------------
Print Name Title
- ------------------------------
Residence Address
- ------------------------------
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<PAGE>
EXHIBIT A
ZAPME! CORPORATION
1998 STOCK OPTION PLAN
EXERCISE NOTICE
ZapMe! Corporation
3000 Executive Pkwy, Suite 150
San Ramon, CA 94583
Attention: [Title]
1. EXERCISE OF OPTION. Effective as of today, ________________, _____,
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of ZapMe! Corporation (the "Company")
under and pursuant to the ZapMe! Corporation 1998 (the "Plan") and the Stock
Option Agreement dated, _____ (the "Option Agreement"). The purchase price
for the Shares shall be $_____, as required by the Option Agreement.
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price for the Shares.
3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser
has received, read and understood the Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to
the Optioned Stock, notwithstanding the exercise of the Option. The Shares so
acquired shall be issued to the Optionee as soon as practicable after
exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date of issuance, except as
provided in Section 14 of the Plan.
5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer
adverse tax consequences as a result of Purchaser's purchase or disposition
of the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company
for any tax advice.
6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all
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<PAGE>
prior undertakings and agreements of the Company and Purchaser with respect
to the subject matter hereof, and may not be modified adversely to the
Purchaser's interest except by means of a writing signed by the Company and
Purchaser. This agreement is governed by the internal substantive laws, but
not the choice of law rules, of California.
Submitted by: Accepted by:
PURCHASER ZapMe! CORPORATION
- ------------------------------- -------------------------------
Signature By
- ------------------------------- -------------------------------
Print Name Its
Address: Address:
- ------------------------------- ZapMe! Corporation
3000 Executive Pkwy, Suite 150
- ------------------------------- San Ramon, CA 94583
------------------------------
Date Received
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<PAGE>
ZAPME! CORPORATION
DIRECTOR OPTION AGREEMENT
ZapMe! Corporation, (the "Company"), has granted to _________________
(the "Optionee"), an option to purchase a total of [_______ (_____)] shares
of the Company's Common Stock (the "Optioned Stock"), at the price determined
as provided herein, and in all respects subject to the terms, definitions and
provisions of the Company's 1998 Stock Plan (the "Plan") adopted by the
Company which is incorporated herein by reference. The terms defined in the
Plan shall have the same defined meanings herein.
1. NATURE OF THE OPTION. This Option is a nonstatutory option and is
not intended to qualify for any special tax benefits to the Optionee.
2. EXERCISE PRICE. The exercise price is $______ for each share of
Common Stock.
3. EXERCISE OF OPTION. This Option shall be exercisable during its
term in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
(a) This Option shall become exercisable with respect to one
hundred percent (100%) of the Optioned Stock on the date of grant; provided,
however, that in no event shall any Option be exercisable prior to the date
the stockholders of the Company approve the Plan.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by
written notice, which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such
written option, in the form attached hereto as Exhibit A, shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Stock Plan Administrator of the Company. The written notice shall be
accompanied by payment of the exercise price.
4. METHOD OF PAYMENT. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check; or
(iii) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan; or
<PAGE>
(iv) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market
Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by the
Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
7. TERM OF OPTION. This Option may not be exercised more than five (5)
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercise of this Option, he or she will recognize income for tax purposes in
an amount equal to the excess of the then Fair Market Value of the Shares
purchased over the exercise price paid for such Shares. Since the Optionee is
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended,
under certain limited circumstances the measurement and timing of such income
(and the commencement of any capital gain holding period) may be deferred,
and the Optionee is advised to contact a tax advisor concerning the
application of Section 83 in general and the availability a Section 83(b)
election in particular in connection with the exercise of the Option. Upon a
resale of such Shares by the Optionee, any difference between the sale price
and the Fair Market Value of the Shares on the date of exercise of the
Option, to the extent not included in income as described above, will be
treated as capital gain or loss.
DATE OF GRANT:
------------------------
ZapMe! CORPORATION,
a California corporation
By:
----------------------------------
Title:
--------------------------------
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<PAGE>
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under the Plan.
Dated:
---------------------------------- -------------------------------------
Optionee
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<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
ZapMe! Corporation
3000 Executive Pkwy, Suite 150
San Ramon, CA 94583
Attention: Corporate Secretary
1. EXERCISE OF OPTION. The undersigned ("Optionee") hereby elects to
exercise Optionee's option to purchase ______ shares of the Common Stock (the
"Shares") of ZapMe! Corporation (the "Company") under and pursuant to the
Company's 1998 Stock Plan and the Director Option Agreement dated
_____________ (the "Agreement").
2. REPRESENTATION OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Agreement.
3. FEDERAL RESTRICTIONS ON TRANSFER. Optionee understands that the
Shares must be held indefinitely unless they are registered under the
Securities Act of 1933, as amended (the "1933 Act"), or unless an exemption
from such registration is available, and that the certificate(s) representing
the Shares may bear a legend to that effect. Optionee understands that the
Company is under no obligation to register the Shares and that an exemption
may not be available or may not permit Optionee to transfer Shares in the
amounts or at the times proposed by Optionee.
4. TAX CONSEQUENCES. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding
taxes required to be paid or withheld by the Company.
<PAGE>
6. ENTIRE AGREEMENT. The Agreement is incorporated herein by
reference. This Exercise Notice and the Agreement constitute the entire
agreement of the parties and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof. This Exercise Notice and the Agreement are governed by
California law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE ZapMe! CORPORATION
- ---------------------------------- --------------------------------------
By
Title:
--------------------------------
Address:
- ----------------------------------
- ----------------------------------
- ----------------------------------
Dated: Dated:
--------------------------- --------------------------------
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<PAGE>
Exhibit 10.4
ZAPME! CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of ZapMe! Corporation.
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as to
extend and limit participation in a manner consistent with the requirements
of that section of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" shall mean the common stock of the Company.
(d) "COMPANY" shall mean ZapMe! Corporation and any Designated
Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross earnings
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary that has been
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of each
Offering Period.
(i) "EXERCISE DATE" shall mean the last Trading Day of each Purchase
Period.
<PAGE>
(j) "FAIR MARKET VALUE" shall mean, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of determination, as reported in THE WALL STREET JOURNAL or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "OFFERING PERIODS" shall mean the periods of approximately
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after [______________]
and [_____________] of each year and terminating on the last Trading Day in the
periods ending twenty-four months later; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day on
or before [_____________]. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this 1999 Employee Stock Purchase Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month period
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value of a
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
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<PAGE>
(o) "RESERVES" shall mean the number of shares of Common Stock covered
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "SUBSIDIARY" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "TRADING DAY" shall mean a day on which national stock exchanges
and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive,
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
October 30, 2001. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
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<PAGE>
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding fifteen percent (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the
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<PAGE>
Company's Common Stock determined by dividing such Employee's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase
Price; provided that in no event shall an Employee be permitted to purchase
during each Purchase Period more than 5,000 shares of the Company's Common
Stock (subject to any adjustment pursuant to Section 19), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. The Board may, for future Offering Periods,
increase or decrease, in its absolute discretion, the maximum number of
shares of the Company's Common Stock an Employee may purchase during each
Purchase Period of such Offering Period. Exercise of the option shall occur
as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof. The option shall expire on the last day of the
Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
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<PAGE>
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all, but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. TERMINATION OF EMPLOYMENT.
Upon a participant's ceasing to be an Employee, for any reason, he or she
shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions of a
participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 500,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in fiscal year 2000 equal to the lesser of
(i) 1,000,000 shares, (ii) 2% of the outstanding shares on such date, or (iii)
an amount determined by the Board. If, on a given Exercise Date, the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro
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<PAGE>
rata allocation of the shares remaining available for purchase in as uniform
a manner as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares 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 prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
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
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 discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 10 hereof.
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<PAGE>
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to
participating Employees at least annually, which statements shall set forth
the amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, LIQUIDATION,
MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the Reserves and the number of shares of Common
Stock which may be added to the Plan each fiscal year (pursuant to Section 13),
the maximum number of shares each participant may purchase each Purchase Period
(pursuant to Section 7), as well as the price per share and the number of shares
of Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall
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<PAGE>
end on the New Exercise Date. The New Exercise Date shall be before the date
of the Company's proposed sale or merger. The Board shall notify each
participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option shall be
exercised automatically on the New Exercise Date, unless prior to such date
the participant has withdrawn from the Offering Period as provided in Section
10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided
that an Offering Period may be terminated by the Board of Directors on any
Exercise Date if the Board determines that the termination of the Offering
Period or the Plan is in the best interests of the Company and its
shareholders. Except as pro-vided in Section 19 and this Section 20 hereof,
no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any successor rule or provision or
any other applicable law, regulation or stock exchange rule), the Company
shall obtain shareholder approval in such a manner and to such a degree as
required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld
in a currency other than U.S. dollars, permit payroll withholding in excess
of the amount designated by a participant in order to adjust for delays or
mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such
other limitations or procedures as the Board (or its committee) determines in
its sole discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation
of the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable,
modify or amend the Plan to reduce or eliminate such accounting consequence
including, but not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period
ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(iii) allocating shares.
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<PAGE>
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 20 hereof.
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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<PAGE>
EXHIBIT A
---------
ZAPME! CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the ZapMe! Corporation
1999 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price
<PAGE>
which I paid for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN
WRITING WITHIN 30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES
AND I WILL MAKE ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX
WITHHOLDING OBLIGATIONS, IF ANY, WHICH ARISE UPON THE DISPOSITION OF THE
COMMON STOCK. The Company may, but will not be obligated to, withhold
from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make
available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year and 1-year holding
periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent
of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase
price which I paid for the shares, or (2) 15% of the fair market value
of the shares on the first day of the Offering Period. The remainder of
the gain, if any, recognized on such disposition will be taxed as
capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print) ___________________________________________________________
(First) (Middle) (Last)
___________________________________________ _______________________________
Relationship
_______________________________
(Address)
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<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ______________________________________
Signature of Employee
______________________________________
Spouse's Signature (If beneficiary
other than spouse)
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<PAGE>
EXHIBIT B
---------
ZAPME! CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the ZapMe!
Corporation 1999 Employee Stock Purchase Plan that began on ____________, ______
(the "Enrollment Date") hereby notifies the Company that, he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
____________________________________________
____________________________________________
____________________________________________
Signature:
____________________________________________
Date:_______________________________________
<PAGE>
Exhibit 10.5
SATELLITE ONLINE SOLUTIONS CORPORATION
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made as of
the 1st day of September, 1997, between Satellite Online Solutions
Corporation, a California corporation (the "Company"), and John Evleth
("Purchaser").
RECITALS
WHEREAS, Purchaser is an employee of the Company and previously
agreed to defer certain wages owed to him by the Company in the amount of
$3,717.46 (the "Wage Obligation");
WHEREAS, the Company desires to offer Purchaser the opportunity to
purchase shares of its Common Stock, and Purchaser desires to purchase such
shares;
NOW, THEREFORE, the parties agree as follows:
1. ISSUANCE OF COMMON STOCK
(a) SALE OF SHARES. The Company hereby agrees to sell to
Purchaser, and Purchaser agrees to buy from the Company, 185,873 shares of
the Common Stock of the Company (the "Shares"), at a per share purchase price
of $0.02 per share. The term "Shares" refers to the purchased Shares, all
securities or property received in replacement of Shares and all securities
or property distributed with respect to Shares, in any case by way of stock
split, stock dividend, recapitalization, consolidation, merger,
reorganization or similar event.
(b) PAYMENT FOR SHARES. As full payment for the Shares,
Purchaser agrees to the cancellation of all indebtedness owed to him by the
Company pursuant to the Wage Obligation and hereby releases the Company from
any liability therefor.
(c) DELIVERY. Concurrently with the execution hereof, the
Company will deliver to Purchaser a certificate representing the Shares
(which shall be issued in Purchaser's name).
2. TRANSFER RESTRICTIONS. In addition to any other limitations
on transfer created by applicable securities laws, Purchaser agrees not to
sell, assign, encumber or otherwise dispose of any interest in the Shares
except as provided in this Section 2.
(a) RIGHT OF FIRST REFUSAL.
(i) In the event Purchaser or his transferee
desires (or is required) to sell or transfer in any manner any of the Shares,
Purchaser shall first offer such Shares for sale to the Company upon the
terms and conditions specified herein (the "Right of First Refusal") by
delivering a notice (the "Notice") to the Company stating (A) his bona fide
intention to sell or otherwise transfer such Shares, (B) the number of such
Shares to be sold or otherwise transferred, (C) the price
<PAGE>
for which Purchaser proposes to sell such Shares, (D) the name of the
proposed buyer or transferee and (E) all additional terms and conditions, if
any, of the proposed sale or transfer. Purchaser shall attach to the Notice a
copy of the written offer, if any, reflecting the terms and conditions of the
proposed sale or transfer of the Shares to the third party. In the event of a
transfer not involving a sale of the Shares for a specific sum of money, or
if, in the sole judgment of the Company's Board of Directors, the proposed
transfer does not involve a price for the Shares negotiated by Purchaser and
its proposed buyer or transferee in a bona fide "arms' length transaction,"
the price of the Shares shall be determined by the Company's Board of
Directors in the manner specified in Section 2(c) below.
(ii) Within thirty (30) days following receipt
by the Company of the Notice (the "Acceptance Period"), the Company (or its
assignee) may elect to purchase all or a portion of the Shares to which the
Notice refers, at the price per Share and on the same terms and conditions
(or terms and conditions as reasonably similar as possible) as set forth in
the Notice or, if required by this Agreement, at the price per Share
determined pursuant to Section 2(c).
(iii) If the Company (or its assignee) elects
to purchase such Shares hereunder, it shall notify Purchaser in writing of
its intention to purchase such Shares hereunder and either (A) set a date for
the closing of the transaction at a place specified by the Company not later
than ten (10) days from the date of such notice at which time the Company (or
its assignee) shall tender payment for the Shares so purchased or
cancellation of Purchaser's indebtedness to the Company or a combination
thereof, or (B) include payment for the Shares with the Company's notice to
Purchaser. At such closing, the certificate(s) representing the Shares so
purchased shall be delivered to the Company and canceled (and the Shares
transferred to the Company's assignee, if applicable) or, in the case of
payment by the Company (or its assignee) by mail, such certificate(s) shall
be deemed canceled (and the Shares transferred to the Company's assignee, if
applicable) as of the date of the mailing of the Company's notice and,
thereafter, shall be promptly returned by Purchaser to the Company by
certified or registered mail.
(iv) If the Company (or its assignee) does not
elect to purchase any of the Shares to which the Notice refers, Purchaser may
sell or otherwise transfer the Shares not purchased to the third party named
in the Notice at the price and on the terms and conditions specified in the
Notice or at a higher price; provided, however, that such sale or transfer
must be consummated within thirty (30) days from the earlier of (A) the lapse
of the Acceptance Period or (B) the date of the Company's notice, whether
written or oral, advising Purchaser that the Company does not intend to
purchase the Shares hereunder; and provided, further, that any such sale or
transfer must be made in accordance with applicable securities laws and the
terms and conditions set forth in this Agreement. In the event the Shares are
not disposed of by Purchaser within such thirty (30) day period, such Shares
shall once again be subject to the Right of First Refusal herein provided.
(b) INVOLUNTARY TRANSFER.
(i) In the event of any transfer by operation
of law or other involuntary transfer, of all, or a portion, of the Shares,
the Company shall have an option to purchase all of the
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<PAGE>
Shares transferred (the "Involuntary Transfer Option") at a price set
pursuant to Section 2(c). Upon such a transfer, the person acquiring the
Shares shall promptly notify the Secretary of the Company of such transfer.
(ii) The Company (or its assignee) shall
notify Purchaser and the person acquiring the Shares as to whether the
Company (or its assignee) wishes to purchase the Shares pursuant to the
Involuntary Transfer Option within thirty (30) days following the date on
which the Company was notified of the transfer. If the Company (or its
assignee) elects to purchase such Shares hereunder, it shall set a date for
the closing of the transaction at a place specified by the Company not later
than ten (10) days from the date of the Company's notice to Purchaser and the
person acquiring the Shares. At such closing, the Company (or its assignee)
shall tender payment for the Shares in the form of a check, cancellation of
Purchaser's indebtedness to the Company or some combination thereof and the
certificate(s) representing the Shares so purchased shall be canceled.
(c) DETERMINATION OF PRICE BY BOARD. With respect to
the Shares to be transferred pursuant to the Right of First Refusal or the
Involuntary Transfer Option where the price per Share is to be determined
pursuant to this Section 2(c), the price per Share shall be a price set by
the Board of Directors of the Company that will reflect, in the Board's sole
discretion, the then current fair market value of such Shares. The Company
shall notify Purchaser, his representative or the person acquiring the Shares
under Section 2(b) of the price so determined within thirty (30) days after
receipt by the Company of written notice of the transfer or proposed transfer
of the Shares.
(d) RESTRICTION ON ALIENATION. Purchaser agrees that
Purchaser will not sell, transfer, pledge, encumber, assign or otherwise
dispose of any of the Shares subject to the Company's Right of First Refusal
or Involuntary Transfer Option, or any right or interest therein, whether
voluntarily, by operation of law or otherwise, without the prior written
consent of the Company. Any sale, transfer or disposition or purported sale,
transfer or disposition of any of the Shares by Purchaser shall be null and
void unless the terms, conditions and provisions of this Agreement are
strictly complied with. Purchaser hereby authorizes and directs the Transfer
Agent of the Company to transfer the Shares as to which the Right of First
Refusal or Involuntary Transfer Option has been exercised from Purchaser to
the Company (or its assignee). Purchaser further authorizes the Company to
refuse, or to cause its Transfer Agent to refuse, to transfer or record any
Shares to be transferred in violation of this Agreement.
(e) ASSIGNMENT BY COMPANY. The Company's Right of
First Refusal and Involuntary Transfer Option may be assigned in whole or in
part to any employee(s), shareholder(s) or successors of the Company.
(f) OBLIGATIONS BINDING UPON TRANSFEREES. All
transferees of Shares or any interest therein will receive and hold such
Shares or interests subject to the provisions of this Agreement, including,
insofar as applicable, the Company's Right of First Refusal and Involuntary
Transfer Option under this Section 2. Any sale or transfer of the Shares
shall be void unless the provisions of this Agreement are complied with.
-3-
<PAGE>
(g) MERGER, SALE OF ASSETS OR PUBLIC OFFERING. In the
event of (A) a merger, consolidation or reorganization of the Company with or
into another corporation as a result of which the Company is not the
surviving corporation or as a result of which the outstanding Common Stock of
the Company are exchanged for or converted into cash or property or
securities not of the Company, or (B) the sale of all or substantially all of
the Company's assets to another corporation, if the acquiring, surviving or
successor corporation (or its parent or subsidiary) assumes this Agreement
then the rights and obligations contained herein, including the Right of
First Refusal and Involuntary Transfer Option, shall continue to be
applicable to Purchaser and the surviving, acquiring or successor corporation
(or its parent or subsidiary). The Right of First Refusal and Involuntary
Transfer Option granted by this Section 2 shall terminate at such time as a
public market exists for the Company's Common Stock (or any other stock
issued to purchasers in exchange for the Shares purchased under this
Agreement). For the purpose of this Agreement, a "public market" shall be
deemed to exist if the Common Stock is listed on a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), or the Common Stock is traded on the
over-the-counter market and prices are published daily on business days in a
recognized financial journal.
(h) REPLACEMENT CERTIFICATE. In the event the
restrictions imposed by this Agreement shall be terminated as provided in
this Section 2, a new certificate or certificates representing the Shares
shall be issued, on request, without the legend referred to in Section 4.
(i) EXCLUDED TRANSFERS. The restrictions on transfer
set forth in this Section 2 shall not apply to an inter-vivos transfer to
Purchaser's ancestors or descendants or spouse or to a Trustee for their
benefit, provided that such transferee(s) shall agree in writing to take such
Shares subject to all the terms of this Agreement, including restrictions on
further transfer.
(j) INDEBTEDNESS. Notwithstanding any provision to the
contrary in this Agreement, any payment by the Company for purchase of Shares
from Purchaser may be made by cancellation of any indebtedness of Purchaser
owed to the Company.
(k) MARKET STANDOFF AGREEMENT. Purchaser hereby agrees
that if so requested by the Company or any representative of the underwriters
in connection with any registration of the offering of any securities of the
Company under the Securities Act of 1933, as amended (the "Securities Act"),
Purchaser shall not sell or otherwise transfer any Shares or other securities
of the Company during the 180-day period (the "Market Standoff Period")
following the effective date of a registration statement of the Company filed
under the Securities Act; provided, however, that such restriction shall
apply only to the first registration statement of the Company to become
effective under the Securities Act that includes securities to be sold on
behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such Market Standoff Period.
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<PAGE>
3. PURCHASER INVESTMENT REPRESENTATIONS. In connection with
the acquisition of the Shares, Purchaser represents and warrants to the
Company as follows:
(a) INVESTMENT. Purchaser is acquiring the Shares for
investment for Purchaser's own account and not with the view to, or for
resale in connection with, any distribution, assignment or resale to others
within the meaning of the Securities Act or the California Corporate
Securities Law of 1968, as amended ("California Securities Law"), and no
other person has a direct or indirect beneficial interest, in whole or in
part, in such Shares. Purchaser understands that the Shares have not been and
will not be registered under the Securities Act or qualified under the
California Securities Law or under the laws of any other state of the United
States in reliance upon specific exemptions therefrom which depend upon,
among other things, the bona fide nature of the investment intent as
expressed herein and in any other representations, warranties or information
provided by Purchaser to the Company under this Agreement.
(b) RESTRICTIONS ON TRANSFER. Purchaser acknowledges
that the Shares to be issued to Purchaser must be held indefinitely unless
subsequently registered and qualified under the Securities Act or unless an
exemption from registration and qualification is otherwise available.
Purchaser further understands that the Company is under no obligation to
register or qualify the Shares. In addition, Purchaser understands that the
certificate representing the Shares will be imprinted with a legend which
prohibits the transfer of such Shares unless they are sold in a transaction
in compliance with the Securities Act or are registered and qualified or such
registration and qualification are not required in the opinion of counsel
acceptable to the Company.
(c) RULE 144. Purchaser is aware of the provisions of
Rule 144, promulgated under the Securities Act, which 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, including, among
other things, the existence of a public market for the Shares, the
availability of certain current public information about the Company, the
resale occurring not less than one year after the latter of the date full
payment has been made for the securities purchased from the Company or an
affiliate of the Company, the sale being made through a "broker's
transaction" or in transactions directly with a "market maker" (as such term
is defined in the Exchange Act) and the number of securities being sold
during any three (3) month period not exceeding specified limitations stated
therein; provided, however, that if Purchaser is not an affiliate of the
Company and the Shares were held more than two (2) years after full payment
and acquisition from the Company or an affiliate, which ever is later, then
certain of the foregoing conditions under Rule 144 will not be applicable.
(d) EXEMPTION FROM REGISTRATION. Purchaser further
acknowledges that, in the event all of the applicable requirements of Rule
144 are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and
that, although Rule 144 is not exclusive, the Staff of the SEC has expressed
its opinion that persons proposing to sell private placement securities other
than in a registered offering and other than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption
-5-
<PAGE>
from registration is available for such offers or sales and that such persons
and the brokers who participate in the transactions do so at their own risk
and that therefore there is no assurance that any exemption from registration
under the Securities Act will be available, or, if available, will allow him
to dispose of, or otherwise transfer, all or any portion of the Shares.
(e) RELATIONSHIP TO COMPANY; EXPERIENCE. Purchaser
either has a preexisting business or personal relationship with the Company
or any of its officers, directors or controlling persons or, by reason of
Purchaser's business or financial experience or the business or financial
experience of Purchaser's personal representative(s), if any, who are
unaffiliated with and who are not compensated by the Company or any affiliate
or selling agent, directly or indirectly, has the capacity to protect
Purchaser's own interests in connection with Purchaser's acquisition of the
Shares to be issued to Purchaser hereunder. Purchaser and/or Purchaser's
personal representative(s) have such knowledge and experience in financial,
tax and business matters to enable Purchaser and/or them to utilize the
information made available to Purchaser and/or them in connection with the
acquisition of the Shares to evaluate the merits and risks of the prospective
investment and to make an informed investment decision with respect thereto.
Purchaser is experienced in evaluating and investing in high risk, high
technology companies such as the Company.
(f) PURCHASER'S LIQUIDITY. In reaching the decision to
invest in the Shares, Purchaser has carefully evaluated Purchaser's financial
resources and investment position and the risks associated with this
investment, and Purchaser acknowledges that Purchaser is able to bear the
economic risks of the investment. Purchaser (i) has adequate means of
providing for Purchaser's current needs and possible personal contingencies,
(ii) has no need for liquidity in Purchaser's investment, (iii) is able to
bear the substantial economic risks of an investment in the Shares for an
indefinite period and (iv) at the present time, can afford a complete loss of
such investment. Purchaser's commitment to investments which are not readily
marketable is not disproportionate to Purchaser's net worth and Purchaser's
investment in the Shares will not cause Purchaser's overall commitment to
become excessive.
(g) OFFER AND SALE. Purchaser understands that the
offer and sale of the Shares have not been registered under the Securities
Act in reliance upon exemption therefrom. Purchaser was not offered or sold
the Shares, directly or indirectly, by means of any form of general
solicitation or general advertisement, including the following: (i) any
advertisement article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio;
or (ii) any seminar or meeting whose attendees had been invited by general
solicitation or general advertising.
(h) ACCESS TO DATA. Purchaser acknowledges that during
the course of this transaction and before deciding to acquire the Shares,
Purchaser has been provided with financial and other written information
about the Company. Purchaser has been given the opportunity by the Company to
obtain any information and ask questions concerning the Company, the Shares,
and Purchaser's investment that Purchaser felt necessary; and to the extent
Purchaser availed himself of that opportunity, Purchaser has received
satisfactory information and answers.
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<PAGE>
(i) RISKS. Purchaser acknowledges and understands that
(i) an investment in the Company constitutes a high risk, (ii) the Shares are
highly speculative, and (iii) there can be no assurance as to what return, if
any, there may be. Purchaser is aware that the Company may issue additional
securities in the future which could result in the dilution of Purchaser's
ownership interest in the Company.
(j) VALID AGREEMENT. This Agreement when executed and
delivered by Purchaser shall constitute a valid and legally binding
obligation of Purchaser which is enforceable in accordance with its terms.
(k) RESIDENCE. The address set forth on the signature
page of this Agreement is Purchaser's current address and accurately sets
forth Purchaser's place of residence.
4. SECURITIES COMPLIANCE.
(a) LEGENDS. The certificate or certificates
representing the Shares shall bear legends in substantially the following
form (in addition to any other legend imposed by applicable blue sky laws):
(i) THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO TRANSFER RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS
ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) NO QUALIFICATION. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA
CORPORATIONS COMMISSIONER, IS SUBJECT TO SUCH QUALIFICATION OR AN EXEMPTION
BEING AVAILABLE, AND THE ISSUANCE OF SUCH SECURITIES, OR THE RECEIPT OF ANY
PART OF THE CONSIDERATION PRIOR TO SUCH QUALIFICATION IS UNLAWFUL. THE RIGHTS
OF THE PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING AVAILABLE.
(c) TRANSFERS. In addition to the restrictions imposed
under Section 2, all transfers of Shares or any interest in any such Shares
shall be made in strict compliance with applicable state and federal
securities laws.
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<PAGE>
5. TAX CONSIDERATIONS. Purchaser understands that the tax
consequences to Purchaser as a result of this transaction depend on
Purchaser's individual circumstances and the characterization of this
transaction. Further, Purchaser will be responsible for any personal tax
liability, whether federal, state or local, as a result of this transaction
and Purchaser's ownership of the Shares. Purchaser acknowledges that the
Company will report cancellation of the Wage Obligation to the appropriate
federal and state tax authorities in accordance with applicable law.
Purchaser has consulted with Purchaser's own advisor(s) with respect to this
transaction and has not relied on any advice from the Company or any of its
officers, directors, agents or representatives.
6. MISCELLANEOUS.
(a) AMENDMENT. This Agreement may only be amended by
written agreement between Company and Purchaser.
(b) NOTICES. Any notice, demand, request or other
communications hereunder shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or upon deposit in the U.S.
mail, as certified, registered or first class mail, with postage prepaid, and
addressed, if to the Company, at its principal place of business, Attention:
the President, or if to Purchaser, at his address as shown on the signature
page hereof. The address to which notice is to be given hereunder may be
changed from time to time by the parties entitled to notice by notice given
to all other parties as provided herein.
(c) SUCCESSORS AND ASSIGNS. The rights and benefits of
this Agreement shall inure to the benefit of, and be enforceable by, the
Company's successors and assigns. The rights and obligations of Purchaser
under this Agreement may only be assigned with the prior written consent of
the Company.
(d) FURTHER ACTIONS. Both parties agree to execute any
additional documents and take such further action as may be reasonably
necessary to carry out the purposes of this Agreement.
(e) SHAREHOLDER RIGHTS. Subject to the provisions of
this Agreement, Purchaser shall during the term of this Agreement exercise
all rights and privileges of a shareholder of the Company with respect to the
Shares.
(f) INJUNCTIVE RELIEF. Purchaser agrees that the
Company and/or other shareholders shall be entitled to a decree of specific
performance of the terms hereof or an injunction restraining violations of
this Agreement, such right to be in addition to any of the remedies of the
Company. No remedy provided herein is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing
at law or in equity.
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<PAGE>
(g) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California without
regard to principles governing conflicts of laws.
(h) SEVERABILITY. If any provision of this Agreement
is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall nevertheless continue in full
force and effect without being impaired or invalidated in any way and shall
be construed in accordance with the purposes, tenor and effect of this
Agreement.
(i) ENTIRE AGREEMENT. This Agreement embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter hereof and supersedes all prior and contemporaneous written or
oral communications or agreements between the Company and Purchaser regarding
the subject matter hereof and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties hereto.
(j) WAIVERS. No waiver of any provision of this
Agreement or any rights or obligations of any party hereunder shall be
effective, except pursuant to a written instrument signed by the party or
parties waiving compliance, and any such waiver shall be effective only in
the specific instance and for the specific purpose stated in such writing.
(k) COUNTERPARTS. This Agreement may be executed in
one or more counterparts each of which shall be an original and all of which
together shall constitute one and the same instrument.
[This space intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first set forth above.
SATELLITE ONLINE SOLUTIONS
CORPORATION
/s/ Lance Mortensen
-----------------------------------
Lance Mortensen
Chief Executive Officer
PURCHASER
/s/ John Evleth
-----------------------------------
John Evleth
Address: 9365 Oak Leaf Way
Granite Bay, CA 95746
<PAGE>
Exhibit 10.6
SATELLITE ONLINE SOLUTIONS CORPORATION
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is made as of
the 1st day of September, 1997, between Satellite Online Solutions
Corporation, a California corporation (the "Company"), and Darryl Deaton
("Purchaser").
RECITALS
WHEREAS, Purchaser is an employee of the Company and previously
agreed to defer certain wages owed to him by the Company in the amount of
$14,869.84 (the "Wage Obligation");
WHEREAS, the Company desires to offer Purchaser the opportunity to
purchase shares of its Common Stock, and Purchaser desires to purchase such
shares;
NOW, THEREFORE, the parties agree as follows:
1. ISSUANCE OF COMMON STOCK
(a) SALE OF SHARES. The Company hereby agrees to sell
to Purchaser, and Purchaser agrees to buy from the Company, 743,492 shares of
the Common Stock of the Company (the "Shares"), at a per share purchase price
of $0.02 per share. The term "Shares" refers to the purchased Shares, all
securities or property received in replacement of Shares and all securities
or property distributed with respect to Shares, in any case by way of stock
split, stock dividend, recapitalization, consolidation, merger,
reorganization or similar event.
(b) PAYMENT FOR SHARES. As full payment for the
Shares, Purchaser agrees to the cancellation of all indebtedness owed to him
by the Company pursuant to the Wage Obligation and hereby releases the
Company from any liability therefor.
(c) DELIVERY. Concurrently with the execution hereof,
the Company will deliver to Purchaser a certificate representing the Shares
(which shall be issued in Purchaser's name).
2. TRANSFER RESTRICTIONS. In addition to any other limitations
on transfer created by applicable securities laws, Purchaser agrees not to
sell, assign, encumber or otherwise dispose of any interest in the Shares
except as provided in this Section 2.
(a) RIGHT OF FIRST REFUSAL.
(i) In the event Purchaser or his transferee
desires (or is required) to sell or transfer in any manner any of the Shares,
Purchaser shall first offer such Shares for sale to the Company upon the
terms and conditions specified herein (the "Right of First Refusal") by
delivering a notice (the "Notice") to the Company stating (A) his bona fide
intention to sell or otherwise
<PAGE>
transfer such Shares, (B) the number of such Shares to be sold or otherwise
transferred, (C) the price for which Purchaser proposes to sell such Shares,
(D) the name of the proposed buyer or transferee and (E) all additional terms
and conditions, if any, of the proposed sale or transfer. Purchaser shall
attach to the Notice a copy of the written offer, if any, reflecting the
terms and conditions of the proposed sale or transfer of the Shares to the
third party. In the event of a transfer not involving a sale of the Shares
for a specific sum of money, or if, in the sole judgment of the Company's
Board of Directors, the proposed transfer does not involve a price for the
Shares negotiated by Purchaser and its proposed buyer or transferee in a bona
fide "arms' length transaction," the price of the Shares shall be determined
by the Company's Board of Directors in the manner specified in Section 2(c)
below.
(ii) Within thirty (30) days following receipt
by the Company of the Notice (the "Acceptance Period"), the Company (or its
assignee) may elect to purchase all or a portion of the Shares to which the
Notice refers, at the price per Share and on the same terms and conditions
(or terms and conditions as reasonably similar as possible) as set forth in
the Notice or, if required by this Agreement, at the price per Share
determined pursuant to Section 2(c).
(iii) If the Company (or its assignee) elects
to purchase such Shares hereunder, it shall notify Purchaser in writing of
its intention to purchase such Shares hereunder and either (A) set a date for
the closing of the transaction at a place specified by the Company not later
than ten (10) days from the date of such notice at which time the Company (or
its assignee) shall tender payment for the Shares so purchased or
cancellation of Purchaser's indebtedness to the Company or a combination
thereof, or (B) include payment for the Shares with the Company's notice to
Purchaser. At such closing, the certificate(s) representing the Shares so
purchased shall be delivered to the Company and canceled (and the Shares
transferred to the Company's assignee, if applicable) or, in the case of
payment by the Company (or its assignee) by mail, such certificate(s) shall
be deemed canceled (and the Shares transferred to the Company's assignee, if
applicable) as of the date of the mailing of the Company's notice and,
thereafter, shall be promptly returned by Purchaser to the Company by
certified or registered mail.
(iv) If the Company (or its assignee) does not
elect to purchase any of the Shares to which the Notice refers, Purchaser may
sell or otherwise transfer the Shares not purchased to the third party named
in the Notice at the price and on the terms and conditions specified in the
Notice or at a higher price; provided, however, that such sale or transfer
must be consummated within thirty (30) days from the earlier of (A) the lapse
of the Acceptance Period or (B) the date of the Company's notice, whether
written or oral, advising Purchaser that the Company does not intend to
purchase the Shares hereunder; and provided, further, that any such sale or
transfer must be made in accordance with applicable securities laws and the
terms and conditions set forth in this Agreement. In the event the Shares are
not disposed of by Purchaser within such thirty (30) day period, such Shares
shall once again be subject to the Right of First Refusal herein provided.
(b) INVOLUNTARY TRANSFER.
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<PAGE>
(i) In the event of any transfer by operation
of law or other involuntary transfer, of all, or a portion, of the Shares,
the Company shall have an option to purchase all of the Shares transferred
(the "Involuntary Transfer Option") at a price set pursuant to Section 2(c).
Upon such a transfer, the person acquiring the Shares shall promptly notify
the Secretary of the Company of such transfer.
(ii) The Company (or its assignee) shall
notify Purchaser and the person acquiring the Shares as to whether the
Company (or its assignee) wishes to purchase the Shares pursuant to the
Involuntary Transfer Option within thirty (30) days following the date on
which the Company was notified of the transfer. If the Company (or its
assignee) elects to purchase such Shares hereunder, it shall set a date for
the closing of the transaction at a place specified by the Company not later
than ten (10) days from the date of the Company's notice to Purchaser and the
person acquiring the Shares. At such closing, the Company (or its assignee)
shall tender payment for the Shares in the form of a check, cancellation of
Purchaser's indebtedness to the Company or some combination thereof and the
certificate(s) representing the Shares so purchased shall be canceled.
(c) DETERMINATION OF PRICE BY BOARD. With respect to
the Shares to be transferred pursuant to the Right of First Refusal or the
Involuntary Transfer Option where the price per Share is to be determined
pursuant to this Section 2(c), the price per Share shall be a price set by
the Board of Directors of the Company that will reflect, in the Board's sole
discretion, the then current fair market value of such Shares. The Company
shall notify Purchaser, his representative or the person acquiring the Shares
under Section 2(b) of the price so determined within thirty (30) days after
receipt by the Company of written notice of the transfer or proposed transfer
of the Shares.
(d) RESTRICTION ON ALIENATION. Purchaser agrees that
Purchaser will not sell, transfer, pledge, encumber, assign or otherwise
dispose of any of the Shares subject to the Company's Right of First Refusal
or Involuntary Transfer Option, or any right or interest therein, whether
voluntarily, by operation of law or otherwise, without the prior written
consent of the Company. Any sale, transfer or disposition or purported sale,
transfer or disposition of any of the Shares by Purchaser shall be null and
void unless the terms, conditions and provisions of this Agreement are
strictly complied with. Purchaser hereby authorizes and directs the Transfer
Agent of the Company to transfer the Shares as to which the Right of First
Refusal or Involuntary Transfer Option has been exercised from Purchaser to
the Company (or its assignee). Purchaser further authorizes the Company to
refuse, or to cause its Transfer Agent to refuse, to transfer or record any
Shares to be transferred in violation of this Agreement.
(e) ASSIGNMENT BY COMPANY. The Company's Right of
First Refusal and Involuntary Transfer Option may be assigned in whole or in
part to any employee(s), shareholder(s) or successors of the Company.
(f) OBLIGATIONS BINDING UPON TRANSFEREES. All
transferees of Shares or any interest therein will receive and hold such
Shares or interests subject to the provisions of this Agreement, including,
insofar as applicable, the Company's Right of First Refusal and Involuntary
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<PAGE>
Transfer Option under this Section 2. Any sale or transfer of the Shares
shall be void unless the provisions of this Agreement are complied with.
(g) MERGER, SALE OF ASSETS OR PUBLIC OFFERING. In the
event of (A) a merger, consolidation or reorganization of the Company with or
into another corporation as a result of which the Company is not the
surviving corporation or as a result of which the outstanding Common Stock of
the Company are exchanged for or converted into cash or property or
securities not of the Company, or (B) the sale of all or substantially all of
the Company's assets to another corporation, if the acquiring, surviving or
successor corporation (or its parent or subsidiary) assumes this Agreement
then the rights and obligations contained herein, including the Right of
First Refusal and Involuntary Transfer Option, shall continue to be
applicable to Purchaser and the surviving, acquiring or successor corporation
(or its parent or subsidiary). The Right of First Refusal and Involuntary
Transfer Option granted by this Section 2 shall terminate at such time as a
public market exists for the Company's Common Stock (or any other stock
issued to purchasers in exchange for the Shares purchased under this
Agreement). For the purpose of this Agreement, a "public market" shall be
deemed to exist if the Common Stock is listed on a national securities
exchange (as that term is defined in the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), or the Common Stock is traded on the
over-the-counter market and prices are published daily on business days in a
recognized financial journal.
(h) REPLACEMENT CERTIFICATE. In the event the
restrictions imposed by this Agreement shall be terminated as provided in
this Section 2, a new certificate or certificates representing the Shares
shall be issued, on request, without the legend referred to in Section 4.
(i) EXCLUDED TRANSFERS. The restrictions on transfer
set forth in this Section 2 shall not apply to an inter-vivos transfer to
Purchaser's ancestors or descendants or spouse or to a Trustee for their
benefit, provided that such transferee(s) shall agree in writing to take such
Shares subject to all the terms of this Agreement, including restrictions on
further transfer.
(j) INDEBTEDNESS. Notwithstanding any provision to the
contrary in this Agreement, any payment by the Company for purchase of Shares
from Purchaser may be made by cancellation of any indebtedness of Purchaser
owed to the Company.
(k) MARKET STANDOFF AGREEMENT. Purchaser hereby agrees
that if so requested by the Company or any representative of the underwriters
in connection with any registration of the offering of any securities of the
Company under the Securities Act of 1933, as amended (the "Securities Act"),
Purchaser shall not sell or otherwise transfer any Shares or other securities
of the Company during the 180-day period (the "Market Standoff Period")
following the effective date of a registration statement of the Company filed
under the Securities Act; provided, however, that such restriction shall
apply only to the first registration statement of the Company to become
effective under the Securities Act that includes securities to be sold on
behalf of the Company to the public in an underwritten public offering under
the Securities Act. The Company may impose stop-transfer
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<PAGE>
instructions with respect to securities subject to the foregoing restrictions
until the end of such Market Standoff Period.
3. PURCHASER INVESTMENT REPRESENTATIONS. In connection with
the acquisition of the Shares, Purchaser represents and warrants to the
Company as follows:
(a) INVESTMENT. Purchaser is acquiring the Shares for
investment for Purchaser's own account and not with the view to, or for
resale in connection with, any distribution, assignment or resale to others
within the meaning of the Securities Act or the California Corporate
Securities Law of 1968, as amended ("California Securities Law"), and no
other person has a direct or indirect beneficial interest, in whole or in
part, in such Shares. Purchaser understands that the Shares have not been and
will not be registered under the Securities Act or qualified under the
California Securities Law or under the laws of any other state of the United
States in reliance upon specific exemptions therefrom which depend upon,
among other things, the bona fide nature of the investment intent as
expressed herein and in any other representations, warranties or information
provided by Purchaser to the Company under this Agreement.
(b) RESTRICTIONS ON TRANSFER. Purchaser acknowledges
that the Shares to be issued to Purchaser must be held indefinitely unless
subsequently registered and qualified under the Securities Act or unless an
exemption from registration and qualification is otherwise available.
Purchaser further understands that the Company is under no obligation to
register or qualify the Shares. In addition, Purchaser understands that the
certificate representing the Shares will be imprinted with a legend which
prohibits the transfer of such Shares unless they are sold in a transaction
in compliance with the Securities Act or are registered and qualified or such
registration and qualification are not required in the opinion of counsel
acceptable to the Company.
(c) RULE 144. Purchaser is aware of the provisions of
Rule 144, promulgated under the Securities Act, which 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, including, among
other things, the existence of a public market for the Shares, the
availability of certain current public information about the Company, the
resale occurring not less than one year after the latter of the date full
payment has been made for the securities purchased from the Company or an
affiliate of the Company, the sale being made through a "broker's
transaction" or in transactions directly with a "market maker" (as such term
is defined in the Exchange Act) and the number of securities being sold
during any three (3) month period not exceeding specified limitations stated
therein; provided, however, that if Purchaser is not an affiliate of the
Company and the Shares were held more than two (2) years after full payment
and acquisition from the Company or an affiliate, which ever is later, then
certain of the foregoing conditions under Rule 144 will not be applicable.
(d) EXEMPTION FROM REGISTRATION. Purchaser further
acknowledges that, in the event all of the applicable requirements of Rule
144 are not satisfied, registration under the
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<PAGE>
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, although Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and other
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers
or sales and that such persons and the brokers who participate in the
transactions do so at their own risk and that therefore there is no assurance
that any exemption from registration under the Securities Act will be
available, or, if available, will allow him to dispose of, or otherwise
transfer, all or any portion of the Shares.
(e) RELATIONSHIP TO COMPANY; EXPERIENCE. Purchaser
either has a preexisting business or personal relationship with the Company
or any of its officers, directors or controlling persons or, by reason of
Purchaser's business or financial experience or the business or financial
experience of Purchaser's personal representative(s), if any, who are
unaffiliated with and who are not compensated by the Company or any affiliate
or selling agent, directly or indirectly, has the capacity to protect
Purchaser's own interests in connection with Purchaser's acquisition of the
Shares to be issued to Purchaser hereunder. Purchaser and/or Purchaser's
personal representative(s) have such knowledge and experience in financial,
tax and business matters to enable Purchaser and/or them to utilize the
information made available to Purchaser and/or them in connection with the
acquisition of the Shares to evaluate the merits and risks of the prospective
investment and to make an informed investment decision with respect thereto.
Purchaser is experienced in evaluating and investing in high risk, high
technology companies such as the Company.
(f) PURCHASER'S LIQUIDITY. In reaching the decision to
invest in the Shares, Purchaser has carefully evaluated Purchaser's financial
resources and investment position and the risks associated with this
investment, and Purchaser acknowledges that Purchaser is able to bear the
economic risks of the investment. Purchaser (i) has adequate means of
providing for Purchaser's current needs and possible personal contingencies,
(ii) has no need for liquidity in Purchaser's investment, (iii) is able to
bear the substantial economic risks of an investment in the Shares for an
indefinite period and (iv) at the present time, can afford a complete loss of
such investment. Purchaser's commitment to investments which are not readily
marketable is not disproportionate to Purchaser's net worth and Purchaser's
investment in the Shares will not cause Purchaser's overall commitment to
become excessive.
(g) OFFER AND SALE. Purchaser understands that the
offer and sale of the Shares have not been registered under the Securities
Act in reliance upon exemption therefrom. Purchaser was not offered or sold
the Shares, directly or indirectly, by means of any form of general
solicitation or general advertisement, including the following: (i) any
advertisement article, notice or other communication published in any
newspaper, magazine or similar medium or broadcast over television or radio;
or (ii) any seminar or meeting whose attendees had been invited by general
solicitation or general advertising.
(h) ACCESS TO DATA. Purchaser acknowledges that during
the course of this transaction and before deciding to acquire the Shares,
Purchaser has been provided with financial
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<PAGE>
and other written information about the Company. Purchaser has been given the
opportunity by the Company to obtain any information and ask questions
concerning the Company, the Shares, and Purchaser's investment that Purchaser
felt necessary; and to the extent Purchaser availed himself of that
opportunity, Purchaser has received satisfactory information and answers.
(i) RISKS. Purchaser acknowledges and understands that
(i) an investment in the Company constitutes a high risk, (ii) the Shares are
highly speculative, and (iii) there can be no assurance as to what return, if
any, there may be. Purchaser is aware that the Company may issue additional
securities in the future which could result in the dilution of Purchaser's
ownership interest in the Company.
(j) VALID AGREEMENT. This Agreement when executed and
delivered by Purchaser shall constitute a valid and legally binding
obligation of Purchaser which is enforceable in accordance with its terms.
(k) RESIDENCE. The address set forth on the signature
page of this Agreement is Purchaser's current address and accurately sets
forth Purchaser's place of residence.
4. SECURITIES COMPLIANCE.
(a) LEGENDS. The certificate or certificates
representing the Shares shall bear legends in substantially the following
form (in addition to any other legend imposed by applicable blue sky laws):
(i) THE SHARES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933.
(ii) THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO TRANSFER RESTRICTIONS IN ACCORDANCE WITH THE TERMS
OF AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS
ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) NO QUALIFICATION. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT, IF NOT YET QUALIFIED WITH THE CALIFORNIA
CORPORATIONS COMMISSIONER, IS SUBJECT TO SUCH QUALIFICATION OR AN EXEMPTION
BEING AVAILABLE, AND THE ISSUANCE OF SUCH SECURITIES, OR THE RECEIPT OF ANY
PART OF THE CONSIDERATION PRIOR TO SUCH QUALIFICATION IS UNLAWFUL. THE RIGHTS
OF THE PARTIES TO THIS AGREEMENT ARE EXPRESSLY
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<PAGE>
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION BEING
AVAILABLE.
(c) TRANSFERS. In addition to the restrictions imposed
under Section 2, all transfers of Shares or any interest in any such Shares
shall be made in strict compliance with applicable state and federal
securities laws.
5. TAX CONSIDERATIONS. Purchaser understands that the tax
consequences to Purchaser as a result of this transaction depend on
Purchaser's individual circumstances and the characterization of this
transaction. Further, Purchaser will be responsible for any personal tax
liability, whether federal, state or local, as a result of this transaction
and Purchaser's ownership of the Shares. Purchaser acknowledges that the
Company will report cancellation of the Wage Obligation to the appropriate
federal and state tax authorities in accordance with applicable law.
Purchaser has consulted with Purchaser's own advisor(s) with respect to this
transaction and has not relied on any advice from the Company or any of its
officers, directors, agents or representatives.
6. MISCELLANEOUS.
(a) AMENDMENT. This Agreement may only be amended by
written agreement between Company and Purchaser.
(b) NOTICES. Any notice, demand, request or other
communications hereunder shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or upon deposit in the U.S.
mail, as certified, registered or first class mail, with postage prepaid, and
addressed, if to the Company, at its principal place of business, Attention:
the President, or if to Purchaser, at his address as shown on the signature
page hereof. The address to which notice is to be given hereunder may be
changed from time to time by the parties entitled to notice by notice given
to all other parties as provided herein.
(c) SUCCESSORS AND ASSIGNS. The rights and benefits of
this Agreement shall inure to the benefit of, and be enforceable by, the
Company's successors and assigns. The rights and obligations of Purchaser
under this Agreement may only be assigned with the prior written consent of
the Company.
(d) FURTHER ACTIONS. Both parties agree to execute any
additional documents and take such further action as may be reasonably
necessary to carry out the purposes of this Agreement.
(e) SHAREHOLDER RIGHTS. Subject to the provisions of
this Agreement, Purchaser shall during the term of this Agreement exercise
all rights and privileges of a shareholder of the Company with respect to the
Shares.
(f) INJUNCTIVE RELIEF. Purchaser agrees that the
Company and/or other shareholders shall be entitled to a decree of specific
performance of the terms hereof or an injunction
-8-
<PAGE>
restraining violations of this Agreement, such right to be in addition to any
of the remedies of the Company. No remedy provided herein is intended to be
exclusive of any other remedy, and each and every remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity.
(g) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California without
regard to principles governing conflicts of laws.
(h) SEVERABILITY. If any provision of this Agreement
is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions shall nevertheless continue in full
force and effect without being impaired or invalidated in any way and shall
be construed in accordance with the purposes, tenor and effect of this
Agreement.
(i) ENTIRE AGREEMENT. This Agreement embodies the
entire agreement and understanding of the parties hereto in respect of the
subject matter hereof and supersedes all prior and contemporaneous written or
oral communications or agreements between the Company and Purchaser regarding
the subject matter hereof and no amendment or addition hereto shall be deemed
effective unless agreed to in writing by the parties hereto.
(j) WAIVERS. No waiver of any provision of this
Agreement or any rights or obligations of any party hereunder shall be
effective, except pursuant to a written instrument signed by the party or
parties waiving compliance, and any such waiver shall be effective only in
the specific instance and for the specific purpose stated in such writing.
(k) COUNTERPARTS. This Agreement may be executed in
one or more counterparts each of which shall be an original and all of which
together shall constitute one and the same instrument.
[This space intentionally left blank]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first set forth above.
SATELLITE ONLINE SOLUTIONS
CORPORATION
/s/ Lance Mortensen
-----------------------------------
Lance Mortensen
Chief Executive Officer
PURCHASER
/s/ Darryl Deaton
-----------------------------------
Darryl Deaton
Address: 172 Serra Ct.
Vallejo, CA 94590
<PAGE>
EXHIBIT 10.7
SATELLITE ONLINE SOLUTIONS CORPORATION
EMPLOYMENT AGREEMENT
Agreement made as of this 1st day of June 1997, by and among Darryl N.
Deaton of 172 Serra Ct., Vallejo, California ("Employee") and Satellite Online
Solutions (the "Company").
PREAMBLE
The Board of Directors of the Company recognizes Employee's potential
contribution to the growth and success of the Company and desires to assure the
Company of Employee's employment in an executive capacity as Vice President and
to compensate him therefor. Employee wants to be employed by the Company and to
commit himself to serve the Company on the terms herein provided. In connection
with his employment, Employee proposes to purchase and the Company to sell Stock
under the terms of a separate agreement. Employee's duties may include research
and development of new technology and products, management, or other duties to
be mutually agreed upon.
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties, the parties agree as follows:
1. Definitions
"Benefits" shall mean all the fringe benefits approved by the
Board from time to time and established by the Company for the benefit of
employees generally and/or for key employees of the Company as a class,
including, but not limited to, regular holidays, vacations, absences resulting
from illness or accident, health insurance, disability and medical plans
(including dental and prescription drug), group life insurance, and pension,
profit-sharing and stock bonus plans or their equivalent.
"Board" shall mean the Board of Directors of the Company,
together with an executive committee thereof (if any), as same shall be
constituted from time to time.
"Cause" for termination shall mean (i) Employee's final
conviction of a felony involving a crime of moral turpitude, (ii) acts of
Employee which, in the judgment of the Board, constitute willful fraud on the
part of Employee in connection with his duties under this Agreement, including
but not limited to misappropriation or embezzlement in the performance of duties
as an employee of the Company, or willfully engaging in conduct materially
injurious to the Company and in violation of the covenants contained in this
Agreement, or (iii) gross misconduct, including but not limited to the willful
failure of Employee either to (a) continue to obey lawful written instruction of
the Board after thirty (30) days notice in writing of Employee's failure to do
so and the Board's intention to terminate Employee if such failure is not
corrected, or (b) correct any conduct of Employee which constitutes a material
breach of this Agreement after thirty (30) days notice in writing of Employee's
failure to do so and the Board's intention to terminate Employee if such failure
is not corrected.
"Employee" shall mean Darryl N. Deaton and, if the context
requires, his heirs, personal representatives, and permitted successors and
assigns.
"Person" shall mean any natural person, incorporated entity,
limited or general partnership, business trust, association, agency
(governmental or private), division, political sovereign, or subdivision or
instrumentality, including those groups identified as "persons" in
Sections 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934.
"Reorganization" shall mean any transaction, or any series of
transactions consummated in a 12-month period, pursuant to which any Person
acquires (by
<PAGE>
merger, acquisition, or otherwise) all or substantially all of the assets of the
Company or the then outstanding equity securities of the Company and the Company
is not the surviving entity, the Company being deemed surviving if and only if
the majority of the Board of Directors of the ultimate parent of the surviving
entity were directors of the Company prior to its organization.
"Territory" shall mean any state of the United States and any
equivalent section or area of any country in which the Company has
revenue-producing customers or activities.
"Company" shall mean Satellite Online Solutions Corporation,
together with such subsidiaries of the Company as may from time to time exist.
2. Position, Responsibilities, and Term of Employment.
2.01 Position. Employee shall serve as Vice President and in such
additional management position(s) as the Board shall designate. In this capacity
Employee shall, subject to the bylaws of the Company, and to the direction of
the Board, serve the Company by performing such duties and carrying out such
responsibilities as are normally related to the position of Vice President in
accordance with the standards of the industry.
2.02 Best Efforts Covenant. Employee will, to the best of his
ability, devote his full professional and business time and best efforts to the
performance of his duties for the Company and its subsidiaries and affiliates.
2.03 Records, Files. All records, files, drawings, documents,
equipment and the like relating to the business of the Company which are
prepared or used by Employee during the term of his employment under this
Agreement shall be and shall remain the sole property of the Company.
2.04 Hired to Invent. Employee agrees that every improvement,
invention, process, apparatus, method, design, and any other creation that
Employee may invent, discover, conceive, or originate by himself or in
conjunction with any other Person during the term of Employee's employment under
this Agreement, that relates to the business carded on by the Company during the
term of Employee's employment under this Agreement, shall be the exclusive
property of the Company.
3. Compensation.
3.01 Minimum Compensation. The Company shall pay to Employee for
the services to be rendered hereunder a base salary at an annual rate of Ten
Thousand dollars ($10,000.00) per month ("Minimum Compensation").
Employee's salary shall be payable in periodic installments in accordance
with the Company's usual practice for similarly situated employees of the
Company. Notwithstanding any other clause or provision of this agreement,
Company agrees that Minimum Compensation shall be paid to Employee through
December 31, 1999.
3.02 Incentive Compensation. In addition to Minimum Annual
Compensation, Employee shall be entitled to receive payments under the Company's
incentive compensation and/or bonus program(s) (as in effect from time to time),
if any, in such amounts as are determined by the Company to be appropriate for
similarly situated employees of the Company.
3.03 Participating in Benefits. Employee shall be entitled to all
Benefits for as long as such Benefits may remain in effect and/or any substitute
or additional Benefits made available in the future to similarly situated
employees of the Company, subject to and on a basis consistent with the terms,
conditions and overall administration of such Benefits adopted by the
<PAGE>
Company. Benefits paid to Employee shall not be deemed to be in lieu of other
compensation to Employee hereunder as described in this Section 3.
3.04 Specific Benefits.
During the term of this Agreement (and thereafter to the extent this
Agreement shall require):
(a) Employee shall be entitled to three (3) weeks of paid
vacation time per year, to be taken at times mutually acceptable to the Company
and Employee.
(b) The Company shall provide fully paid accident and health
insurance for Employee and his family.
(c) Employee shall be entitled to sick leave benefits during the
employment period in accordance with the customary policies of the Company for
its executive officers, but in no event less than one (1) month per year.
(f) In addition to the vacation provided pursuant to Section
3.04(a) hereof, Employee shall be entitled to paid six (6) holidays as
determined by the Company.
(g) Employee shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by him (in accordance with the policies and
procedures established by the Company or the Board for the similarly situated
employees of the Company) in performing services hereunder.
(h) Employee shall be eligible to participate during the
Employment Period in Benefits not inconsistent or duplicative of those set forth
in this Section 3.04 as the Company shall establish or maintain for its
employees or executives generally.
4. Termination.
4.01 Termination by either Employee or Company. If during the term
of this Agreement the Employee or Company voluntarily or with cause terminates
the employment of Employee the Company shall continue to pay to Employee the
Minimum Compensation and pay for those health and medical benefits in 3.04(b)
until December 31, 1999. Employee shall remain a member of the Company's Board
of Directors.
4.02 Termination on Account of Employee's Death.
(a) In the event of Employee's death during the term of this
Agreement:
(1) This Agreement shall terminate except as
provided in this Section; and
(2) The Company shall pay to Employee's wife or
beneficiary (or to his estate if he fails to make such designation) the Minimum
Compensation until December 31, 1999.
5. Miscellaneous.
5.01 Assignment. This Agreement and the rights and obligations of
the parties hereto shall bind and inure to the benefit of each of the parties
hereto and shall also bind and inure to the benefit of any successor or
successors of the Company in a reorganization, merger or consolidation and any
assignee of all or substantially all of the Company's business and properties,
but, except as to any such successor of the Company, neither this Agreement nor
<PAGE>
any rights or benefits hereunder may be assigned by the Company or Employee.
5.02 Initial Term and Extensions. Except as otherwise provided,
the term of this Agreement shall be three (3) years commencing with the
effective date hereof. On the third anniversary of the effective date, and on
each subsequent annual anniversary of the effective date thereafter, the
Agreement shall be automatically extended for an additional year unless either
party notifies the other in writing more than 90 days prior to the relevant
anniversary date that the Agreement is no longer to be extended.
5.03 Governing Law. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of
California
5.04 Interpretation. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, but
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
5.05 Notice. Any notice required or permitted to be given
hereunder shall be effective when received and shall be sufficient if in writing
and if personally delivered or sent by prepaid cable, telex or registered air
mail, return receipt requested, to the party to receive such notice at its
address set forth at the end of this Agreement or at such other address as a
party may by notice specify to the other.
5.06 Amendment and Waiver. This Agreement may not be amended,
supplemented or waived except by a writing signed by the party against which
such amendment or waiver is to be enforced. The waiver by any party of a breach
of any provision of this Agreement shall not operate to, or be construed as a
waiver of, any other breach of that provision nor as a waiver of any breach of
another provision.
5.07 Binding Effect. Subject to the provisions of Section 4
hereof, this Agreement shall be binding on the successors and assigns of the
parties hereto.
All obligations of Employee with respect to any Shares covered by this
Agreement shall, as the context requires, bind Employee's spouse and the divorce
or death of such spouse shall not vitiate the binding nature of such obligation.
5.08 Survival of Rights and Obligations. All rights and
obligations of Employee or the Company arising during the term of this Agreement
shall continue to have full force and effect after the termination of this
Agreement unless otherwise provided herein.
The Company
/s/ Lance Mortensen
------------------------
By
/s/ Darryl Deaton
------------------------
Employee
<PAGE>
EXHIBIT 10.8
March 24, 1999
Robert J. Rudy
14215 NW Whistler Lane
Portland, OR 97229
Dear Bob:
I am pleased to offer you a position with ZapMe! Corporation (the
"Company") as Vice-President of Operations, commencing April 12th, 1999. You
will report to Frank Vigil, President & COO.
As Vice-President of Operations, an exempt position, you will receive a
monthly salary of $9,166.67 which will be paid semi-monthly in accordance with
the Company's normal payroll procedures. You also will be entitled to
participate in the Company's Employee Bonus Program. The Employee Bonus Program
is designed to reward all Company employees based on the Company achieving
certain annual operating and financial goals set by management. You will be
eligible to receive the Employee Bonus provided that you are a full-time
employee of the Company on December 31, 1999, and will have an annual Employee
Bonus target of $30,000 in 1999. If the Company exceeds the annual operating and
financial goals set by management, you will receive a bonus in excess of
$30,000; conversely, if the Company does not meet these operating and financial
goals, you may receive a bonus that is less than $30,000. The Employee Bonus is
paid on or about February 15 of the following year.
As a Company employee, you are also eligible to receive certain employee
benefits, including medical and dental insurance benefits which will be
available to you on the first day of the month following your first 60 days of
employment. Both a PPO and HMO are available, and the Company pays 90% of the
cost of either plan you choose. In light of the added benefits available to you
under the insurance benefits program in which you participated with your prior
employer, the Company agrees to reimburse you for up to $500 per month in fees
you may be required to pay to continue your and your families' participation
under that plan. The Company's obligation to so reimburse you shall discontinue
on the earlier of September 30, 2000 or the adoption by the Company of insurance
programs comparable to those of your prior employer. The Company will also make
available to you to $50,000 company paid life insurance benefit. The Company
will also provide you with term life insurance with a death benefit of $500,000.
In addition, the Company shall have in place, within sixty (60) days after the
date of this letter, a long-term disability insurance policy for executive level
employees.
<PAGE>
Robert J. Rudy
March 24, 1999
Page 2
You will also be entitled to vacation time in accordance with the Company's
policy, which is that you will receive three weeks vacation per year for your
first ten years of employment and four weeks per year thereafter. The Company
believes that vacations are a vital factor in pursuing a balanced lifestyle.
Accordingly, the Company expects that you will use vacation days in the year
earned. In no event will you accrue more than one and one-half times your annual
vacation time.
In addition, and subject to the approval of the Company's Board of
Directors, you will receive an option to purchase 180,000 shares of the
Company's Common Stock (the "Option"). The per share exercise price of the
Option will be determined by the Board of Directors, based on the fair market
value of a share of the Company's Common Stock on the date the option is granted
to you by the Board of Directors. The Option will vest as to one-third of the
shares subject thereto on each of your first, second and third anniversary of
employment.
As a Company employee, you will be expected to abide by the Company's rules
and regulations, including the Company's Employee Handbook, and to sign and
comply with the Confidential Information, Invention Assignment and Terms of
Employment Agreement (a copy of which is enclosed herewith) that prohibits
unauthorized use or disclosure of the Company's proprietary information. You
must execute and return the Confidential Information, Invention Assignment and
Terms of Employment Agreement prior to your commencing employment with the
Company.
For purposes of federal immigration law, you will be required to provide
the Company with documentary evidence of your identity and eligibility for
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
You should be aware that your employment with ZapMe! constitutes at will
employment. As a result, you are free to resign at any time, for any reason or
for no reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause or advance notice. This
at will employment relationship may not be changed except in a writing signed by
an executive officer of the Company. Notwithstanding the foregoing, the Company
and you agree that, with respect to termination of your employment with the
Company, each will abide by the terms, conditions and procedures set forth in
the Termination and Certain Consequences of Termination Policy attached as
APPENDIX A.
Of course, the terms of this offer may not be modified or amended except by
a written agreement executed by you and either the Chief Executive Officer or
President of the Company, and shall, together with such other written agreements
you and the Company may enter in connection with your employment, constitute the
entire agreement between you and the Company relating to the terms of your
employment, and supersedes and any other employment agreements or promises made
to you by anyone whether oral or written.
<PAGE>
Robert J. Rudy
March 24, 1999
Page 3
To indicate your acceptance of the Company's offer, please sign and date
this letter and return it to the undersigned. A duplicate is enclosed for your
records.
Very truly yours,
/s/ Lance Mortensen /s/ Frank Vigil
Lance Mortensen Frank Vigil
Chairman & CEO President & COO
cc: Bruce Bower
Enclosures
ACCEPTED AND AGREED:
/s/ Robert J. Rudy
- -------------------
Robert J. Rudy
<PAGE>
Robert J. Rudy
March 24, 1999
Page 4
APPENDIX A
Section 1. TERMINATION. Your employment hereunder shall terminate:
(a) FOR CAUSE. For "Cause," immediately upon written notice
satisfying the requirements of section 1(d) given by the Company to you in
accordance with section 1(e). For purposes of this APPENDIX A, the term "Cause"
shall mean any one or more of the following, as determined by the Board:
(i) You shall have committed an act of misappropriation.
embezzlement, intentional fraud, or similar conduct with respect to the
Company's business, or exercised willful misconduct or gross negligence in
the performance of your duties and execution of your responsibilities as an
employee; or
(ii) You shall have been convicted by a court of competent
jurisdiction of, or pleaded guilty or NOLO CONTENDERE to, a misdemeanor
involving moral turpitude or any felony; or
(iii) You shall have materially breached any one or more
provisions of the terms of your employment and such breach shall have
continued for a period of ten (10) days after written notice to you
specifying the breach in reasonable detail; or
(iv) You shall fail to devote your work efforts exclusively
to the Company; or
(v) You shall have refused to obey any lawful and ethical
resolution or direction of the Board or the Company's Chief Executive
Officer, President or duly authorized executive officer, and such refusal
shall have continued for a period of five (5) days after written notice to
you specifying such refusal in reasonable detail.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you
notice to that effect in writing executed by not less than two of the following
executive officers of the Company: Chief Executive Officer, President, Chief
Operating Officer, Chief Financial Officer and/or General Counsel.
(b) RESIGNATION FOR GOOD REASON. By you for "Good Reason," meaning
either (i) a material breach of the terms of your employment by the Company as
expressed herein, which breach shall have continued for a period of ten (10)
days after written notice by you to the Company specifying the breach in
reasonable detail, or (ii) a material reduction in your duties and
responsibilities from those you are assuming as Vice President Operations.
(c) VOLUNTARY TERMINATION. Immediately upon written notice by you
to the Company.
<PAGE>
Robert J. Rudy
March 24, 1999
Page 5
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by you for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 1(e) of this APPENDIX
A. For purposes of this Section 1(d), a "Notice of Termination" means a written
notice which (i) indicates the specific termination provision in this APPENDIX A
relied upon, (ii) sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated and (iii) specifies the termination date (which date, in
the case of termination for Good Reason, shall be not more than thirty (30) days
after the giving of such notice). The failure by you or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of you or the Company,
respectively, hereunder or preclude you or the Company, respectively. from
asserting such fact or circumstance in enforcing your or the Company's rights
hereunder.
(e) NOTICES. All notices and other communications hereunder shall
be in writing, and shall be deemed to have been duly given if delivered
personally or if sent by overnight courier or by certified mail, return receipt
requested, postage prepaid, to the other party at the address sent forth below:
If to the Company, to: Mr. Lance Mortensen
3000 Executive Parkway, Suite 150
San Ramon, CA 94583
If to you, to: Mr. Robert J. Rudy
14215 NW Whistler Lane
Portland, OR 97229
Any such notice shall be effective (i) if delivered personally, when received,
(ii) if sent by overnight courier, when receipted for, and (iii) if mailed, five
(5) days after mailing.
Section 2. CERTAIN CONSEQUENCES OF TERMINATION.
(a) FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. If employment
shall be terminated by the Company for Cause pursuant to Section 1(a) or by your
Voluntary Resignation pursuant to Section 1(c), the Company shall pay you your
Base Salary and shall provide any benefits you may then be receiving only
through the date of termination, including but not limited to vesting under the
Option or participation under the Company's Employee Bonus Program, and with no
liability of the Company of any kind to accrue on account of such termination.
No compensation or benefits will continue to accrue or be owing in respect of
any period after the effective date of termination.
(b) WITHOUT CAUSE OR FOR GOOD REASON. If employment shall be
terminated by the Company without Cause or by you for Good Reason, the Company
shall pay you your Base Salary through the date of termination and a severance
payment, paid as provided for below, equal to your Base Salary for six months
from the date of termination. All of the foregoing payments of Base Salary shall
be payable in accordance with the Company's standard payroll schedule. The
Company shall also continue to provide the non-cash benefits that you are
receiving at the time of your termination for a period of six months from the
date of termination
<PAGE>
Robert J. Rudy
March 24, 1999
Page 6
to the extent you are not entitled to similar coverage under the plan of another
employer. In addition, you shall be entitled to receive a pro rata portion of
any cash bonus you would have earned in the Company's Employee Bonus Program
(payable in accordance with and subject to the terms and conditions of the
Company's Employee Bonus Program schedule) had you not been terminated without
Cause or Good Reason. The Company also will accelerate the vesting of the Option
as to the lesser of (i) 30,000 shares or (ii) the balance of unvested shares
under the Option, in addition to any other vesting you shall then have achieved
under the Option.
(c) DEATH OR DISABILITY. If employment shall be terminated by the
death or disability of you, the Company shall pay you or your estate your Base
Salary through the date of such termination. You and/or your estate shall be
entitled to receive a pro rata portion of any cash bonus you would have earned
in the Company's Employee Bonus Program (payable in accordance with and subject
to the terms and conditions of the Company's Employee Bonus Program schedule)
through the date of termination.
<PAGE>
Exhibit 10.9
April 7, 1999
Donald D. Kingsborough
1121 Eagles Nest Court
Danville, CA 94506
Dear Don:
I am pleased to offer you a position with ZapMe! Corporation (the
"Company") as Senior Vice President, Sales & Marketing, commencing April 12,
1999. You will report to Lance Mortensen, Chief Executive Officer.
As Vice-President of Operations, an exempt position, you will receive a
monthly salary of $17,500.00 which will be paid semi-monthly in accordance
with the Company's normal payroll procedures. You also will be entitled to
participate in the Company's Employee Bonus Program. The Employee Bonus
Program is designed to reward all Company employees based on the Company
achieving certain annual operating and financial goals set by management. You
will be eligible to receive the Employee Bonus provided that you are a
full-time employee of the Company on December 31, 1999, and will have an
annual Employee Bonus target of $75,000 in 1999. If the Company exceeds the
annual operating and financial goals set by management, you will receive a
bonus in excess of $75,000; conversely, if the Company does not meet these
operating and financial goals, you may receive a bonus that is less than
$75,000. The Employee Bonus is paid on or about February 15 of the following
year.
As a Company employee, you are also eligible to receive certain employee
benefits, including medical and dental insurance benefits which will be
available to you on the first day of the month following your first 60 days
of employment. Both a PPO and HMO are available, and the Company pays 90% of
the cost of either plan you choose. The Company will also make available to
you to $50,000 company paid life insurance benefit. In addition, the Company
shall have in place, within sixty (60) days after the date of this letter, a
long-term disability insurance policy for executive level employees.
You will also be entitled to vacation time in accordance with the
Company's policy, which is that you will receive three weeks vacation per
year for your first ten years of employment and four weeks per year
thereafter. The Company believes that vacations are a vital factor in
pursuing a balanced lifestyle. Accordingly, the Company expects that you will
use vacation days in the year earned. In no event will you accrue more than
one and one-half times your annual vacation time.
ZapMe! Corporation ph: (925) 543-0300
3000 Executive Parkway, Suite 150, San Ramon, CA 94583 fx: (925) 543-0301
<PAGE>
Donald D. Kingsborough
April 7, 1999
Page 2
In addition, and subject to the approval of the Company's Board of
Directors, you will receive an option to purchase 300,000 shares of the
Company's Common Stock (the "Option"). The per share exercise price of the
Option will be determined by the Board of Directors, based on the fair market
value of a share of the Company's Common Stock on the date the option is
granted to you by the Board of Directors. The Option will vest as to
one-third of the shares subject thereto on each of your first, second and
third anniversary of employment.
As a Company employee, you will be expected to abide by the Company's
rules and regulations, including the Company's Employee Handbook, and to sign
and comply with the Confidential Information, Invention Assignment and Terms
of Employment Agreement (a copy of which is enclosed herewith) that prohibits
unauthorized use or disclosure of the Company's proprietary information. You
must execute and return the Confidential Information, Invention Assignment
and Terms of Employment Agreement prior to your commencing employment with
the Company.
For purposes of federal immigration law, you will be required to provide
the Company with documentary evidence of your identity and eligibility for
employment in the United States. Such documentation must be provided to us
within three (3) business days of your date of hire, or our employment
relationship with you may be terminated.
You should be aware that your employment with ZapMe! constitutes at will
employment. As a result, you are free to resign at any time, for any reason
or for no reason. Similarly, the Company is free to conclude its employment
relationship with you at any time, with or without cause or advance notice.
This at will employment relationship may not be changed except in a writing
signed by an executive officer of the Company. Notwithstanding the foregoing,
the Company and you agree that, with respect to termination of your
employment with the Company, each will abide by the terms, conditions and
procedures set forth in the Termination and Certain Consequences of
Termination Policy attached as APPENDIX A.
Of course, the terms of this offer may not be modified or amended except
by a written agreement executed by you and the Chief Executive Officer of the
Company, and shall, together with such other written agreements you and the
Company may enter in connection with your employment, constitute the entire
agreement between you and the Company relating to the terms of your
employment, and supersedes and any other employment agreements or promises
made to you by anyone whether oral or written.
ZapMe! Corporation ph: (925) 543-0300
3000 Executive Parkway, Suite 150, San Ramon, CA 94583 fx: (925) 543-0301
<PAGE>
Donald D. Kingsborough
April 7, 1999
Page 3
To indicate your acceptance of the Company's offer, please sign and date
this letter and return it to the undersigned. A duplicate is enclosed for
records.
Very truly yours,
/s/ Lance Mortensen
-------------------
Lance Mortensen
Chairman & CEO
cc: Bruce Bower
Enclosures
ACCEPTED AND AGREED:
/s/ Donald D. Kingsborough
- --------------------------
Donald D. Kingsborough
ZapMe! Corporation ph: (925) 543-0300
3000 Executive Parkway, Suite 150, San Ramon, CA 94583 fx: (925) 543-0301
<PAGE>
APPENDIX A
Section 1. TERMINATION. Your employment hereunder shall terminate:
(a) FOR CAUSE. For "Cause," immediately upon written notice
satisfying the requirements of section 1 (d) given by the Company to you in
accordance with section 1 (e). For purposes of this APPENDIX A, the term
"Cause" shall mean any one or more of the following, as determined by the
Board:
(i) You shall have committed an act of misappropriation,
embezzlement, intentional fraud, or similar conduct with respect to the
Company's business, or exercised willful misconduct or gross negligence in
the performance of your duties and execution of your responsibilities as an
employee; or
(ii) You shall have been convicted by a court of competent
jurisdiction of, or pleaded guilty or NOLO CONTENDERE to, a misdemeanor
involving moral turpitude or any felony; or
(iii) You shall have materially breached any one or more
provisions of the terms of your employment and such breach shall have
continued for a period of ten (10) days after written notice to you
specifying the breach in reasonable detail; or
(iv) You shall fail to devote your work efforts exclusively to
the Company; or
(v) You shall have refused to obey any lawful and ethical
resolution or direction of the Board or the Company's Chief Executive
Officer, President or duly authorized executive officer, and such refusal
shall have continued for a period of five (5) days after written notice to
you specifying such refusal in reasonable detail.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you
notice to that effect in writing executed by not less than two of the
following executive officers of the Company: Chief Executive Officer,
President, Chief Operating Officer, Chief Financial Officer and/or General
Counsel.
(b) RESIGNATION FOR GOOD REASON. By you for "Good Reason," meaning
either (i) a material breach of the terms of your employment by the Company
as expressed herein, which breach shall have continued for a period of ten
(10) days after written notice by you to the Company specifying the breach in
reasonable detail, or (ii) a material reduction in your duties and
responsibilities from those you are assuming as Vice President Operations.
(c) VOLUNTARY TERMINATION. Immediately upon written notice by you
to the Company.
ZapMe! Corporation ph: (925) 543-0300
3000 Executive Parkway, Suite 150, San Ramon, CA 94583 fx: (925) 543-0301
<PAGE>
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by you for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section l(e)
of this APPENDIX A. For purposes of this Section l(d), a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this APPENDIX A relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated and (iii)
specifies the termination date (which date, in the case of termination for
Good Reason, shall be not more than thirty (30) days after the giving of such
notice). The failure by you or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any fight of you or the Company,
respectively, hereunder or preclude you or the Company, respectively, from
asserting such fact or circumstance in enforcing your or the Company's rights
hereunder.
(e) NOTICES. All notices and other communications hereunder shall
be in writing, and shall be deemed to have been duly given if delivered
personally or if sent by overnight courier or by certified mail, return
receipt requested, postage prepaid, to the other party at the address sent
forth below:
If to the Company, to: Mr. Lance Mortensen
3000 Executive Parkway, Suite 150
San Ramon, CA 94583
If to you, to: Mr. Donald D. Kingsborough
1121 Eagles Nest Court
Danville, CA 94506
Any such notice shall be effective (i) if delivered personally, when
received, (ii) if sent by overnight courier, when receipted for, and (iii) if
mailed, five (5) days after mailing.
Section 2. CERTAIN CONSEQUENCES OF TERMINATION.
(a) FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. If employment
shall be terminated by the Company for Cause pursuant to Section l(a) or by
your Voluntary Resignation pursuant to Section l(c), the Company shall pay
you your Base Salary and shall provide any benefits you may then be receiving
only through the date of termination, including but not limited to vesting
under the Option or participation under the Company's Employee Bonus Program,
and with no liability of the Company of any kind to accrue on account of such
termination. No compensation or benefits will continue to accrue or be owing
in respect of any period after the effective date of termination.
(b) WITHOUT CAUSE OR FOR GOOD REASON. If employment shall be terminated by
the Company without Cause or by you for Good Reason, the Company shall pay
you your Base Salary through the date of termination and a severance payment,
paid as provided for below, equal to your Base Salary for nine months, if
prior to your first anniversary of employment, and six months, if prior to
your second or third anniversary of employment, as the case may be. All of
the foregoing payments of Base Salary shall be payable in accordance with
ZapMe! Corporation ph: (925) 543-0300
3000 Executive Parkway, Suite 150, San Ramon, CA 94583 fx: (925) 543-0301
<PAGE>
the Company's standard payroll schedule. In addition, you shall be entitled
to receive a pro rata portion of any cash bonus you would have earned in the
Company's Employee Bonus Program (payable in accordance with and subject to
the terms and conditions of the Company's Employee Bonus Program schedule)
had you not been terminated without Cause or Good Reason.
(c) DEATH OR DISABILITY. If employment shall be terminated by the
death or disability of you, the Company shall pay you or your estate your
Base Salary through the date of such termination. You and/or your estate
shall be entitled to receive a pro rata portion of any cash bonus you would
have earned in the Company's Employee Bonus Program (payable in accordance
with and subject to the terms and conditions of the Company's Employee Bonus
Program schedule) through the date of termination.
ZapMe! Corporation ph: (925) 543-0300
3000 Executive Parkway, Suite 150, San Ramon, CA 94583 fx: (925) 543-0301
<PAGE>
Exhibit 10.10
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release ("Agreement") is made by
and between ZapMe! Corporation (the "Company"), and Joshua K. Marks
("Employee").
WHEREAS, Employee was employed by the Company;
WHEREAS, the Company and Employee have entered into a Confidential
Information, Invention Assignment and Terms of Employment Agreement (the
"Agreement");
WHEREAS, the Company and Employee have mutually agreed to terminate the
employment relationship and to release each other from any claims arising
from or related to the employment relationship;
NOW THEREFORE, in consideration of the mutual promises made herein, the
Company and Employee (collectively referred to as "the Parties") hereby agree
as follows:
1. TERMINATION. Employee's employment with the Company shall
terminate effective January 31, 1999 ("Termination Date").
2. CONSULTING AGREEMENT. The Company agrees retain Employee as a
consultant (in accordance with and under the terms of the Consulting
Agreement attached hereto as Exhibit A). The Company will file a Form 1099
with the Internal Revenue Service evidencing all payments made to Employee
under the Consulting Agreement.
3. EXPENSE REIMBURSEMENT. The Company will reimburse Employee for any
expenses incurred on behalf of the Company through the Termination Date. The
Company will also reimburse Employee for Employee's out-of-pocket costs to
maintain his existing employer-sponsored insurance benefits under COBRA
through July 3l, 1999.
4. CONFIDENTIAL INFORMATION. Employee shall continue to maintain the
confidentiality of all confidential and proprietary information of the
Company and shall continue to comply with the terms and conditions of the
Agreement between Employee and the Company. Employee shall return all
confidential and proprietary information belonging to the Company that is in
his possession by the Termination Date.
5. PAYMENT OF SALARY; ADDITIONAL BENEFITS. Employee acknowledges and
represents that the Company has paid all salary, wages, accrued vacation,
commissions and any and all other benefits due to Employee through the 31st
of January 1999, except as provided for in Section 7 of this Agreement.
6. STOCK OPTIONS. Employee and the Company agree that all vesting of
Employee's stock options, pursuant to a certain stock option agreement
previously entered into by and between the Company and Employee (the "Stock
Option Agreement") will cease as of January 31, 1999 and that as a result
Employee shall have no right to acquire stock in the Company through the
exercise or stock options pursuant to the Stock Option Agreement. Employee
has
Marks Release Agreement Page 1 of 5
<PAGE>
previously exercised his rights to acquire stock pursuant to the Stock Option
Agreement. Notwithstanding the foregoing, the Company shall permit Employee
to acquire 4,409 shares of the common stock of the Company in accordance with
the provisions of the Stock Option Agreement at a per share exercise price of
$.09 between November 30, 1999 and December 31 1999, provided that Employee
shall have faithfully and satisfactorily provided the Company consulting
services pursuant to the Consulting Agreement through November 30, 1999
(hereinafter, the "Supplemental Stock Option Exercise"). The Supplemental
Stock Option Exercise shall be made pursuant to the Stock Option Agreement
and in accordance with the terms and conditions set forth in the Company's
1997 Stock Option Plan, a copy of which has previously been provided to
Employee. Should a determination be made by a court of competent
jurisdiction, or other tribunal, that the Company has unreasonably withheld
from Employee his rights to the Supplemental Stock Option Exercise, the
Company agrees to reimburse Employee for his costs, including reasonable
attorneys' fees, in prosecuting an action to enforce his rights to the
Supplemental Stock Option Exercise.
7. RELEASE OF CLAIMS. Employee agrees that the foregoing
consideration represents settlement in full of all outstanding obligations
owed to Employee by the Company. Employee and the Company, on behalf of
themselves, and their respective heirs, executors, officers, directors,
employees, investors, shareholders, administrators, predecessor and successor
corporations, and assigns, hereby fully and forever release each other and
their respective heirs, executors, officers, directors, employees, investors,
shareholders, administrators, predecessor and successor corporations, and
assigns, from, and agree not to sue concerning, any claim, duty, obligation
or cause of action relating to any matters of any kind, whether presently
known or unknown, suspected or unsuspected, that any of them may possess
arising from any omissions, acts or facts that have occurred up until and
including the Effective Date of this Agreement including, without limitation:
(a) any and all claims relating to or arising from Employee's
employment relationship with the Company and the termination of that
relationship;
(b) any and all claims relating to, or arising from, Employee's
right to purchase, or actual purchase of shares of stock of the Company under
the Stock Option Agreement; (excluding delivery of stock certificate for
57,319 shares common stock per previous exercise)
(c) any and all claims for wrongful discharge of employment;
breach of contract, both express and implied; breach of a covenant of good
faith and fair dealing, both express and implied; negligent or intentional
infliction of emotional distress; negligent or intentional misrepresentation;
negligent or intentional interference with contract or prospective economic
advantage; and defamation;
(d) any and all claims for violation of any federal, state or
municipal statute, including, but not limited to, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair
Labor Standards Act, and the California Fair Employment and Housing Act;
Marks Release Agreement Page 2 of 5
<PAGE>
(e) any and all claims arising out of any other laws and regulations
relating to employment or employment discrimination; and
(f) any and all claims for attorneys' fees and costs.
The Company and Employee agree that the release set forth in this section
shall be and remain in effect in all respects as a complete general release
as to the matters released. This release does not extend to any obligations
incurred under or owed pursuant to this Agreement.
8. CIVIL CODE SECTION 1542. The Parties represent that they are not
aware of any claim by either of them other than the claims that are released
by this Agreement. Employee and the Company acknowledge that they have been
advised by legal counsel and are familiar with the provisions of California
Civil Code Section 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.
Employee and the Company, being aware of said code section, agree to
expressly waive any rights they may have thereunder, as well as under any
other statute or common law principles of similar effect.
9. CONFIDENTIALITY. The Parties hereto each agree to use their best
efforts to maintain in confidence the existence of this Agreement, the
contents and terms of this Agreement, and the consideration for this
Agreement (hereinafter collectively referred to as "Settlement Information").
Each Party hereto agrees to take every reasonable precaution to prevent
disclosure of any Settlement Information to third parties, and each agrees
that they will not cause there to be publicity, directly or indirectly,
concerning any Settlement Information. The Parties hereto agree to take every
precaution to disclose Settlement Information only to those employees,
officers, directors, attorneys, accountants, governmental entities, and
family members who have a reasonable need to know of such Settlement
Information.
10. DISPARAGEMENT. Each party agrees to refrain from any
disparagement, criticism, defamation, slander of the other, or tortious
interference with the contracts and relationships of the other,
11. TAX CONSEQUENCES. The Company makes no representations or
warranties with respect to the tax consequences of the payment of any sums to
Employee under the terms of this Agreement. Employee agrees and understands
that he is responsible for payment, if any, of local, state and/or federal
taxes on the sums paid hereunder by the Company and any penalties or
assessments thereon. Employee further agrees to indemnify and hold the
Company harmless from any claims, demands, deficiencies, penalties,
assessments, executions, judgments, or recoveries by any government agency
against the Company for any amounts claimed due on account of Employee's
failure to pay federal or state taxes or damages sustained by the Company by
reason of any such claims, including reasonable attorneys' fees.
Marks Release Agreement Page 3 of 5
<PAGE>
12. RETURN OF EQUIPMENT. Employee shall return to the Company all
Company property and equipment not later than five days from the Termination
Date. The Company shall permit Employee to use the Dell laptop computer
currently being used by Employee during the term of the Consulting Agreement.
13. COSTS. The Parties shall each bear their own costs, expert fees,
attorneys' fees and other fees, if any, incurred in connection with this
Agreement.
14. AUTHORITY. The Company represents and warrants that the
undersigned has the authority to act on behalf of the Company and to bind the
Company and all who may claim through it to the terms and conditions of this
Agreement. Employee represents and warrants that he has the capacity to act
on his own behalf and on behalf of all who might claim through him to bind
them to the terms and conditions of this Agreement. Each Party warrants and
represents that there are no liens or claims of lien or assignments in law or
equity or otherwise of or against any of the claims or causes of action
released herein.
15. NO REPRESENTATIONS. Each party represents that it has had the
opportunity to consult with an attorney, and has carefully read and
understands the scope and effect of the provisions of this Agreement, Neither
party has relied upon any representations or statements made by the other
party hereto which are not specifically set forth in this Agreement.
16. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
17. ENTIRE AGREEMENT. This Agreement represents the entire agreement
and understanding between the Company and Employee concerning Employee's
separation from the Company, and supersedes and replaces any and all prior
agreements and understandings concerning Employee's relationship with the
Company and his compensation by the Company.
18. NO ORAL MODIFICATION. This Agreement may only be amended in
writing signed by Employee and the Chief Executive Officer of the Company or
any individual substituting for the Chief Executive Officer of the Company
who has authority to bind the Company.
19. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California.
20. EFFECTIVE DATE. This Agreement is effective after it has been
signed by both Parties.
21. COUNTERPART. This Agreement may be executed in counterparts, and
each counterpart shall have the same force and effect as an original and
shall constitute an effective, binding agreement on the part of each of the
undersigned.
Marks Release Agreement Page 4 of 5
<PAGE>
22. VOLUNTARY EXECUTION OF AGREEMENT. This Agreement is executed
voluntarily and without any duress or undue influence on the part or behalf
of the Parties hereto, with the full intent of releasing all claims. The
Parties acknowledge that:
(a) They have read this Agreement;
(b) They have been represented in the preparation, negotiation,
and execution of this Agreement by legal counsel of their own choice or that
they have voluntarily declined to seek such counsel;
(c) They understand the terms and consequences of this Agreement
and of the releases it contains;
(d) They are fully aware of the legal and binding effect of this
Agreement.
23. ARBITRATION. The Company and Employee agree that any dispute or
controversy arising out of or relating to any interpretation, construction,
performance or breach of this Agreement, shall be settled by arbitration to
be held in Contra Costa County, California, in accordance with the rules then
in effect of the American Arbitration Association. The arbitrator may grant
injunctions or other relief in such dispute or controversy. The decision of
the arbitrator shall be final, conclusive and binding on the parties to the
arbitration. Judgment may be entered on the arbitrator's decision in any
court of competent jurisdiction. The Company and Consultant shall each pay
one-half of the costs and expenses of such arbitration, and each shall
separately pay its respective counsel fees and expenses.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
respective dates set forth below.
ZAPME! CORPORATION
Dated: January 29, 1999 BY: /s/ Bruce D. Bower
------------------
Bruce D. Bower
General Counsel
EMPLOYEE
Dated: January 29, 1999 BY: /s/ Joshua K. Marks
-------------------
Joshua K. Marks
Marks Release Agreement Page 5 of 5
<PAGE>
Exhibit 10.11
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION
STATEMENTS RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER
EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE
COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT.
SATELLITE ONLINE SOLUTIONS CORPORATION
WARRANT TO PURCHASE 5,500 SHARES
OF SERIES D PREFERRED STOCK
THIS CERTIFIES THAT, for value received, FIRSTCORP and its assignees
are entitled to subscribe for and purchase 5,500 shares of the fully paid and
nonassessable Series D Preferred Stock (as adjusted pursuant to Section 4
hereof, the "Shares") of ZAPME! CORPORATION, a California corporation (the
"Company"), at the price of $5.00 per share (such price and such other price
as shall result, from time to time, from the adjustments specified in Section
4 hereof is herein referred to as the "Warrant Price"), subject to the
provisions and upon the terms and conditions hereinafter set forth. As used
herein, (a) the term "Series D Preferred" shall mean the Company's presently
authorized Series D Preferred Stock, and any stock into or for which such
Series D Preferred Stock may hereafter be converted or exchanged and (b) the
term "Date of Grant" shall mean November 30, 1998.
1. TERM. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through the earlier of (i) seven (7) years after the Date of
Grant or (ii) the closing of the Company's initial public offering of its
Common Stock effected pursuant to a Registration Statement on Form S-1 (or
any successor form thereto) filed under the Securities Act of 1933, as
amended (the "Act").
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject
to Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, at
the election of the holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as EXHIBIT A
duly completed and executed) at the principal office of the Company and by
the payment to the Company, by certified or bank check, or by wire transfer
to an account designated by the Company (a "Wire Transfer") of an amount
equal to the then applicable Warrant Price multiplied by the number of Shares
then being purchased, or (b) if in connection with a registered public
offering of the Company's securities, the surrender of this Warrant (with the
notice of exercise form attached hereto as EXHIBIT A-1 duly completed and
executed) at the principal office of the Company together with notice of
arrangements reasonably satisfactory to the Company for payment to the
Company either by certified or bank check or by Wire Transfer from the
proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased or (c) exercise of
the Conversion Right provided for in Section 10.2 hereof. The person or
persons in whose name(s) any certificate(s) representing shares of Series D
Preferred shall be issuable upon exercise of this Warrant shall be deemed to
have become the holder(s) of record of, and shall be treated for all purposes
as the record holder(s) of, the shares represented thereby (and such shares
shall be deemed to have been issued)
<PAGE>
immediately prior to the close of business on the date or dates upon which
this Warrant is exercised. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in
any event within thirty (30) days after such exercise and, unless this
Warrant has been fully exercised or expired, a new Warrant representing the
portion of the Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be issued to the holder hereof as soon as
possible and in any event within such thirty-day period.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may
be issued upon the exercise of the rights represented by this Warrant will,
upon issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Series D
Preferred to provide for the exercise of the rights represented by this
Warrant and a sufficient number of shares of its Common Stock to provide for
the conversion of the Series D Preferred into Common Stock.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any
reclassification or change of securities of the class issuable upon exercise
of this Warrant (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any merger of the Company with or into another
corporation (other than a merger with another corporation in which the
Company is the acquiring and the surviving corporation and which does not
result in any reclassification or change of outstanding securities issuable
upon exercise of this Warrant) or in case of any sale of all or substantially
all of the assets of the Company, the Company, or such successor or
purchasing corporation, as the case may be, shall duly execute and deliver to
the holder of this Warrant a new Warrant (in form and substance satisfactory
to the holder of this Warrant), so that the holder of this Warrant shall have
the right to receive, at a total purchase price not to exceed that payable
upon the exercise of the unexercised portion of this Warrant, and in lieu of
the shares of Series D Preferred theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or merger by a holder
of the number of shares of Series D Preferred then purchasable under this
Warrant. Such new Warrant shall provide for adjustments that shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Section 4. The provisions of this subparagraph (a) shall similarly apply
to successive reclassifications, changes, mergers and transfers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company
at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its outstanding shares of Series D Preferred, the
Warrant Price shall be proportionately decreased in the case of a subdivision
or increased in the case of a combination, effective at the close of business
on the date the subdivision or combination becomes effective.
<PAGE>
(c) STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. If the
Company at any time while this Warrant is outstanding and unexpired shall (i)
pay a dividend with respect to Series D Preferred payable in Series D
Preferred, or (ii) make any other distribution with respect to Series D
Preferred (except any distribution specifically provided for in Sections 4(a)
and 4(b)), of Series D Preferred, then the Warrant Price shall be adjusted,
from and after the date of determination of shareholders entitled to receive
such dividend or distribution, to that price determined by multiplying the
Warrant Price in effect immediately prior to such date of determination by a
fraction (i) the numerator of which shall be the total number of shares of
Series D Preferred outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of
shares of Series D Preferred outstanding immediately after such dividend or
distribution.
(d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment
in the Warrant Price, the number of Shares of Series D Preferred purchasable
hereunder shall be adjusted, to the nearest whole share, to the product
obtained by multiplying the number of Shares purchasable immediately prior to
such adjustment in the Warrant Price by a fraction, the numerator of which
shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
5. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or the
number of Shares purchasable hereunder shall be adjusted pursuant to Section
4 hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Warrant Price and the number of Shares purchasable
hereunder after giving effect to such adjustment, and shall cause copies of
such certificate to be mailed (without regard to Section 13 hereof, by first
class mail, postage prepaid) to the holder of this Warrant. In addition,
whenever the conversion price or conversion ratio of the Series D Preferred
shall be adjusted, the Company shall make a certificate signed by its chief
financial officer setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the conversion price or ratio of the Series D
Preferred after giving effect to such adjustment, and shall cause copies of
such certificate to be mailed (without regard to Section 13 hereof, by first
class mail, postage prepaid) to the holder of this Warrant.
6. FRACTIONAL SHARES. No fractional shares of Series D Preferred
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Series D Preferred on the date of exercise as
reasonably determined in good faith by the Company's Board of Directors.
7. COMPLIANCE WITH ACT; DISPOSITION OF WARRANTOR SHARES OF
SERIES C PREFERRED.
(a) COMPLIANCE WITH ACT. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, and the shares of Series D
Preferred to be issued upon exercise hereof and any Common Stock issued upon
conversion thereof are being acquired for investment and that such holder
will not offer, sell or otherwise dispose of this Warrant, or any shares of
Series D Preferred to be issued upon exercise hereof or any Common Stock
issued upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state securities
laws. Upon exercise of this Warrant, unless the Shares being acquired are
registered under the Act and any applicable state securities laws or an
exemption from such registration is available, the holder hereof shall
confirm in writing that
<PAGE>
the shares of Series D Preferred so purchased (and any shares of Common Stock
issued upon conversion thereof) are being acquired for investment and not
with a view toward distribution or resale in violation of the Act and shall
confirm such other matters related thereto as may be reasonably requested by
the Company. This Warrant and all shares of Series D Preferred issued upon
exercise of this Warrant and all shares of Common Stock issued upon
conversion thereof (unless registered under the Act and any applicable state
securities laws) shall be stamped or imprinted with a legend in substantially
the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS
RELATED THE TO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii)
RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES,
OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT
UNDER WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a
holder, at such time as the restrictions on the transfer of the applicable
security shall have terminated. In addition, in connection with the issuance
of this Warrant, the holder specifically represents to the Company by
acceptance of this Warrant as follows:
(1) The holder is aware of the Company's business
affairs and financial condition, and has acquired information about the
Company sufficient to reach an informed and knowledgeable decision to acquire
this Warrant. The holder is acquiring this Warrant for its own account for
investment purposes only and not with a view to, or for the resale in
connection with, any "distribution" thereof in violation of the Act.
(2) The holder understands that this Warrant has
not been registered under the Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the holder's investment intent as expressed herein.
(3) The holder further understands that this
Warrant must be held indefinitely unless subsequently registered under the
Act and qualified under any applicable state securities laws, or unless
exemptions from registration and qualification are otherwise available. The
holder is aware of the provisions of Rule 144, promulgated under the Act.
(b) DISPOSITION OF WARRANT OR SHARES. With respect to any
offer, sale or other disposition of this Warrant or any shares of Series D
Preferred acquired pursuant to the exercise of this Warrant prior to
registration of such Warrant or shares, the holder hereof agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such holder's counsel, or other
evidence, if reasonably requested by the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Act as then in effect or any federal or state
securities law then in effect) of this Warrant or such shares of Series D
Preferred or Common Stock and indicating whether or not under the Act
certificates for this Warrant or
<PAGE>
such shares of Series D Preferred to be sold or otherwise disposed of require
any restrictive legend as to applicable restrictions on transferability in
order to ensure compliance with such law. Promptly upon receiving such
written notice and reasonably satisfactory opinion or Other evidence, if so
requested, the Company, as promptly as practicable but no later than twenty
(20) days after receipt of the written notice, shall notify such holder that
such holder may sell or otherwise dispose of this Warrant or such shares of
Series D Preferred or Common Stock, all in accordance with the terms of the
notice delivered to the Company. If a determination has been made pursuant to
this Section 7(b) that the opinion of counsel for the holder or other
evidence is not reasonably satisfactory to the Company, the Company shall so
notify the holder promptly with details thereof after such determination has
been made. Notwithstanding the foregoing, this Warrant or such shares of
Series D Preferred or Common Stock may, as to such federal laws, be offered,
sold or otherwise disposed of in accordance with Rule 144 or 144A under the
Act, provided that the Company shall have been furnished with such
information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 or 144A have been satisfied. Each
certificate representing this Warrant or the shares of Series D Preferred
thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear
a legend as to the applicable restrictions on transferability in order to
ensure compliance with such laws, unless in the aforesaid opinion of counsel
for the holder, such legend is not required in order to ensure compliance
with such laws. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.
(c) APPLICABILITY OF RESTRICTIONS. Neither any
restrictions of any legend described in this Warrant nor the requirements of
Section 7(b) above shall apply to any transfer of, or grant of a security
interest in, this Warrant (or the Series D Preferred or Common Stock
obtainable upon exercise thereof) or any part hereof (i) to a partner of the
holder if the holder is a partnership, (ii) to a partnership of which the
holder is a partner, or (iii) to any affiliate of the holder if the holder is
a corporation; PROVIDED, HOWEVER, in any such transfer, if applicable, the
transferee shall on the Company's request agree in writing to be bound by the
terms of this Warrant as if an original signatory hereto.
8. RIGHTS AS SHAREHOLDERS; INFORMATION. No holder of this
Warrant, as such, shall be entitled to vote or receive dividends or be deemed
the holder of Series D Preferred or any other securities of the Company which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until this Warrant
shall have been exercised and the Shares purchasable upon the exercise hereof
shall have become deliverable, as provided herein.
9. REGISTRATION RIGHTS. The Company hereby agrees to grant
piggyback registration rights to the holder of this Warrant pursuant to
Section 1.4 of the Amended and Restated Investors' Rights Agreement dated
September 29, 1998, by and among the Company and the Investors set forth on
Exhibit A thereto (the "Investors' Rights Agreement"), for any Common Stock
of the Company obtained upon conversion of the Series D Preferred. The
Company will add the holder of this Warrant as a party to the Investors'
Rights Agreement and the shares of Common Stock issued or issuable upon
conversion of the Series D Preferred issued pursuant to the exercise of this
Warrant shall be deemed "Registrable Securities" for purposes of Section 1.4
thereof.
<PAGE>
10. ADDITIONAL RIGHTS.
10.1 MERGERS. The Company shall provide the holder of this Warrant
with at least five (5) business days' notice of the terms and conditions of
any of the following potential transactions: (i) the sale, lease, exchange,
conveyance or other disposition of all or substantially all of the Company's
property or business, or (ii) its merger into or consolidation with any other
corporation (other than a wholly-owned subsidiary of the Company), or any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of.
10.2 RIGHT TO CONVERT WARRANT INTO STOCK; NET ISSUANCE.
(a) RIGHT TO CONVERT. In addition to and without limiting
the rights of the holder under the terms of this Warrant, the holder shall
have the right to convert this Warrant (the "Conversion Right") into shares
of Series D Preferred (or Common Stock if the Series D Preferred has been
automatically converted into Common Stock) as provided in this Section 10.2
at any time during the term of this Warrant. Upon exercise of the Conversion
Right with respect to the number of shares subject to this Warrant (the
"Convened Warrant Shares"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other
consideration) (X) that number of shares of fully paid and nonassessable
Series C Preferred (or Common Stock if the Series D Preferred has been
automatically convened into Common Stock) equal to the quotient obtained by
dividing the value of this Warrant on the Conversion Date (as defined in
subsection (b) hereof), which value shall be determined by subtracting (A)
the aggregate Warrant Price of the Converted Warrant Shares immediately prior
to the exercise of the Conversion Right from (B) the aggregate fair market
value of the Converted Warrant Shares issuable upon exercise of this Warrant
on the Conversion Date (as herein defined) by (Y) the fair market value of
one share of Series D Preferred (or Common Stock if the Series D Preferred
has been automatically converted into Common Stock) on the Conversion Date
(as herein defined).
Expressed as a formula, such conversion (assuming the Series D
Preferred has been automatically converted into Common Stock) shall be
computed as follows:
<PAGE>
X = B - A
-------
Y
Where: X = the number of shares of Common Stock that may
be issued to holder
Y = the fair market value of one share of
Common Stock
A = the aggregate Warrant Price (i.e., Convened
Warrant Shares x Warrant Price)
B = the aggregate fair market value (i.e., fair market value x
Converted Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance
with the foregoing formula is other than a whole number, the Company shall
pay to the holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date (as hereinafter defined).
For purposes of Section 9 of this Warrant, shares issued pursuant to the
Conversion Right shall be treated as if they were issued upon the exercise of
this Warrant.
(b) METHOD OF EXERCISE. The Conversion Right may be
exercised by the holder by the surrender of this Warrant at the principal
office of the Company together with a written statement specifying that the
holder thereby intends to exercise the Conversion Right and indicating the
number of shares subject to this Warrant which are being surrendered
(referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in
exercise of the Conversion Right. Such conversion shall be effective upon
receipt by the Company of this Warrant together with the aforesaid written
statement, or on such later date as is specified therein (the "Conversion
Date"), and, at the election of the holder hereof, may be made contingent
upon the closing of the sale of the Company's Common Stock to the public in a
public offering pursuant to a Registration Statement under the Act (a "Public
Offering"). Certificates for the shares issuable upon exercise of the
Conversion Right and, if applicable, a new warrant evidencing the balance of
the shares remaining subject to this Warrant, shall be issued as of the
Conversion Date and shall be delivered to the holder within thirty (30) days
following the Conversion Date. Any conversion from Series C Preferred to
Common Stock shall be in the ratio of one (1) share of Common Stock for each
share of Series D Preferred (as adjusted herein and in the Charter). On the
Date of Grant, each share of the Series D Preferred represented by this
Warrant is convertible into one share of Common Stock.
(c) DETERMINATION OF FAIR MARKET VALUE. For purposes of
this Section 10.2, "fair market value" of a share of Series D Preferred (or
Common Stock if the Series D Preferred has been automatically convened into
Common Stock) as of a particular date (the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in
connection with and contingent upon a Public Offering, and if the Company's
Registration Statement relating to such Public Offering has
<PAGE>
been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in
connection with and contingent upon a Public Offering, then the fair market
value shall be as determined in good faith by the Board of Directors of the
Company.
10.3 EXERCISE PRIOR TO EXPIRATION. To the extent this Warrant is
not previously exercised as to all of the Shares subject hereto, and if the
fair market value of one share of the Series D Preferred is greater than the
Warrant Price then in effect, this Warrant shall be deemed automatically
exercised pursuant to Section 10.2 above (even if not surrendered)
immediately before its expiration. For purposes of such automatic exercise,
the fair market value of one share of the Series D Preferred upon such
expiration shall be determined pursuant to Section 10.2(c). To the extent
this Warrant or any portion thereof is deemed automatically exercised
pursuant to this Section 10.3, the Company agrees to promptly notify the
holder hereof of the number of Shares, if any, the holder hereof is to
receive by reason of such automatic exercise.
11. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by
the Company and is a valid and binding obligation of the Company enforceable
in accordance with its terms, subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors and the rules of law or
principles a equity governing specific performance, injunctive relief and
other equitable remedies;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable;
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the Series D Preferred and the holders thereof are
as set forth in the Company's Articles of Incorporation, as amended to the
Date of the Grant, a true and complete copy of which has been delivered to
the original holder of this Warrant and is attached hereto as EXHIBIT B;
(d) The shares of Common Stock issuable upon conversion
of the Shares have been duly authorized and reserved for issuance by the
Company and, when issued in accordance with the terms hereof and of the
Company's Articles of Incorporation will be validly issued, fully paid and
nonassessable;
(e) The execution and delivery of this Warrant are not,
and the issuance of the Shares upon exercise of this Warrant in accordance
with the terms hereof will not be, inconsistent with the Company's Articles
of Incorporation or by-laws, do not and will not contravene any law,
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of the giving of notice to, the registration or
filing with or the taking of any action in respect of or by, any
<PAGE>
Federal, state or local government authority or agency or other person,
except for the filing of notices pursuant to federal and state securities
laws, which filings will be effected by the time required thereby; and
(f) There are no actions, suits, audits, investigations
or proceedings pending or, to the knowledge of the Company, threatened
against the Company in any court or before any governmental commission, board
or authority which, if adversely determined, will have a material adverse
effect on the ability of the Company to perform its obligations under this
Warrant.
12. MODIFICATION AND WAIVER. This Warrant and any provision
hereof may be changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of the same is
sought.
13. NOTICES. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefor on the
signature page of this Warrant.
14. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of
the obligations of the Company relating to the Series C Preferred issuable
upon the exercise or conversion of this Warrant shall survive the exercise,
conversion and termination of this Warrant and all of the covenants and
agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.
15. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to
the holder hereof that, upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity satisfactory to the Company, or in the case of any
such mutilation, upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
16. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. GOVERNING LAW. This Warrant shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the
laws of the State of California.
18. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained
herein shall survive indefinitely until, by their respective terms, they are
no longer operative.
<PAGE>
19. REMEDIES. In case any one or more of the covenants and
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case
of a breach by a holder), may proceed to protect and enforce their or its
rights either by suit in equity and/or by action at law, including, but not
limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained
in this Warrant.
20. NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment
of its Articles of Incorporation or through any other means, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the holder of this Warrant against impairment.
21. SEVERABILITY. The invalidity or unenforceability of any
provision of this Warrant in any jurisdiction shall not affect the validity
or enforceability of such provision in any other jurisdiction, or affect any
other provision of this Warrant, which shall remain in full force and effect.
22. RECOVERY OF LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any
of the provisions of this Warrant, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any other relief
to which it or they may be entitled.
[Remainder of Page Intentionally Left Blank]
<PAGE>
23. ENTIRE AGREEMENT; MODIFICATION. This Warrant constitutes the
entire agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous agreements,
representations, and undertakings of the parties, whether oral or written,
with respect to such subject matter.
ZAPME! CORPORATION
By /s/ Bruce D. Bower
--------------------------------
Title CFO & Secretary
-----------------------------
Address: 3000 Executive Parkway, Suite 150
San Ramon, California 94583
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: ZAPME! CORPORATION
1. The undersigned hereby:
/ / elects to purchase __________ shares of Series C
Preferred Stock of Satellite Online Solutions
Corporation pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase
price of such shares in full, or
/ / elects to exercise its net issuance rights pursuant
to Section 10.2 of the attached Warrant with respect
to __________ Shares of Series C Preferred Stock.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
_______________________________
(Name)
_______________________________
_______________________________
(Address)
3. The undersigned represents that the aforesaid shares are
being acquired for the account of the undersigned for investment and not with
a view to, or for resale in connection with the distribution thereof and
that the undersigned has no present intention of distributing or reselling
such shares, all except as in compliance with applicable securities laws.
_______________________________
(Signature)
_______________
(Date)
<PAGE>
EXHIBIT A-1
NOTICE OF EXERCISE
To: ZAPME! CORPORATION (the "Company")
1. Contingent upon and effective immediately prior to the
closing (the "Closing") of the Company's public offering contemplated by the
Registration Statement on Form S_____, filed _______________, 19____, the
undersigned hereby:
/ / elects to purchase __________ shares of Series C
Preferred Stock of the Company (or such lesser number
of shares as may be sold on behalf of the undersigned
at the Closing) pursuant to the terms of the attached
Warrant, or
/ / elects to exercise its net issuance rights pursuant
to Section 10.3 of the attached Warrant with respect
to __________ Shares of Series C Preferred Stock.
2. Please deliver to the custodian for the selling shareholders
a stock certificate representing such __________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $ __________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior
to the Closing.
_______________________________
(Signature)
_______________
(Date)
<PAGE>
EXHIBIT B
Articles of Incorporation
<PAGE>
STATE OF CALIFORNIA
SECRETARY OF STATE
I, BILL JONES, Secretary of State of the State of California, hereby
certify:
That the attached transcript of 13 page(s) has been compared with the
record on file in this office, of which it purports to be a copy, and that it
is full, true and correct.
IN WITNESS WHEREOF, I execute this
certificate and affix the Great
Seal of the State of California
this day of
Aug. 05 1998
--------------------------------------
/s/ Bill Jones
Secretary of State
-1-
<PAGE>
RESTATED
ARTICLES OF INCORPORATION
OF
ZAPME! CORPORATION
Frank J. Vigil and Bruce D. Bower hereby certify that:
1. They are the President and Secretary, respectively, of ZapMe!
Corporation, a California corporation.
2. The Articles of Incorporation of this corporation are amended and
restated to read as follows:
ARTICLE I
The name of this corporation is ZapMe! Corporation.
ARTICLE 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 trust
company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
ARTICLE III
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
ARTICLE IV
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the Corporations Code) through bylaws provisions,
agreements with agents, vote of shareholders or disinterested directors or
otherwise, in excess of the indemnification otherwise permitted by Section
317 of the Corporations Code, subject only to the limits on such excess
indemnification set forth in Section 204 of the Corporations Code.
<PAGE>
ARTICLE V
A. The corporation is authorized to issue two classes of shares, to
be designated respectively Common Stock ("Common") and Preferred Stock
("Preferred"). The total number of shares of Common the corporation shall
have authority to issue is 50,000,000 and the total number of shares of
Preferred the corporation shall have authority to issue is 12,857,671. The
par value of the Common shall be $0.01 per share, and the par value of the
Preferred shall be $0.01 per share.
The corporation from time to time in accordance with the laws of the
State of California shall increase the authorized amount of its Common if at
any time the number of shares of Common remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred.
The Preferred may be issued from time to time in one or more series. The
Board of Directors is hereby authorized to fix or alter the dividend rights,
dividend rate, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), redemption price or prices,
and the liquidation preferences of any wholly unissued series of Preferred,
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 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 so decreased, 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.
B. The Preferred authorized by these Articles of Incorporation shall
be issued in series as set forth herein. The first series of Preferred shall
be designated Series A Preferred Stock ("Series A Preferred") and shall
consist of 9,097,671 authorized shares. The second series of Preferred shall
be designated Series B Preferred Stock ("Series B Preferred") and shall
consist of 660,000 authorized shares. The third series of Preferred shall be
designated Series C Preferred Stock ("Series C Preferred") and shall consist
of 600,000 authorized shares. The fourth series of Preferred Stock shall be
designated Series D Preferred Stock ("Series D Preferred") and shall consist
of 2,500,000 authorized shares. The shares of each series of Preferred have
the rights, preferences, privileges and restrictions set forth below.
SECTION 1. GENERAL DEFINITIONS. For purposes of this Article the
following definitions shall apply:
(a) "LIQUIDATION EVENT" shall be deemed to be occasioned by
and to include a liquidation, dissolution or winding up of the corporation,
whether voluntary or involuntary, other than a liquidation, dissolution or
winding up effected in connection with a Merger Event.
-2-
<PAGE>
(b) "MERGER EVENT" shall be deemed to be occasioned by and
to include the consolidation or merger of the corporation with or into any
other corporation or the sale or other transfer in a single transaction or a
series of related transactions of all or substantially all of the assets of
the corporation.
(c) "PREFERRED LIQUIDATION AMOUNT" initially shall mean: (i)
$0.10016827 per share of Series A Preferred, (ii) $2.50 per share of Series B
Preferred, (iii) $5.00 per share of Series C Preferred, and (iv) $5.00 per
share of Series D Preferred, plus, in each case, an amount equal to all
declared and unpaid dividends. The Preferred Liquidation Amount of each
series of Preferred Stock shall be appropriately adjusted in each case for
stock splits, reverse stock splits, stock dividends, stock combinations,
recapitalizations, and similar events that are effected with respect to such
shares. The Preferred Liquidation Amount of the Series C Preferred shall be
subject to further adjustment from time to time upon the payment of PIK
Dividends pursuant to Section 2(b) hereof. The Preferred Liquidation Amount
of the Series C Preferred shall also be deemed to include an amount equal to
a prorated PIK Dividend pursuant to Section 2(b) hereof for the interim
period from the most recent Dividend Payment Date.
(d) "SUBSIDIARY" shall mean any corporation at least 50% of
whose outstanding voting shares shall at the time be owned by the corporation
or by one or more of such subsidiaries.
(e) "DIVIDEND PAYMENT DATE(S)" shall mean April 1, July 1,
October 1 and January 1 of each year.
(f) "JUNIOR PREFERRED" shall mean the Series A Preferred,
Series B Preferred, and Series D Preferred.
SECTION 2. DIVIDEND RIGHTS.
(a) PREFERENCE ON DIVIDENDS. The holders of Preferred shall
be entitled to receive, when, as and if declared by the Board of Directors of
the corporation, dividends prior and in preference to payment of any dividend
with respect to the Common (other than dividends payable solely in Common);
PROVIDED that the Cash Dividends or PIK Dividends paid to the holders of
Series C Preferred pursuant to paragraph (b) below shall be mandatory. No
dividend or distribution shall be declared or paid on any shares of Common
(other than dividends payable solely in Common) unless at the same time an
equivalent dividend or distribution is paid or declared and set aside for
payment on the Preferred (on an as converted to Common basis) and all accrued
but unpaid dividends on the Preferred have been paid. No dividend or
distribution shall be declared or paid on any shares of Junior Preferred
unless all accrued but unpaid dividends on the Series C Preferred have been
paid.
(b) MANDATORY DIVIDENDS FOR SERIES C PREFERRED. On each
Dividend Payment Date, the corporation shall pay, and the holders of shares
of Series C Preferred shall be entitled to receive, out of the assets of the
corporation legally available therefor, a dividend on each share of
-3-
<PAGE>
Series C Preferred at a rate per annum equal to ten percent (10%) of the
Preferred Liquidation Amount of such share (as may be increased from time to
time pursuant to this paragraph (b)), which amount (the "Dividend Amount")
may be paid to the holder of such share in cash (a "Cash Dividend"). In the
event the corporation does not pay a Cash Dividend on a Dividend Payment Date
with respect to any shares of Series C Preferred, the Preferred Liquidation
Value of each such share automatically shall be increased in an amount equal
to the Dividend Amount (such increase is referred to in this Article V as a
("PIK Dividend"), which increase shall be in lieu of the payment of a Cash
Dividend. The Board of Directors shall declare such dividends on each
Dividend Payment Date.
SECTION 3. LIQUIDATION PREFERENCE.
(a) PREFERRED STOCK PREFERENCE. Upon the occurrence of a
Liquidation Event, the holders of Preferred shall be entitled to receive, out
of the assets of the corporation available for distribution to its
shareholders, by reason of their ownership thereof (prior, and in preference,
to any distribution of any of the assets of the corporation to the holders of
the Common or any other capital stock which the corporation may issue), an
amount equal to the Preferred Liquidation Amount for each share of Preferred
then held by them. If, upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Preferred shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the holders of Series C Preferred shall be
entitled to receive, prior and in preference to any distribution of any of
the assets or surplus funds of the corporation to the holders of the Junior
Preferred and the Common by reason of their ownership thereof, their
Preferred Liquidation Amount per share together with accrued unpaid dividends
relating thereto (or, if sufficient funds are not available therefor, the
remaining assets and funds shall be distributed ratably among the holders of
Series C Preferred in proportion to their respective holdings) after which the
entire remaining assets and funds of the corporation legally available for
distribution, if any, shall be distributed ratably among the holders of the
Junior Preferred in proportion to the full aforesaid preferential amounts to
which each such holder is entitled; in no event in the case of a Liquidation
Event shall any payments or distributions be made to the holders of Junior
Preferred or any other capital stock of the corporation until the Preferred
Liquidation Amount has been received by the holders of Series C Preferred.
(b) PAYMENT TO COMMON. All of the preferential amounts to
be paid to the holders of the Preferred under Section 3(a) shall be paid or
set apart for payment prior to payment or setting apart for payment of any
amount for, or the distribution of any amounts to, the holders of any Common
in connection with such Liquidation Event. If the corporation has assets or
funds remaining after payment of the preferential amounts so payable to the
holders of the Preferred pursuant to Section 3(a), the remaining assets of
the corporation available for distribution to shareholders shall be
distributed among the holders of Common pro rata based on the number of
shares of Common held by each.
(c) VALUATION. For purposes of this Section 3, if the
distributions or consideration received by the shareholders of the
corporation is other than cash or publicly traded securities listed on an
exchange or transaction reporting system, its fair market value will be
determined in good faith by the Board of Directors of the corporation. In the
ease of publicly
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traded securities listed on an exchange, fair market value shall mean the
average last closing sale price as reported by such exchange or by a
consolidated transaction reporting system for the five trading-day period
immediately preceding the date such sale, merger, consolidation or other
reorganization is consummated. In the case of publicly traded securities not
listed on an exchange, fair market value shall mean the average last closing
bid price as reported by the National Association of Securities Dealers
Automatic Quotation System, Inc. or such successor or similar organization,
for the five trading-day period immediately preceding the date on which such
sale, merger, consolidation or other reorganization is consummated.
(d) RANK. The Series C Preferred shall rank senior in all
respects to the Junior Preferred and any future series of Preferred Stock.
The Junior Preferred shall be pari passu.
SECTION 4. CONVERSION. The holders of the Preferred shall have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Preferred shall be
convertible, at the option of the holder thereof, at any time after the date
of issuance of such share at the office of the corporation of any transfer
agent for the Preferred, into such number of fully paid and nonassessable
shares of Common, as is determined by dividing (i) the applicable Preferred
Liquidation Amount for each share of Preferred in effect at the time of
conversion, by (ii) the applicable Conversion Price (determined as
hereinafter provided) in effect at the time of conversion. The price at which
shares of Common shall be deliverable upon conversion (the "Conversion
Price") initially shall be $0.10016827 for each share of Series A Preferred,
$2.50 for each share of Series B Preferred, $5.00 for each share of Series C
Preferred, and $5.00 for each share of Series D Preferred in each case per
share of Common. Such Conversion Price shall be subject to adjustment as
hereinafter provided.
(b) AUTOMATIC CONVERSION. Each share of Preferred
automatically shall be converted into shares of Common at the then effective
and applicable Conversion Price upon the earlier to occur of: (i) the closing
date of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as
amended, coveting the offer and sale of Common for the account of the
corporation to the public at an aggregate offering price of not less than
twenty five million dollars ($25,000,000) (before deducting underwriter's
discounts and commissions) at a share price to the public of at least $8 per
share (as adjusted for any stock split, combination, recapitalization or
similar event with respect to the Common) (hereinafter, a "Public Offering"),
and (ii) the date specified in a written consent signed by the holders of a
majority of the shares of Preferred then outstanding.
(c) MECHANICS OF CONVERSION. No fractional shares or scrip
representing fractional shares shall be issued upon the conversion of any
share of Preferred. If, upon conversion of all of the shares of Preferred
held by a registered holder which are being converted, except for the
provisions of this Section 4(c), the registered holder would be entitled to
receive a fractional share of Common, then an amount equal to such fractional
share multiplied by the then
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fair market value (as determined in good faith by the corporation's Board of
Directors) of a share of the corporation's Common shall be paid by the
corporation in cash to such registered holder. Before any holder of Preferred
shall be entitled to convert the same into shares of Common, the holder shall
surrender the certificate or certificates therefor, duly endorsed, at the
office of the corporation or of any transfer agent for the Preferred, and
shall give written notice to the corporation at such office that the holder
elects to convert the same. The corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred, a
certificate or certificates for the number of shares of Common to which the
holder shall be entitled as aforesaid and a check payable to the holder in
the amount of any cash amounts payable as the result of a conversion into
fractional shares of Common. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender
of the shares of Preferred to be converted, or in the case of automatic
conversion as provided in Section 4(b)(i), on the closing date of the
offering, and the person or persons entitled to receive the shares of Common
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common on such date.
(d) ADJUSTED FOR SUBDIVISIONS AND COMBINATIONS. If the
corporation at any time or from time to time after the filing of these
Restated Articles of Incorporation effects a subdivision of the outstanding
Common, without a corresponding subdivision with respect to the Preferred,
the Conversion Price of each series of Preferred then in effect immediately
before that subdivision shall be proportionately decreased, and, conversely,
if the corporation at any time or from time to time combines the outstanding
shares of Common, without a corresponding combination with respect to the
Preferred, the Conversion Price of each series of preferred then in effect
immediately before the combination shall be proportionately increased. Any
adjustment of the Conversion Price of any series of Preferred under this
Section 4(d) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In
the event the corporation at any time or for time after the filing of these
Restated Articles of Incorporation makes, or fixes a record date for the
determination of holders of Common entitled to receive, a dividend or other
distribution payable in additional shares of Common or in options or other
convertible securities, without a corresponding dividend with respect to the
Preferred, then and in each such event the Conversion Price then in effect
for each series of Preferred shall be decreased as of the time of such
issuance or, in the event such a record date is fixed, as of the close of
business on such record date, by multiplying the Conversion Price then in
effect by a fraction (i) the numerator of which is the total number of shares
of Common issued and outstanding immediately prior to the time of such
issuance on the close of business on such record date, and (ii) the
denominator of which shall be the total number of shares of Common issued and
outstanding immediately prior to the time of such issuance on the close of
business on such record date PLUS the number of shares of Common issuable in
payment of such dividend or distribution; PROVIDED, HOWEVER, that if such
record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion
Price shall be recomputed accordingly as of the close of business on such
record date and thereafter the Conversion Price
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shall be adjusted pursuant to this Section 4(e) as of the time of actual
payment of such dividends or distributions.
(f) ADJUSTMENTS FOR OTHER DIVIDENDS OR DISTRIBUTIONS. In the
event the corporation at any time or from time to time makes or fixes a
record date for the determination of holders of shares of Common entitled to
receive a dividend or other distribution payable in securities or other
property of the corporation (other than shares of Common or options or other
convertible securities and other than as otherwise adjusted in this Section
4) without a corresponding dividend or distribution with respect to the
Preferred, then, and in each such event, provision shall be made so that the
holders of shares of Preferred shall receive upon conversion thereof, in
addition to the number of shares of Common receivable thereupon, the amount
of securities and other property of the corporation which they would have
received had their shares of Preferred been converted into shares of Common
on the date of such event and had they thereafter, during the period from the
date of such event to and including the date of conversion, retained such
securities and other property receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 4 with respect to the rights of the holders of shares of
Preferred.
(g) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If the shares of Common issuable upon conversion of the
Preferred shall be changed into the same or a different number of shares of
any other class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of
shares, stock dividend, reorganization, merger, consolidation or sale of
assets as provided for elsewhere in this Section 4), then and in any such
event each holder of Preferred thereafter shall have the right to convert
such stock into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other
change, by holders of the number of shares of Common into which such shares
of Preferred might have been converted immediately prior to such
recapitalization, reclassification or change, all subject to such further
adjustments applicable as specified herein.
(h) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time there is a capital reorganization
of the Common (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section
4) or a merger or consolidation of the corporation with or into another
corporation, or the sale of all or substantially all of the corporation's
properties and assets to any other person (except an event which is governed
under Section 3), then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holders of the
Preferred thereafter shall be entitled to receive, upon conversion of the
Preferred, the number of shares of stock or other securities or property of
the corporation, or of such successor corporation resulting from such
reorganization, merger, consolidation or sale, to which a holder of Common
deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
4 with respect to the rights of the holders of the
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Preferred after the reorganization, merger, consolidation or sale to the end
that the provisions of this Section 4 (including adjustment of the Conversion
Price then in effect and number of shares issuable upon conversion of the
Preferred) shall be applicable after that event and be as nearly equivalent
to the provisions hereof as may be practicable. This Section 4(h) shall
similarly apply to successive reorganizations, mergers, consolidations and
sales.
(i) RESERVATION OF COMMON ISSUABLE UPON CONVERSION. The
corporation shall at all times reserve and keep available out of its
authorized but unissuable shares of Common solely for the purpose of
effecting the conversion of the shares of the Preferred such number of its
shares of Common as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Preferred; and if at any time the
number of authorized but unissued shares of Common shall not be sufficient to
effect the conversion of all outstanding shares of the Preferred, in addition
to such other remedies as shall be available to the holder of such Preferred,
this corporation will take such corporate action as may, in the option of its
counsel, be necessary to increase its authorized but unissued shares of
Common to such number of shares of Common to such number of shares as shall
be sufficient for such purposes.
(j) NO IMPAIRMENT. The corporation will not, by amendment of
its Articles of Incorporation or through any reorganization, 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, and will at all times in good faith assist in carrying out of
all provisions hereof, including without limitation this Section 4, and in
the taking of all such action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Preferred against
impairment, or dilution in accordance with the provisions hereof.
(k) CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of
each adjustment or readjustment of any Conversion Price for any series of
Preferred pursuant to this Section 4, the corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of the Preferred a certificate
executed by the corporation's president or chief financial officer setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based. The corporation shall, upon
the written request at any time of any holder of Preferred, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the conversion price for such series of
Preferred at such time in effect, and (iii) the number of share of Common
Stock which at the time would be received upon the conversion of such series
of Preferred.
SECTION 5. ADDITIONAL RIGHTS OF SERIES C PREFERRED
(a) REDEMPTION RIGHTS.
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(i) On August 27, 2000 (the "First Redemption Date"),
and on each six month anniversary of the First Redemption Date (the First
Redemption Date and each such additional date, a "Redemption Date"), at the
individual option of each holder of shares of Series C Preferred, the
corporation shall redeem for cash the number of shares of Series C Preferred
held by such holder that is specified in a request for redemption delivered
to the corporation by the holder at least ten (10) days prior to the
applicable Redemption Date, out of any funds legally available therefor, at a
price per share equal to twice the Preferred Liquidation Amount for each such
share.
(ii) If the funds of the corporation legally
available for redemption of shares of Series C Preferred at the applicable
Redemption Date are insufficient to redeem the total number shares of Series
C Preferred to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares
ratably among the holders such shares to be redeemed based upon the total
number of shares then requested to be redeemed by each such holder.
(iii) The shares of Series C Preferred not redeemed
upon an applicable Redemption Date because of the failure of the holder
thereof to so elect and the shares of Series C Preferred not redeemed upon an
applicable Redemption Date became of an insufficiency as described in
paragraph (ii) above shall remain outstanding and entitled to all the rights
and preferences provided herein, including the right to receive mandatory
dividends as provided in Section 2(b).
(b) ISSUANCE OF ADDITIONAL SHARES OF COMMON UPON PUBLIC
OFFERING. In the event of a Public Offering contemplated by Section 4(b)(i)
hereof, where the offering price (the "IPO Price") is to be less than $15.00
per share of Common (as appropriately adjusted for stock splits, reverse
stock splits, stock dividends, stock combinations, recapitalization, and
similar events that are effected with respect to the Common), then each
holder of Series C Preferred will be immediately issued additional shares of
Common as determined by the following formula:
AS = ($15.00-X)Y
-----------
X
where:
(i) AS = the number of additional shares of Common to be issued to such
holder in connection with the Public Offering
(ii) X = the IPO Price; and
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(iii) Y = the number of shares of Common into which such holder's shares
of Series C Preferred were convertible pursuant to Section 4(a)
hereof immediately prior to the Public Offering.
SECTION 6. SPECIAL PROVISIONS FOR MERGER EVENTS.
(a) DISTRIBUTIONS ON MERGER EVENTS.
(i) Upon the occurrence of a Merger Event, each
holder of outstanding shares of Series C Preferred shall first receive in
cash or in securities received from the acquiring corporation, or in a
combination thereof, at the closing of any such transaction constituting a
Merger Event, an amount equal to the aggregate Series C Merger Amount, as
defined in Section 6(b), of the shares of Series C Preferred then held by
such holder. In the event the full Series C Merger Amount for the outstanding
shares of Series C Preferred is not paid to the holders of the Series C
Preferred in accordance herewith, then the entire amount payable in respect of
the Merger Event shall be distributed among the holders of the Series C
Preferred in proportion to the number of shares of Series C Preferred held by
each such holder.
(ii) If, after payment of the Series C Merger Amount
to the holders of Series C Preferred pursuant to Section 6(a)(i), any
proceeds remain available for distribution in respect of the Merger Event,
the holders of Junior Preferred shall be entitled to receive in cash or in
securities received from the acquiring corporation, or in a combination
thereof, at the closing of any such transaction constituting a Merger Event,
an amount equal to the aggregate Preferred Liquidation Amount of the shares
of Junior Preferred held by each such holder. In the event the full Preferred
Liquidation Amount for the outstanding shares of Junior Preferred is not paid
in accordance herewith, then the entire remaining amount payable in respect
of the Merger Event shall be distributed ratably among the holders of the
Junior Preferred in proportion to the aggregate Preferred Liquidation Amount
of the shares of Junior Preferred held by each such holder.
(iii) Following the payments to the holders of
Preferred as set forth above, the remaining proceeds of the Merger Event (if
any) shall be distributed to the holders of Common ratably in proportion to
the number of shares of Common held by each such holder.
(b) "SERIES C MERGER AMOUNT" DEFINED. For purposes of this
Section 6, "Series C Merger Amount" for each share of Series C Preferred
shall mean the Preferred Liquidation Amount of such share, multiplied by
three (3).
(c) VALUATION. Any Securities to be delivered to the holders
of Preferred pursuant to Section 6(a) above shall be valued as follows:
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(i) Securities not subject to investment letter or
other similar restrictions on free marketability:
(A) If traded on a securities exchange, the
value shall be deemed to be the average of the closing prices of the
securities on such exchange over the 30-day period ending three (3) days
prior to the closing;
(B) If traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices of the securities
over the 30-day period ending three (3) days prior to the closing; and
(C) If there is no public market, the fair
market value shall be determined in good faith by the corporation's Board of
Directors.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability shall be to
make an appropriate discount from the market value determined as above in (i)
(A), (B), or (C) to reflect the approximate fair market value thereof, as
determined in good faith by the Board of Directors of the corporation.
SECTION 7. VOTING RIGHTS.
(a) GENERAL. Except as otherwise expressly provided herein or
as required by law, the holders of issued and outstanding Common and the
holders of issued and outstanding Preferred shall have one vote for each
share of Common then held or deemed to be held (assuming the conversion into
Common of all then-outstanding shares of Preferred), voting together as a
single class, at the record date for determination of the stockholders
entitled to vote on such matters, or, if no such record date is established,
at the date such vote is taken or any written consent of stockholders is
solicited, such votes to be counted together with all other shares of stock
of the corporation having general voting power and not separately as a class.
Holders of shares of Common and Preferred shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the corporation. No
fractional votes shall be permitted, and any fractional voting rights
resulting from the above formula (after aggregating all shares of Common into
which shares of Preferred held by each holder could be convened) shall be
rounded to the nearest whole number (with one-half being rounded upward).
(b) VOTING FOR THE ELECTION OF DIRECTORS. All directors shall
be elected by the holders of Preferred and Common, voting together as a
single class.
SECTION 8. COVENANTS. In addition to any other rights provided by
law, the corporation shall not, without first obtaining the affirmative vote
or written consent of (i) the holders of Preferred constituting not less than
a majority of the outstanding Preferred, voting together as a single class,
and (ii) the holders of the Series C Preferred constituting not less than a
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majority of the outstanding Series C Preferred, voting together as a separate
class, in each case determined on an as-converted into Common basis.
(a) increase or decrease the authorized number of shares of
the Preferred or any series of Preferred;
(b) authorize or issue shares of any class or series having
any preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of any series of Preferred;
(c) reclassify any Common or other shares of the corporation
which do not have a preference or priority over or with any series of
Preferred into shares having any preference or priority as to dividends,
liquidation rights or voting rights superior to or on a parity with any such
preference or priority of any series of Preferred;
(d) pay or declare any dividend on any Common (except
dividends payable solely in shares of Common) or repurchase or redeem any
outstanding common;
(e) effect any Merger Event or permit any recapitalization;
or
(f) take action which would have a material and adverse
alteration or change of the rights, preferences or privileges of the
Preferred.
SECTION 9. CONSENT FOR CERTAIN REPURCHASES OF COMMON STOCK DEEMED TO
BE DISTRIBUTIONS. Each holder of an outstanding share of Preferred shall be
deemed to have consented, for purposes of Sections 502, 503 and 506 of the
General Corporation Law, to distributions made by the corporation in
connection with the repurchase at cost of shares of Common issued to or held
by employees, officers, directors, consultants or other persons performing
services for the corporation or any Subsidiary upon termination of their
employment or services pursuant to agreements providing for the right of said
repurchase between the corporation and such persons; PROVIDED, HOWEVER, that
the amount of such repurchases does not exceed $50,000 in the aggregate in any
one fiscal year.
SECTION 10. RESIDUAL RIGHTS. All rights accruing to the outstanding
shares of the corporation not expressly provided for to the contrary herein
shall be vested in the Common.
SECTION 11. STATUS OF CONVERTED OR REDEEMED STOCK. In the event any
shares of Preferred shall be redeemed or converted, the shares so converted
or redeemed shall be canceled and shall not have the status of authorized but
unissued shares of Preferred and shall not be issuable by the corporation and
the Articles of Incorporation of this corporation shall be amended to effect
the corresponding reduction in the corporation's capital stock.
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3. The foregoing amendment and restatement of Articles of
Incorporation has been duly approved by the Board of Directors of the
corporation.
4. The foregoing amendment and restatement of Articles of
Incorporation has been duly approved by the required vote of shareholders in
accordance with Sections 902 and 903 of the Corporations Code. The number of
shares of voting in favor of the amendment equaled or exceeded the vote
required, such required vote being a majority of the outstanding shares of
Common Stock and Preferred Stock, voting together as a single class, a
majority of the outstanding shares of Preferred Stock, voting together as a
single class, a majority of the outstanding shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, each voting as
a separate series, and a majority of the outstanding shares of Common Stock,
voting as a separate class. The total number of outstanding shares of the
corporation is 14,208,730 shares of Common Stock, 9,097,671 shares of Series
A Preferred Stock, 160,000 shares of Series B Preferred Stock and 600,000
shares of Series C Preferred Stock.
/s/ Frank J. Vigil
------------------------------
Frank J. Vigil
President
/s/ Bruce D. Bower
------------------------------
Bruce D. Bower
Secretary
The undersigned further declare under penalty of perjury that the
matters set forth in the foregoing certificate are true of their own
knowledge.
Executed at San Ramon, California on November 20, 1998.
/s/ Frank J. Vigil
------------------------------
Frank J. Vigil
President
/s/ Bruce D. Bower
------------------------------
Bruce D. Bower
Secretary
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Exhibit 10.12
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN
OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 6 OF THIS WARRANT.
ZAPME! CORPORATION
WARRANT TO PURCHASE 150,000 SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Sylvan Learning Systems, Inc.
("Sylvan") is entitled to subscribe for and purchase up to 150,000 shares of
the fully paid and nonassessable Common Stock (as adjusted pursuant to
Section 4 hereof, the "Shares") of ZAPME! CORPORATION, a California
corporation (the "Company"), at the price of $5.00 per share (such price and
such other price as shall result, from time to time, from the adjustments
specified in Section 4 hereof is herein referred to as the "Warrant Price"),
subject to the provisions and upon the terms and conditions hereinafter set
forth. As used herein, the term "Date of Grant" shall mean March 3, 1999.
1. TERM; RIGHT TO EXERCISE.
(a) Subject to Section 1(b) hereof, the purchase right
represented by this Warrant is exercisable, as to no less than all of the
Shares, only during the period (the "Exercise Period") beginning on the date
on which Sylvan releases its audited financial statements for the year ended
December 31, 2003 and ending 30 days thereafter. This Warrant will terminate
and be of no further force and effect after the Exercise Period.
(b) Reference is made to that certain Product and Services
Agreement entered into by and between the Company and Sylvan dated February
___, 1999 (the "Agreement"). Sylvan shall be entitled to exercise this
Warrant only if the Profit Share Fee (as defined in the Agreement) earned and
payable to the Company for the year ended December 31, 2003 is equal or
greater than the product obtained by multiplying (i) the number of Eligible
Schools at December 31, 2003 by (ii) $800. By way of example, in the event
that there are 10,000 Eligible Schools at December 31, 2003, Sylvan must have
earned for the account of ZapMe! Profit Share Fees in an amount not less than
$8,000,000.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject
to Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof only as to all of the Shares by the surrender
of this Warrant (with the notice of exercise substantially in the form
attached hereto as EXHIBIT A duly completed and executed) at the principal
office of the Company
<PAGE>
and by the payment to the Company, by certified or bank check, or by wire
transfer to an account designated by the Company (a "Wire Transfer") of an
amount equal to the then applicable Warrant Price multiplied by the number of
Shares then being purchased, or (b) exercise of the Conversion Right provided
for in Section 9.2 hereof. Sylvan shall be treated for all purposes as the
record holder of the shares represented thereby (and such shares shall be
deemed to have been issued) immediately prior to the close of business on the
date or dates upon which this Warrant is exercised. In the event of any
exercise of the rights represented by this Warrant, certificates for the
shares of stock so purchased shall be delivered to Sylvan as soon as possible
and in any event within thirty (30) days after such exercise.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may
be issued upon the exercise of the rights represented by this Warrant will,
upon issuance pursuant to the terms and conditions herein, be fully paid and
non-assessable, and free from all taxes, liens and charges with respect to
the issue thereof. During the Exercise Period, the Company will at all times
have authorized, and reserved for the purpose of the issue upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of shares
of its Common Stock to provide for the exercise of the rights represented by
this Warrant.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any
reclassification or change of securities of the class issuable upon exercise
of this Warrant (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any merger of the Company with or into another
corporation (other than a merger with another corporation in which the
Company is the acquiring and the surviving corporation and which does not
result in any reclassification or change of outstanding securities issuable
upon exercise of this Warrant), or in case of any sale of all or
substantially all of the assets of the Company, the Company, or such
successor or purchasing corporation, as the case may be, shall duly execute
and deliver to the holder of this Warrant a new Warrant (in form and
substance satisfactory to the holder of this Warrant), so that the holder of
this Warrant shall have the right to receive, at a total purchase price not
to exceed that payable upon the exercise of this Warrant, and in lieu of the
shares of Common Stock theretofore issuable upon exercise of this Warrant,
the kind and amount of shares of stock, other securities, money and property
receivable upon such reclassification, change or merger by a holder of the
number of shares of Common Stock then purchasable under this Warrant. Such
new Warrant shall provide for adjustments that shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section 4. The
provisions of this subparagraph (a) shall similarly apply to successive
reclassifications, changes, mergers and transfers.
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<PAGE>
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide
or combine its outstanding shares of Common Stock, the Warrant Price shall be
proportionately decreased in the case of a subdivision or increased in the
case of a combination, effective at the close of business on the date the
subdivision or combination becomes effective.
(c) STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. If the Company
at any time while this Warrant is outstanding and unexpired shall (i) pay a
dividend with respect to Common Stock payable in Common Stock, or (ii) make
any other distribution with respect to Common Stock (except any distribution
specifically provided for in Sections 4(a) and 4(b)), of Common Stock, then
the Warrant Price shall be adjusted, from and after the date of determination
of shareholders entitled to receive such dividend or distribution, to that
price determined by multiplying the Warrant Price in effect immediately prior
to such date of determination by a fraction (i) the numerator of which shall
be the total number of shares of Common Stock outstanding immediately prior
to such dividend or distribution, and (ii) the denominator of which shall be
the total number of shares of Common Stock outstanding immediately after such
dividend or distribution.
(d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in
the Warrant Price, the number of Shares of Common Stock purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall
be the Warrant Price immediately prior to such adjustment and the denominator
of which shall be the Warrant Price immediately thereafter.
5. FRACTIONAL SHARES. No fractional shares of Common Stock will
be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Common Stock on the date of exercise as reasonably
determined in good faith by the Company's Board of Directors.
6. COMPLIANCE WITH ACT; DISPOSITION OF WARRANT OR SHARES OF COMMON
STOCK.
(a) COMPLIANCE WITH ACT. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, and the shares of Common Stock
to be issued upon exercise hereof and any Common Stock issued upon conversion
thereof are being acquired for investment and that such holder will not
offer, sell or otherwise dispose of this Warrant, or any shares of Common
Stock to be issued upon exercise hereof except under circumstances which will
not result in a violation of the Securities Act of 1933, as amended (the
"Act") or any applicable state securities laws. Upon exercise of this
Warrant, unless the Shares being acquired are registered under the Act and
any applicable state securities laws or an exemption from such registration
is available, the holder hereof shall confirm in writing that the shares of
Common Stock so purchased are being acquired for investment and not with a
view toward distribution or resale in violation of the Act and shall confirm
such other matters related thereto as may be reasonably requested by the
Company. This Warrant and all shares of Common Stock issued upon exercise of
this Warrant (unless registered under the
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<PAGE>
Act and any applicable state securities laws) shall be stamped or imprinted
with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS
RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii)
RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES,
OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 6 OF THE WARRANT
UNDER WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a
holder, at such time as the restrictions on the transfer of the applicable
security shall have terminated. In addition, in connection with the issuance
of this Warrant, the holder specifically represents to the Company by
acceptance of this Warrant as follows:
(1) The holder is aware of the Company's business
affairs and financial condition, and has acquired information about the
Company sufficient to reach an informed and knowledgeable decision to acquire
this Warrant. The holder is acquiring this Warrant for its own account for
investment purposes only and not with a view to, or for the resale in
connection with, any "distribution" thereof in violation of the Act.
(2) The holder understands that this Warrant has not
been registered under the Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the holder's investment intent as expressed herein.
(3) The holder further understands that this Warrant
must be held indefinitely unless subsequently registered under the Act and
qualified under any applicable state securities laws, or unless exemptions
from registration and qualification are otherwise available. The holder is
aware of the provisions of Rule 144, promulgated under the Act.
(b) DISPOSITION OF WARRANT OR SHARES. With respect to any
offer, sale or other disposition of this Warrant or any shares of Common
Stock acquired pursuant to the exercise of this Warrant prior to registration
of such Warrant or shares, the holder hereof agrees to give written notice to
the Company prior thereto, describing briefly the manner thereof, together
with a written opinion of such holder's counsel, or other evidence, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification
(under the Act as then in effect or any federal or state securities law then
in effect) of this Warrant or such shares of Common Stock and indicating
whether or not under the Act certificates for this Warrant or such shares of
Common Stock to be sold or otherwise disposed of require any restrictive
legend as to applicable restrictions on transferability in order to ensure
compliance with such law.
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<PAGE>
Promptly upon receiving such written notice and reasonably satisfactory
opinion or other evidence, if so requested, the Company, as promptly as
practicable but no later than twenty (20) days after receipt of the written
notice, shall notify such holder that such holder may sell or otherwise
dispose of this Warrant or such shares of Common Stock, all in accordance
with the terms of the notice delivered to the Company. If a determination has
been made pursuant to this Section 6(b) that the opinion of counsel for the
holder or other evidence is not reasonably satisfactory to the Company, the
Company shall so notify the holder promptly with details thereof after such
determination has been made. Notwithstanding the foregoing, this Warrant or
such shares of Common Stock may, as to such federal laws, be offered, sold or
otherwise disposed of in accordance with Rule 144 or 144A under the Act,
provided that the Company shall have been furnished with such information as
the Company may reasonably request to provide a reasonable assurance that the
provisions of Rule 144 or 144A have been satisfied. Each certificate
representing this Warrant or the shares of Common Stock thus transferred
(except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with such laws, unless in the aforesaid opinion of counsel for the holder,
such legend is not required in order to ensure compliance with such laws. The
Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
(c) APPLICABILITY OF RESTRICTIONS. Neither any restrictions
of any legend described in this Warrant nor the requirements of Section 6(b)
above shall apply to any transfer of, or grant of a security interest in,
this Warrant (or the Common Stock obtainable upon exercise thereof) or any
part hereof (i) to a partner of the holder if the holder is a partnership,
(ii) to a partnership of which the holder is a partner, or (iii) to any
affiliate of the holder if the holder is a corporation; PROVIDED, HOWEVER, in
any such transfer, if applicable, the transferee shall on the Company's
request agree in writing to be bound by the terms of this Warrant as if an
original signatory hereto.
7. RIGHTS AS SHAREHOLDERS; INFORMATION. No holder of this
Warrant, as such, shall be entitled to vote or receive dividends or be deemed
the holder of Common Stock or any other securities of the Company which may
at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until this Warrant
shall have been exercised and the Shares purchasable upon the exercise hereof
shall have become deliverable, as provided herein.
8. ADDITIONAL RIGHTS.
8.1 MERGERS. The Company shall provide the holder of this Warrant
with at least five (5) business days' notice of the terms and conditions of
any of the following potential transactions: (i) the sale, lease, exchange,
conveyance or other disposition of all or substantially all of the Company's
property or business, or (ii) its merger into or consolidation with any other
corporation (other than a wholly-owned subsidiary of the Company), or any
transaction (including a merger or
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<PAGE>
other reorganization) or series of related transactions, in which more than
50% of the voting power of the Company is disposed of.
8.2 RIGHT TO CONVERT WARRANT INTO STOCK: NET ISSUANCE.
(a) RIGHT TO CONVERT. In addition to and without limiting
the rights of the holder under the terms of this Warrant, the holder shall
have the right to convert this Warrant (the "Conversion Right") into shares
of Common Stock as provided in this Section 8.2 at any time during the
Exercise Period. Upon exercise of the Conversion Right with respect to the
number of shares subject to this Warrant (the "Converted Warrant Shares"),
the Company shall deliver to the holder (without payment by the holder of any
exercise price or any cash or other consideration) (X) that number of shares
of fully paid and nonassessable Common Stock equal to the quotient obtained
by dividing the value of this Warrant on the Conversion Date (as defined in
subsection (b) hereof), which value shall be determined by subtracting (A)
the aggregate Warrant Price of the Converted Warrant Shares immediately prior
to the exercise of the Conversion Right from (B) the aggregate fair market
value of the Converted Warrant Shares issuable upon exercise of this Warrant
on the Conversion Date (as herein defined) by (Y) the fair market value of
one share of Common Stock on the Conversion Date (as herein defined).
Expressed as a formula, such shall be computed as follows:
X= B-A
------
Y
Where: X = the number of shares of Common Stock that may
be issued to holder
Y = the fair market value of one share of
Common Stock
A = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
B = the aggregate fair market value (i.e., fair market value x
Converted Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance
with the foregoing formula is other than a whole number, the Company shall
pay to the holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date (as hereinafter defined).
For purposes of Section 7 of this Warrant, shares issued pursuant to the
Conversion Right shall be treated as if they were issued upon the exercise of
this Warrant.
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<PAGE>
(b) METHOD OF EXERCISE. Subject to Section 1 hereof, the
Conversion Right may be exercised by the holder by the surrender of this
Warrant at the principal office of the Company together with a written
statement specifying that the holder thereby intends to exercise the
Conversion Right and indicating the number of shares subject to this Warrant
which are being surrendered (referred to in Section 8.2(a) hereof as the
Convened Warrant Shares) in exercise of the Conversion Right. Such conversion
shall be effective upon receipt by the Company of this Warrant together with
the aforesaid written statement, or on such later date as is specified
therein (the "Conversion Date"), and, at the election of the holder hereof,
may be made contingent upon the closing of the sale of the Company's Common
Stock to the public in a public offering pursuant to a Registration Statement
under the Act (a "Public Offering"). Certificates for the shares issuable
upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to this Warrant, shall
be issued as of the Conversion Date and shall be delivered to the holder
within thirty (30) days following the Conversion Date.
(c) DETERMINATION OF FAIR MARKET VALUE. For purposes of
this Section 8.2, "fair market value" of a share of Common Stock as of a
particular date (the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in
connection with and contingent upon a Public Offering, and if the Company's
Registration Statement relating to such Public Offering has been declared
effective by the SEC, then the initial "Price to Public" specified in the
final prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in
connection with and contingent upon a Public Offering, then the fair market
value shall be as determined in good faith by the Board of Directors of the
Company.
9. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by
the Company and is a valid and binding obligation of the Company enforceable
in accordance with its terms, subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and
other equitable remedies;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable; and
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Sylvan Performance Warrant
<PAGE>
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the Common Stock and the holders thereof are as
set forth in the Company's Articles of Incorporation, as amended to the Date
of the Grant, a true and complete copy of which has been delivered to the
original holder of this Warrant and is attached hereto as EXHIBIT B.
10. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
11. NOTICES. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefor on the
signature page of this Warrant.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of
the obligations of the Company relating to the Common Stock issuable upon the
exercise or conversion of this Warrant shall survive the exercise, conversion
and termination of this Warrant and all of the covenants and agreements of
the Company shall inure to the benefit of the successors and assigns of the
holder hereof.
13. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to
the holder hereof that, upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity satisfactory to the Company, or in the case of any
such mutilation, upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
14. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
15. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the
laws of the State of California.
16. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained
herein shall survive indefinitely until, by their respective terms, they are
no longer operative.
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<PAGE>
17. REMEDIES. In case any one or more of the covenants and
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case
of a breach by a holder), may proceed to protect and enforce their or its
rights either by suit in equity and/or by action at law, including, but not
limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained
in this Warrant.
18. NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of
its Articles of Incorporation or through any other means, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the holder of this Warrant against impairment.
19. SEVERABILITY. The invalidity or unenforceability of any
provision of this Warrant in any jurisdiction shall not affect the validity
or enforceability of such provision in any other jurisdiction, or affect any
other provision of this Warrant, which shall remain in full force and effect.
20. RECOVERY OF LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any
of the provisions of this Warrant, the successful or prevailing party or
parties shall be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any other relief
to which it or they may be entitled.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
21. ENTIRE AGREEMENT MODIFICATION. This Warrant constitutes the
entire agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous agreements,
representations, and undertakings of the parties, whether oral or written,
with respect to such subject matter.
ZAPME! CORPORATION
By /s/ Bruce D. Bower
---------------------------
Bruce D. Bower, Secretary
Address: 3000 Executive Parkway, Suite 150
San Ramon, California 94583
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<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: ZAPME! CORPORATION
1. The undersigned hereby:
elects to purchase _________ shares of Common Stock of
ZapMe! Corporation pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price
of such shares in full, or
elects to exercise its net issuance rights pursuant to
Section 9.2 of the attached Warrant with respect to _____
Shares of Common Stock.
2. Please issue a certificate or certificates representing
said shares in the name of the undersigned or in such other name or names as
are specified below:
______________________
(Name)
______________________
______________________
(Address)
3. The undersigned represents that the aforesaid shares are
being acquired for the account of the undersigned for investment and not with
a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling
such shares, all except as in compliance with applicable securities laws.
______________________
(Signature)
____________
(Date)
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<PAGE>
EXHIBIT B
Articles of Incorporation
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Sylvan Performance Warrant
<PAGE>
Exhibit 10.13
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS RELATED THERETO, (ii) AN
OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii) RECEIPT OF NO-ACTION LETTERS
FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES, OR (iv) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THIS WARRANT.
ZAPME! CORPORATION
WARRANT TO PURCHASE 390 SHARES
OF SERIES D PREFERRED STOCK
THIS CERTIFIES THAT, for value received, FIRSTCORP and its assignees
are entitled to subscribe for and purchase 390 shares of the fully paid and
nonassessable Series D Preferred Stock (as adjusted pursuant to Section 4
hereof, the "Shares") of ZAPME! CORPORATION, a California corporation (the
"Company"), at the price of $5.00 per share (such price and such other price
as shall result, from time to time, from the adjustments specified in Section
4 hereof is herein referred to as the "Warrant Price"), subject to the
provisions and upon the terms and conditions hereinafter set forth. As used
herein, (a) the term "Series D Preferred" shall mean the Company's presently
authorized Series D Preferred Stock, and any stock into or for which such
Series D Preferred Stock may hereafter be converted or exchanged and (b) the
term "Date of Grant" shall mean February 23, 1999.
1. TERM. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the
Date of Grant through the earlier of (i) seven (7) years after the Date of
Grant or (ii) the closing of the Company's initial public offering of its
Common Stock effected pursuant to a Registration Statement on Form S-1 (or
any successor form thereto) filed under the Securities Act of 1933, as
amended (the "Act").
2. METHOD OF EXERCISE PAYMENT: ISSUANCE OF NEW WARRANT. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, at
the election of the holder hereof, by (a) the surrender of this Warrant (with
the notice of exercise substantially in the form attached hereto as EXHIBIT A
duly completed and executed) at the principal office of the Company and by
the payment to the Company, by certified or bank check, or by wire transfer
to an account designated by the Company (a "Wire Transfer") of an amount
equal to the then applicable Warrant Price multiplied by the number of Shares
then being purchased, or (b) if in connection with a registered public
offering of the Company's securities, the surrender of this Warrant (with the
notice of exercise form attached hereto as EXHIBIT A-1 duly completed and
executed) at the principal office of the Company together with notice of
arrangements reasonably satisfactory to the Company for payment to the
Company either by certified or bank check or by Wire Transfer from the
proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased or (c) exercise of
the Conversion Right provided for in Section 10.2 hereof. The person or
persons in whose name(s) any certificate(s) representing shares of Series D
Preferred shall be issuable upon exercise of this warrant shall be deemed to
have become the holder(s) of record of, and shall be treated for all purposes
as the record holder(s) of, the shares represented thereby (and such shares
shall be deemed to have been issued)
<PAGE>
immediately prior to the close of business on the date or dates upon which
this Warrant is exercised. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of stock so
purchased shall be delivered to the holder hereof as soon as possible and in
any event within thirty (30) days after such exercise and, unless this
Warrant has been fully exercised or expired, a new Warrant representing the
portion of the Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be issued to the holder hereof as soon as
possible and in any event within such thirty-day period.
3. STOCK FULLY PAID RESERVATION OF SHARES. All Shares that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance pursuant to the terms and conditions herein, be fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights
evidenced by this Warrant, a sufficient number of shares of its Series D
Preferred to provide for the exercise of the rights represented by this
Warrant and a sufficient number of shares of its Common Stock to provide for
the conversion of the Series D Preferred into Common Stock.
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number
and kind of securities purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any
reclassification or change of securities of the class issuable upon exercise
of this Warrant (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of a subdivision
or combination), or in case of any merger of the Company with or into another
corporation (other than a merger with another corporation in which the
Company is the acquiring and the surviving corporation and which does not
result in any reclassification or change of outstanding securities issuable
upon exercise of this Warrant) or in case of any sale of all or substantially
all of the assets of the Company, the Company, or such successor or
purchasing corporation, as the case may be, shall duly execute and deliver to
the holder of this Warrant a new Warrant (in form and substance satisfactory
to the holder of this Warrant), so that the holder of this Warrant shall have
the right to receive, at a total purchase price not to exceed that payable
upon the exercise of the unexercised portion of this Warrant, and in lieu of
the shares of Series D Preferred theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or merger by a holder
of the number of shares of Series D Preferred then purchasable under this
Warrant. Such new Warrant shall provide for adjustments that shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Section 4. The provisions of this subparagraph (a) shall similarly apply
to successive reclassifications, changes, mergers and transfers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide
or combine its outstanding shares of Series D Preferred, the Warrant Price
shall be proportionately decreased in the case of a subdivision or increased
in the case of a combination, effective at the close of business on the date
the subdivision or combination becomes effective.
-2-
<PAGE>
(c) STOCK DIVIDENDS AND OTHER DISTRIBUTIONS. If the Company
at any time while this Warrant is outstanding and unexpired shall (i) pay a
dividend with respect to Series D Preferred payable in Series D Preferred, or
(ii) make any other distribution with respect to Series D Preferred (except
any distribution specifically provided for in Sections 4(a) and 4(b)), of
Series D Preferred, then the Warrant Price shall be adjusted, from and after
the date of determination of shareholders entitled to receive such dividend
or distribution, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Series D Preferred
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Series D
Preferred outstanding immediately after such dividend or distribution.
(d) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in
the Warrant Price, the number of Shares of Series D Preferred purchasable
hereunder shall be adjusted, to the nearest whole share, to the product
obtained by multiplying the number of Shares purchasable immediately prior to
such adjustment in the Warrant Price by a fraction, the numerator of which
shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
5. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or the number
of Shares purchasable hereunder shall be adjusted pursuant to Section 4
hereof, the Company shall make a certificate signed by its chief financial
officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Warrant Price and the number of Shares purchasable
hereunder after giving effect to such adjustment, and shall cause copies of
such certificate to be mailed (without regard to Section 13 hereof, by first
class mail, postage prepaid) to the holder of this Warrant. In addition,
whenever the conversion price or conversion ratio of the Series D Preferred
shall be adjusted, the Company shall make a certificate signed by its chief
financial officer setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the conversion price or ratio of the Series D
Preferred after giving effect to such adjustment, and shall cause copies of
such certificate to be mailed (without regard to Section 13 hereof, by first
class mail, postage prepaid) to the holder of this warrant.
6. FRACTIONAL SHARES. No fractional shares of Series D Preferred
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Series D Preferred on the date of exercise as
reasonably determined in good faith by the Company's Board of Directors.
7. COMPLIANCE WITH ACT; DISPOSITION OF WARRANT OR SHARES OF SERIES
D PREFERRED.
(a) COMPLIANCE WITH ACT. The holder of this Warrant, by
acceptance hereof, agrees that this Warrant, and the shares of Series D
Preferred to be issued upon exercise hereof and any Common Stock issued upon
conversion thereof are being acquired for investment and that such holder
will not offer, sell or otherwise dispose of this Warrant, or any shares of
Series D Preferred to be issued upon exercise hereof or any Common Stock
issued upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state securities laws.
Upon exercise of this Warrant, unless the Shares being acquired are
registered under the Act and any applicable state securities laws or an
exemption from such registration is available, the holder hereof shall
confirm in writing that
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the shares of Series D Preferred so purchased (and any shares of Common Stock
issued upon conversion thereof) are being acquired for investment and not
with a view toward distribution or resale in violation of the Act and shall
confirm such other matters related thereto as may be reasonably requested by
the Company. This Warrant and all shares of Series D Preferred issued upon
exercise of this Warrant and all shares of Common Stock issued upon
conversion thereof (unless registered under the Act and any applicable state
securities laws) shall be stamped or imprinted with a legend in substantially
the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR
DISPOSITION MAY BE EFFECTED WITHOUT (i) EFFECTIVE REGISTRATION STATEMENTS
RELATED THERETO, (ii) AN OPINION OF COUNSEL OR OTHER EVIDENCE, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATIONS ARE NOT REQUIRED, (iii)
RECEIPT OF NO-ACTION LETTERS FROM THE APPROPRIATE GOVERNMENTAL AUTHORITIES,
OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT
UNDER WHICH THESE SECURITIES WERE ISSUED, DIRECTLY OR INDIRECTLY."
Said legend shall be removed by the Company, upon the request of a
holder, at such time as the restrictions on the transfer of the applicable
security shall have terminated. In addition, in connection with the issuance
of this Warrant, the holder specifically represents to the Company by
acceptance of this Warrant as follows:
(1) The holder is aware of the Company's business
affairs and financial condition, and has acquired information about the
Company sufficient to reach an informed and knowledgeable decision to acquire
this Warrant. The holder is acquiring this Warrant for its own account for
investment purposes only and not with a view to, or for the resale in
connection with, any "distribution" thereof in violation of the Act.
(2) The holder understands that this Warrant has not
been registered under the Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the holder's investment intent as expressed herein.
(3) The holder further understands that this Warrant
must be held indefinitely unless subsequently registered under the Act and
qualified under any applicable state securities laws, or unless exemptions
from registration and qualification are otherwise available. The holder is
aware of the provisions of Rule 144, promulgated under the Act.
(b) DISPOSITION OF WARRANT OR SHARES. With respect to any
offer, sale or other disposition of this Warrant or any shares of Series D
Preferred acquired pursuant to the exercise of this Warrant prior to
registration of such Warrant or shares, the holder hereof agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such holder's counsel, or other
evidence, if reasonably requested by the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Act as then in effect or any federal or state
securities law then in effect) of this Warrant or such shares of Series D
Preferred or Common Stock and indicating whether or not under the Act
certificates for this Warrant or
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such shares of Series D Preferred to be sold or otherwise disposed of require
any restrictive legend as to applicable restrictions on transferability in
order to ensure compliance with such law. Promptly upon receiving such
written notice and reasonably satisfactory opinion or other evidence, if so
requested, the Company, as promptly as practicable but no later than twenty
(20) days after receipt of the written notice, shall notify such holder that
such holder may sell or otherwise dispose of this Warrant or such shares of
Series D Preferred or Common Stock, all in accordance with the terms of the
notice delivered to the Company. If a determination has been made pursuant to
this Section 7(b) that the opinion of counsel for the holder or other
evidence is not reasonably satisfactory to the Company, the Company shall so
notify the holder promptly with details thereof after such determination has
been made. Notwithstanding the foregoing, this Warrant or such shares of
Series D Preferred or Common Stock may, as to such federal laws, be offered,
sold or otherwise disposed of in accordance with Rule 144 or 144A under the
Act, provided that the Company shall have been furnished with such
information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 or 144A have been satisfied. Each
certificate representing this Warrant or the shares of Series D Preferred
thus transferred (except a transfer pursuant to Rule 144 or 144A) shall bear
a legend as to the applicable restrictions on transferability in order to
ensure compliance with such laws, unless in the aforesaid opinion of counsel
for the holder, such legend is not required in order to ensure compliance
with such laws. The Company may issue stop transfer instructions to its
transfer agent in connection with such restrictions.
(c) APPLICABILITY OF RESTRICTIONS. Neither any restrictions
of any legend described in this Warrant nor the requirements of Section 7(b)
above shall apply to any transfer of, or grant of a security interest in,
this Warrant (or the Series D Preferred or Common Stock obtainable upon
exercise thereof) or any part hereof (i) to a partner of the holder if the
holder is a partnership, (ii) to a partnership of which the holder is a
partner, or (iii) to any affiliate of the holder if the holder is a
corporation; PROVIDED, HOWEVER, in any such transfer, if applicable, the
transferee shall on the Company's request agree in writing to be bound by the
terms of this Warrant as if an original signatory hereto.
8. RIGHTS AS SHAREHOLDERS; INFORMATION. No holder of this Warrant,
as such, shall be entitled to vote or receive dividends or be deemed the
holder of Series D Preferred or any other securities of the Company which may
at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained herein be construed to confer upon the holder of this
Warrant, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to receive notice of meetings, or to
receive dividends or subscription rights or otherwise until this Warrant
shall have been exercised and the Shares purchasable upon the exercise hereof
shall have become deliverable, as provided herein.
9. REGISTRATION RIGHTS. The Company hereby agrees to grant
piggyback registration rights to the holder of this Warrant pursuant to
Section 1.4 of the Amended and Restated Investors' Rights Agreement dated
September 29, 1998, by and among the Company and the Investors set forth on
Exhibit A thereto (the "Investors' Rights Agreement"), for any Common Stock
of the Company obtained upon conversion of the Series D Preferred. The
Company will add the holder of this Warrant as a party to the Investors'
Rights Agreement and the shares of Common Stock issued or issuable upon
conversion of the Series D Preferred issued pursuant to the exercise of this
Warrant shall be deemed "Registrable Securities" for purposes of Section 1.4
thereof.
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10. ADDITIONAL RIGHTS.
10.1 MERGERS. The Company shall provide the holder of this Warrant
with at least five (5) business days' notice of the terms and conditions of
any of the following potential transactions; (i) the sale, lease, exchange,
conveyance or other disposition of all or substantially all of the Company's
property or business, or (ii) its merger into or consolidation with any other
corporation (other than a wholly-owned subsidiary of the Company), or any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of.
10.2 RIGHT TO CONVERT WARRANT INTO STOCK: NET ISSUANCE.
(a) RIGHT TO CONVERT. In addition to and without limiting
the rights of the holder under the terms of this Warrant, the holder shall
have the right to convert this Warrant (the "Conversion Right") into shares
of Series D Preferred (or Common Stock if the Series D Preferred has been
automatically converted into Common Stock) as provided in this Section 10.2
at any time during the term of this Warrant. Upon exercise of the Conversion
Right with respect to the number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder (without
payment by the holder of any exercise price or any cash or other
consideration) (X) that number of shares of fully paid and nonassessable
Series D Preferred (or Common Stock if the Series D Preferred has been
automatically converted into Common Stock) equal to the quotient obtained by
dividing the value of this Warrant on the Conversion Date (as defined in
subsection (b) hereof), which value shall be determined by subtracting (A)
the aggregate Warrant Price of the Converted Warrant Shares immediately prior
to the exercise of the Conversion Right from (B) the aggregate fair market
value of the Converted Warrant Shares issuable upon exercise of this Warrant
on the Conversion Date (as herein defined) by (Y) the fair market value of
one share of Series C Preferred (or Common Stock if the Series D Preferred
has been automatically converted into Common Stock) on the Conversion Date
(as herein defined).
Expressed as a formula, such conversion (assuming the Series D
Preferred has been automatically converted into Common Stock) shall be
computed as follows:
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X= B - A
------
Y
Where: X = the number of shares of Common Stock that may
be issued to holder
Y = the fair market value of one share of
Common Stock
A = the aggregate Warrant Price (i.e., Converted
Warrant Shares x Warrant Price)
B = the aggregate fair market value (i.e., fair market value x
Converted Warrant Shares)
No fractional shares shall be issuable upon exercise of the Conversion
Right, and, if the number of shares to be issued determined in accordance
with the foregoing formula is other than a whole number, the Company shall
pay to the holder an amount in cash equal to the fair market value of the
resulting fractional share on the Conversion Date (as hereinafter defined).
For purposes of Section 9 of this Warrant, shares issued pursuant to the
Conversion Right shall be treated as if the), were issued upon the exercise
of this Warrant.
(b) METHOD OF EXERCISE. The Conversion Right may be
exercised by the holder by the surrender of this Warrant at the principal
office of the Company together with a written statement specifying that the
holder thereby intends to exercise the Conversion Right and indicating the
number of shares subject to this Warrant which are being surrendered
(referred to in Section 10.2(a) hereof as the Converted Warrant Shares) in
exercise of the Conversion Right. Such conversion shall be effective upon
receipt by the Company of this Warrant together with the aforesaid written
statement, or on such later date as is specified therein (the "Conversion
Date"), and, at the election of the holder hereof, may be made contingent
upon the closing of the sale of the Company's Common Stock to the public in a
public offering pursuant to a Registration Statement under the Act (a "Public
Offering"). Certificates for the shares issuable upon exercise of the
Conversion Right and, if applicable, a new warrant evidencing the balance of
the shares remaining subject to this Warrant, shall be issued as of the
Conversion Date and shall be delivered to the holder within thirty (30) days
following the Conversion Date. Any conversion from Series D Preferred to
Common Stock shall be in the ratio of one (1) share of Common Stock for each
share of Series D Preferred (as adjusted herein and in the Charter). On the
Date of Grant, each share of the Series D Preferred represented by this
Warrant is convertible into one share of Common Stock.
(c) DETERMINATION OF FAIR MARKET VALUE. For purposes of this
Section 10.2. "fair market value" of a share of Series D Preferred (or Common
Stock if the Series D Preferred has been automatically converted into Common
Stock) as of a particular date (the "Determination Date") shall mean:
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(i) If the Conversion Right is exercised in connection with
and contingent upon a Public Offering, and if the Company's Registration
Statement relating to such Public Offering has been declared effective by the
SEC, then the initial "Price to Public" specified in the final prospectus
with respect to such offering.
(ii) If the Conversion Right is not exercised in connection
with and contingent upon a Public Offering, then the fair market value shall
be as determined in good faith by the Board of Directors of the Company.
10.3 EXERCISE PRIOR TO EXPIRATION. To the extent this Warrant is not
previously exercised as to all of the Shares subject hereto, and if the fair
market value of one share of the Series D Preferred is greater than the
Warrant Price then in effect, this Warrant shall be deemed automatically
exercised pursuant to Section 10.2 above (even if not surrendered)
immediately before its expiration. For purposes of such automatic exercise,
the fair market value of one share of the Series D Preferred upon such
expiration shall be determined pursuant to Section 10.2(c). To the extent
this Warrant or any portion thereof is deemed automatically exercised
pursuant to this Section 10.3, the Company agrees to promptly notify the
holder hereof of the number of Shares, if any, the holder hereof is to
receive by reason of such automatic exercise.
11. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by
the Company and is a valid and binding obligation of the Company enforceable
in accordance with its terms, subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors and the rules of law or
principles at equity governing specific performance, injunctive relief and
other equitable remedies;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and non-assessable;
(c) The rights, preferences, privileges and restrictions
granted to or imposed upon the Series D Preferred and the holders thereof are
as set forth in the Company's Articles of Incorporation, as amended to the
Date of the Grant, a true and complete copy of which has been delivered to
the original holder of this Warrant and is attached hereto as EXHIBIT B;
(d) The shares of Common Stock issuable upon conversion of
the Shares have been duly authorized and reserved for issuance by the Company
and, when issued in accordance with the terms hereof and of the Company's
Articles of Incorporation will be validly issued, fully paid and
nonassessable;
(e) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance with
the terms hereof will not be, inconsistent with the Company's Articles of
Incorporation or by-laws, do not and will not contravene any law,
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
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instrument of which the Company is a party or by which it is bound or require
the consent or approval of the giving of notice to, the registration or
filing with or the taking of any action in respect of or by any Federal,
state or local government authority or agency or other person, except for the
filing of notices pursuant to federal and state securities laws, which
filings will be effected by the time required thereby; and
(f) There are no actions, suits, audits, investigations or
proceedings pending or to the knowledge of the Company, threatened against
the Company in any court or before any governmental commission, board or
authority which, if adversely determined, will have a material adverse effect
on the ability of the Company to perform its obligations under this Warrant.
12. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
13. NOTICES. Any notice, request, communication or other document
required or permitted to be given or delivered to the holder hereof or the
Company shall be delivered, or shall be sent by certified or registered mail,
postage prepaid, to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefor on the
signature page of this Warrant.
14. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding
upon any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets, and all of
the obligations of the Company relating to the Series D Preferred issuable
upon the exercise or conversion of this Warrant shall survive the exercise,
conversion and termination or this Warrant and all of the covenants and
agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.
15. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to
the holder hereof that upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity satisfactory to the Company, or in the case of any
such mutilation, upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
16. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The language in this Warrant shall be
construed as to its fair meaning without regard to which party drafted this
Warrant.
17. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with and the rights of the parties shall be governed by, the laws
of the State of California.
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18. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations and warranties of the Company and the holder hereof contained
herein shall survive the Date of Grant, the exercise or conversion of this
Warrant (or any part hereof) or the termination or expiration of rights
hereunder. All agreements of the Company and the holder hereof contained
herein shall survive indefinitely until, by their respective terms, they are
no longer operative.
19. REMEDIES. In case any one or more of the covenants and
agreements contained in this Warrant shall have been breached, the holders
hereof (in the case of a breach by the Company), or the Company (in the case
of a breach by a holder), may proceed to protect and enforce their or its
rights either by suit in equity and/or by action at law, including, but not
limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained
in this Warrant.
20. NO IMPAIRMENT OF RIGHTS. The Company will not, by amendment of
its Articles of Incorporation or through any other means, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in
order to protect the rights of the holder of this Warrant against impairment.
21. SEVERABILITY. The invalidity or unenforceability of any
provision of this Warrant in any jurisdiction shall not affect the validity
or enforceability of such provision in any other jurisdiction, or affect any
other provision of this Warrant, which shall remain in full force and effect.
22. RECOVERY OF LITIGATION COSTS. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any
of the provisions of this Warrant, the successful or prevailing party or
parties shall be entitled to recover, reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any other relief
to which it or they may be entitled.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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23. ENTIRE AGREEMENT; MODIFICATION. This Warrant constitutes the
entire agreement between the parties pertaining to the subject matter
contained in it and supersedes all prior and contemporaneous agreements,
representations, and undertakings of the parties, whether oral or written,
with respect to such subject matter.
ZAPME! CORPORATION
By /s/ Bruce Bower
----------------------------------------
Title Secretary
-------------------------------------
Address: 3000 Executive Parkway, Suite 150
San Ramon, California 94583
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EXHIBIT A
NOTICE OF EXERCISE
To: ZAPME! CORPORATION
1. The undersigned hereby:
/ / elects to purchase _____________ shares of Series D
Preferred Stock of ZapMe! Corporation pursuant to the
terms of the attached Warrant and tenders herewith
payment of the purchase price of such shares in full, or
/ / elects to exercise its net issuance rights pursuant to
Section 10.2 of the attached Warrant with respect to
_______________ Shares of Series D Preferred Stock.
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name or names as are
specified below:
____________________________
(Name)
____________________________
____________________________
(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that
the undersigned has no present intention of distributing or reselling such
shares, all except as in compliance with applicable securities laws.
_____________________________
(Signature)
_____________________________
(Date)
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EXHIBIT A-1
NOTICE OF EXERCISE
To: ZAPME! CORPORATION (the "Company")
1. Contingent upon and effective immediately prior to the closing
(the "Closing") of the Company's public offering contemplated by the
Registration Statement on Form S____ filed _____________ , 19__ , the
undersigned hereby:
/ / elects to purchase ______________ shares of Series D
Preferred Stock of the Company (or such lesser number of
shares as may be sold on behalf of the undersigned at
the Closing) pursuant to the terms of the attached
Warrant, or
/ / elects to exercise its net issuance rights pursuant to
Section 10.3 of the attached Warrant with respect to
______________ Shares of Series D Preferred Stock.
2. Please deliver to the custodian for the selling shareholders a
stock certificate representing such _____________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $_______________ or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such
shares, the undersigned agrees to deliver the difference to the Company prior
to the Closing.
______________________
(Signature)
_______________________
(Date)
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EXHIBIT B
Articles of Incorporation
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Exhibit 10.14
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SAID ACT.
No. W-2 Warrants to Purchase 500,000 Shares
of Series B Preferred Stock
WARRANT CERTIFICATE
ZAPME! CORPORATION
This Warrant Certificate certifies that Barry R. Minsky, or permitted
assigns ("Holder"), is the registered holder of warrants (the "Warrants") to
purchase shares of Series B Preferred Stock (the "Preferred Stock") of ZapMe!
Corporation, a California corporation (the "Company"). Each Warrant entitles
the Holder, upon exercise and payment of the Exercise Price (as defined
below) on or before the Expiration Time (as defined below), to receive from
the Company one fully paid and nonassessable share of Preferred Stock (each
such share, a "Warrant Share").
The Warrants are being issued pursuant to that certain Convertible Note
and Warrant Purchase Agreement dated as of May 7, 1998 by and between the
Company and the initial Holder hereof (the "Purchase Agreement"). All
capitalized terms not otherwise defined herein shall have the meanings given
such terms in the Purchase Agreement.
1. TERM. The Warrants may be exercised by the Holder, in whole or in
part, at any time and from time to time until 5:00 p.m. Pacific time on May
7, 2003. No Warrant may be exercised after the Expiration Time.
2. METHOD OF EXERCISE; PAYMENT AND NET EXERCISE; ISSUANCE OF NEW
WARRANT CERTIFICATE.
(a) The Warrants may be exercised by the Holder hereof in whole or
in part and from time to time, at the election of the Holder, by: (i)
surrender of this Warrant Certificate, (with the notice of exercise
substantially in the form attached hereto as EXHIBIT A (the "Exercise
Notice") duly completed and executed), at the principal office of the Company
and by the payment to the Company, by certified or bank check, or by wire
transfer to an account designated by the Company, of an amount equal to the
aggregate Exercise Price of the Warrant Shares then being purchased; or (ii)
delivery of the Exercise Notice to the Company indicating that the Holder is
exercising the Warrants on a "net" basis by authorizing the Company to
withhold from issuance a number of Warrant Shares issuable upon such exercise
which, when multiplied by the Fair Market Value of the
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Warrant Shares (as defined in Section 4 below), is equal to the aggregate
Exercise Price of the Warrant Shares being purchased upon such exercise (in
which case such withheld shares shall no longer be issuable under this
Warrant).
(b) The "Exercise Price" shall be (i) $3.00 per share for the
first 250,000 Warrant Shares purchased hereunder, and (ii) $3.50 per share
for the remaining 250,000 Warrant Shares subject to purchase hereunder. The
Exercise Price and the number of Warrant Shares issuable upon exercise
thereof is subject to adjustment as set forth in Section 3 below.
(c) The person or persons in whose name(s) any certificate(s)
representing the Warrant Shares shall be issuable upon exercise of Warrants
shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the shares represented
thereby (and such shares shall be deemed to have been issued) immediately
prior to the close of business on the date or dates upon which the Warrants
are exercised. In the event of any exercise of Warrants, certificates for the
shares of Warrant Stock so purchased shall be delivered to the Holder as soon
as possible and in any event within thirty (30) days after such exercise and,
in the event that upon any exercise of Warrants the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby,
there shall be issued to the Holder or its permitted assignee a new Warrant
Certificate evidencing the balance of the Warrants not so exercised, as soon
as possible and in any event within such thirty-day period.
3. ADJUSTMENT OF NUMBER OF SHARES AND EXERCISE PRICE. The number and
kind of securities purchasable upon exercise of the Warrants and the Exercise
Price thereof shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
(a) RECLASSIFICATION. In case of any reclassification or change of
the Preferred Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a
subdivision or combination), the Holder of this Warrant Certificate shall
have the right to receive, at an aggregate Exercise Price not to exceed that
payable upon the exercise of the unexercised portion of the Warrants
represented hereby, and in lieu of the Warrant Shares theretofore issuable
upon exercise of the Warrants represented hereby, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification or change by a holder of the number of shares of Preferred
Stock then purchasable hereunder. The provisions of this subparagraph (a)
shall similarly apply to successive reclassifications or changes.
(b) STOCK DIVIDENDS. If the Company at any time while Warrants
remain outstanding and unexpired shall pay a dividend with respect to its
Preferred Stock payable in shares of Preferred Stock, then the number of
Warrant Shares issuable upon exercise of each Warrant shall be increased,
from and after the date of determination of stockholders entitled to receive
such dividend, to that number determined by multiplying the number of Warrant
Shares issuable upon exercise of each Warrant immediately prior to such date
of determination by a fraction, the numerator of which shall be the total
number of shares of Preferred Stock outstanding immediately after such
dividend, and the denominator of which shall be the total number of shares of
Preferred Stock outstanding immediately prior to such dividend.
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(c) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while Warrants remain outstanding and unexpired shall subdivide or
combine its outstanding shares of Preferred Stock, the number of Warrant
Shares issuable upon exercise of each Warrant shall be proportionately
increased in the case of a subdivision or decreased in the case of a
combination, effective at the close of business on the date such subdivision
or combination becomes effective.
(d) ADJUSTMENT OF NUMBER OF WARRANT SHARES. Upon each adjustment
in the number of Warrant Shares purchasable hereunder, the Exercise Price
shall be adjusted, to the nearest $0.01, to the product obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment
by a fraction, the numerator of which shall be the number of Warrant Shares
purchasable hereunder immediately prior to such adjustment and the
denominator of which shall be the number of Warrant Shares purchasable
hereunder immediately thereafter; provided, however, that such adjustment in
the Exercise price shall be made separately for one-half of the Warrant
Shares issuable hereunder so as to preserve the economic effect of Section
2(b) hereof.
(e) MERGER OR CONSOLIDATION. In case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger with another corporation in which the Company is a
continuing corporation and in which the Company's stockholders immediately
preceding such consolidation or merger own at least 50% of the voting
securities of the Company following such consolidation or merger and which
does not result in any reclassification of the Common Stock issuable upon
exercise of the Warrants), or in case of any sale of all or substantially all
of the assets of the Company, the Company or such successor or purchasing
corporation, as the case may be, shall issue new Warrants and shall execute a
new Warrant Certificate providing that the holder of this Warrant Certificate
shall have the right to exercise such new Warrants, and procure upon such
exercise and payment of the same aggregate Exercise Price, in lieu of the
shares of Preferred Stock theretofore issuable upon exercise of the Warrants
evidenced hereby, the kind and amount of shares of stock, other securities,
money and property receivable upon such consolidation, sale of all or
substantially all of the Company's assets or merger by a holder of an
equivalent number of shares of Preferred Stock. Such new Warrant Certificate
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 3. The provisions
of this subparagraph (e) shall similarly apply to successive consolidations,
mergers and sales of all or substantially all of the Company's assets.
4. FRACTIONAL SHARES; FAIR MARKET VALUE OF COMMON STOCK. No fractional
Warrant Shares will be issued in connection with any exercise or exchange
hereunder, but in lieu thereof the Company shall make a cash payment therefor
equal to such fraction multiplied by the Fair Market Value of the Warrant
Shares on the date of such exercise or exchange. For purposes of this Warrant
Certificate, "Fair Market Value" of one Warrant Share as of a particular date
(the "Determination Date") shall be determined as follows:
(a) if the Determination Date is the closing date of the Public
Offering, then the "Fair Market Value" shall be equal to the initial public
offering price per share (before deducting commissions, discounts or
expenses) at which the Common Stock is sold in such offering; or
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<PAGE>
(b) if the Fair Market Value is not determinable as aforesaid,
then the Fair Market Value shall be determined in good faith by the Board of
Directors of the Company.
5. REPLACEMENT OF WARRANTS. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant Certificate and, in the case of any such loss,
theft or destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company, or, in the case of any such
mutilation, on surrender and cancellation of such Warrant Certificate, the
Company at its expense will execute and deliver to the Holder, in lieu
thereof, a new Warrant Certificate of like tenor.
6. [Intentionally Omitted]
7. INVESTMENT INTENT. The Holder, by accepting this Warrant
Certificate, covenants and agrees that, at the time of exercise of Warrants,
and at the time of any proposed transfer of the Warrant Shares, such holder
will deliver to the Company a written statement that the securities acquired
by the holder upon exercise hereof are for the account of the holder for
investment and are not acquired with a view to, or for sale in connection
with, any distribution thereof (or any portion thereof) and with no present
intention (at any such time) of offering and distributing such securities (or
any portion thereof), and make other representations which the Company may
reasonably require in order to comply with the restrictions of state and
federal securities laws relating to the sale and disposition on "restricted
securities," as that term is defined in Rule 144 of the Securities Act.
8. NON-TRANSFERABILITY OF WARRANTS. The Warrants may not be
transferred or assigned in whole or in part without (i) the prior written
consent of the Company (which consent shall not be unreasonably withheld),
and (ii) compliance with applicable federal and state securities laws;
PROVIDED, HOWEVER, that Warrants may be transferred without the prior written
consent of the Company in the following transactions:
(a) a transfer of Warrants by a Holder who is a natural person
during such Holder's lifetime or on death by will or intestacy to such
Holder's immediate family or to any custodian or trustee for the account of
such holder or such Holder's immediate family (as used herein, "immediate
family" shall mean spouse, lineal descendant, father, mother, brother, or
sister of the Holder);
(b) a transfer of Warrants to the Company or to any shareholder of
the Company;
(c) a transfer of Warrants to a person who, at the time of such
transfer, is (or is an affiliate of) an officer or director of the Company;
(d) a transfer of Warrants pursuant to and in accordance with the
terms of any merger, consolidation, reclassification of shares or capital
reorganization of the corporate shareholder or pursuant to a sale of all or
substantially all of the stock or assets of a corporate shareholder; or
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(e) a transfer of Warrants by a Holder which is a limited or
general partnership to any of its partners or former partners.
9. RIGHTS AS STOCKHOLDERS; INFORMATION. No Holder of Warrants, as
such, shall be entitled to vote or receive dividends or be deemed the holder
of the Warrant Shares issuable upon exercise thereof, nor shall anything
contained herein be construed to confer upon the Holder of Warrants, as such,
any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until Warrants shall have been exercised and
the Warrant Shares purchasable upon the exercise thereof shall have become
deliverable, as provided herein. Notwithstanding the foregoing, the Company
will transmit to the Holder such information, documents and reports as are
generally distributed to the holders of Common Stock of the Company
concurrently with the distribution thereof to the stockholders.
10. MODIFICATION AND WAIVER. The terms of the Warrants and any
provision hereof may be changed, waived, discharged or terminated only by an
instrument in writing signed by the party against which enforcement of the
same is sought.
11. NOTICES. Any notice, request, communication or other document
required or permitted to be given or delivered to the Holder hereof or the
Company shall be delivered, or shall be sent by nationally recognized
overnight courier, or by certified or registered mail, postage prepaid, to
each such Holder at its address as shown on the books of the Company or to
the Company at the address indicated therefor in the first paragraph of the
Purchase Agreement.
12. GOVERNING LAW. This Warrant Certificate shall be construed and
enforced in accordance with, and the rights of the parties shall be governed
by, the laws of the State of California.
13. SEVERABILITY. The invalidity or unenforceability of any provision
of this Warrant Certificate in any jurisdiction shall not affect the validity
or enforceability of such provision in any
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other jurisdiction, or affect any other provision of this Warrant
Certificate, which shall remain in full force and effect.
14. ENTIRE AGREEMENT; MODIFICATION. This Warrant Certificate
constitutes the entire agreement between the parties pertaining to the
subject matter hereof and supersedes all prior and contemporaneous
agreements, representations, and undertakings of the parties, whether oral or
written, with respect to the subject matter hereof.
ZAPME! CORPORATION
By: /s/ Lance Mortensen
-------------------------------
Lance Mortensen
Chief Executive Officer
Attest:
/s/ Bruce D. Bower
-----------------------------
Bruce D. Bower
Secretary
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EXHIBIT 10.15
BISHOP RANCH
- -------------------------------------------------------------------------------
BUSINESS PARK
BISHOP RANCH BUSINESS PARK
BUILDING LEASE
<PAGE>
SATELLITE ONLINE SOLUTIONS CORPORATION
BISHOP RANCH BUSINESS PARK - BUILDING LEASE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. PREMISES.................................................................................................1
2. TERM.....................................................................................................1
2.1 TERM........................................................................................1
2.2 DELAY IN COMMENCEMENT.......................................................................1
2.3 ACKNOWLEDGMENT OF COMMENCEMENT DATE.........................................................2
3. RENT.....................................................................................................2
3.1 BASE RENT...................................................................................2
3.2 ADJUSTMENTS TO BASE RENT....................................................................2
3.3 AMOUNTS CONSTITUTING RENT...................................................................2
4. SECURITY DEPOSIT ........................................................................................3
5. TAX AND BUILDING OPERATING COST INCREASES ...............................................................4
5.1 DEFINITIONS.................................................................................4
5.2 TENANT'S SHARE..............................................................................5
5.3 NOTICE AND PAYMENT..........................................................................5
5.4 ADDITIONAL TAXES............................................................................6
5.5 TENANT'S TAXES..............................................................................6
6. USE......................................................................................................7
6.1 USE.........................................................................................7
6.2 SUITABILITY.................................................................................7
6.3 USES PROHIBITED.............................................................................7
7. SERVICE AND UTILITIES....................................................................................8
7.1 LANDLORD'S OBLIGATIONS......................................................................8
7.2 TENANT'S OBLIGATION.........................................................................8
7.3 TENANT'S ADDITIONAL REQUIREMENTS............................................................8
7.4 NONLIABILITY................................................................................9
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS......................................................10
8.1 MAINTENANCE AND REPAIRS....................................................................10
8.2 ALTERATIONS AND ADDITIONS .................................................................11
9. ENTRY BY LANDLORD ......................................................................................12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10. LIENS...................................................................................................13
11. INDEMNITY...............................................................................................13
11.1 INDEMNITY..................................................................................13
11.2 EXEMPTION OF LANDLORD FROM LIABILITY.......................................................14
12. INSURANCE...............................................................................................14
12.1 COVERAGE...................................................................................14
12.2 INSURANCE POLICIES.........................................................................14
12.3 LANDLORD'S INSURANCE.......................................................................15
12.4 WAIVER OF SUBROGATION......................................................................15
13. DAMAGE OR DESTRUCTION...................................................................................16
13.1 LANDLORD'S DUTY TO REPAIR..................................................................16
13.2 LANDLORD'S RIGHT TO TERMINATE..............................................................16
13.3 TENANT'S RIGHT TO TERMINATE................................................................17
13.4 EXCLUSIVE RIGHTS...........................................................................17
14. CONDEMNATION............................................................................................18
15. ASSIGNMENT AND SUBLETTING...............................................................................19
15.1 LANDLORD'S CONSENT REQUIRED................................................................19
15.2 REASONABLE CONSENT.........................................................................19
15.3 EXCESS CONSIDERATION.......................................................................20
15.4 NO RELEASE OF TENANT.......................................................................20
15.5 ATTORNEYS' FEES............................................................................20
15.6 TRANSFER OF OWNERSHIP INTEREST.............................................................20
15.7 EFFECTIVENESS OF TRANSFER..................................................................20
15.8 LANDLORD'S RIGHT TO SPACE..................................................................21
15.9 NO NET PROFITS LEASES......................................................................21
16. SUBORDINATION...........................................................................................21
16.1 SUBORDINATION..............................................................................21
16.2 JUNIOR LIENS...............................................................................22
16.3 SUBORDINATION AGREEMENTS...................................................................22
16.4 ATTORNMENT.................................................................................22
17. QUIET ENJOYMENT.........................................................................................22
18. DEFAULT; REMEDIES.......................................................................................23
18.1 DEFAULT....................................................................................23
18.2 REMEDIES...................................................................................23
18.3 LATE CHARGES...............................................................................26
18.4 INTEREST...................................................................................27
18.5 DEFAULT BY LANDLORD........................................................................27
19. PARKING.................................................................................................27
20. RELOCATION OF PREMISES..................................................................................28
20.1 CONDITIONS ................................................................................28
20.2 NOTICE ....................................................................................28
21. MORTGAGEE PROTECTION ...................................................................................28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
22. ESTOPPEL CERTIFICATES...................................................................................29
23. SURRENDER, HOLDING OVER.................................................................................30
23.1 SURRENDER..................................................................................30
23.2 HOLDING OVER...............................................................................30
24. HAZARDOUS MATERIALS.....................................................................................31
25. MISCELLANEOUS ..........................................................................................32
25.1 ATTORNMENT.................................................................................32
25.2 CAPTIONS; ATTACHMENTS; DEFINED TERMS.......................................................32
25.3 ENTIRE AGREEMENT...........................................................................32
25.4 SEVERABILITY...............................................................................32
25.5 COSTS OF SUIT..............................................................................33
25.6 TIME; JOINT AND SEVERAL LIABILITY..........................................................33
25.7 BINDING EFFECT; CHOICE OF LAW..............................................................33
25.8 WAIVER.....................................................................................33
25.9 FORCE MAJEURE..............................................................................34
25.10 LANDLORD'S LIABILITY.......................................................................34
25.11 CONSENTS AND APPROVALS.....................................................................34
25.12 SIGNS......................................................................................35
25.13 RULES AND REGULATIONS......................................................................35
25.14 NOTICES....................................................................................36
25.15 AUTHORITY..................................................................................36
25.16 LEASE GUARANTY.............................................................................36
25.17 BROKERS....................................................................................36
25.18 RESERVED RIGHTS............................................................................37
25.19 SATELLITE ANTENNA..........................................................................37
EXHIBIT A - SITE AND FLOOR PLANS
EXHIBIT B - WORK LETTER
EXHIBIT C - SPACE PLAN (INTENTIONALLY DELETED)
EXHIBIT D - RULES AND REGULATIONS
EXHIBIT E - JANITORIAL SPECIFICATIONS
EXHIBIT F - DOOR SIGN, DIRECTORY STRIP AND MAIL BOX REQUEST
EXHIBIT G - COMMENCEMENT OF LEASE
</TABLE>
<PAGE>
BISHOP RANCH BUSINESS PARK
BUILDING LEASE
This Lease is made and entered into this 6th day of August, 1997, by and
between ALEXANDER PROPERTIES COMPANY, A CALIFORNIA PARTNERSHIP, (hereinafter
"Landlord") and SATELLITE ONLINE SOLUTIONS CORPORATION (hereinafter
"Tenant"). For and in consideration of the rental and of the covenants and
agreements hereinafter set forth to be kept and performed by Tenant, Landlord
hereby leases to Tenant and Tenant hereby leases from Landlord the premises
herein described for the term, at the rental and subject to and upon all of
the terms, covenants and agreements hereinafter set forth.
1. PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the premises (the "Premises") crosshatched on Exhibit A containing
4,326 RENTABLE square feet known as SUITE 150, located on the GROUND floor of
3000 EXECUTIVE PARKWAY, Building Q (including all tenant improvements thereto,
the "Building"), located at San Ramon, California 94583. The Building, which
contains 210,526 RENTABLE square feet, the land on which the Building is
situated (the "Land"), any other improvements on the Land and the personal
property used by Landlord in the operation of the Building (the "Personal
Property") are herein collectively called the "Project". Landlord shall pay the
cost of recarpeting, rebasing and repainting (Landlord shall remove all
wallcovering) the Suite using building standard materials. Except for those
items mentioned herein, Tenant shall occupy the Premises in its as-is condition.
2. TERM
2.1 TERM. The term of this Lease shall commence on the "Commencement
Date." The term of this Lease shall end FIVE (5) YEARS thereafter (the
"Expiration Date"), unless sooner terminated pursuant to this Lease.
2.2 DELAY IN COMMENCEMENT. The Commencement Date is scheduled to occur
on SEPTEMBER 1, 1997 (the "Scheduled Commencement Date"). If for any reason the
Commencement Date does not occur by the Scheduled Commencement Date, Landlord
shall not be liable for any damage thereby nor shall such inability affect the
validity of this Lease or the obligations of Tenant hereunder. If
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<PAGE>
the Commencement Date has not occurred within thirty (30) days after the
Scheduled Commencement Date, Tenant at its option, to be exercised by giving
Landlord written notice within fifteen (15) days after the end of such thirty
(30) day period, may terminate this Lease and, upon Landlord's return of any
monies previously deposited by Tenant, the parties shall have no further rights
or liabilities toward each other.
2.3 ACKNOWLEDGMENT OF COMMENCEMENT DATE. Upon determination of the
Commencement Date, Landlord and Tenant shall execute a written acknowledgment
of the Commencement Date and Expiration Date in the form attached hereto as
Exhibit G.
3. RENT.
3.1 BASE RENT. Tenant shall pay to Landlord monthly as base rent
("Base Rent") for the Premises in advance on the Commencement Date and on the
first day of each calendar month thereafter during the term of this Lease
without deduction, offset, prior notice or demand, in lawful money of the United
States of America, the sum of NINE THOUSAND TWELVE AND 50/100 DOLLARS
($9,012.50). For any prorations of Base Rent due to changes in the Premises on a
day other than the first or last day of the month, the portion of Base Rent
associated with the change in the Premises shall be calculated by multiplying
the number of days that the space was part of the Premises by the daily Base
Rent defined to be the monthly Base Rent for said space divided by 30.
Concurrently with Tenant's execution of this Lease, Tenant shall pay
to Landlord the sum of NINE THOUSAND TWELVE AND 50/100 DOLLARS ($9,012.50) to be
applied against Base Rent when it becomes due.
3.2 ADJUSTMENTS TO BASE RENT. (Intentionally Deleted)
3.3 AMOUNTS CONSTITUTING RENT. All amounts payable or reimbursable
by Tenant under this Lease, including late charges and interest, "Operating
Cost Payments" (as defined in Paragraph 5), and amounts payable or
reimbursable under the Work Letter and the other Exhibits hereto, shall
constitute "Rent" and be payable and recoverable as such. Base Rent is due
and payable as provided in Paragraph 3.1 - "Base Rent," Operating Cost
Payments are due and payable as provided in Paragraph 5.3 - "Notice and
Payment," and all other Rent payable to Landlord on demand under the terms of
this Lease unless otherwise set forth herein, shall be payable within thirty
(30) days after written notice from Landlord of the amounts due. All Rent
shall be paid to Landlord
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<PAGE>
without deduction or offset in lawful money of the United States of America
at the address for notices or at such other place as Landlord may from time
to time designate in writing.
4. SECURITY DEPOSIT
Concurrently with Tenant's execution of this Lease, Tenant shall
deposit with Landlord the sum of EIGHTEEN THOUSAND TWENTY-FIVE AND NO/100
DOLLARS ($18,025.00) (the equivalent of two (2) months of rent) (the
"Security Deposit"). The Security Deposit shall be held by Landlord as
security for the faithful performance by Tenant of all of the terms,
covenants and conditions of this Lease to be performed by Tenant during the
term hereof. If Tenant defaults with respect to any provision of this Lease,
including the provisions relating to the payment of any Rent, Landlord may
(but shall not be required to) use, apply or retain all or any part of the
Security Deposit to cure such default or to compensate Landlord for any other
loss or damage which Landlord may suffer by reason of Tenant's default. If
any portion of said deposit is so used or applied, Tenant shall, within ten
(10) days after written demand therefor, deposit cash with Landlord in an
amount sufficient to restore the Security Deposit to its original amount;
Tenant's failure to do so shall be a material breach of this Lease. Landlord
shall not be required to keep the Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest on such deposit. 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) upon the expiration of the Lease term and
Tenant's vacating the Premises; provided, however, that Landlord may elect,
in its discretion, to retain a portion of the Security Deposit in an amount
to be determined by Landlord in its reasonable judgment and Landlord shall,
promptly upon determining the increases in Operating Costs for the calendar
year in which this Lease terminates, pursuant to Paragraph 5.3 -"Notice and
Payment," apply from such retained portion of the Security Deposit any sums
underpaid by Tenant with respect to Operating Costs for the final year of the
Lease term, and return the balance, if any, to Tenant or its assignee. In the
event of termination of Landlord's interest in this Lease, Landlord shall
transfer the Security Deposit to Landlord's successor in interest whereupon
Landlord shall be released from liability for the return of the Security
Deposit or the accounting therefor.
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5. TAX AND BUILDING OPERATING COST INCREASES
5.1 DEFINITIONS. For purposes of this paragraph, the following terms
are herein defined:
(a) BASE YEAR: The calendar year in which this Lease commences.
(b) OPERATING COSTS. Operating Costs shall include all costs and
expenses of ownership, operation, repair and maintenance of the Project
(excluding depreciation of the improvements in the Project and all amounts
paid on loans of Landlord) computed in accordance with accounting principles
adopted by Landlord consistently applied, including by way of illustration
but not limited to: real property taxes, taxes assessed on the Personal
Property, any other governmental impositions imposed on or by reason of the
ownership, operation or use of the Project, and any tax in addition to or in
lieu thereof, other than taxes covered by Paragraph 5.4, whether assessed
against Landlord or Tenant or collected by Landlord or both; parts;
equipment; supplies; insurance premiums; license, permit and inspection fees;
cost of services and materials (including property management fees and
costs); cost of compensation (including employment taxes and fringe benefits)
of all persons who perform duties connected with the operation, maintenance
and repair of the Project; costs of providing utilities and services,
including water, gas, electricity, sewage disposal, rubbish removal,
janitorial, gardening, security, parking, window washing, supplies and
materials, and signing (but excluding services not uniformly available to
substantially all of the Project tenants); costs of capital improvements (i)
required to cause the Project to comply with all laws, statutes, ordinances,
regulations, rules and requirements of any governmental or public authority,
including, without limitation, the Americans with Disabilities Act of 1990
"Legal Requirements") except for costs (the "ADA") (collectively, the
Commencement Date, with any Legal Requirement as enacted as of the
Commencement Date, or (ii) which reduce Operating Costs, such costs, together
with interest on the unamortized balance at the rate of twelve percent (12%)
per annum, to be amortized over such reasonable periods as Landlord shall
determine; costs of maintenance and replacement of landscaping; legal,
accounting and other professional services incurred in connection with the
operation of the Project and the calculation of Operating Costs; and rental
expense or a reasonable allowance for depreciation of personal property used
in the maintenance, operation and repair of the Project. If the Project is
not fully occupied for any calendar year during the term of this Lease,
Operating Costs shall be
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<PAGE>
adjusted to the amount which would have been incurred if the Project had been
fully occupied for the year.
5.2 TENANT'S SHARE. If Operating Costs during any calendar year
following the Base Year exceed the rentable square footage of the Building
multiplied by $7.75 (the "Expense Stop"), Tenant shall pay to Landlord
"Tenant's Share" multiplied by such excess ("Operating Cost Payments").
"Tenant's Share" means 2.05%, which is calculated by dividing the rentable
square footage of the Premises by the rentable square footage of the
BUILDING, as such rentable square footages are set forth in Paragraph 1, and
multiplying such number by 100.
5.3 NOTICE AND PAYMENT. As soon as reasonably practical after the
end of each calendar year following the Base Year, Landlord shall furnish
Tenant a written statement showing in reasonable detail the Operating Costs
for the preceding calendar year, and the amount of any payment due from
Tenant to Landlord or from Landlord to Tenant, taking into account prior
Operating Cost Payments made by Tenant for such preceding calendar year.
Tenant shall have one hundred eighty (180) days after receipt of Landlord's
statement to notify Landlord of any objections they have to such statement,
or of their intention to review supporting documentation for such statement.
If Tenant does not so notify Landlord, such statement shall conclusively be
deemed correct and Tenant shall have no right thereafter to dispute or review
support for such statement, any item therein, or the computation of Operating
Costs. If Tenant does so notify the Landlord within the one hundred eighty
(180) day period, Tenant shall have one (1) year from the date of receipt of
Landlord's statement to complete their review of the supporting documentation
and notify Landlord of all objections, if any, to such statement. Landlord
and Tenant hereby agree that Tenant will submit in writing to Landlord on or
before the end of said one (1) year period, all objections to Landlord's
statement, and Tenant's only rights after said one (1) year period shall be
nonreversible removals or reductions of the said objections submitted to
Landlord. Landlord and Tenant hereby agree that after said one (1) year
period, Tenant has no further rights to review any supporting documentation
to Landlord's statement. Any notifications to Landlord will be done in
accordance with Paragraph 25.14.
Coincidentally with the monthly Base Rent next due following
Tenant's receipt of such statement, Tenant shall pay to Landlord (in the case
of an underpayment) or Landlord shall credit against the next Base Rent due
from Tenant (in the case of an overpayment) the difference between (i)
Tenant's Share of any excess of Operating Costs for the preceding calendar
year over the
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Expense Stop (the "Prior Year's Increase"), and (ii) the Operating Cost
Payments made by Tenant for such preceding calendar year. In addition, Tenant
shall pay to Landlord coincidentally with such next due Base Rent an amount
equal to (A) one-twelfth (1/12) of the Prior Year's Increase, if any,
multiplied by (B) the number of months or partial months (including the then
current month) then elapsed in the current calendar year, less (C) the
aggregate of any Operating Cost Payments made by Tenant for such current
calendar year. Monthly thereafter until adjustment is made the following year
pursuant to this paragraph, Tenant shall pay together with the monthly Base
Rent one-twelfth (1/12) of any such Prior Year's Increase. In no event will
Tenant be entitled to receive the benefit of a reduction in Operating Costs
below the Expense Stop.
For any partial calendar year at the termination of this Lease,
Tenant's Share of any increases in Operating Costs for such year over the
Expense Stop shall be prorated on the basis of a 365-day year by computing
Tenant's Share of the increases in Operating Costs for the entire year and
then prorating such amount for the number of days this Lease was in effect
during such year. Notwithstanding the termination of this Lease, and within
ten (10) days after Tenant's receipt of Landlord's statement regarding the
determination of increases in Operating Costs for the calendar year in which
this Lease terminates, Tenant shall pay to Landlord or Landlord shall pay to
Tenant, as the case may be, an amount equal to the difference between
Tenant's Share of the increases in Operating Costs for such year (as
prorated) and the amount previously paid by Tenant toward such increases.
5.4 ADDITIONAL TAXES. Tenant shall reimburse to Landlord, within
thirty (30) days after receipt of a demand therefor, Tenant's Share of any
and all taxes payable by Landlord (other than net income taxes or any taxes
included within Operating Costs), whether or not now customary or within the
contemplation of the parties hereto (i) upon, allocable to or measured by the
area of the Building, (ii) upon all or any portion of the Rent payable
hereunder and under other leases of space in the Building, including any
gross receipts tax or excise tax levied with respect to the receipt of such
Rent, or (iii) upon or with respect to the possession, leasing, operation,
management, maintenance, alteration, repair, use or occupancy of the Building
or any portion thereof. Tenant shall not be required to reimburse Landlord
for taxes under this Paragraph 5.4 to the extent Tenant has paid Tenant's
Share of such taxes through Operating Cost Payments under Paragraph 5.2.
5.5 TENANT'S TAXES. Tenant shall pay before delinquency (whether
levied on Landlord or Tenant), any and all
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taxes assessed upon or measured by (i) Tenant's equipment, furniture,
fixtures and other personal property located in the Premises, (ii) any
improvements or alterations made to the Premises prior to or during the term
of this Lease paid for by Tenant ("Above-Standard Improvements"), or (iii)
this transaction or any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises. For the purpose of
determining said amounts, figures supplied by the County Assessor as to the
amount so assessed shall be conclusive. Tenant shall comply with the
provisions of any law, ordinance or rule of the taxing authorities which
require Tenant to file a report of Tenant's property located in the Premises.
6. USE
6.1 USE. The Premises shall be used and occupied by Tenant for
general office purposes and for no other purpose without the prior written
consent of Landlord.
6.2 SUITABILITY. Tenant acknowledges that neither Landlord nor any
agent of Landlord has made any representation or warranty with respect to the
Premises or the Building or with respect to the suitability of either for the
conduct of Tenant's business, nor has Landlord agreed to undertake any
modification, alteration or improvement to the Premises except as provided in
the Work Letter. The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises and the Building were at such time
in satisfactory condition unless within ten (10) days after such date Tenant
shall give Landlord written notice specifying in reasonable detail the
respects in which the Premises or the Building were not in satisfactory
condition.
6.3 USES PROHIBITED.
(a) Tenant shall not do nor 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 or affect any fire or other insurance upon the
Building or any of its contents, or cause a cancellation of any insurance
policy covering said Building or any part thereof or any of its contents, nor
shall Tenant sell or permit to be kept, used or sold in or about said
Premises any articles which may be prohibited by a standard form policy of
fire insurance.
(b) 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
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be used for any unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in or about the Premises. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises. Tenant
shall not bring onto the Premises any apparatus, equipment or supplies that
may overload the Premises or the Building or any utility or elevator systems
or jeopardize the structural integrity of the Building or any part thereof.
(c) Tenant shall not use the Premises or permit anything to be
done in or about the Premises which will in any way conflict with, and at its
sole cost and expense shall promptly comply with, any Legal Requirement now
in force or which may hereafter be enacted or promulgated relating to the
condition, use or occupancy of the Premises, excluding structural changes not
relating to or affecting the condition, use or occupancy of the Premises or
Tenant's improvements or acts. The judgment of any court of competent
jurisdiction or the admission of Tenant in any action against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any Legal
Requirement, shall be conclusive of the fact as between Landlord and Tenant.
7. SERVICE AND UTILITIES
7.1 LANDLORD'S OBLIGATIONS. Provided Tenant is not in default
hereunder, Landlord shall furnish to the Premises during reasonable hours of
generally recognized business days, to be determined by Landlord, and subject
to the rules and regulations of the Building, water, gas and electricity
suitable for the intended use of the Premises, heat and air conditioning
required in Landlord's judgment for the comfortable use and occupancy of the
Premises, scavenger, janitorial services as described in Exhibit E attached
hereto, window washing service and elevator service customary in similar
buildings in the competing geographical areas. Landlord shall also maintain
and keep lighted the common lobbies, hallways, stairs and toilet rooms in the
Building.
7.2 TENANT'S OBLIGATION. Tenant shall pay for, prior to
delinquency, all telephone and all other materials and services, not
expressly required to be paid by Landlord, which may be furnished to or used
in, on or about the Premises during the term of this Lease.
7.3 TENANT'S ADDITIONAL REQUIREMENTS
(a) Tenant shall pay for heat and air-conditioning furnished at
Tenant's request during non-business hours and/or on non-business days on an
hourly basis at a reasonable rate established by Landlord. Tenant shall not
use in
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excess of Building Standard amounts (as determined by Landlord) of
electricity, water or any other utility without Landlord's prior written
consent, which consent Landlord may refuse. Landlord may cause a water meter
or electric current meter to be installed in the Premises so as to measure
the amount of water and electric current consumed for any such excess use.
The cost of such meters and of installation, maintenance and repair thereof
shall be paid by Tenant and Tenant agrees to pay Landlord promptly upon
demand by Landlord for all such water and electric current consumed as shown
by said meters, at the rates charged for such services by the city in which
the Building is located or by the local public utility furnishing the same,
plus any additional expense incurred in keeping account of the water and
electric current so consumed. If a separate meter is not installed to measure
any such excess use, Landlord shall have the right to estimate the amount of
such use through qualified personnel. In addition, Landlord may impose a
reasonable charge for the use of any additional or unusual janitorial
services required by Tenant because of any Suite Improvements different from
or above Building Standard, carelessness of Tenant or the nature of Tenant's
business (including hours of operation).
(b) If any lights other than Building Standard or equipment
are used in the Premises which affect the temperature otherwise maintained by
the air conditioning system, Landlord may install supplementary air
conditioning units in the Premises and the cost thereof, including the cost
of installation, operation and maintenance thereof, shall be paid by Tenant
to Landlord upon demand by Landlord. In addition, if any lights other than
Building Standard are used in the Premises, Tenant shall pay the cost to
replace any worn or dead bulbs or tubes.
(c) In no event shall Tenant (i) connect any apparatus,
machine or device through electrical outlets except in the manner for which
such outlets are designed and without the use of any device intended to
increase the plug capacity of any electrical outlet or (ii) maintain at any
time an electrical demand load in excess of four (4) watts per square foot of
usable area of the Premises.
7.4 NONLIABILITY. Landlord shall not be liable for, and Tenant
shall not be entitled to any abatement or reduction of Rent, by reason of
Landlord's failure to furnish any of the foregoing when due to "Force Majeure
Events" (as defined in Paragraph 25.9). If failure to furnish the foregoing
is within Landlord's reasonable control and Tenant is unable to occupy the
Premises due to such failure, Tenant shall be entitled to an abatement of
Base Rent commencing with the fifteenth consecutive
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day of such failure unless prior thereto Landlord commences to cure such
failure and thereafter diligently proceeds with such cure. Any failure to
furnish any of the foregoing shall not constitute an eviction of Tenant,
constructive or otherwise and, notwithstanding any law to the contrary that
may now or hereafter exist, Tenant shall not be entitled to terminate this
Lease on account of such failure. Except for Landlord's negligence of willful
misconduct, Landlord shall not be liable under any circumstances for loss of
or injury to property or business or consequential damages, however
occurring, through or in connection with failure to furnish any of the
foregoing.
8. MAINTENANCE AND REPAIRS; ALTERATIONS AND ADDITIONS
8.1 MAINTENANCE AND REPAIRS
(a) LANDLORD'S OBLIGATIONS. Landlord shall maintain in good
order, condition and repair the structural and common areas of the Building,
and the basic heating, ventilating, air conditioning, electrical, plumbing,
fire protection, life safety, security and mechanical systems of the Building
(the "Building Systems"), and the telephone cabling and wiring in and to the
Premises to the extent required by law, and shall cause the common areas of
the Building to comply with all Legal Requirements (including, without
limitation, the ADA), provided that any maintenance and repair caused by the
acts or omissions of Tenant or Tenant's agents, employees, invitees, visitors
(collectively "Tenant's Representatives") shall be paid for by Tenant.
Notwithstanding any law to the contrary that may now or hereafter exist,
Tenant shall not have the right to make repairs at Landlord's expense or to
terminate this Lease because of Landlord's failure to keep the foregoing in
good order, condition and repair, nor shall Landlord be liable under any
circumstances for any consequential damages or loss of business, however
occurring, through or in connection with any such failure.
(b) TENANT'S OBLIGATIONS
(1) Tenant, at Tenant's sole cost and expense, except for
services furnished by Landlord pursuant to Paragraph 7 hereof, shall maintain
the Premises in good order, condition and repair including the interior surfaces
of the ceilings, walls and floors, all doors, interior windows, and all plumbing
pipes, electrical wiring, switches, fixtures, nonbuilding standard lights, and
equipment installed for the use of the Premises, and shall cause the Premises to
comply with all Legal Requirements (including, without limitation, the ADA).
Notwithstanding any law to the contrary that may now or hereafter
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exist, Tenant shall not have the right to make repairs at Landlord's expense or
to terminate this Lease because of Landlord's failure to keep the Premises in
good order, condition and repair.
(2) In the event Tenant fails to maintain the Premises in
good order, condition and repair, Landlord shall give Tenant notice to do
such acts as are reasonably required to so maintain the Premises. In the
event Tenant fails to promptly commence such work and diligently prosecute it
to completion, Landlord shall have the right to do such acts and expend such
funds at the expense of Tenant as are reasonably required to perform such
work. Any amount so expended by Landlord shall be paid by Tenant promptly
after demand with interest from the date expended by Landlord until paid by
Tenant at the "Default Rate," as defined below. Landlord shall have no
liability to Tenant for any damage, inconvenience or interference with the
use of the Premises by Tenant as a result of performing any such work. As
used in this Lease, "Default Rate" shall mean the lesser of twelve percent
per annum (12%) or the maximum rate permitted by law.
(c) COMPLIANCE WITH LAW. Landlord and Tenant shall each do all
acts required to comply with all applicable Legal Requirements relating to their
respective maintenance and repair obligations as set forth herein.
8.2 ALTERATIONS AND ADDITIONS
(a) Tenant shall make no alterations, additions or
improvements to the Premises or any part thereof without obtaining the prior
written consent of Landlord. Notwithstanding the foregoing, Tenant may install
their phone equipment and cabling using a union vendor approved by Landlord.
(b) Landlord may impose as a condition to the aforesaid consent
such requirements as Landlord may deem necessary in its sole discretion,
including without limitation thereto, performing the work itself, specifying
the manner in which the work is done, and selecting the contractor by whom
the work is to be performed and the times during which it is to be
accomplished. Tenant shall pay to Landlord upon demand an amount equal to the
reasonable costs and expenses for time spent by Landlord's employees or
contractors in supervising, approving and administering such alterations.
(c) All such alterations, additions or improvements, all other
Above-Standard Improvements, and all work performed under the Work Letter
shall be the property of Landlord and shall remain upon and be surrendered
with the Premises, unless
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Landlord upon or prior to the termination or expiration of the Lease
requests in writing that Tenant remove all or any part of same.
(d) All articles of personal property and all business and
trade fixtures, machinery and equipment, cabinetwork, furniture and movable
partitions owned by Tenant or installed by Tenant at its expense in the
Premises shall be and remain the property of Tenant and may be removed by
Tenant at any time during the Lease term when Tenant is not in default
hereunder.
9. ENTRY BY LANDLORD
Landlord and Landlord's agents shall at any and all times have the
right to enter the Premises to inspect the same, to supply janitorial service
and any other service to be provided by Landlord to Tenant hereunder, to show
the Premises to prospective purchasers or tenants, to post notices of
non-responsibility and "for lease" signs, and to alter, improve or repair the
Premises and any portion of the Building, and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, always providing the entrance to the
Premises shall not be blocked thereby. Landlord shall conduct its activities
under this Paragraph 9 in a manner that will minimize inconvenience to Tenant
without incurring additional expense to Landlord. 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, and Landlord and Landlord's agents shall have the right to
use any and all means which Landlord may deem proper to open said doors in an
emergency, in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord or Landlord's agents 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 of Tenant from the Premises or any portion thereof. Tenant shall not
be released from its obligations under this Lease nor be entitled to any
abatement of Rent on account of Landlord's entry under this Paragraph, and
Tenant hereby waives any claim for damages for any injury or inconvenience to
or interference with Tenant's business, any loss of occupancy or quiet
enjoyment of the Premises, and any other loss occasioned thereby.
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10. LIENS
Tenant shall keep the Premises and the Building free from any liens
arising out of work performed, materials furnished, or obligations incurred
by Tenant and shall indemnify, hold harmless and defend Landlord from any
liens and encumbrances arising out of any work performed, materials furnished
or obligations incurred by or at the direction of Tenant. In the event that
Tenant shall not, within twenty (20) days following the imposition of any
such lien, cause such lien 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 no 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, including attorneys' fees
and costs, shall be payable to Landlord by Tenant on demand with interest at
the Default Rate until paid. Landlord shall have the right at all times to
post and keep posted on the Premises any notices permitted or required by
law, or which Landlord shall deem proper, for the protection of Landlord and
the Premises, and any other party having an interest therein, from mechanics'
and materialmen's liens, and Tenant shall give to Landlord at least three (3)
business days prior written notice of the expected date of commencement of
any work relating to alterations or additions to the Premises.
11. INDEMNITY
11.1 INDEMNITY. Tenant shall indemnify and hold Landlord harmless
from and defend Landlord against any and all claims of liability for any
injury or damage to any person or property whatsoever (i) occurring in, on or
about the Premises or any part thereof; and (ii) occurring in, on or about
any facilities (including, without limiting the generality of the term
"facilities," elevators, stairways, passageways, hallways and parking areas),
the use of which Tenant may have in conjunction with other tenants of the
Building, when such injury or damage is caused in part or in whole by the
act, negligence, fault or omission of any duty with respect to the same by
Tenant or Tenant's invitees and Representatives. Tenant shall further
indemnify and hold Landlord harmless from and against any and all claims
arising from any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease, or arising from
any act or negligence of Tenant or Tenant's Representatives and from and
against all costs, attorneys' fees, expenses and liabilities incurred in the
defense of any such claim or any action or proceeding brought thereon. If any
action or
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proceeding is brought against Landlord by reason of any such claim, Tenant,
upon notice from Landlord, shall defend the same at Tenant's expense by
counsel reasonably satisfactory to Landlord; provided, however, that Tenant
shall not be liable for damage or injury occasioned by the negligence or
intentional acts of Landlord and its designated agents or employees unless
covered by insurance Tenant is required to provide. Except for Landlord's
negligence or willful misconduct, Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to persons in, upon or about the Premises from any cause and Tenant
hereby waives all claims in respect thereof against Landlord.
11.2 EXEMPTION OF LANDLORD FROM LIABILITY. Except for Landlord's
negligence of willful misconduct, Landlord shall not be liable for injury or
damage which may be sustained by the person or property of Tenant, its
employees, invitees or customers, or any other person in or about the
Premises caused by or resulting from fire, steam, electricity, gas, water or
rain, which may leak or flow from or into any part of the Premises, or from
the breakage, leakage, obstruction or other defects of the pipes, sprinklers,
wires, appliances, plumbing, air conditioning, telephone cabling or wiring,
or lighting fixtures of the same, whether the damage or injury results from
conditions arising upon the Premises or upon other portions of the Building
of which the Premises are a part, or from other sources. Landlord shall not
be liable for any damages arising from any act or neglect of any other tenant
of the Building.
12. INSURANCE
12.1 COVERAGE. Tenant shall, at all times during the term of this
Lease, and at its own cost and expense, procure and continue in force the
following insurance coverage:
(a) Commercial General Liability Insurance with a
combined single limit for personal or bodily injury and property damage of
not less than $1,000,000 or such other level of coverage that Landlord may
require in its reasonable judgment.
(b) Fire and Extended Coverage Insurance, including vandalism
and malicious mischief coverage, covering and in an amount equal to the full
replacement value of all fixtures, furniture and improvements installed in
the Premises by or at the expense of Tenant.
12.2 INSURANCE POLICIES. The aforementioned minimum limits of
policies shall in no event limit the liability of Tenant
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hereunder. The aforesaid insurance shall name Landlord and its partners,
property manager, and mortgagees as an additional insured. Said insurance
shall be with companies having a razing of not less than A, XI in "Best's
Insurance Guide." Tenant shall furnish from the insurance companies or cause
the insurance companies to furnish certificates of coverage. No such policy
shall be cancelable or subject to reduction of coverage or other modification
or cancellation except after thirty (30) days prior written notice to
Landlord by the insurer. All such policies shall be written as primary
policies, not contributing with and not in excess of the coverage which
Landlord may carry. Tenant shall, at least twenty (20) days prior to the
expiration of such policies, furnish Landlord with evidence of renewals or
binders. Tenant agrees that if Tenant does not take out and maintain such
insurance, Landlord may (but shall not be required to) procure said insurance
on Tenant's behalf and charge Tenant the premiums together with a reasonable
handling charge and Default Interest from the date paid by Landlord, payable
upon demand. Tenant shall have the right to provide such insurance coverage
pursuant to blanket policies obtained by Tenant, provided such blanket
policies expressly afford coverage to the Premises and to Tenant as required
by this Lease.
12.3 LANDLORD'S INSURANCE. During the term of this Lease Landlord
shall maintain in effect insurance on the Building against fire, extended
coverage perils and vandalism and malicious mischief, with responsible
insurers licensed to do business in California having a rating of not less
than A, XI in "Best's Insurance Guide," insuring the Building in an amount
equal to at least ninety-five percent (95%) of the replacement cost thereof,
excluding foundations, footings and underground installations. Landlord may,
but shall not be obligated to, carry insurance against additional perils
and/or in greater amounts.
12.4 WAIVER OF SUBROGATION. To the extent permitted by their
respective policies of insurance, Landlord and Tenant each hereby waive any
right of recovery against the other and the authorized representatives of the
other for any loss or damage that is covered by any policy of insurance
maintained by either party with respect to the Premises or the Project or any
operation therein. If any policy of insurance relating to this Lease, the
Premises or the Project does not permit the foregoing waiver or if the
coverage under any such policy would be invalidated as a result of such
waiver, the party maintaining such policy shall, if possible, obtain from the
insurer under such policy a waiver of all right of recovery by way of
subrogation against either party in connection with any claim, loss or damage
covered by such policy.
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13. DAMAGE OR DESTRUCTION.
13.1 LANDLORD'S DUTY TO REPAIR. If all or a substantial part of the
Premises are rendered untenantable or inaccessible by damage to all or any
part of the Project from fire or other casualty then, unless either party
elects to terminate this Lease pursuant to Paragraphs 13.2 or 13.3, Landlord
shall, at its expense, use its best efforts to repair and restore the
Premises and/or access thereto, as the case may be, to substantially their
former condition to the extent permitted by the then applicable codes, laws
and regulations; provided, however, that Tenant rather than Landlord shall be
obligated at Tenant's expense to repair or replace Tenant's personal
property, trade fixtures and any items or improvements that are required to
be covered by Tenant's insurance under Paragraph 12.1(b).
If Landlord is required or elects to repair damage to the
Premises and/or access thereto, this Lease shall continue in effect but
Tenant's Base Rent and Operating Cost Payments from the date of the casualty
through the date of substantial completion of the repair shall be abated by a
proportionate amount based on the portion of the Premises that Tenant is
prevented from using by reason of such damage or its repair; provided,
however, that if the casualty is the result of the willful misconduct or
negligence of Tenant or Tenant's Representatives, there will be no such
rental abatement. In no event shall Landlord be liable to Tenant by reason of
any injury to or interference with Tenant's business or property arising from
fire or other casualty or by reason of any repairs to any part of the Project
made necessary by such casualty.
13.2 LANDLORD'S RIGHT TO TERMINATE. Landlord may elect to terminate
this Lease, effective as of the last day of the calendar month in which such
election is made, under the following circumstances:
(a) Where, in the reasonable judgment of Landlord, the damage
cannot be substantially repaired and restored under applicable laws and
governmental regulations within one (1) year after the date of the casualty;
(b) Where, in the reasonable judgment of Landlord, adequate
proceeds are not, for any reason, made available to Landlord from Landlord's
insurance policies to make the required repairs;
(c) Where the Project is damaged or destroyed to the extent that
the cost to repair and restore the Project
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exceeds twenty-five percent (25%) of the full replacement cost of the
Project, whether or not the Premises are damaged or destroyed; or
(d) Where the damage occurs within the last twelve (12) months of
the term of the Lease.
If any of the circumstances described in this Paragraph 13.2
arise, Landlord must notify Tenant in writing of that fact within one
hundred and twenty (120) days after such circumstances arise and in such
notice Landlord must also advise Tenant whether Landlord has elected to
terminate the Lease.
13.3 TENANT'S RIGHT TO TERMINATE. Tenant shall have the right to
terminate this Lease if all or a substantial part of the Premises are
rendered untenantable or inaccessible by damage to all or any part of the
Project from fire or other casualty, provided that such casualty is not the
result of the willful misconduct or negligence of Tenant or Tenant's
Representatives, but only under the following circumstances:
(a) Tenant may elect to terminate this Lease if Landlord had
the right under Paragraph 13.2 to terminate this Lease but did not elect to
so terminate and Landlord failed to commence the required repair within
ninety (90) days after the date it received proceeds to commence such repair.
In such event, Tenant may terminate this Lease as of the date of the casualty
by notice to Landlord given before the earlier of the date on which Landlord
commences such repair or ten (10) days after the expiration of such ninety
(90)-day period; or
(b) Tenant may elect to terminate this Lease in the
circumstance described in Subparagraph 13.2(a). In such event, Tenant may
terminate this Lease as of the date of the casualty by notice to Landlord
given within thirty (30) days after Landlord's notice to Tenant pursuant to
Paragraph 13.2.
13.4 EXCLUSIVE RIGHTS. Landlord and Tenant each hereby agree that,
notwithstanding any law to the contrary that may now or hereafter exist,
neither party shall have any right to terminate this Lease in the event of
any damage or destruction under any circumstances other than as provided in
Paragraphs 13.2 and 13.3.
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14. CONDEMNATION
If all or a material portion of the Premises shall be taken or
appropriated for public or quasi-public use by right of eminent domain with
or without litigation or transferred by agreement in connection with such
public or quasi-public use, either party hereto shall have the right at its
option, exercisable within thirty (30) days of receipt of notice of such
taking, to terminate this Lease as of the date possession is taken by the
condemning authority, provided, however, that before Tenant may terminate
this Lease by reason of taking or appropriation as provided hereinabove, such
taking or appropriation shall be of such an extent and nature as to
substantially handicap, impede or impair Tenant's use of the Premises. If any
part of the Building other than the Premises shall be so taken or
appropriated, Landlord shall have the right at its option to terminate this
Lease. No award for any partial or entire taking shall be apportioned, and
Tenant hereby assigns to Landlord any award which may be made in such taking
or condemnation, together with any and all rights of Tenant now or hereafter
arising in or to the 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 for the
taking of personal property and fixtures belonging to Tenant and/or for
Tenant's unamortized cost of leasehold improvements, so long as such award to
Tenant does not decrease the value of the award that would otherwise be made
to Landlord in such taking or condemnation. In the event of a partial taking
which does not result in a termination of this Lease, rent shall be abated in
the proportion which the part of Premises so made unusable bears to the
rented area of the Premises immediately prior to the taking, and Landlord, at
Landlord's cost, shall restore the Premises remaining to an architectural
whole with the Base Rent reduced in proportion to what the area taken bears
to the Premises prior to the taking. No temporary taking of the Premises
and/or of Tenant's rights therein or under this Lease shall give Tenant the
right to terminate this Lease or to any abatement of Rent thereunder. Any
award made to Tenant by reason of any such temporary taking where Landlord
does not terminate this Lease shall belong entirely to Tenant so long as said
award does not diminish Landlord's award.
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15. ASSIGNMENT AND SUBLETTING
15.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not assign,
transfer, mortgage, pledge, hypothecate or encumber this Lease or any
interest therein (each a "Transfer"), and shall not sublet the Premises or
any part thereof, without the prior written consent of Landlord which consent
shall not be unreasonably withheld and any attempt to do so without such
consent being first had and obtained shall be wholly void and shall
constitute a breach of this Lease.
15.2 REASONABLE CONSENT.
(a) If Tenant complies with the following conditions,
Landlord shall not unreasonably withhold its consent to the subletting of the
Premises or any portion thereof or the assignment of this Lease. Tenant shall
submit in writing to Landlord (i) the name and legal composition of the
proposed subtenant or assignee; (ii) the nature of the business proposed to
be carried on in the Premises; (iii) the terms and provisions of the proposed
sublease; (iv) such reasonable financial information as Landlord may request
concerning the proposed subtenant or assignee; and (v) the form of the
proposed sublease or assignment. Within ten (10) business days after Landlord
receives all such information it shall notify Tenant whether it approves such
assignment or subletting or if it elects to proceed under Paragraph 15.8
below.
(b) The parties hereto agree and acknowledge that, among
other circumstances for which Landlord could reasonably withhold its consent
to a sublease or assignment, it shall be reasonable for Landlord to withhold
its consent where (i) the assignee or subtenant (a "Transferee") does not
itself occupy the entire portion of the Premises assigned or sublet, (ii)
Landlord reasonably disapproves of the Transferee's reputation or
creditworthiness or the character of the business to be conducted by the
Transferee at the Premises, (iii) the assignment or subletting would increase
the burden as reasonably determined by Landlord on the Building services or
the number of people occupying the Premises, or (iv) Landlord otherwise
reasonably determines that the assignment or sublease would have the effect
of decreasing the value of the Project or increasing the expenses associated
with operating the Project. In no event may Tenant publicly advertise or
offer all or any portion of the Premises for assignment or sublease at a
rental less than that then sought by Landlord for comparable space in the
Project.
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15.3 EXCESS CONSIDERATION. If Landlord consents to the assignment
or sublease, Landlord shall be entitled to receive as additional Rent
hereunder one-half of any consideration paid by the Transferee for the
assignment or sublease and, in the case of a sublease, one-half of the excess
of the rent and other consideration payable by the subtenant over the amount
of Base Rent and Operating Cost Payments payable hereunder applicable to the
subleased space.
15.4 NO RELEASE OF TENANT. No consent by Landlord to any assignment
or subletting by Tenant shall relieve Tenant of any obligation to be
performed by Tenant under this Lease, whether occurring before or after such
consent, assignment or subletting, and the Transferee shall be jointly and
severally liable with Tenant for the payment of Rent (or that portion
applicable to the subleased space in the case of a sublease) and for the
performance of all other terms and provisions of the Lease. The consent by
Landlord to any assignment or subletting shall not relieve Tenant and any
such Transferee from the obligation to obtain Landlord's express written
consent to any subsequent assignment or subletting. The acceptance of rent by
Landlord from any other person shall not be deemed to be a waiver by Landlord
of any provision of this Lease or to be a consent to any assignment,
subletting or other transfer. Consent to one assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent
assignment, subletting or other transfer.
15.5 ATTORNEYS' FEES. Tenant shall pay Landlord's reasonable
attorneys' fees (not to exceed $300.00) incurred in connection with reviewing
any proposed assignment or sublease.
15.6 TRANSFER OF OWNERSHIP INTEREST. If Tenant is a business
entity, any direct or indirect transfer of 50 percent or more of the
ownership interest of the entity (whether all at one time or over the term of
the Lease) shall be deemed a Transfer.
15.7 EFFECTIVENESS OF TRANSFER. No permitted assignment by Tenant
shall be effective until Landlord has received a counterpart of the
assignment and an instrument in which the assignee assumes all of Tenant's
obligations under this Lease arising on or after the date of assignment. The
voluntary, involuntary or other surrender of this Lease by Tenant, or a
mutual cancellation by Landlord and Tenant, shall not work a merger, and any
such surrender or cancellation shall, at the option of Landlord, either
terminate all or any existing subleases or operate as an assignment to
Landlord of any or all of such subleases.
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15.8 LANDLORD'S RIGHT TO SPACE. Notwithstanding any of the above
provisions of this Paragraph 15 to the contrary, if Tenant notifies Landlord
that it desires to assign this Lease or sublet all or any part of the
Premises, Landlord, in lieu of consenting to such assignment or sublease, may
elect to terminate this Lease (in the case of an assignment or a sublease of
the entire Premises), or to terminate this Lease as it relates to the space
proposed to be subleased by Tenant (in the case of a sublease of less than
the entire Premises). In such event, this Lease (or portion thereof) will
terminate on the date the assignment or sublease was to be effective, and
Landlord may lease such space to any party, including the prospective
Transferee identified by Tenant.
15.9 NO NET PROFITS LEASES. Anything contained in the foregoing
provisions of this Paragraph 15 to the contrary notwithstanding, neither
Tenant, nor any other person having an interest in the possession, use,
occupancy or utilization of the Premises, shall enter into any lease,
sublease, license, concession or other agreement for the use, occupancy or
utilization of space in the Premises which provides for rental or other
payment for such use, occupancy or utilization based in whole or in part on
the net income or profits derived by any person from the premises leased,
used, occupied or utilized (other than an amount based on a fixed percentage
or percentages of receipts or sales), and any such purported lease, sublease,
license, concession or other agreement shall be void and ineffective as a
conveyance of any right or interest in the possession, use, occupancy or
utilization of any part of the Premises.
16. SUBORDINATION
16.1 SUBORDINATION. Except as provided in the next sentence, or as
the Tenant and the mortgagee or trustee of any "First Mortgage" (as defined
below) may otherwise agree, this Lease, at Landlord's option, shall be
subject and subordinate to all ground or underlying leases which now exist or
may hereafter be executed affecting all or any part of the Project, and to
the lien of any first mortgages or first deeds of trust (each a "First
Mortgage") in any amount or amounts whatsoever now or hereafter placed on or
against the Land or Building, Landlord's interest or estate therein, or any
ground or underlying lease, without the necessity of the execution and
delivery of any further instruments on the part of Tenant to effectuate such
subordination. If any mortgagee or trustee of a First Mortgage or ground
lessor shall elect to have this Lease prior to the lien of its First Mortgage
or ground lease, and shall give written notice thereof to Tenant, this Lease
shall be deemed prior to such First Mortgage or ground lease,
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whether this Lease is dated prior to or subsequent to the date of said First
Mortgage or ground lease or the date of the recording thereof.
16.2 JUNIOR LIENS. Tenant hereby agrees that this Lease shall be
superior to the lien of any present or future mortgages or deeds of trust
that are junior to any First Mortgage.
16.3 SUBORDINATION AGREEMENTS. Tenant will execute and deliver upon
demand without charge therefor, such further instruments evidencing the
subordination of this Lease to any First Mortgage or ground lease, or the
subordination of any First Mortgage or ground lease to such Lease, pursuant
to Section 16.1, as the case may be, as may be required by Landlord.
Tenant's failure to comply with its obligations under this Paragraph 16.3
within fifteen (15) days of demand shall constitute an Event of Default and
Landlord shall have the right, in such event, to impose upon Tenant a
monetary penalty of $1,000.00 for such non- compliance, in addition to all
other remedies available to Landlord under this Lease and by law. Tenant
hereby appoints Landlord as Tenant's attorney-in-fact, irrevocably, to
execute and deliver any such agreements, instruments, releases or other
documents.
16.4 ATTORNMENT. If this Project is transferred to any purchaser
pursuant to or in lieu of proceedings to enforce any mortgage, deed of trust
or ground lease (collectively, "Encumbrance"), and this Lease is either prior
to such Encumbrance or the mortgagee or trustee of a First Mortgage or ground
lessor of the Project elects to have this Lease survive such transfer, Tenant
shall attorn to such purchaser and recognize such purchaser as the landlord
under this Lease, and this Lease shall continue as a direct lease between
such purchaser and Tenant.
17. QUIET ENJOYMENT.
Landlord covenants and agrees with Tenant that upon Tenant paying
the Rent and performing its other covenants and conditions under this Lease,
Tenant shall have the quiet possession of the Premises for the term of this
Lease as against any persons or entities lawfully claiming by, through or
under Landlord, subject, however, to the terms of this Lease and of any
Encumbrance.
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18. DEFAULT; REMEDIES
18.1 DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" by Tenant:
(a) Tenant fails to pay Rent when due and such failure
continues for five (5) days after written notice thereof to Tenant; however,
Tenant shall be granted two (2) grace periods during the term of the Lease of
an additional five (5) days each;
(b) Tenant fails to deliver any subordination agreement
requested by Landlord within the period described in Paragraph 16;
(c) Tenant fails to deliver any estoppel certificate requested
by Landlord within the period described in Paragraph 22;
(d) Tenant Transfers or attempts to Transfer this Lease
without complying with the provisions of Paragraph 15;
(e) Tenant fails to observe and perform any other provision
of this Lease to be observed or performed by Tenant, where such failure
continues for thirty (30) days after written notice thereof by Landlord to
Tenant; provided, however, that if the nature of the default is such that the
same cannot reasonably be cured within said thirty (30) day period, Tenant
shall not be deemed to be in default if Tenant shall within such period
commence such cure and thereafter diligently prosecute the same to completion;
(f) Tenant abandons the Premises; or
(g) The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant of
a petition seeking relief under any law relating to bankruptcy (unless, in
the case of a petition filed against Tenant, the same is dismissed within
sixty (60) days); the appointment of a trustee or receiver to take possession
of 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 substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease, where such seizure is not discharged within
thirty (30) days.
18.2 REMEDIES. Upon the occurrence of an Event of Default,
Landlord may, at any time thereafter exercise the
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following remedies, which shall be in addition to any other rights or
remedies now or hereafter available to Landlord at law or in equity:
(a) Maintain this Lease in full force and effect and recover
Rent as it becomes due, without terminating Tenant's right to possession
irrespective of whether Tenant shall have abandoned the Premises. In the
event Landlord elects not to terminate the Lease, Landlord shall have the
right to attempt to relet the Premises at such rent and upon such conditions
and for such a term, and to do all acts necessary to maintain or preserve the
Premises as Landlord deems reasonable and necessary without being deemed to
have elected to terminate the Lease, including removal of all persons and
property from the Premises; such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of Tenant.
In the event any such reletting occurs, rents received by Landlord from such
subletting shall be applied (i) first, to the payment of the costs of
maintaining, preserving, altering and preparing the Premises for subletting
and other costs of subletting, including but not limited to brokers'
commissions, attorneys' fees and expenses of removal of Tenant's personal
property, trade fixtures, alterations and leasehold improvements; (ii)
second, to the payment of Rent then due and payable; (iii) third, to the
payment of future Rent as the same may become due and payable hereunder; and
(iv) fourth, the balance, if any, shall be paid to Tenant upon (but not
before) expiration of the term of this Lease. If the rents received by
Landlord from such subletting, after application as provided above, are
insufficient in any month to pay the Rent due and payable hereunder for such
month, Tenant shall pay such deficiency to Landlord monthly upon demand.
Notwithstanding any such subletting for Tenant's account without termination,
Landlord may at any time thereafter, by written notice to Tenant, elect to
terminate this Lease by virtue of a previous Event of Default. During the
continuance of an Event of Default, for so long as Landlord does not
terminate Tenant's right to possession of the Premises, Landlord shall not
unreasonably withhold its consent to an assignment of this Lease or a
sublease of the Premises as set forth in Paragraph 15.2 -"Reasonable Consent."
(b) Terminate Tenant's right to possession of the Premises at
any time by written notice to Tenant, in which case Tenant shall immediately
surrender possession of the Premises to Landlord. Tenant expressly
acknowledges that in the absence of such written notice from Landlord, no
other act of Landlord, including, but not limited to, its re-entry into the
Premises, its efforts to relet the Premises, its reletting of the Premises
for Tenant's account, its storage of Tenant's personal property and
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trade fixtures, its acceptance of keys to the Premises from Tenant or
its exercise of any other rights and remedies under this Paragraph 18.2,
shall constitute an acceptance of Tenant's surrender of the Premises or
constitute a termination of this Lease or of Tenant's right to possession of
the Premises. If Landlord terminates Tenant's right to possession in writing,
Landlord shall be entitled to recover from Tenant all damages as provided in
California Civil Code Section 1951.2 or any other applicable existing or
future law, ordinance or regulation providing for recovery of damages for
such breach, including but not limited to the following.
(1) The reasonable cost of recovering the Premises; plus
(2) The reasonable cost of removing Tenant's alterations,
trade fixtures and Above-Standard Improvements; plus
(3) All unpaid Rent due or earned hereunder prior to
the date of termination, less the proceeds of any reletting or any rental
received from subtenants prior to the date of termination applied as provided
in subsection (a) above, together with interest at the Default Rate, on such
sums from the date such Rent is due and payable until the date of the award
of damages; plus
(4) The amount by which the Rent which would be payable
by Tenant hereunder, including Operating Cost Payments as reasonably
estimated by Landlord, from the date of termination until the date of the
award of damages exceeds the amount of such rental loss Tenant proves could
have been reasonably avoided, together with interest at the Default Rate on
such sums from the date such Rent is due and payable until the date of the
award of damages; plus
(5) The amount by which the Rent which would be payable
by Tenant hereunder, including Operating Cost Payments, as reasonably
estimated by Landlord, for the remainder of the then term, after the date of
the award of damages exceeds the amount of such rental loss as Tenant proves
could have been reasonably avoided, discounted at the discount rate published
by the Federal Reserve Bank of San Francisco for member banks at the time of
the award plus one percent (1%); plus
(6) Such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.
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(c) During the continuance of an Event of Default,
Landlord may enter the Premises without terminating this Lease and remove all
Tenant's personal property, and trade fixtures from the Premises. If Landlord
removes such property from the Premises and stores it at Tenant's risk and
expense, and if Tenant fails to pay the cost of such removal and storage
after written demand therefor and/or to pay any Rent then due, after the
property has been stored for a period of thirty (30) days or more Landlord
may sell such property at public or private sale, in the manner and at such
times and places as Landlord in its sole discretion deems commercially
reasonable following reasonable notice to Tenant of the time and place of
such sale. The proceeds of any such sale shall be applied first to the
payment of the expenses for removal and storage of the property, preparation
for and conducting such sale, and attorneys' fees and other legal expenses
incurred by Landlord in connection therewith, and the balance shall be
applied as provided in subsection (a) above.
Tenant hereby waives all claims for damages that may
be caused by Landlord's reentering and taking possession of the Premises or
removing and storing Tenant's personal property pursuant to this Paragraph,
and Tenant shall hold Landlord harmless from and against any loss, cost or
damage resulting from any such act. No reentry by Landlord shall constitute
or be construed as a forcible entry by Landlord.
(d) Landlord may cure the Event of Default at Tenant's
expense. If Landlord pays any sum or incurs any expense in curing the Event
of Default, Tenant shall reimburse Landlord upon demand for the amount of
such payment or expense with interest at the Default Rate from the date the
sum is paid or the expense is incurred until Landlord is reimbursed by Tenant.
18.3 LATE CHARGES. Tenant hereby acknowledges that late payment by
Tenant to Landlord of Rent will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges. Accordingly, if any installment of Base
Rent or Operating Costs Payments is not received by Landlord or Landlord's
designee within ten (10) days of the date such amount shall be due, or if any
installment of other Rent is not received by Landlord or Landlord's designee
on or before the date such amount shall be due, Tenant shall pay to Landlord
a late charge equal to ten percent (10%) of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate
of the costs Landlord will incur by reason of late payment by Tenant.
Acceptance of such late charge by Landlord shall in no event
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constitute a waiver of Tenant's default with respect to such overdue amount
nor prevent Landlord from exercising any of the other rights and remedies
granted hereunder.
18.4 INTEREST. In addition to the late charges referred to above
which are intended to defray Landlord's costs resulting from late payments,
any late payment of Rent shall, at Landlord's option, bear interest from the
due date of any such payment to the date the same is paid at the Default
Rate, provided, however, that if Landlord imposes a late charge on any
overdue payment, such overdue payment shall not begin to bear interest under
this Paragraph 18.4 until thirty (30) days after the due date thereof.
18.5 DEFAULT BY LANDLORD. Landlord shall not be in default
unless Landlord fails to perform obligations required of Landlord within a
reasonable time, but in no event later than twenty (20) days after written
notice by Tenant to Landlord and to any mortgagee, trustee or ground lessor of
the Project (each a "Holder") whose name and address shall have theretofore been
furnished to Tenant in writing, specifying that Landlord has failed to perform
such obligations; provided, however, that if the nature of Landlord's obligation
is such that more than twenty (20) days are required for performance, then
Landlord shall not be in default if Landlord commences performance within such
twenty (20) day period and thereafter diligently prosecutes the same to
completion.
19. PARKING
Tenant and Tenant's employees, invitees and customers shall have
the right to use the parking areas of the Building subject to such
regulations as Landlord shall adopt from time to time, and subject to the
right of Landlord to restrict the use by Tenant and Tenant's Representatives
when in the sole judgment of Landlord such use is excessive for the parking
area in relationship to the reasonable use required by other Tenants. If
Landlord becomes obligated under applicable laws or regulations or any other
directive of any governmental or quasi-governmental authority to pay or
assess fees or charges for parking in the Building's parking area, Tenant
shall pay such amounts to Landlord as additional Rent.
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20. RELOCATION OF PREMISES
20.1 CONDITIONS. For the purpose of maintaining an economical
and proper distribution of Tenants throughout Bishop Ranch acceptable to
Landlord, Landlord shall have the right from time to time during the term of
this Lease to relocate the Premises within Bishop Ranch, subject to the
following terms and conditions:
(a) The rented and usable areas of the new Premises must
be of equal size to the existing Premises (subject to a variation of up to
ten percent (10%) provided the amount of Base Rent payable under this Lease
is not increased);
(b) Landlord shall pay the cost of providing tenant
improvements in the new Premises comparable to the tenant improvements in the
existing Premises;
(c) Landlord shall pay the expenses reasonably incurred by
Tenant in connection with such substitution of Premises, including but not
limited to costs of moving, door lettering, telephone relocation and
reasonable quantities of new stationery;
20.2 NOTICE. Landlord shall deliver to Tenant written notice
of Landlord's election to relocate the Premises, specifying the new location and
the amount of rent payable therefore at least sixty (60) days prior to the date
the relocation is to be effective. If the relocation of the Premises is not
acceptable to Tenant, Tenant for a period of fifteen (15) days after receipt of
Landlord's notice to relocate shall have the right (by delivering written notice
to Landlord) to terminate this Lease. If Tenant so notifies Landlord, Landlord
at its option may withdraw its relocation notice, in which event this Lease
shall continue and Tenant shall not be relocated, or accept Tenant's termination
notice, in which event this Lease shall terminate effective as of the date the
relocation was to be effective.
21. MORTGAGEE PROTECTION.
Tenant agrees to give any Holder, by registered mail, a copy
of any notice of default served upon the Landlord, provided that prior to such
notice Tenant has been notified in writing (by way of notice of assignment of
rents and leases, or otherwise) of the address of such Holder. If Landlord shall
have failed to cure such default within the time period set forth in Paragraph
18.5 the Holder shall have an additional thirty (30) days within which to cure
such default or if such default cannot be cured within that time, then such
additional time as may be necessary to cure such
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default (including the time necessary to foreclose or otherwise terminate its
Encumbrance, if necessary to effect such cure), and this Lease shall not be
terminated so long as such remedies are being diligently pursued.
22. ESTOPPEL CERTIFICATES.
(a) Upon ten (10) days' notice from Landlord, Tenant shall
execute and deliver to Landlord, in form provided by or satisfactory to
Landlord, a certificate stating that this Lease is in full force and effect,
describing any amendments or modifications hereto, acknowledging that this Lease
is subordinate or prior, as the case may be, to any Encumbrance and stating any
other information Landlord may reasonably request, including the term of this
Lease, the monthly Base Rent, the estimated Operating Cost Payments, the date to
which Rent has been paid, the amount of any security deposit or prepaid Rent,
whether either party hereto is in default under the terms of the Lease, whether
Landlord has completed its construction obligations hereunder and any other
information reasonably requested by Landlord. Any person or entity purchasing,
acquiring an interest in or extending financing with respect to the Project
shall be entitled to rely upon any such certificate. Tenant shall be liable to
Landlord for any damages incurred by Landlord including any profits or other
benefits from any financing of the Project or any interest therein which are
lost or made unavailable as a result, directly or indirectly, of Tenant's
failure or refusal to timely execute or deliver such estoppel certificates.
(b) Tenant's failure to deliver such statement within such time
shall be conclusive upon Tenant:
(1) That this Lease is in full force and effect, without
modification except as may be represented by Landlord;
(2) That there are no uncured defaults in Landlord's performance;
and
(3) That not more than one month's Rent has been paid in
advance; and
(4) That Landlord has completed its construction obligations.
(c) If Landlord desires to finance or refinance the Building, or
any part thereof, Tenant hereby agrees to deliver to any lender designated by
Landlord such financial statements of
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Tenant as may be reasonably required by such lender. Such statements shall
include the past three years financial statements of Tenant. All such
financial statements shall be received by Landlord in confidence and shall be
used only for the purposes herein set forth.
23. SURRENDER, HOLDING OVER.
23.1 SURRENDER. Upon the expiration or termination of this Lease,
Tenant shall surrender the Premises to Landlord in its original condition,
except for reasonable wear and tear and damage from casualty or condemnation;
provided, however, that prior to the expiration or termination of this Lease
Tenant shall remove from the Premises all Tenant's personal property, trade
fixtures, alterations and other Above-Standard Improvements that Tenant has
the right or is required by Landlord to remove under the provisions of this
Lease. Tenant shall also be responsible for removal of all telephone cables
and wires, CRT, data and telephone equipment, and any other form of cabling
that exists in Tenant's space. If any of such removal is not completed at the
expiration or termination of this Lease, Landlord may remove the same at
Tenant's expense. Any damage to the Premises or the Building caused by such
removal shall be repaired promptly by Tenant or, if Tenant fails to do so,
Landlord may do so at Tenant's expense, in which event Tenant shall
immediately reimburse Landlord for such expenses together with interest at
the Default rate until so paid. Tenant's obligations under this Paragraph
shall survive the expiration or termination of this Lease. Upon expiration or
termination of this Lease or of Tenant's possession, Tenant shall surrender
all keys to the Premises or any other part of the Building and shall make
known to Landlord the combination of locks on all safes, cabinets and vaults
that may be located in the Premises.
23.2 HOLDING OVER. If Tenant remains in possession of the Premises
after the expiration or termination of this Lease, Tenant's continued
possession shall be on the basis of a tenancy at the sufferance of Landlord,
and Tenant shall continue to comply with or perform all the terms and
obligations of the Tenant under this Lease, except that the Base Rent during
Tenant's holding over shall be one hundred twenty-five percent (125%) of the
monthly Base Rent payable in the last month prior to the termination or
expiration hereof. Tenant shall indemnify and hold Landlord harmless from and
against all claims, liability, damages, costs or expenses, including
reasonable attorneys fees and costs of defending the same, incurred by
Landlord and arising directly or indirectly from Tenant's failure to timely
surrender the Premises, including (i) any loss, cost, penalties, or damages,
including lost profits, claimed by any prospective tenant of the Premises, and
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(ii) Landlord's damages as a result of such prospective tenant rescinding or
refusing to enter into the prospective lease of the Premises by reason of
such failure to timely surrender the Premises.
24. HAZARDOUS MATERIALS
Tenant shall not (either with or without negligence) cause or
permit the escape, disposal or release of any biologically or chemically
active or other hazardous substances or materials. Tenant shall not allow the
storage or use of such substances or materials in any manner not sanctioned
by law or by the highest standards prevailing in the industry for the storage
and use of such substances or materials, nor allow to be brought into the
Project any such materials or substances except to use in the ordinary course
of Tenant's business, and then only after written notice is given to Landlord
of the identity of such substances or materials. Without limitation,
hazardous substances and materials shall include those described in the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
as amended, 42 U.S.C. Section 9601 et seq., any applicable state or local
laws and the regulations adopted under these acts. If any lender or
governmental agency shall ever require testing to ascertain whether or not
there has been any release of hazardous materials, then Tenant shall promptly
notify Landlord of the same, and the reasonable costs thereof shall be
reimbursed by Tenant to Landlord upon demand as additional charges if such
requirement applies to the Premises. Landlord shall have the right, but not
the obligation, to enter the Premises at any reasonable time to perform any
required testing, to confirm Tenant's compliance with the provisions of this
Paragraph, and to perform Tenant's obligations under this Paragraph if Tenant
has failed to do so. In addition, Tenant shall execute affidavits,
representations and the like from time to time at Landlord's request
concerning Tenant's best knowledge and belief regarding the presence of
hazardous substances or materials on the Premises. In all events, Tenant
shall indemnify Landlord in the manner elsewhere provided in this Lease from
any release of hazardous materials on the Premises occurring while Tenant is
in possession, or elsewhere if caused by Tenant or persons acting under
Tenant. The within covenants shall survive the expiration or earlier
termination of the lease term.
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25. MISCELLANEOUS
25.1 ATTORNMENT. Upon any transfer by Landlord of Landlord's
interest in the Premises or the Building (other than a transfer for security
purposes only), Tenant agrees to attorn to any transferee or assignee of
Landlord.
25.2 CAPTIONS; ATTACHMENTS; DEFINED TERMS
(a) The captions of the paragraphs of this Lease are for
convenience only and shall not be deemed to be relevant in resolving any
question of interpretation or construction of any paragraph of this Lease.
The provisions of this Lease shall be construed in accordance with the fair
meaning of the language used and shall not be strictly construed against
either party. When required by the contents of this Lease, the singular
includes the plural. Wherever the term "including" is used in this Lease, it
shall be interpreted as meaning "including, but not limited to," the matter
or matters thereafter enumerated.
(b) Exhibits attached hereto, and addenda and schedules
initialed by the parties, are deemed to constitute part of this Lease and are
incorporated herein.
(c) The words "Landlord" and "Tenant" as used herein, shall
include the plural as well as the singular. Words used in neuter gender
include the masculine and feminine and words in the masculine or feminine
gender include the neuter. The obligations of this Lease as to a Tenant which
consists of husband and wife shall extend individually to their sole and
separate property as well as community property.
25.3 ENTIRE AGREEMENT. This Lease along with any exhibits and
attachments hereto constitutes the entire agreement between Landlord and
Tenant relative to the Premises, and this Lease and the exhibits and
attachments may be altered, amended or revoked only by instrument in writing
signed by both Landlord and Tenant. Landlord and Tenant agree hereby that all
prior or contemporaneous oral agreements between and among themselves and
their agents or representatives relative to the leasing of the Premises are
merged in or revoked by this Lease.
25.4 SEVERABILITY. If any term or provision of this Lease shall, to
any extent, be determined by a court of competent jurisdiction to be invalid
or unenforceable, the remainder of this Lease shall not be affected thereby,
and each term and provision of this Lease shall be valid and be enforceable
to the fullest extent permitted by law.
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25.5 COSTS OF SUIT
(a) If Tenant or Landlord brings any action for the
enforcement or interpretation of this Lease, including any suit by Landlord
for the recovery of Rent or possession of the Premises, the losing party
shall pay to the prevailing party a reasonable sum for attorneys' fees. The
"prevailing party" will be determined by the court before whom the action was
brought based upon an assessment of which party's major arguments or
positions taken in the suit or proceeding could fairly be said to have
prevailed over the other party's major arguments or positions on major
disputed issues in the court's decision.
(b) Should Landlord, without fault on Landlord's part, be
made a party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any person holding under or using the
Premises by license of Tenant, or for the foreclosure of any lien for labor
or material furnished to or for Tenant or any such other person or otherwise
arising out of or resulting from any act or transaction of Tenant or of any
such other person, Tenant covenants to save and hold Landlord harmless from
any judgment rendered against Landlord or the Premises or any part thereof,
and all costs and expenses, including reasonable attorneys' fees, incurred by
Landlord in or in connection with such litigation.
25.6 TIME; JOINT AND SEVERAL LIABILITY. Time is of the essence
of this Lease and each and every provision hereof, except as to the conditions
relating to the delivery of possession of the Premises to Tenant. All the terms,
covenants and conditions contained in this Lease to be performed by either
party, if such party shall consist of more than one person or organization,
shall be deemed to be joint and several, and all rights and remedies of the
parties shall be cumulative and nonexclusive of any other remedy at law or in
equity.
25.7 BINDING EFFECT; CHOICE OF LAW. The parties hereto agree that
all provisions hereof are to be construed as both covenants and conditions as
though the words imparting such covenants and conditions were used in each
separate paragraph hereof. Subject to any provisions hereof restricting
assignment or subletting by Tenant, all of the provisions hereof shall bind
and inure to the benefit of the parties hereto and their respective heirs,
legal representatives, successors and assigns. This Lease shall be governed
by the laws of the State of California.
25.8 WAIVER. No covenant, term or condition or the breach thereof
shall be deemed waived, except by written consent of
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the party against whom the waiver is claimed, and any waiver or breach of any
covenant, term or condition shall not be deemed to be a waiver of any
preceding or succeeding breach of the same or any other covenant, term or
condition. Acceptance by Landlord of any performance by Tenant after the time
the same shall have become due shall not constitute a waiver by Landlord of
the breach or default of any covenant, term or condition unless otherwise
expressly agreed to by Landlord in writing.
25.9 FORCE MAJEURE. In the event Landlord is delayed, interrupted
or prevented from performing any of its obligations under this Lease,
including its obligations under the Work Letter, and such delay, interruption
or prevention is due to fire, act of God, governmental act, strike, labor
dispute, unavailability of materials or any other cause outside the
reasonable control of Landlord, then the time for performance of the affected
obligations of Landlord shall be extended for a period equivalent to the
period of such delay, interruption or prevention. Each day of delay under
this Subsection shall result in one (1) Scheduled Commencement Adjustment Day.
25.10 LANDLORD'S LIABILITY. The term "Landlord," as used in this
Lease, shall mean only the owner or owners of the Project at the time in
question. Notwithstanding any other term or provision of this Lease, the
liability of Landlord for its obligations under this Lease is limited solely
to Landlord's interest in the Project as the same may from time to time be
encumbered, and no personal liability shall at any time be asserted or
enforceable against any other assets of Landlord or against Landlord's
stockholders, directors, officers or partners on account of any of Landlord's
obligations or actions under this Lease. In addition, in the event of any
conveyance of title to the Building or the Project, then from and after the
date of such conveyance, Landlord shall be relieved of all liability with
respect to Landlord's obligations to be performed under this Lease after the
date of such conveyance. Upon any conveyance of title to the Building or the
Project, the grantee or transferee, by accepting such conveyance, shall be
deemed to have assumed Landlord's obligations to be performed under this
Lease from and after the date of transfer, subject to the limitations on
liability set forth above in this Paragraph 25.10. In no event will Landlord
be liable under this Lease for consequential or indirect damages or loss of
profits.
25.11 CONSENTS AND APPROVALS. Wherever the consent, approval,
judgment or determination of Landlord is required or permitted under this Lease,
Landlord may exercise its good faith business judgment in granting or
withholding such consent or
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approval or in making such judgment or determination without reference to any
extrinsic standard of reasonableness, unless the provision providing for such
consent, approval, judgment or determination specifies that Landlord's
consent or approval is not to be unreasonably withheld, or that such judgment
or determination is to be reasonable, or otherwise specifies the standards
under which Landlord may withhold its consent. If it is determined that
Landlord failed to give its consent where it was required to do so under this
Lease, Tenant shall be entitled to specific performance but not to monetary
damages for such failure, unless Landlord withheld its consent maliciously
and in bad faith.
The review and/or approval by Landlord of any item to be
reviewed or approved by Landlord under the terms of this Lease or any
Exhibits hereto shall not impose upon Landlord any liability for accuracy or
sufficiency of any such item or the quality or suitability of such item for
its intended use. Any such review or approval is for the sole purpose of
protecting Landlord's interest in the Project under this Lease, and no third
parties, including Tenant or Tenant's Representatives or any person or entity
claiming by, through or under Tenant, shall have any rights hereunder.
25.12 SIGNS. Tenant shall not place or permit to be placed in
or upon the Premises where visible from outside the Premises or any part of the
Building, any signs, notices, drapes, shutters, blinds or displays of any type
without the prior consent of Landlord. Landlord shall include Tenant in the
Building directories located in the Building. Landlord reserves the right in
Landlord's sole discretion to place and locate on the roof, exterior of the
Building, and in any area of the Building not leased to Tenant such signs,
notices, displays and similar items as Landlord deems appropriate in the proper
operation of the Building.
25.13 RULES AND REGULATIONS. Tenant and Tenant's Representatives
shall observe and comply fully and faithfully with all reasonable and
nondiscriminatory rules and regulations adopted by Landlord for the care,
protection, cleanliness and operation of the Building and its tenants
including those annexed to this Lease as Exhibit D and any modification or
addition thereto adopted by Landlord, provided Landlord shall give written
notice thereof to Tenant. Landlord shall not be responsible to Tenant for the
nonperformance by any other tenant or occupant of the Building of any of said
rules and regulations.
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25.14 NOTICES. All notices or demands of any kind required or
desired to be given by Landlord or Tenant hereunder shall be in writing and
shall be personally delivered, sent in the United States mail, certified or
registered, postage prepaid, or sent by private messenger, addressed to the
Landlord or Tenant respectively at the addresses set forth below:
<TABLE>
<S> <C>
LANDLORD: TENANT:
ALEXANDER PROPERTIES COMPANY ATTENTION: MR. LANCE MORTENSEN
ONE ANNABEL LANE, SUITE 201 SATELLITE ONLINE SOLUTIONS
P.O. BOX 640 CORPORATION
SAN RAMON, CA 94583 3000 EXECUTIVE PARKWAY, SUITE 150
SAN RAMON, CA 94583
</TABLE>
or such other address as shall be established by notice to the other pursuant
to this paragraph. Notices personally delivered or delivered by private
messenger shall be deemed delivered when received at the address for such
party designated pursuant to this paragraph. Notices sent by mail shall be
deemed delivered on the earlier of the third business day following deposit
thereof with the United States Postal Service or the delivery date shown on
the return receipt prepared in connection therewith. Notwithstanding the
foregoing, Landlord shall have the right, upon notice to Tenant thereof, to
eliminate personal delivery as an effective means of notice hereunder.
25.15 AUTHORITY. If Tenant is a corporation or a partnership,
each individual executing this Lease on behalf of Tenant represents and warrants
that Tenant is a duly organized and validly existing entity, the persons signing
on behalf of Tenant, are duly authorized to execute and deliver this Lease on
behalf of Tenant and this Lease is binding upon Tenant in accordance with its
terms. If Tenant is a corporation, Tenant shall, within thirty (30) days after
execution of this Lease, deliver to Landlord a certified copy of a resolution of
the board of directors of said corporation authorizing or ratifying the
execution of this Lease.
25.16 LEASE GUARANTY. (Intentionally Deleted)
25.17 BROKERS. Tenant warrants and represents to Landlord that in
the negotiating or making of this Lease neither Tenant nor anyone acting on
its behalf has dealt with any real estate broker or finder who might be
entitled to a fee or commission for this Lease. Tenant agrees to indemnify
and hold Landlord harmless from any claim or claims, including costs,
expenses and attorney's fees incurred by Landlord asserted by any other
broker or finder for a fee or commission based upon any
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dealings with or statements made by Tenant or its agents, employees or
representatives.
25.18 RESERVED RIGHTS. Landlord retains and shall have the rights
set forth below, exercisable without notice and without liability to Tenant
for damage or injury to property, person or business and without effecting an
eviction, constructive or actual, or disturbance of Tenant's use or
possession of the Premises or giving rise to any claim for set-off or
abatement of Rent, to reduce, increase, enclose or otherwise change at any
time and from time to time the size, number, location, lay-out and nature of
the common areas and facilities and other tenancies and premises in the
Project and to create additional rentable areas through use or enclosure of
common areas.
25.19 SATELLITE ANTENNA. Subject to compliance with the provisions
of this Lease and applicable Laws, Tenant may install on the roof of the
Building at a location designated or approved by Landlord an electronic
satellite dish or antenna (not to exceed two (2) feet in diameter) and
associated cabling and equipment (collectively the "System") for data
communications used in the conduct of Tenant's business in the Premises.
Tenant's right to install and maintain any such System is non-exclusive;
Landlord may grant similar or additional rights to others. Prior to any such
installation Tenant shall furnish detailed plans and specifications for the
installation to Landlord for approval, which approval shall not be
unreasonably withheld or delayed. The size, location and installation of the
antenna shall conform to all existing and future Laws. Upon approval, the
System shall be installed, at Tenant's expense, and the installation shall be
attractively screened if so required by Landlord or applicable Laws. Landlord
may require use of a non-penetrating roof mount. If reasonably requested by
Landlord, a roofing company acceptable to Landlord shall at Tenant's expense
install an appropriate base upon which Tenant's installation shall be
mounted. All aspects and phases of Tenant's installation, including the
antenna, any associated electronic or other equipment, wiring, roof mount and
base, shall at all times be subject to supervision and approval by Landlord
(solely to protect Landlord's interests; Landlord shall have no obligation to
Tenant to exercise any such power of supervision or approval). Tenant shall
be responsible for procuring whatever consents, approvals, licenses or
permits may be required for the use or operation of Tenant's System. Landlord
makes no warranties or representations as to the permissibility of any such
installation by Tenant. All costs and expenses incurred in connection with
and such installation or proposed installation by Tenant, including any cost
or expenses incurred by Landlord in connection with review or supervision,
shall be borne by Tenant.
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Tenant shall reimburse Landlord for all charges for electricity or other
utilities used in connection with Tenant's operation of the System. Tenant shall
be permitted access to the area on the roof where any such installation may be
made as necessary for the installation and maintenance thereof. Tenant shall at
all times and at Tenant's sole expense be responsible for proper maintenance of
any such installation and all governmental permits and approvals required in
connection therewith (including compliance with any and all conditions attached
thereto). Any such installation and the roof area on which it is located shall
be deemed to be part of the Premises for purposes of Tenant's insurance and
indemnification obligations under Sections 12 and 11. If any such installation
or use thereof by Tenant interferes in any manner with the ability of other
tenants or occupants of the Building to communicate in any manner (whether by
telephone, radio, telex, telecommunication, television, microwave, computer or
otherwise), then Tenant shall do whatever is necessary to stop such interference
(including, if necessary, removing the System from the Building). Tenant may at
any time, and shall at expiration or earlier termination of the Term, remove the
System, restore the Building to the condition existing prior to Tenant's
installation, and repair any damage caused by Tenant's installation or removal.
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<PAGE>
Landlord and Tenant have executed this Lease on the date and year set
forth at the beginning of this Lease.
LANDLORD: TENANT:
ALEXANDER PROPERTIES COMPANY, SATELLITE ONLINE SOLUTIONS
A CALIFORNIA PARTNERSHIP CORPORATION
By: /s/ Judith Martin By: /s/ Lance Mortensen
----------------------------------- -------------------------------
Authorized Agent
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<PAGE>
BISHOP RANCH 8
SITE PLAN
[SITE PLAN OF EXECUTIVE PARKWAY]
EXHIBIT A - Page 1
------------------
BISHOP RANCH 8
3000 EXECUTIVE PARKWAY
SAN RAMON, CA 94583
<PAGE>
BISHOP RANCH 8
TYPICAL FIRST FLOOR PLAN
3000 EXECUTIVE PARKWAY
EXHIBIT A - Page 2
-----------------------
BISHOP RANCH 8, BLDG. Q
3000 EXECUTIVE PARKWAY
GROUND FLOOR
SUITE 150
4,326 RSF
<PAGE>
EXHIBIT B
ATTACHED TO AND FORMING A PART OF
LEASE AGREEMENT
DATED AS OF AUGUST 6, 1997
BETWEEN
ALEXANDER PROPERTIES COMPANY, AS LANDLORD,
AND
SATELLITE ONLINE SOLUTIONS CORPORATION, AS TENANT ("LEASE")
WORK LETTER
Landlord shall deliver the Premises to Tenant in an "as is"
condition, except that Landlord shall complete at its cost those items
described in Section 1. PREMISES of the Lease Document.
Landlord shall use its best efforts to deliver possession of the
Premises to Tenant on or before the Scheduled Commencement Date specified in
the Lease.
<PAGE>
EXHIBIT C - SPACE PLAN
(INTENTIONALLY DELETED)
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed, printed, affixed or otherwise displayed by Tenant on or
to any part of the outside or inside of the Building or the Premises without
the prior 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 by Landlord. Tenant shall not place anything or
allow anything to be placed near the glass of any window, door, partition or
wall which may appear unsightly from outside the Premises; provided, however
that Tenant may request Landlord to furnish and install a building standard
window covering at all exterior windows at Tenant's cost. Tenant shall not
install any radio or television antenna, loud speaker, or other device on or
about the roof area or exterior walls of the Building.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used by it for any purpose
other than for ingress to and egress from the Premises. The halls, passages,
exits, entrances, elevators, stairways, balconies and roof are not for the
use of the general public and Landlord shall in all cases retain the right to
control and prevent access thereto by all persons whose presence in the
judgment of the Landlord shall be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that
nothing herein contained shall be construed to prevent such access to the
common areas by persons with whom Tenant normally deals in the ordinary
course of its business unless such persons are engaged in illegal activities.
In no event may Tenant go upon the roof of the Building.
3. Landlord will furnish Tenant with ____________ keys to the
Premises, free of charge. Additional keys shall be obtained only from
Landlord and Landlord may make a reasonable charge for such additional keys.
No additional locking devices shall be installed in the Premises by Tenant,
nor shall any locking devices be changed or altered in any respect without
the prior written consent of Landlord. All locks installed in the Premises
excluding Tenant's vaults and safes, or special security areas (which shall
be designated by Tenant in a written notice to Landlord), shall be keyed to
the Building master key system. Landlord may make
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reasonable charge for any additional lock or any bolt (including labor)
installed on any door of the Premises. Tenant, upon the termination of its
tenancy, shall deliver to Landlord all keys to doors in 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 deposited therein and Tenant
shall bear the expense of any breakage, stoppage or damage resulting from its
violation of this rule.
5. Tenant shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, woodwork or plaster or in any way
deface the Premises or any part thereof. No boring, cutting or stringing of
wires or laying of linoleum or other similar floor coverings or installation of
wallpaper or paint shall be permitted except with the prior written consent of
the Landlord and as the Landlord may direct.
6. Tenant may use the freight elevators in accordance with such
reasonable scheduling as Landlord shall deem appropriate. Tenant shall
schedule with Landlord, by written notice given no less than forty-eight (48)
hours in advance, its move into or out of the Building which moving shall
occur after 5:00 p.m. or on weekend days if required by Landlord; and Tenant
shall reimburse Landlord upon demand for any additional security or other
charges incurred by Landlord as a consequence of such moving. The persons
employed by Tenant to move equipment or other items in or out of the Building
must be acceptable to Landlord. The floors, corners and walls of elevators
and corridors used for moving of equipment or other items in or out of the
Project must be adequately covered, padded and protected and, Landlord may
provide such padding and protection at Tenant's expense if Landlord
determines that such measures undertaken by Tenant or Tenant's movers are
inadequate. Landlord shall have the right to prescribe the weight, size and
position of all safes and other heavy equipment or furnishings brought into
the Building and also the times and manner of moving the same in or out of
the Building. Safes or other heavy objects shall, if considered necessary by
Landlord, stand on wood strips 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. There shall not be used in any space, or
in the public halls of the Building, either by any Tenant or others, any hand
trucks except those equipped with rubber tires and side guards.
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<PAGE>
7. Tenant shall not employ any person or persons other than the
janitor of Landlord for the purpose of cleaning the Premises unless otherwise
agreed to by Landlord in writing. Except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall be
permitted to enter the Building for the purpose of cleaning the same. Tenant
shall not cause any unnecessary labor by reason of Tenant's carelessness or
indifference in the preservation of good order and cleanliness. Landlord
shall in no way be responsible to any Tenant for any loss of property on the
Premises, however occurring, or for any damage done to the effects of Tenant
by the janitor or any other employee or any other person. Janitor service
will not be furnished on nights when rooms are occupied after 9:30 p.m.
Window cleaning shall be done only by Landlord.
8. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or flammable, combustible or noxious fluid or material, or
use any method of heating or air conditioning other than that supplied by
Landlord. Tenant shall not use, keep 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. Tenant shall not make or permit to be made any unseemly or
disturbing noises or disturb or interfere with occupants of this or
neighboring Buildings or premises or those having business with them whether
by the use of any musical instrument, radio, phonograph, unusual noise, or in
any other way.
9. The Premises shall not be used for the storage of merchandise
except as such storage may be incidental to the use of the Premises for
general office purposes. Tenant shall not occupy or permit any portion of the
Premises to be occupied for the manufacture or sale of liquor, narcotics, or
tobacco in any form. The Premises shall not be used for lodging or sleeping
or for any illegal purposes. No cooking shall be done or permitted by Tenant
on the Premises, except that use by Tenant of Underwriters' Laboratory
approved portable equipment for brewing coffee, tea and similar beverages and
of microwave ovens approved by Landlord shall be permitted provided that such
use is in accordance with all applicable federal, state and local laws,
codes, ordinances, rules and regulations.
10. Landlord will direct electricians as to where and how telephone
wires and any other cables or wires are to be installed. No boring or cutting
for cables or wires will be allowed without
3
<PAGE>
the consent of Landlord. The location of telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the approval of
Landlord.
11. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by the Landlord. Tenant shall bear the expense of
repairing any damage resulting from a violation of this rule or removal of any
floor covering.
12. No furniture, packages, supplies, equipment or merchandise will be
received in the Building or carried up or down in the elevators, except between
such hours and in such elevators as shall be designated by Landlord. In its use
of such, Tenant shall not obstruct or permit the obstruction of walkways,
ingress and egress to the Building and tenant spaces and at no time shall Tenant
park vehicles which will create traffic and safety hazards or create other
obstructions.
13. On Saturdays, Sundays and legal holidays all day, and on other
days between the hours of 7:00 p.m. and 7:00 a.m. the 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
or is properly identified. Landlord 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. Tenant assumes all responsibility for protecting its Premises
from theft, robbery and pilferage. 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 the
doors or otherwise, for the safety of the Tenants and protection of property
in the Building and the Building. Landlord reserves the right to close and
keep locked all entrance and exit doors of the Building on Saturdays, Sundays
and legal holidays all day, and on other days between the hours of 7:00 p.m.
and 7:00 a.m. and during such further hours as Landlord may deem advisable
for the adequate protection of said Building and the property of its tenants,
and to implement such additional security measures as Landlord deems
appropriate for such purposes. The cost of such additional security measures,
as reasonably allocated by Landlord to Tenant, shall be reimbursed by Tenant
within thirty (30) days after receipt of Landlord's demand therefor.
14. Tenant shall see that the doors of the Premises are closed and
securely locked before leaving the Building and must
4
<PAGE>
observe strict care and caution that all water faucets, water apparatus and
utilities are entirely shut off before Tenant or Tenant's employees leave the
Building, and that all electricity shall likewise be carefully shut off, so
as to prevent waste or damage and for any default or carelessness Tenant
shall make good all injuries sustained by other tenants or occupants of the
Building or Landlord. On multiple-tenancy floors, all tenants shall keep the
doors to the Building corridors closed at all times except for ingress and
egress, and all tenants shall at all times comply with any rules and orders
of the fire department with respect to ingress and egress.
15. 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 regulations of the Building.
16. Landlord shall attend to the requests of Tenant after notice
thereof from Tenant by telephone, in writing or in person at the Office of
the Landlord. Employees of Landlord shall not perform any work or do anything
outside of their regular duties unless under special instructions from the
Landlord.
17. No vending machine or machines of any description shall be
installed, maintained or operated upon the Premises without the written
consent of the Landlord.
18. Tenant agrees that it shall comply with all fire and security
regulations that may be issued from time-to-time by Landlord and Tenant also
shall provide Landlord with the name of a designated responsible employee to
represent Tenant in all matters pertaining to such fire or security
regulations.
19. 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 those Rules and
Regulations in favor of any other tenant or tenants, nor prevent Landlord
from thereafter enforcing any such Rules and Regulations against any or all
of the tenants of the Project.
20. Canvassing, soliciting, peddling or distribution of handbills or
other written material in the Building and Project is prohibited and Tenant
shall cooperate to prevent same.
21. Landlord reserves the right to (i) select the name of the Project
and Building and to make such change or changes of
5
<PAGE>
name, street address or suite numbers as it may deem appropriate from time to
time, (ii) grant to anyone the exclusive right to conduct any business or
render any service in or to the Building and its tenants, provided such
exclusive right shall not operate to require Tenant to use or patronize such
business or service or to exclude Tenant from its use of the Premises
expressly permitted in the Lease, and (iii) reduce, increase, enclose or
otherwise change at any time and from time to time the size, number,
location, lay-out and nature of the common areas and facilities and other
tenancies and premises in the Project and to create additional rentable areas
through use or enclosure of common areas. Tenant shall not refer to the
Project by any name other than the name as selected by Landlord (as same may
be changed from time to time), or the postal address, approved by the United
States Post Office. Without the written consent of Landlord, Tenant shall not
use the name of the Building or Bishop Ranch Business Park in connection with
or in promoting or advertising the business of Tenant or in any respect
except as Tenant's address.
22. Tenant shall store all its trash and garbage within the Premises
until removal of same to such location in the Project as may be designated
from time to time by Landlord. No material shall be placed in the Project
trash boxes or receptacle 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 of San Ramon without being in violation of
any law or ordinance governing such disposal.
23. Landlord shall furnish heating and air conditioning during the
hours of 7:00 a.m. and 7:00 p.m., Monday through Friday, except for holidays.
In the event Tenant requires heating and air conditioning during off hours,
Saturdays, Sundays or holidays, Landlord shall on notice provide such
services at the rate established by Landlord from time-to-time. Landlord
shall have the right to control and operate the public portions of the
Building and the public facilities, and heating and air conditioning, as well
as facilities furnished for the common use of the Tenants, in such manner as
it deems best for the benefit of the Tenants generally.
24. The directory of the Building will be provided for the display of
the name and location of tenants and Landlord reserves the right to exclude any
other names therefrom. Any additional name that Tenant shall desire to place
upon the directory must first be approved by Landlord and, if so approved, a
charge will be made for each such name.
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<PAGE>
25. Except with the prior written consent of Landlord, Tenant shall
not sell, or permit the sale from the Premises of, or use or permit the use
of any sidewalk or common area adjacent to the Premises for the sale of
newspapers, magazines, periodicals, theater tickets or any other goods,
merchandise or service, nor shall Tenant carry on, or permit or allow any
employee or other person to carry on, business in or from the Premises for
the service or accommodation of occupants of any other portion of the
Building, nor shall the Premises be used for manufacturing of any kind, or
for any business or activity other than that specifically provided for in
Tenant's lease.
26. The word "Tenant" occurring in these Rules and Regulations shall
mean Tenant and Tenant's Representatives. The word "Landlord" occurring in these
Rules and Regulations shall mean Landlord's assigns, agents, clerks, employees
and visitors.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: Judith Martin By: Lance Mortensen
------------------------------- ------------------------
Date: 8/6/97 Date: 8-3-97
----------------------------- ----------------------
7
<PAGE>
EXHIBIT E
JANITORIAL SPECIFICATIONS
The following specific janitorial services will be provided in accordance with
provisions of Paragraph 7.1, Landlord's Obligations:
OFFICE AREAS (DAILY)
1. Empty all waste baskets and disposal cans, if liners used, replace as
necessary.
2. Spot dust desks, chairs, file cabinets, counters and furniture.
3. Spot vacuum all carpets and walk-off mats; spot as necessary.
4. Sweep all hard surface floors with treated dust mop.
OFFICE AREAS (WEEKLY)
1. Vacuum carpets completely, including around base boards, etc.
2. Perform low dusting of furniture.
3. Dust window sills and ledges.
OFFICE AREAS (QUARTERLY)
1. Perform all high dusting of doors, sashes, moldings, etc.
2. Dust venetian blinds as needed.
OFFICE AREA CORRIDORS AND LOBBIES (DAILY SERVICE)
1. Vacuum carpets and dust mop any hard floors.
2. Spot clean carpets of all spillage.
3. Clean all thresholds.
OFFICE AREA CORRIDORS AND LOBBIES (WEEKLY)
1. Perform all high dusting of doors, sashes, moldings, etc.
2. Vacuum and clean all ceiling vents.
3. Polish any metal railings, placards, etc.
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STAIRWAYS (DAILY)
1. Sweep all hard surface steps.
2. Dust banisters.
STAIRWAYS (WEEKLY)
1. Sweep all hard surfaces.
2. Spot mop all spills as needed.
RESTROOMS COMMON AREA (DAILY SERVICE)
1. Empty all waste containers and replace liners as needed.
2. Clean all metal, mirrors, and fixtures.
3. Sinks, toilet bowls and urinals are to be kept free of scale.
4. Clean all lavatory fixtures using disinfectant cleaners.
5. Wash and disinfect underside and tops of toilet seats.
6. Wipe down walls around urinals.
7. Refill soap, towel, and tissue dispensers.
8. Wet mop tile floors with disinfectant solution.
9. Refill sanitary napkin machines as necessary.
RESTROOMS COMMON AREA (WEEKLY)
1. Perform high dusting and vacuum vents.
2. Use germicidal solution in urinal traps, lavatory traps, and floor drains.
RESTROOMS COMMON AREA (MONTHLY)
1. Scrub floors with power machine.
2. Wash down all ceramic tile and toilet compartments.
ELEVATORS (DAILY)
1. Vacuum floors.
2. Clean thresholds.
3. Spot walls and polish surfaces.
GENERAL
All glass entry doors to offices, corridors, or lunch rooms are to be cleaned as
necessary.
2
<PAGE>
EXHIBIT F
DOOR SIGN, DIRECTORY STRIP AND MAIL BOX REQUEST
1. I, the undersigned, hereby authorize Landlord to order one door sign
of ( ) wood, (x) vinyl, ( ) chrome. The business name on it shall be:
----------------------------------------------------------------------------
2. The directory strip shall read:
SATELLITE ONLINE SOLUTIONS
----------------------------------------------------------------------------
3. The mail box strip shall read:
----------------------------------------------------------------------------
Lance Mortensen 8-3-97
----------------------------------------- ---------------------
Signature Date
Street Address: 3000 Executive Parkway
-------------------------------------
Suite Number: 150
-------------------------------------
Complex: Bishop Ranch 8, Building Q
-------------------------------------
<PAGE>
ALEXANDER
PROPERTIES COMPANY
One Annabel Lane Post Office Box 640 San Ramon, California 94583 Fax
510/866-1330 Tel 510/866-0100
EXHIBIT G
COMMENCEMENT OF LEASE
It is hereby agreed to that (a) the "Commencement Date" under that certain
Lease dated by and between ALEXANDER PROPERTIES COMPANY as Landlord and
SATELLITE ONLINE SOLUTIONS CORPORATION as Tenant, covering Premises located
at 3000 EXECUTIVE PARKWAY, SUITE 150, is , 1997, (b)
the "Expiration Date" thereof is 5:00 P.M. on , 1997, and (c)
Landlord has completed all of its construction obligations under the Work
Letter.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: By:
----------------------------------- ------------------------------
Date: Date:
--------------------------------- -----------------------------
Developing A Better Way Of Life Since Nineteen Fifty-One.
<PAGE>
FIRST LEASE ADDENDUM
THIS FIRST LEASE ADDENDUM IS MADE AND ENTERED INTO THIS 7th DAY OF
August, 1998, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA
PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND SATELLITE ONLINE
SOLUTIONS CORPORATION (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED
AUGUST 6, 1997, (HEREINAFTER REFERRED TO AS "LEASE") IN THE FOLLOWING MANNER:
Section 1. PREMISES
Subs/Par 1.1 DESCRIPTION. The size of the Premises is hereby
increased by 1,525 rentable square feet, located on the SECOND floor of 3000
EXECUTIVE PARKWAY, SUITE 218 (hereinafter referred to as "EXPANSION SPACE A")
for a new total of 5,851 rentable square feet as shown on the attached
Exhibit A, effective AUGUST 7, 1998 (hereinafter referred to as the
"EFFECTIVE DATE").
Subs/Par 1.2 WORK OF IMPROVEMENT. Landlord agrees to shampoo the
carpet. Except for shampooing, Tenant shall occupy the Premises in as-is
condition.
Section 3. RENT
Subsection 3.1 RENT. The Base Rent shall hereby increase from NINE
THOUSAND TWELVE AND 50/100 DOLLARS ($9,012.50) per month to TWELVE THOUSAND ONE
HUNDRED EIGHTY-NINE AND 58/100 DOLLARS ($12,189.58) per month effective on the
EFFECTIVE DATE.
Section 4. SECURITY DEPOSIT
Concurrently with Tenant's execution of this FIRST Lease Addendum,
Tenant shall deposit with Landlord the sum of THREE THOUSAND ONE HUNDRED
SEVENTY-SEVEN AND 08/100 DOLLARS ($3,177.08) representing an increase in the
Security Deposit from EIGHTEEN THOUSAND TWENTY-FIVE AND 00/100 DOLLARS
($18,025.00) to TWENTY-ONE THOUSAND TWO HUNDRED TWO AND 08/100 DOLLARS
($21,202.08).
1
<PAGE>
Section 5. TAX AND BUILDING OPERATING COST INCREASES
Subsection 5.2 TENANT'S SHARE. On the EFFECTIVE DATE Tenant's Share
of Building Operating Costs shall be increased from 2.05% to 2.78% (the
Tenant's Share for EXPANSION SPACE A being .73%), and the Expense Stop for
EXPANSION SPACE A shall be $7.75 per rentable square foot per annum.
With the exception of the modifications set out above, all other terms,
covenants and agreements of the Lease shall remain in full force and effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, SATELLITE ONLINE SOLUTIONS
A CALIFORNIA PARTNERSHIP CORPORATION
By: /s/ Judith Martin By: /s/ John Evleth
--------------------------------- -----------------------------
Title: CFO Title: CFO
--------------------------------- --------------------------
Date: 8/17/98 Date: August 11, 1998
--------------------------------- --------------------------
Regarding:
Existing Premises:
Bishop Ranch 8, Building Q
3000 Executive Parkway, Suite 150
San Ramon, CA 94583
Expansion Space A:
Bishop Ranch 8, Building Q
3000 Executive Parkway, Suite 218
San Ramon, CA 94583
2
<PAGE>
BISHOP RANCH 8
TYPICAL SECOND FLOOR PLAN
3000 EXECUTIVE PARKWAY
[GRAPHIC]
EXHIBIT A
BISHOP RANCH, BUILDING Q
3000 EXECUTIVE PARKWAY
EXISTING PREMISES: SUITE 150 4,326 rsf
EXPANSION PREMISES: SUITE 218 1,525 rsf
---------
TOTAL NEW PREMISES 5,851 rsf
<PAGE>
SECOND LEASE ADDENDUM
THIS SECOND LEASE ADDENDUM IS MADE AND ENTERED INTO THIS 15th DAY OF
September, 1998, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA
PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND SATELLITE ONLINE
SOLUTIONS CORPORATION (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED
AUGUST 6, 1997, AND FIRST LEASE ADDENDUM DATED AUGUST 7, 1998, (HEREINAFTER
COLLECTIVELY REFERRED TO AS "LEASE") IN THE FOLLOWING MANNER:
Section 1. PREMISES
Subsection 1.1 DESCRIPTION. The "Effective Date" is hereby
changed from August 7, 1998 to September 1, 1998.
With the exception of the modifications set out above, all other
terms, covenants and agreements of the Lease shall remain in full force and
effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, SATELLITE ONLINE SOLUTIONS CORP.
A CALIFORNIA PARTNERSHIP
By: /s/ Judith K. Martin By: /s/ Lance Mortensen
--------------------------- ---------------------------
Title: CFO Title: CEO
------------------------ ------------------------
Date: 9/15/98 Date: 9-2-98
------------------------ ------------------------
Regarding:
Bishop Ranch 8, Building Q
3000 Executive Parkway Suites
150 and 218
San Ramon, CA 94583
<PAGE>
THIRD LEASE ADDENDUM
THIS THIRD LEASE ADDENDUM IS MADE AND ENTERED INTO THIS 14th DAY OF
October , 1998, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA
PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND SATELLITE ONLINE
SOLUTIONS CORPORATION (HEREINAFTER REFERRED TO AS "TENANT") .
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED
AUGUST 6, 1997, FIRST LEASE ADDENDUM DATED AUGUST 7, 1998, AND SECOND LEASE
ADDENDUM DATED SEPTEMBER 15, 1998, (HEREINAFTER COLLECTIVELY REFERRED TO AS
"LEASE") IN THE FOLLOWING MANNER:
Section 1. PREMISES
Subsection 1.1 DESCRIPTION. The size of the Premises is hereby
decreased by 1,525 rentable square feet, located on the SECOND FLOOR of 3000
EXECUTIVE PARKWAY, SUITE 218 (referred to as "EXPANSION SPACE A") and increased
by 4,648 rentable square feet, located on the GROUND FLOOR of 3000 EXECUTIVE
PARKWAY, SUITE 100 (hereinafter referred to as "EXPANSION SPACE B") for a new
total of 8,974 rentable square feet as shown on the attached Exhibit A,
effective upon the occupancy of EXPANSION SPACE B as evidenced by the execution
of Exhibit G attached (hereinafter referred to as the "EFFECTIVE DATE").
Subsection 1.2 WORK OF IMPROVEMENT. Landlord agrees to provide the
improvements as shown on the attached Exhibit C, however the cost of electrical
work in excess of TEN THOUSAND FOUR HUNDRED SIXTY-SEVEN AND 50/100 DOLLARS
($10,467.50) shall be paid for by Tenant. In addition, any changes to the plan
which increase the cost of the work shall be paid by Tenant. Tenant shall,
within thirty (30) days from receipt of Landlord's invoice for any such excess
cost, promptly pay any excess in progress payments which shall be due and
payable fifty percent (50%) of the total excess prior to construction, forty
percent (40%) prior to occupancy, and the balance (ten percent (10%)) due upon
the occupancy of Expansion Space B as evidenced by the execution of Exhibit G
attached.
<PAGE>
Section 3. RENT
Subsection 3.1 RENT. The Base Rent shall hereby increase from TWELVE
THOUSAND ONE HUNDRED EIGHTY-NINE AND 58/100 DOLLARS ($12,189.58) per month to
NINETEEN THOUSAND FOUR HUNDRED SEVENTY AND 50/100 DOLLARS ($19,470.50) per month
effective on the EFFECTIVE DATE.
Section 4. SECURITY DEPOSIT
Concurrently with Tenant's execution of this THIRD Lease Addendum,
Tenant shall deposit with Landlord the sum of SEVEN THOUSAND TWO HUNDRED EIGHTY
AND 92/100 DOLLARS ($7,280.92) representing an increase in the Security Deposit
from TWENTY-ONE THOUSAND TWO HUNDRED TWO AND 08/100 DOLLARS ($21,202.08) to
TWENTY-EIGHT THOUSAND FOUR HUNDRED EIGHTY-THREE AND 00/100 DOLLARS ($28,483.00).
Section 5. TAX AND BUILDING OPERATING COST INCREASES
Subsection 5.2 TENANT'S SHARE. On the EFFECTIVE DATE Tenant's Share of
Building Operating Costs shall be increased from 2.78% to 4.26% (the Tenant's
Share for EXPANSION SPACE B being 2.21%), and the Expense Stop for EXPANSION
SPACE B shall be $7.85 per rentable square foot per annum.
With the exception of the modifications set out above, all other terms,
covenants and agreements of the Lease shall remain in full force and effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, SATELLITE ONLINE SOLUTIONS CORP.
A CALIFORNIA PARTNERSHIP
By: Judith K. Martin By: Lance Mortensen
--------------------------- ---------------------------------
Title: CFO Title CEO
------------------------ -------------------------------
Date: 10/14/98 Date:
------------------------ ------------------------------
Move from Existing Premises:
Expansion Space A
3000 Executive Parkway, Suite 218
San Ramon, CA 94583
Move to New Premises:
Expansion Space B
3000 Executive Parkway, Suite 100
San Ramon, CA 94583
2
<PAGE>
[GRAPHIC]
EXHIBIT A
- ---------
NEW PREMISES:
BISHOP RANCH 8, BUILDING Q
3000 EXEXCUTIVE PARKWAY, SUITE 100
SAN RAMON, CA 94583
4,648 rsf
<PAGE>
ALEXANDER
PROPERTIES COMPANY
One Annabel Lane Post Office Box 640 San Ramon, California 94583 Fax
510/866-1330 Tel 510/866-0100
EXHIBIT G
COMMENCEMENT OF THIRD LEASE ADDENDUM
It is hereby agreed to that as of , 199 , EXPANSION SPACE B located
at 3000 EXECUTIVE PARKWAY, SUITE 100, described in the THIRD Lease Addendum
dated , 199 , by and between ALEXANDER PROPERTIES COMPANY as
Landlord and SATELLITE ONLINE SOLUTIONS CORPORATION as Tenant, were occupied
by Tenant and that said THIRD Lease Addendum is in full force and effect.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: By:
--------------------------- --------------------------
Date: Date:
------------------------- ------------------------
Developing A Better Way Of Life Since Nineteen Fifty-One.
<PAGE>
FOURTH LEASE ADDENDUM
THIS FOURTH LEASE ADDENDUM IS MADE AND ENTERED INTO THIS 22nd DAY OF
October, 1998, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY, A CALIFORNIA
PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND SATELLITE ONLINE
SOLUTIONS CORPORATION (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED
AUGUST 6, 1997, FIRST LEASE ADDENDUM DATED AUGUST 7, 1998, SECOND LEASE ADDENDUM
DATED SEPTEMBER 15, 1998, AND THIRD LEASE ADDENDUM DATED OCTOBER 14, 1998
(HEREINAFTER COLLECTIVELY REFERRED TO AS "LEASE") IN THE FOLLOWING MANNER:
Section 1. PREMISES
Subsection 1.1 DESCRIPTION. The Suite number for EXPANSION SPACE B
as referred to in the Third Lease Addendum, located in 3000 EXECUTIVE
PARKWAY, is hereby changed from SUITE 100 to SUITE 130. (The location of the
Premises shall remain unchanged.)
With the exception of the modifications set out above, all other terms,
covenants and agreements of the Lease shall remain in full force and effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, SATELLITE ONLINE SOLUTIONS CORP.
A CALIFORNIA PARTNERSHIP
By: /s/ Judith K. Martin By: /s/ John Evleth
---------------------------- -----------------------------
Title: CFO Title: CFO
------------------------- --------------------------
Date: 10/22/98 Date:
------------------------- --------------------------
Regarding:
Bishop Ranch 8, Building Q
3000 Executive Parkway
Existing Premises, Suite 150
Rename Expansion Space B
from Suite 100 to Suite 130
San Ramon, CA 94583
<PAGE>
FIFTH LEASE ADDENDUM
THIS FIFTH LEASE ADDENDUM IS MADE AND ENTERED INTO THIS DAY OF
, 1999, BY AND BETWEEN ALEXANDER PROPERTIES COMPANY,
A CALIFORNIA PARTNERSHIP (HEREINAFTER REFERRED TO AS "LANDLORD") AND
ZAPME! CORPORATION (HEREINAFTER REFERRED TO AS "TENANT").
IT IS AGREED BETWEEN LANDLORD AND TENANT TO MODIFY THE LEASE DATED
AUGUST 6, 1997, FIRST LEASE ADDENDUM DATED AUGUST 7, 1998, SECOND LEASE ADDENDUM
DATED SEPTEMBER 15, 1998, THIRD LEASE ADDENDUM DATED OCTOBER 14, 1998 AND FOURTH
LEASE ADDENDUM DATED OCTOBER 22, 1998 (HEREINAFTER COLLECTIVELY REFERRED TO AS
"LEASE") IN THE FOLLOWING MANNER:
Section 1. PREMISES
Subsection 1.1 DESCRIPTION. The size of the Premises is hereby
increased by 2,949 rentable square feet, located on the FOURTH floor of 3000
EXECUTIVE PARKWAY, SUITE 440 (hereinafter referred to as "EXPANSION SPACE C")
for a new total of 11,923 rentable square feet as shown on the attached Exhibit
A, effective MAY 1, 1999 (hereinafter referred to as the "EFFECTIVE DATE") .
Subsection 1.2 WORK OF IMPROVEMENT. Landlord agrees to shampoo the
carpet prior to Tenant's occupancy. Except for shampooing of the carpet, Tenant
shall occupy the Premises in its as-is condition. If applicable, the cost of any
additional work shall be paid by Tenant. Tenant shall, within thirty (30) days
from receipt of Landlord's invoice for any such excess cost, promptly pay any
excess in progress payments which shall be due and payable fifty percent (50%)
of the total excess prior to construction, forty percent (40%) prior to
occupancy, and the balance (ten percent (10%)) due upon completion of the punch
list as described in Section 1.2 of Exhibit B attached hereto.
1
<PAGE>
Section 3. RENT
Subsection 3.1 RENT. The Base Rent shall hereby increase from NINETEEN
THOUSAND FOUR HUNDRED SEVENTY AND 50/100 DOLLARS ($19,470.50) per month to
TWENTY-SIX THOUSAND ONE HUNDRED FIVE AND 75/100 DOLLARS ($26,105.75) per month
effective MAY 1, 1999 (the EFFECTIVE DATE).
Section 4. SECURITY DEPOSIT
Concurrently with Tenant's execution of this FIFTH Lease Addendum,
Tenant shall deposit with Landlord the sum of SIX THOUSAND SIX HUNDRED
THIRTY-FIVE AND 25/100 DOLLARS ($6,635.25) representing an increase in the
Security Deposit from TWENTY-EIGHT THOUSAND FOUR HUNDRED EIGHTY-THREE AND
00/100 DOLLARS ($28,483.00) to THIRTY-FIVE THOUSAND ONE HUNDRED EIGHTEEN AND
25/100 DOLLARS ($35,118.25).
Section 5. TAX AND BUILDING OPERATING COST INCREASES
Subsection
Subsection 5.2 TENANT'S SHARE. On the EFFECTIVE DATE, Tenant's Share of
Building Operating Costs shall be increased from 4.26% to 5.66% (the Tenant's
Share for EXPANSION SPACE C being 1.40%), and the Expense Stop for EXPANSION
SPACE C shall be $8.00 per rentable square foot per annum.
2
<PAGE>
With the exception of the modifications set out above, all other
terms, covenants and agreements of the Lease shall remain in full force and
effect.
LANDLORD TENANT
ALEXANDER PROPERTIES COMPANY, ZAPME! CORP.
A CALIFORNIA PARTNERSHIP
By: By: /s/ Bruce D. Bower
---------------------------- -----------------------
Title: Title: VP
------------------------- --------------------
Date: Date: 4-16-99
------------------------- --------------------
Regarding:
Existing Premises:
Bishop Ranch 8, Building Q
3000 Executive Parkway
Suites 150/130
San Ramon, CA 94583
Expansion Space C:
Bishop Ranch 8, Building Q
3000 Executive Parkway, Suite 440
San Ramon, CA 94583
3
<PAGE>
EXHIBIT A
---------
Expansion Space C
3000 Executive Parkway
4th Floor, Suite 440
2,949 rsf
[GRAPHIC]
<PAGE>
ALEXANDER
PROPERTIES COMPANY
One Annabel Lane Post Office Box 640 San Ramon California 94563 Fax 510
866-1330 Tel 510 866-0100
EXHIBIT G
COMMENCEMENT OF FIFTH LEASE ADDENDUM
It is hereby agreed to that as of , 1999, EXPANSION SPACE C
located at 3000 EXECUTIVE PARKWAY, SUITE 440, described in the Fifth Lease
Addendum dated , 1999, by and between ALEXANDER PROPERTIES COMPANY
as Landlord and SATELLITE ONLINE SOLUTIONS CORPORATION as Tenant, were
occupied by Tenant and that said FIFTH Lease Addendum is in full force and
effect.
ACKNOWLEDGED AND ACCEPTED:
Landlord: Tenant:
By: By:
-------------------------------- ----------------------------
Date: Date:
------------------------------ --------------------------
Developing A Better Way Of Life Since Nineteen Fifty-One
<PAGE>
Exhibit 10.16
FORM OF
SUBSCRIPTION AGREEMENT
GENERAL TERMS
This sets forth the general terms of the Subscription Agreement (the
"Agreement") under which [Generic School District ("Generic")] at [ADDRESS]
will participate in the ZapMe!-TM- netspace program from the ZapMe! Corporation
at 3000 Executive Parkway, Suite 150, San Ramon, CA 94583 ("ZapMe!") for a
period of three full school years, plus the partial school year in which
installation occurs, (the "Initial Term"), subject to the extension as
hereinafter set forth. These general terms form part of the Subscription
Agreement between [Generic] and ZapMe!.
A. INTRODUCTION
ZapMe! will provide to [Generic] the following equipment, software, and
services (collectively called the "System") without charge or fee:
1. Installations of a local area network at various agreed-on locations
within the schools that are part of or belong to [Generic] or over
which [Generic] exercises administrative control. Included in each
installation is the proposed equipment listed on Exhibit A ("the
Equipment") subject to upgrades, additions and changes from time to
time by ZapMe!, at its sole discretion.
2. Software permitting the System to be operated to ZapMe! netspace
specifications.
3. Support and maintenance services as ZapMe! in its reasonable
discretion shall determine is necessary to keep the System
operational.
4. Initial training on the use of the System for [Generic's] faculty
staff, and follow-on training as ZapMe! in its reasonable discretion
shall determine is necessary or appropriate.
ZapMe!'s obligations under this Agreement are subject to [Generic] meeting each
and every obligation of [Generic] set forth in this Agreement.
B. ZAPME!'S OBLIGATIONS
ZapMe! agrees to perform the following with regard to the System:
1. ZapMe! shall deliver and install the Equipment at mutually agreed upon
locations.
2. ZapMe! shall provide reasonable maintenance and repair of the
Equipment against normal wear and tear (not including damage caused by
vandalism, misuse and the like).
3. ZapMe! shall perform a "Site Survey" to determine (in its sole
discretion) whether the location selected by [Generic] is adequate for
the installation and operation of the Equipment and the System.
4. ZapMe! shall provide a toll-free number so [Generic] can obtain
support, report malfunctions, and otherwise contact ZapMe!-TM-
concerning the System.
5. ZapMe! shall require that its employees, agents, and contractors abide
by all of [Generic's] rules and policies concerning conduct while on
any [Generic] school campus(s), including "checking in" at the main
office prior to entering campus grounds or buildings.
C. [GENERIC'S] OBLIGATIONS
[Generic] agrees to perform the following with regard to the System.
1. With regard to the installation of the Equipment, [Generic] agrees to
provide the following: (i) adequate space and power for the computer
workstations and printer (if printer is provided); (ii) secure
location for the network server, its switches, hubs and cabling, with
adequate power and a dedicated standard analog telephone line that can
be connected to the Internet; (iii) rooftop or other location for the
satellite antenna with a clear and unobstructed path for its signal
and a means to securely attach the antenna; (iv) the ability to
connect all components of the System with required cabling at a
reasonable cost, as determined by ZapMe! in its sole discretion; (v)
any other requirements, as determined by ZapMe!, in its sole
discretion. If at any time any of the conditions contained is this
paragraph cannot be met or maintained by [Generic] then ZapMe! at its
sole discretion will have the right to terminate this Agreement and
[Generic] shall provide ZapMe! reasonable access to its facilities to
retrieve any Equipment.
2. [Generic] agrees to use its best efforts to protect the Equipment and
the software from abuse, damage, destruction, misuse, including but
not limited to unauthorized access, unauthorized duplication of files,
unauthorized alteration or circumvention of protective barriers in the
System, theft, vandalism, fire and flood damage.
3. [Generic] agrees to appoint a faculty member or members who will act
as the System Administrator, upon whom ZapMe! may rely on as being the
contact person for ZapMe!, with authority on behalf of [Generic] on
all matters concerning the System. The System Administrator shall be
reasonably available at all times.
4. [Generic] agrees to give ZapMe! reasonable access to the Equipment for
the purpose of maintenance, repair, making modifications, installing
upgrades, and generally observing the usage of the System.
5. [Generic] agrees to insure all Equipment located at or on [Generic's]
site against damage as a result of vandalism, theft, fire damage,
flood and/or earthquake, power surges and/or lightning strikes.
[Generic] will add ZapMe! as an additional
Version 2.12
<PAGE>
insured under such policy(ies) or programs and will provide ZapMe!
with a certificate thereof or other written evidence indicating ZapMe!
shall be a beneficiary of such insurance within thirty (30) days of
[Generic's] execution hereof.
6. [Generic] agrees to allow ZapMe! to use its name, photographs, videos,
or recordings of the System and the use of the System, including
interviews with students and faculty for publication in general media
and/or solicitation of corporate Sponsors of the System, subject to
[Generic's] privacy policy concerning students' and faculty's personal
information and applicable law.
7. [Generic] agrees that commencing sixty (60) days after completion of
the installation of the Equipment and activation of the System
[Generic] will maintain an average of four (4) hours of usage per
computer terminal per school day, excluding vacation days, weekends,
summer vacations and days that the System is not in Service.
8. [Generic] agrees to use the Equipment only for the System and not for
any other use without the prior written consent of ZapMe!.
9. [Generic] agrees not to install, change, or delete any software on the
Equipment without the prior written consent of ZapMe!.
10. [Generic] agrees if a printer is provided with the System, [Generic]
will pay for the cost of consumable supplies such as paper and ink or
toner replacement cartridges.
11. [Generic] agrees not to rent, lease, or allow the usage of the
Equipment or the System by any third party without the prior written
consent of ZapMe!. For the purpose of this clause "third party" shall
mean anyone other than [Generic's] students and their parents,
faculty, employees, and any user that is participating in a [Generic]
sponsored community educational program.
12. [Generic] agrees to notify ZapMe! within 48 hours of finding a
malfunction or other problem with the Equipment or the System.
13. [Generic] shall identify the presence of asbestos on [Generic's]
premises or in [Generic's] facilities. [Generic] acknowledges that if
during the installation of the Equipment ZapMe! encounters asbestos in
[Generic's] premises or facilities which interferes with installation,
either [Generic] or ZapMe! may terminate this Agreement.
14. [Generic] is responsible for obtaining zoning and building permits or
waivers when required. This Agreement is not binding on ZapMe! unless
[Generic] furnishes the required zoning and building permits or
waivers or satisfactory evidence that the permits or waivers are not
required.
15. [Generic] agrees that all users will be required to abide by ZapMe's
terms of use, as expressed in ZapMe!'s "User Agreement" that all users
shall be required to agree to before accessing the System. A copy of
the current User Agreement is attached hereto as Exhibit B. [Generic]
acknowledges that as the System is refined and upgraded, the terms and
conditions of the User Agreement may be modified at the sole
discretion of ZapMe!. [Generic] hereby grants ZapMe! permission to
monitor usage of the System, including but not limited to usage by
[Generic's] students and faculty, subject to ZapMe!'s privacy policy.
16. [GENERIC] AGREES THAT IT WILL TRAIN ITS FACULTY TO WARN STUDENTS PRIOR
TO USING THE SYSTEM AGAINST ACTUALLY MEETING WITH PEOPLE THEY HAVE MET
ON THE NETWORK WITHOUT THE CONSENT OF A PARENT OR GUARDIAN. [GENERIC]
AGREES THAT IT WILL PERIODICALLY (AND IN ANY EVENT NOT LESS THAN ONCE
PER MONTH) REMIND STUDENTS OF THIS PRECAUTION.
17. [Generic] acknowledges that the System is supported by selling
advertising to corporate and other for-profit sponsors ("Sponsors")
and agrees that Sponsors will be allowed to display their logos, name,
brands, advertising and/or other corporate information on the System
including in some cases links to the Sponsors' websites, and to take
advantage of the interactive nature of the System.
18. [Generic] agrees that ZapMe! may grant on-site access to the System to
ZapMe!'s sponsors or other commercial partners of ZapMe!, including
providers of testing and supplementary educational services. Access
would, in the absence of [Generic's] consent, occur only during
off-school hours and would be subject to compliance with any policies
and procedures Subscriber has adopted regarding access to [Generic's]
premises.
19. [Generic] shall maintain at all times an accurate log of users that
includes the actual identity of each user of the System that has been
provided an account through [Generic]. [Generic] shall also furnish
ZapMe! with a modified log that indicates the age, grade and gender of
the user (or whether the user is a faculty member, as the case may be)
so ZapMe! may: (i) accurately register or confirm the registration of
each student and faculty member on the System; (ii) maintain a list of
user names and passwords for students and faculty; and/or (iii) assign
and maintain an email system for the students and faculty. [Generic]
agrees to update this list before the start of each school semester.
ANY PERSONAL INFORMATION THAT ZAPME! RECEIVES FROM [GENERIC] OR ANY
USER WILL NOT BE DISTRIBUTED TO ANY THIRD PARTY, OTHER THAN AS
REQUIRED BY LAW OR AS NECESSARY TO AVOID IMMEDIATE DANGER OF PHYSICAL
HARM TO PERSON OR PROPERTY.
20. [Generic] agrees to facilitate a student "take home" marketing
program. On at least three (3) occasions per school year, [Generic]
will distribute to its students take home materials which may contain
a home version of the Network, Sponsor's commercial advertising and/or
information about contests, scholarships, promotions, and educational
programs. While [Generic] shall be obligated to encourage students to
take home such materials, [Generic] shall not be deemed to endorse any
such materials and shall not be required to violate any policies or
procedures adopted by [Generic] with respect to take-home programs.
21. [Generic] agrees to keep the System powered up on a twenty-four (24)
hours per day, seven (7) days per week basis in order for ZapMe! to
periodically access the System for updates and other administrative
and maintenance procedures.
22. [Generic] agrees to limit the issuance of e-mail accounts to
individuals ages 13 and above.
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D. MISCELLANEOUS TERMS
1. Automatic Renewal. This Agreement will automatically be extended for
an additional one (1) year term ("Renewal Term") without change of
Equipment, unless [Generic] or ZapMe! notifies the other to the
contrary ninety (90) days prior to the end of the Initial Term or any
subsequent Renewal Term of this Agreement. The termination and renewal
procedures provided for herein shall apply in any subsequent Renewal
Term.
2. Ownership of Equipment. ZapMe! shall retain ownership of any and all
aspects of the System including but not limited to the Equipment, any
software included with the System, any and all tradenames, trademarks,
copyrights, licenses and/or proprietary graphics and designs.
3. Ownership of Contributed Material. In the event that [Generic] or any
of its users submits or contributes any lesson plans, website links,
data, educational content or other material of any kind to ZapMe!,
this information whether used or not shall become the property of
ZapMe! and in no event shall ZapMe! be required to provide
compensation in any form to [Generic] or any user of the System unless
otherwise agreed to in writing.
4. Removal of Equipment. In the event of termination of this Agreement by
either party, ZapMe! shall have free and reasonable access to retrieve
the Equipment and all other components of the System as originally
installed or as subsequently modified or upgraded.
5. Viewing Optional. [Generic] represents and covenants that [Generic's]
students shall not be required, mandated or coerced into viewing or
using the System and use by students shall be strictly voluntary at
all times.
6. Email System, User Name, Password. [Generic] acknowledges that there
will be an electronic mail system ("Email") that will be an integral
part of the System. All users will be assigned an address, mailbox,
and a "log on user name and password" for access to the System and
Email. [Generic] hereby agrees to indemnify, defend and hold harmless
ZapMe! from all liabilities, losses, claims, damages and expenses
arising from any content transmitted or received through the email
system. [Generic] acknowledges that ZapMe! is not responsible for
content of email transmitted or received by users or other third
parties.
7. Accessing Objectionable Material. [Generic] and ZapMe! both
acknowledge there exists the possibility that some material accessible
on or through the System may be deemed harmful to minors or otherwise
objectionable by the students or their parents or legal guardians
("Objectionable Material"). ZapMe! hereby disclaims any responsibility
or liability for any Objectionable Material accessed on or through the
System. [Generic] hereby agrees to indemnify, defend and hold harmless
ZapMe! from all liabilities, losses, claims, damages and expenses
arising from the access to Objectionable Material, if any. [Generic]
acknowledges that ZapMe! is not responsible for content on the
Internet. [Generic] understands that the risk of student's viewing
Objectionable Material may be reduced by restricting access to the
ZapMe! intranet (which restricts access to the Internet generally) and
by installing available filtering software.
8. Termination.
a. Expiration of Agreement. This agreement shall not renew if either
party gives the other party ninety (90) days written notice prior
to expiration of the Agreement. Otherwise this agreement will
renew as per "General Terms" at the beginning of this Agreement.
b. Termination by [Generic]. [Generic] may terminate this Agreement
upon the occurrence of any of the following events: (i) if ZapMe!
breaches its obligations under this Agreement; (ii) if
participation by [Generic] in the System violates any law,
ordinance or regulation.
c. Termination by ZapMe!. ZapMe! may terminate this Agreement upon
the occurrence of any of the following events: (i) if [Generic]
breaches its obligations under this Agreement; (ii) if the
satellite dish or any component of the System is damaged,
destroyed or stolen and if ZapMe! determines, in its sole
discretion, that occurrence of damage, destruction or theft at
[Generic's] campus is excessive; (iii) if ZapMe! is unable to
maintain sufficient Sponsors for the System; (iv) participation
by [Generic] in the System, or the System violates any law,
ordinance, or regulation; or (v) if ZapMe! provides [Generic] 30
days written notice of its intent to terminate.
d. Removal of Equipment. In the event of Termination ZapMe! shall
have the right but not the obligation to remove the Equipment. In
the event of Termination [Generic] shall give ZapMe! full
reasonable access to remove the Equipment should ZapMe! elect to
make such removal.
9. No Assignment. This Agreement may not be assigned by [Generic] without
the prior written consent of ZapMe!.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
11. Entire Agreement. This instrument contains the entire agreement
between the parties with respect to the subject matter hereof, and
supersedes any and all prior negotiations, or agreements written or
oral and may be modified only in written form executed by the parties.
12. Binding Effect. The terms and conditions of this Agreement shall inure
to the benefit of, and be binding upon, the respective successors and
assigns of the parties.
13. Force Majeure. ZapMe! shall not be in violation of any of its
obligations in this Agreement in the event occurrences beyond its
reasonable control prevent its performance.
14. Damage during Installation or Removal. ZapMe! shall not be obligated
to remove any wiring during removal of the Equipment for any reason.
Repair of any damage during installation or removal of Equipment to
[Generic] shall be done on a "patch to match" basis.
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15. Waivers. No Waiver or failure of enforcement by either of the parties
hereto of any term or condition of this Agreement shall be effective
unless in writing, nor shall it operate as a waiver of any other
breach of such term or condition or of any other term or condition.
16. Interpretation. The captions used in this Agreement are for
convenience and reference only and shall not be considered as part of
this Agreement.
17. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and all of which when taken
together shall constitute one and the same instrument.
18. Authority. The individuals executing this Agreement and any and all
documents in furtherance of this Agreement have the legal power, right
and actual authority to bind their respective parties.
19. Future Sites. In the absence of a new agreement, the parties agree
that the addition of any future Systems or equipment at any [Generic]
site(s) or school campus(s) shall be bound under the terms of this
Agreement.
20. Effective Date. This Agreement shall become effective and binding on
the parties on the date that [Generic] signs the Agreement.
[GENERIC SCHOOL DISTRICT] ZAPME! CORPORATION
DATE SIGNED__________________________ DATE SIGNED__________________________
BY:__________________________________
PRINTED NAME:________________________
TITLE:_______________________________ _____________________________________
OLIVER SIMONS
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EXHIBIT A
TYPICAL EQUIPMENT LIST FOR EACH SCHOOL
This list is subject to availability of equipment, power, space, telephone
lines, and also may be changed or upgraded over the term of the Agreement. The
person assigned to take delivery for [Generic] will sign for the actual
equipment delivered and installed at mutually agreed upon locations. The
following is the typical equipment to be installed at a school:
1. Fifteen (15)* computer workstations, including keyboards, mice, and
monitors.
2. One network server system including a multi-port hub and cabling to
the workstations.
3. One mounted satellite antenna cabled to the network server.
4. 1 printer.
5. Software necessary to operate the System.
* Smaller schools or schools with insufficient space to accommodate ZapMe!'s
standard configuration may receive fewer computers.
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Exhibit "B"
(THIS IS AN ELECTRONIC FORM THAT USERS MUST AGREE TO BEFORE ACCESSING
THE SYSTEM)
ZAPME! USER AGREEMENT AND PRIVACY POLICY
USER AGREEMENT. ZapMe! Corporation (ZapMe!) hereby grants all users of the
ZapMe!-TM- netspace, (the "Network") a non-exclusive, non-transferable
license to use the Network subject to the terms and conditions listed below.
Before starting each session, all users shall agree:
1. To abide by the following rules with respect to your username and
password: (i) only use your own; (ii) never give to anyone else; (iii)
notify ZapMe! immediately if lost, stolen, or used by a third party.
2. To abide by the acceptable use policies, rules and standards of
conduct of [Generic] and the Network.
3. To abide by all applicable federal, state and local laws, including
but not limited to such laws pertaining to computer crime,
unauthorized computer access and the Electronic Communications Privacy
Act of 1986.
4. If you are a minor, not to meet in person with people that you have
met on the Network without the consent of a parent or guardian.
5. Not to write, post, transmit or use material which is threatening,
defamatory, lewd, vulgar, obscene, profane, or disrespectful while
using the Network.
6. Not to engage in personal attacks or harassment, including
prejudicial, racial, or discriminatory attacks.
7. To immediately report any adult, offensive or otherwise objectionable
material appearing on the Network to ZapMe! or the local system
administrator, and to acknowledge that ZapMe! is not responsible for
any such material encountered during your use of the Network.
8. Not to use the Network for the purpose of sending unsolicited email to
individuals, mailing lists or newsgroups. This practice is commonly
referred to as "spamming."
9. Not to resell or use the Network for commercial purposes.
10. To abide by all software license agreements and other intellectual
property agreements and all applicable laws related to copyright,
trademark, patent and other proprietary rights in connection with the
access, display, distribution or any other use of any material
available on or through the Network.
11. To acknowledge that any submission or contribution of any lesson
plans, website links, data, educational content, or other material of
any kind to ZapMe! shall become the property of ZapMe! and in no event
shall ZapMe! be required to provide compensation in any form unless
otherwise agreed to in writing.
12. To hold ZapMe! harmless from any responsibility, liability, damage,
injury or loss of any kind arising from use of the Network.
13. To agree that ZapMe! has the right to deny access to the Network or
terminate use of the Network to anyone at any time without notice.
PRIVACY POLICY: It is ZapMe!'s general policy not to collect personal
identifying information from our users. We strongly discourage any "minor"
(individual under the age of 18) using the Network from disclosing any personal
identifying information including, but not limited to, his or her name, address,
phone number, e-mail address or Social Security number without first getting
permission from his or her parent or guardian. The local System Administrator
will maintain a log of account user identities and any questions regarding
specific user identities or accounts should be directed to the System
Administrator. From time to time, it may be necessary for students to provide
personal identifying information in order to operate the Network services and
programs, such as e-mail or in connection with the distribution of credit,
prizes, scholarships, other winnings, awards and/or recognitions. ZAPME! WILL
NOT DISTRIBUTE TO THIRD PARTIES ANY PERSONAL IDENTIFYING INFORMATION RECEIVED
FROM ITS USERS, EXCEPT AS REQUIRED BY LAW OR AS ZAPME!, IN ITS SOLE DISCRETION,
DEEMS NECESSARY TO AVOID IMMEDIATE DANGER OR PHYSICAL HARM TO PERSONS OR
PROPERTY. ZAPME! ENCOURAGES BUT DOES NOT REQUIRE THIS SAME POLICY FROM ITS
SPONSORS AND THEREFORE FOREWARNS ITS USERS TO REVIEW THE PRIVACY POLICY OF
SPONSORS OR ANY OTHER THIRD PARTIES REQUESTING PERSONAL INFORMATION ON THE
NETWORK AND GET HIS OR HER PARENT'S OR GUARDIAN'S PERMISSION BEFORE GIVING
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OUT ANY PERSONAL INFORMATION. ZapMe! may monitor the Network and compile
statistics and demographics with regard to the habits, viewing preferences, and
other non-identifying information, such as age and gender, about the Network's
users. ZapMe! may distribute to third parties any of this aggregated
statistical, demographic or non-identifying information for commercial purposes.
In addition, ZapMe! may share non-identifying information such as age, gender
and zip code of its users with its third party partners.
NO WARRANTY CLAUSE: ZAPME! EXPRESSLY DISCLAIMS ALL WARRANTIES AND GUARANTIES,
EXPRESS, IMPLIED OR OTHERWISE ARISING, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTY OF MERCHANTABILITY, ANY IMPLIED WARRANTY OF PERFORMANCE, AND THE
IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, AND SHALL NOT BE LIABLE
FOR ANY LOSS OF PROFITS, LOSS OF USE, LOSS OF DATA, INTERRUPTIONS OF BUSINESS,
NOR FOR INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES OF ANY
KIND, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME JURISDICTIONS DO
NOT ALLOW THE EXCLUSION OF LIMITATION OF WARRANTIES OR INCIDENTAL OR
CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATIONS MAY NOT APPLY TO YOU.
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Exhibit 10.17
ZAPME! CORPORATION
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is effective as of , by
and between ZapMe! Corporation, a Delaware corporation (the "COMPANY"or
"ZAPME! DELAWARE"), and _______________ ("Indemnitee").
WHEREAS, ZapMe! Corporation, a California corporation ("ZAPME!
CALIFORNIA"), and Indemnitee entered into an Indemnification Agreement (the
"ORIGINAL INDEMNIFICATION AGREEMENT"), pursuant to which ZapMe! California
agreed under certain conditions to indemnify Indemnitee;
WHEREAS, on __________, 1999, ZapMe! California merged with and into
ZapMe! Delaware (the "MERGER"), following approval of the Merger by the
Boards of Directors of ZapMe! California and ZapMe! Delaware, the sole
stockholder of ZapMe! Delaware and a majority of the shareholders of ZapMe!
California (which approval also included approval of this amendment and
restatement of the Original Indemnification Agreement);
WHEREAS, in order to induce Indemnitee to continue to provide
services to the Company, the Company wishes to provide for the
indemnification of, and the advancement of expenses to, Indemnitee to the
maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued
difficulty in obtaining liability insurance for the Company's directors,
officers, employees, agents and fiduciaries, the significant increases in the
cost of such insurance and the general reductions in the coverage of such
insurance;
WHEREAS, the Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting
directors, officers, employees, agents and fiduciaries to expensive
litigation risks at the same time as the availability and coverage of
liability insurance has been severely limited;
WHEREAS, the Company and Indemnitee desire to continue to have in
place the additional protection provided by an indemnification agreement and
to provide indemnification and advancement of expenses to the Indemnitee to
the maximum extent permitted by Delaware law; and
WHEREAS, in view of the considerations set forth above, the Company
desires that, effective upon consummation of the Merger, Indemnitee shall be
indemnified by the Company as set forth herein;
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NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. CERTAIN DEFINITIONS.
(a) "CHANGE IN CONTROL" shall mean, and shall be deemed to
have occurred if, on or after the date of this Agreement, (i) any "PERSON"
(as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended, (the "EXCHANGE ACT")), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company
acting in such capacity or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, becomes the "BENEFICIAL OWNER" (as defined
in Rule 13d-3 under said Exchange Act), directly or indirectly, of securities
of the Company representing more than 50% of the total voting power
represented by the Company's then outstanding Voting Securities, (ii) during
any period of two consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Company and any new director
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof, or (iii) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 80% of the
total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of (in one transaction or a series of related transactions) all or
substantially all of the Company's assets.
(b) "CLAIM" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism, or any hearing, inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternative dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other.
(c) References to the "COMPANY" shall include, in addition
to ZapMe! Corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger to which ZapMe!
Corporation (or any of its wholly owned subsidiaries) is a party which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, employees, agents or fiduciaries, so that
if Indemnitee is or was a director, officer, employee, agent or fiduciary of
such constituent corporation, or is or was serving at
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the request of such constituent corporation as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture,
employee benefit plan, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to
such constituent corporation if its separate existence had continued.
(d) "COVERED EVENT" shall mean any event or occurrence
related to the fact that Indemnitee is or was a director, officer, employee,
agent or fiduciary of the Company, or any subsidiary of the Company, or is or
was serving at the request of the Company as a director, officer, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity.
(e) "EXPENSES" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating
in (including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties
and amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), actually and
reasonably incurred, of any Claim and any federal, state, local or foreign
taxes imposed on the Indemnitee as a result of the actual or deemed receipt
of any payments under this Agreement.
(f) "EXPENSE ADVANCE" shall mean a payment to Indemnitee
pursuant to Section 3 of Expenses in advance of the settlement of or final
judgement in any action, suit, proceeding or alternative dispute resolution
mechanism, hearing, inquiry or investigation which constitutes a Claim.
(g) "INDEPENDENT LEGAL COUNSEL" shall mean an attorney or
firm of attorneys, selected in accordance with the provisions of Section 2(d)
hereof, who shall not have otherwise performed services for the Company or
Indemnitee within the last three years (other than with respect to matters
concerning the rights of Indemnitee under this Agreement, or of other
indemnitees under similar indemnity agreements).
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(h) References to "OTHER ENTERPRISES" shall include
employee benefit plans; references to "FINES" shall include any excise taxes
assessed on Indemnitee with respect to an employee benefit plan; and
references to "SERVING AT THE REQUEST OF THE COMPANY" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall
be deemed to have acted in a manner "NOT OPPOSED TO THE BEST INTERESTS OF THE
COMPANY" as referred to in this Agreement.
(i) "REVIEWING PARTY" shall mean, subject to the provisions
of Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder
and under applicable law, which may include a member or members of the
Company's Board of Directors, Independent Legal Counsel or any other person
or body not a party to the particular Claim for which Indemnitee is seeking
indemnification.
(j) "SECTION" refers to a section of this Agreement unless
otherwise indicated.
(k) "VOTING SECURITIES" shall mean any securities of the
Company that vote generally in the election of directors.
2. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. Subject to the provisions
of Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to
the fullest extent permitted by law if Indemnitee was or is or becomes a
party to or witness or other participant in, or is threatened to be made a
party to or witness or other participant in, any Claim (whether by reason of
or arising in part out of a Covered Event), including all interest,
assessments and other charges paid or payable in connection with or in
respect of such Expenses.
(b) REVIEW OF INDEMNIFICATION OBLIGATIONS. Notwithstanding
the foregoing, in the event any Reviewing Party shall have determined (in a
written opinion, in any case in which Independent Legal Counsel is the
Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder
under applicable law, (i) the Company shall have no further obligation under
Section 2(a) to make any payments to Indemnitee not made prior to such
determination by such Reviewing Party, and (ii) the Company shall be entitled
to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company)
for all Expenses theretofore paid in indemnifying Indemnitee; PROVIDED,
HOWEVER, that if Indemnitee has commenced or thereafter commences legal
proceedings in a court of competent jurisdiction to secure a determination
that Indemnitee is entitled to be indemnified hereunder under applicable law,
any determination made by any Reviewing Party that Indemnitee is not entitled
to be indemnified hereunder under applicable law shall not be binding and
Indemnitee
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shall not be required to reimburse the Company for any Expenses theretofore
paid in indemnifying Indemnitee until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnities obligation to reimburse the Company for any
Expenses shall be unsecured and no interest shall be charged thereon.
(c) INDEMNITEE RIGHTS ON UNFAVORABLE DETERMINATION; BINDING
EFFECT. If any Reviewing Party determines that Indemnitee substantively is
not entitled to be indemnified hereunder in whole or in part under applicable
law, Indemnitee shall have the right to commence litigation seeking an
initial determination by the court or challenging any such determination by
such Reviewing Party or any aspect thereof, including the legal or factual
bases therefor, and, subject to the provisions of Section 15, the Company
hereby consents to service of process and to appear in any such proceeding.
Absent such litigation, any determination by any Reviewing Party shall be
conclusive and binding on the Company and Indemnitee.
(d) SELECTION OF REVIEWING PARTY; CHANGE IN CONTROL. If
there has not been a Change in Control, any Reviewing Party shall be selected
by the Board of Directors, and if there has been such a Change in Control
(other than a Change in Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately prior to such
Change in Control), any Reviewing Party with respect to all matters
thereafter arising concerning the rights of Indemnitee to indemnification of
Expenses under this Agreement or any other agreement or under the Company's
Certificate of Incorporation or Bylaws as now or hereafter in effect, or
under any other applicable law, if desired by Indemnitee, shall be
Independent Legal Counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such counsel, among
other things, shall render its written opinion to the Company and Indemnitee
as to whether and to what extent Indemnitee would be entitled to be
indemnified hereunder under applicable law and the Company agrees to abide by
such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto. Notwithstanding any other provision of this
Agreement, the Company shall not be required to pay Expenses of more than one
Independent Legal Counsel in connection with all matters concerning a single
Indemnitee, and such Independent Legal Counsel shall be the Independent Legal
Counsel for any or all other Indemnitees unless (i) the Company otherwise
determines or (ii) any Indemnitee shall provide a written statement setting
forth in detail a reasonable objection to such Independent Legal Counsel
representing other Indemnitees.
(e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any
other provision of this Agreement other than Section 10 hereof, to the extent
that Indemnitee has been successful on the merits or otherwise, including,
without limitation, the dismissal of an action without prejudice, in defense
of any Claim, Indemnitee shall be indemnified against all Expenses incurred
by Indemnitee in connection therewith.
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3. EXPENSE ADVANCES.
(a) OBLIGATION TO MAKE EXPENSE ADVANCES. Upon receipt of a
written undertaking by or on behalf of the Indemnitee to repay such amounts
if it shall ultimately be determined that the Indemnitee is not entitled to
be indemnified therefor by the Company, the Company shall make Expense
Advances to Indemnitee.
(b) FORM OF UNDERTAKING. Any written undertaking by the
Indemnitee to repay any Expense Advances hereunder shall be unsecured and no
interest shall be charged thereon.
(c) DETERMINATION OF REASONABLE EXPENSE ADVANCES. The
parties agree that for the purposes of any Expense Advance for which
Indemnitee has made written demand to the Company in accordance with this
Agreement, all Expenses included in such Expense Advance that are certified
by affidavit of Indemnitee's counsel as being reasonable shall be presumed
conclusively to be reasonable.
4. PROCEDURES FOR INDEMNIFICATION AND EXPENSE ADVANCES.
(a) TIMING OF PAYMENTS. All payments of Expenses (including
without limitation Expense Advances) by the Company to the Indemnitee
pursuant to this Agreement shall be made to the fullest extent permitted by
law as soon as practicable after written demand by Indemnitee therefor is
presented to the Company, but in no event later than forty-five (45) business
days after such written demand by Indemnitee is presented to the Company,
except in the case of Expense Advances, which shall be made no later than
twenty (20) business days after such written demand by Indemnitee is
presented to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as
a condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company
notice in writing as soon as practicable of any Claim made against Indemnitee
for which indemnification will or could be sought under this Agreement.
Notice to the Company shall be directed to the Chief Executive Officer of the
Company at the address shown on the signature page of this Agreement (or such
other address as the Company shall designate in writing to Indemnitee). In
addition, Indemnitee shall give the Company such information and cooperation
as it may reasonably require and as shall be within Indemnitee's power.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of
NOLO CONTENDERE, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by this Agreement or applicable law. In
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addition, neither the failure of any Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by any
Reviewing Party that Indemnitee has not met such standard of conduct or did
not have such belief, prior to the commencement of legal proceedings by
Indemnitee to secure a judicial determination that Indemnitee should be
indemnified under this Agreement or applicable law, shall be a defense to
Indemnitee's claim or create a presumption that Indemnitee has not met any
particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder, the burden of
proof shall be on the Company to establish that Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by
the Company of a notice of a Claim pursuant to Section 4(b) hereof, the
Company has liability insurance in effect which may cover such Claim, the
Company shall give prompt notice of the commencement of such Claim to the
insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of the Indemnitee, all amounts
payable as a result of such Claim in accordance with the terms of such
policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense
Advances with respect to the Expenses of any Claim, the Company, if
appropriate, shall be entitled to assume the defense of such Claim with
counsel approved by Indemnitee (which approval shall not be unreasonably
withheld) upon the delivery to Indemnitee of written notice of the Company's
election to do so. After delivery of such notice, approval of such counsel by
Indemnitee and the retention of such counsel by the Company, the Company will
not be liable to Indemnitee under this Agreement for any fees or expenses of
separate counsel subsequently employed by or on behalf of Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right
to employ Indemnitee's separate counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of separate counsel by Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee's separate counsel shall be Expenses for which
Indemnitee may receive indemnification or Expense Advances hereunder.
-7-
<PAGE>
5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of
this Agreement, the Company's Certificate of Incorporation, the Company's
Bylaws or by statute. In the event of any change after the date of this
Agreement in any applicable law, statute or rule which expands the right of a
Delaware corporation to indemnify a member of its board of directors or an
officer, employee, agent or fiduciary, it is the intent of the parties hereto
that Indemnitee shall enjoy by this Agreement the greater benefits afforded
by such change. In the event of any change in any applicable law, statute or
rule which narrows the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, employee, agent or fiduciary, such
change, to the extent not otherwise required by such law, statute or rule to
be applied to this Agreement, shall have no effect on this Agreement or the
parties' rights and obligations hereunder except as set forth in Section
10(a) hereof.
(b) NONEXCLUSIVITY. The indemnification and the payment of
Expense Advances provided by this Agreement shall be in addition to any
rights to which Indemnitee may be entitled under the Company's Certificate of
Incorporation, its Bylaws, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of
Delaware, or otherwise. The indemnification and the payment of Expense
Advances provided under this Agreement shall continue as to Indemnitee for
any action taken or not taken while serving in an indemnified capacity even
though subsequent thereto Indemnitee may have ceased to serve in such
capacity.
6. NO DUPLICATION OF PAYMENTS. The Company shall not be liable
under this Agreement to make any payment in connection with any Claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, provision of the Company's Certificate
of Incorporation, Bylaws or otherwise) of the amounts otherwise payable
hereunder.
7. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or
a portion of Expenses incurred in connection with any Claim, but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses to which Indemnitee is
entitled.
8. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee
acknowledge that in certain instances, federal law or applicable public
policy may prohibit the Company from indemnifying its directors, officers,
employees, agents or fiduciaries under this Agreement or otherwise.
Indemnitee understands and acknowledges that the Company has undertaken or
may be required in the future to undertake with the Securities and Exchange
Commission to submit the question of
-8-
<PAGE>
indemnification to a court in certain circumstances for a determination of
the Company's right under public policy to indemnify Indemnitee.
9. LIABILITY INSURANCE. To the extent the Company maintains
liability insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are provided to the
most favorably insured of the Company's directors, if Indemnitee is a
director; or of the Company's officers, if Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, agents or
fiduciaries, if Indemnitee is not an officer or director but is a key
employee, agent or fiduciary.
10. EXCEPTIONS. Notwithstanding any other provision of this
Agreement, the Company shall not be obligated pursuant to the terms of this
Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee
for Expenses resulting from acts, omissions or transactions for which
Indemnitee is prohibited from receiving indemnification under this Agreement
or applicable law; PROVIDED, HOWEVER, that notwithstanding any limitation set
forth in this Section 10(a) regarding the Company's obligation to provide
indemnification, Indemnitee shall be entitled under Section 3 to receive
Expense Advances hereunder with respect to any such Claim unless and until a
court having jurisdiction over the Claim shall have made a final judicial
determination (as to which all rights of appeal therefrom have been exhausted
or lapsed) that Indemnitee has engaged in acts, omissions or transactions for
which Indemnitee is prohibited from receiving indemnification under this
Agreement or applicable law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or make
Expense Advances to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, counterclaim or
crossclaim, except (i) with respect to actions or proceedings brought to
establish or enforce a right to indemnification under this Agreement or any
other agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
Covered Events, (ii) in specific cases if the Board of Directors has approved
the initiation or bringing of such Claim, or (iii) as otherwise required
under Section 145 of the Delaware General Corporation Law, regardless of
whether Indemnitee ultimately is determined to be entitled to such
indemnification or insurance recovery, as the case may be.
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any
Expenses incurred by the Indemnitee with respect to any action instituted (i)
by Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each
of the material assertions made by the Indemnitee as a basis for such action
was not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that
-9-
<PAGE>
each of the material defenses asserted by Indemnitee in such action was made
in bad faith or was frivolous.
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Exchange Act,
or any similar successor statute; PROVIDED, HOWEVER, that notwithstanding any
limitation set forth in this Section 10(d) regarding the Company's obligation
to provide indemnification, Indemnitee shall be entitled under Section 3 to
receive Expense Advances hereunder with respect to any such Claim unless and
until a court having jurisdiction over the Claim shall have made a final
judicial determination (as to which all rights of appeal therefrom have been
exhausted or lapsed) that Indemnitee has violated said statute.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns,
spouses, heirs and personal and legal representatives. The Company shall
require and cause any successor (whether direct or indirect, and whether by
purchase, merger, consolidation or otherwise) to all, substantially all, or a
substantial part, of the business or assets of the Company, by written
agreement in form and substance satisfactory to Indemnitee, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession
had taken place. This Agreement shall continue in effect regardless of
whether Indemnitee continues to serve as a director, officer, employee, agent
or fiduciary (as applicable) of the Company or of any other enterprise at the
Company's request.
13. EXPENSES INCURRED IN ACTION RELATING TO ENFORCEMENT OR
INTERPRETATION. In the event that any action is instituted by Indemnitee
under this Agreement or under any liability insurance policies maintained by
the Company to enforce or interpret any of the terms hereof or thereof,
Indemnitee shall be entitled to be indemnified for all Expenses incurred by
Indemnitee with respect to such action (including without limitation
attorneys' fees), regardless of whether Indemnitee is ultimately successful
in such action, unless as a part of such action a court having jurisdiction
over such action makes a final judicial determination (as to which all rights
of appeal therefrom have been exhausted or lapsed) that each of the material
assertions made by Indemnitee as a basis for such action was not made in good
faith or was frivolous; provided, however, that until such final judicial
determination is made, Indemnitee shall be entitled under Section 3 to
receive payment of Expense Advances hereunder with respect to such action. In
the event of an action instituted by or in the name of the Company under this
Agreement to enforce or interpret any of the terms of this Agreement,
Indemnitee shall be entitled to be indemnified for all Expenses incurred by
Indemnitee
-10-
<PAGE>
in defense of such action (including without limitation costs and expenses
incurred with respect to Indemnitee's counterclaims and cross-claims made in
such action), unless as a part of such action a court having jurisdiction
over such action makes a final judicial determination (as to which all rights
of appeal therefrom have been exhausted or lapsed) that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous; provided, however, that until such final judicial determination is
made, Indemnitee shall be entitled under Section 3 to receive payment of
Expense Advances hereunder with respect to such action.
14. NOTICE. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
duly given (i) if delivered by hand and signed for by the party addressed, on
the date of such delivery, or (ii) if mailed by domestic certified or
registered mail with postage prepaid, on the third business day after the
date postmarked. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written
notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action
instituted under this Agreement shall be commenced, prosecuted and continued
only in the Court of Chancery of the State of Delaware in and for New Castle
County, which shall be the exclusive and only proper forum for adjudicating
such a claim.
16. SEVERABILITY. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions
of this Agreement (including without limitation each portion of this
Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
17. CHOICE OF LAW. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of
Delaware without regard to principles of conflicts of laws.
18. SUBROGATION. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary to secure such rights and to
enable the Company effectively to bring suit to enforce such rights.
-11-
<PAGE>
19. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is
in writing signed by both the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed to be or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall
such waiver constitute a continuing waiver.
20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth
the entire understanding between the parties hereto and supersedes and merges
all previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained
in this Agreement shall be construed as giving Indemnitee any right to be
retained in the employ of the Company or any of its subsidiaries or
affiliated entities.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ZAPME! CORPORATION
By:____________________________________
Name:__________________________________
Title:_________________________________
AGREED TO AND ACCEPTED
INDEMNITEE:
_________________________________
Address:_________________________
_________________________
_________________________
<PAGE>
Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
EXHIBIT 10.18
[LOGO] [LOGO]
- --------------------------------------------------------------------------------
February 10, 1999
Mr. Lance Mortensen
Chairman and CEO
ZapMe Corporation
3000 Executive Parkway
San Ramon, CA 94583
Ref.: Spacenet/ZapMe Agreement (Revision 3)
VIA EMAIL: [email protected]
Dear Mr. Mortensen:
The purpose of this letter is to outline our mutual understanding
between ZapMe Corporation ("ZapMe") and Spacenet, Inc. ("Spacenet") to proceed
with its plans to construct a formal contract to provide VSAT network shared hub
services. By its counter-signature below, ZapMe agrees to negotiate in good
faith with Spacenet to successfully execute a formal shared hub services
agreement based on the key business elements outlined in this letter. Spacenet
in turn agrees to begin proceeding in good faith to put into place the
infrastructure necessary to provide these shared hub services to ZapMe, on a
schedule determined by both parties.
In addition, provided for your review is Section B of Spacenet's
Standard Service Agreement. Section B is titled "General Terms and Conditions."
Specifics of Spacenet's and ZapMe's objectives are as follows, subject
to execution of a mutually satisfactory shared hub services agreement:
OBJECTIVES OF SPACENET
Spacenet will begin proceeding to finalize efforts already under way to
provide network services at our [*] Shared Hub facility and to have these
services available within 45 days or less, following signature between Spacenet
and ZapMe of a formal agreement for shared hub services. A specific schedule
(Gannet Chart) will be provided by a Spacenet assigned Program Manager upon
execution of this document. The services provided through this facility include:
- Uplinking to a [*]-Band satellite with [*] coverage
(GE-5Dedicated Satellite Space Segment)
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
- [*]Equipment/Installation services for a 1.2 meter remote VSAT
systems (includes Antenna/LNB/Non-Penetrating Roof
Mount/interfaced with ZapMe provided PC system with installed
SkySurfer Cards) Maintenance services for the remote VSAT
systems (includes on-site maintenance for Spacenet provided
equipment including SkySurfer Cards as long as the ZapMe
provided PC is dedicated only to the VSAT network)
- Hub and network operations services and traffic management lab
- 24-hour Hub network management services
- Installation of Dedicated SkySurfer Hub (Provided by ZapMe)
- 24-hour 2nd level help desk
- Network design services to support ZapMe applications
- Terrestrial interconnection support (ZapMe Responsible for
costs)
Based on a minimum firm commitment from ZapMe of [*] remote sites for a
minimum 36-month term of service, Spacenet's service charges for the entire
service as outlined above will be approximately:
[*]
These prices are also based upon a roll-out schedule wherein all
current ZapMe sites will be transitioned from their current location/operations
to the Spacenet shared hub service or new sites installed within 3 months
following the availability of the shared hub services.
*Note: The price above assumes the following in terms of satellite
space segment allocation for [*] sites. If the amount of outbound (hub) and/or
inbound (VSAT) traffic exceeds the allocated space segment amounts indicated
below, Spacenet and ZapMe will work together to agree upon revised pricing based
on additional satellite bandwidth allocations.
In any case, Spacenet and ZapMe agree that after approximately one year
following the date of service, both parties will review actual space segment
utilization by ZapMe, and may agree upon an adjust of space segment pricing, as
well as bandwidth and power allocation based on actual usage.
Beginning Space Segment Allocation:
- Outbound Space Segment Allocation--[*]
- Inbound Space Segment Allocation--[*]
Spacenet and ZapMe agree that if additional sites are added above the
[*] site commitment, the per-site charge will remain the same provided each such
additional site has a 3-year term and provided that the ratio of bandwidth/per
site remains approximately equal to the ratio in the initial [*] sites.
- -------------------------------------------------------------------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
OBJECTIVES OF ZAPME
In return for the foregoing, ZapMe agrees, upon receipt from Spacenet
of a draft of this formal agreement, to use its best efforts to negotiate and
execute such agreement within thirty (30) days after receipt of the draft
agreement, unless the parties agree to an extension.
ZapMe agrees to guarantee its fulfillment of obligations addressed in
ZapMe issued Purchase Orders 000339 and 000340. These purchase orders, already
issued by ZapMe to Spacenet, include the procurement of a SkySurfer Hub, a
two-way satellite hub, two-way PC Cards and RFT, IP encapsulater, Optibase video
encoder, SkySurfer Cards, Optibase decoder per client, license, and training.
If you agree with the foregoing, please counter-sign below and return
this letter to me at 1750 Old Meadow Road, McLean, Virginia 22102.
Respectfully yours,
Stuart Chimes
Sr. Technical Marketing Manager
CC: B. Murray-ZapMe
D. Shiff-Spacenet
I. Kaplan-Spacenet
AGREED AND ACCEPTED
ZAPME CORPORATION
/s/ Lance Mortensen
- -------------
SIGNATURE
Lance Mortensen
- -------------
NAME
CEO
- -------------
TITLE
- -------------
DATE
<PAGE>
Service Agreement
Between
ZapMe! Corporation
and
Spacenet Inc.
Agreement No. 1654
June 11, 1999
<PAGE>
TABLE OF CONTENTS
Section A--Services and Prices....................................... 2
Overview.......................................................... 2
Network Information............................................... 3
Prices............................................................ 4
Notices and Points of Contact..................................... 6
Section B--General Terms and Conditions.............................. 7
1. Term............................................................ 7
2. Charges and Payments............................................ 7
3. Taxes and Fees.................................................. 8
4. Assignment...................................................... 8
5. Title and Risk of Loss.......................................... 8
6. Disposition of Equipment after Termination...................... 9
7. Governing Law................................................... 9
8. Responsibilities of the Parties................................. 9
9. Liability of Spacenet and Customer.............................. 9
10. Termination and Suspension of Service........................... 10
11. Force Majeure................................................... 11
12. Confidentiality................................................. 11
13. Severability.................................................... 11
14. Non-Waiver...................................................... 11
15. Relationship of the Parties..................................... 12
16. Notices and Points of Contact................................... 12
17. Counterparts.................................................... 12
18. Entire Agreement................................................ 12
Section C--Network Implementation.................................... 13
Ordering Procedures............................................... 13
Site Installations................................................ 13
Section D--Operation and Maintenance................................. 16
Network Operation................................................. 16
Out-of-Scope Services............................................. 16
Network Availability Commitment................................... 16
Site Maintenance.................................................. 17
Software License and Support...................................... 18
<PAGE>
[LOGO] Spacenet
- --------------------------------------------------------------------------------
SERVICE AGREEMENT
SPACENET INC., with its headquarters at 1750 Old Meadow Road, McLean, Virginia
22102 ("Spacenet") hereby agrees to provide its satellite-based
telecommunications services ("Service") to ZAPME! CORPORATION, having its
principal place of business at 3000 Executive Parkway, Suite 150, San Ramon, CA
94583 ("CUSTOMER" OR "ZAPME!") pursuant to this Service Agreement ("Agreement")
between them. Customer hereby agrees to take and pay for said Service pursuant
to this Agreement.
The following sections are an integral part of this Agreement:
Section A--Services and Prices
Section B--General Terms and Conditions
Section C--Network Implementation
Section D--Operation and Maintenance
Under the terms of this Agreement, as set forth in further detail under Sections
A - D herein, Spacenet will provide, install, and maintain certain
telecommunications equipment ("Equipment") and licensed software ("Software")
and will provide access to a geostationary orbit communications satellite
("Space Segment"), all of which will enable two-way data transmissions between
Customer's headquarters in San Ramon, California and its remote locations with
access to Customer's proprietary network ("Sites"). All obligations under this
Agreement shall be performed by and between (i) Spacenet and (ii) Customer or
its designated customers, agents or users. This Agreement does not create any
rights in end-users or in any other third party not a signatory hereto. This
Agreement will become effective on the date of the last party to sign below.
AGREED TO BY CUSTOMER: ACCEPTED BY SPACENET:
ZapMe! Corporation Spacenet Inc.
SIGNATURE: /s/ Lance Mortensen /s/ Sheldon Revkin
------------------- ------------------
PRINTED NAME: LANCE MORTENSEN Sheldon Revkin
--------------- --------------
TITLE: CEO President
--- ---------
DATE: 6/11/99 6/11/99
------- -------
<PAGE>
SECTION A--SERVICES AND PRICES
This Section contains Customer-specific information on the equipment and
services to be provided by Spacenet. In the event of any conflict between this
Services and Prices Section and the other Sections hereto, this Services and
Prices Section shall prevail.
OVERVIEW
Under this Agreement Spacenet will provide Customer with certain
SkyBlaster-TM-* equipment and services. SkyBlaster is a service comprised of
equipment and software which enables geographically dispersed locations to
exchange data transmissions via a satellite network. The SkyBlaster service
operates on a point-to-multipoint network architecture. This document
establishes the responsibilities of Spacenet and ZapMe!, and the prices,
terms, and conditions under which SkyBlaster equipment and network services
will be installed, operated, and maintained at Spacenet's shared hub and at
remote locations designated by ZapMe! across the continental USA.
* SkyBlaster is a trademark of Gilat Satellite Networks, Ltd.
Following is a diagram showing the key elements of the network:
[GRAPHIC]
<TABLE>
<CAPTION>
<S> <C>
NETWORK INFORMATION
Location of Spacenet's Shared Hub Uplinking [*] provided that Spacenet reserves the right to redesignate the hub location
facilities: with 90 days notice to ZapMe!.*
* In the event Spacenet elects to move Customer from its shared hub in [*]
Spacenet shall reimburse ZapMe! for the following costs actually incurred by
ZapMe! in connection with the relocation: (i) one time termination fee for the
terrestrial interconnect (ii) one time connection fee for the terrestrial
interconnect and (iii) reasonable expedite fee for the terrestrial
interconnect.
Location of Customer's SkyBlaster Hub equipment: at Spacenet's Shared Hub Uplinking facilities
Minimum Site Order Quantity: [*] Sites (which includes retrofits of Legacy Site systems)*
* During the Agreement Term, Customer may order additional Sites at the
price set forth under "Standard Service" below.
Minimum Site Order Installation Period: Within 3 months from the Effective date of the Agreement
Minimum Site Service Term: 36 months from Site installation
Minimum Network Service Term: 36 months from installation of the Minimum Site Order Quantity
Protocols to be supported: TCP/IP and UDP at Spacenet's shared hub and at each remote Site
Customer's Bandwidth Allocation: Outbound channels (toward the remote sites)--bandwidth to support a [*] mbps
carrier. Inbound channels (from the remote sites)--[*] MHZ. Bandwidth is
subject to periodic review based on system performance and Customer will
purchase additional bandwidth as necessary at the prices set forth below.
- --------------------
[*]Confidential treatment has been requested with respect to certain information contained in this document. Confidential
portions have been omitted from the public filing and have been filed separately with the Securities and Exchanges commission.
<PAGE>
Service Demarcation Points: At the Hub: output ports at the Customer provided Ethernet hub
At the VSAT: with Expanded Service--output ports of the Spacenet provided PC's;
without Expanded Service--input ports of the Customer provided PC's
VSAT Maintenance Option selected: 8 am to 5 pm, Monday-Friday, local time, excluding holidays
Performance Specifications: Network Availability Commitment [*]
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PRICES FREQUENCY PRICE
- ------ --------- -----
STANDARD EQUIPMENT AND SERVICE Monthly, Per Site [*]
- ------------------------------
Standard Service-Includes:
1.2 Meter Antenna,
One Standard Mount**
Up to 400 Feet of IFL Cable, Non-Plenum (dual 200' cable run)
Outdoor Unit-[*] ODU and LNB, Two PCI cards
- DVB Receiver
- Satellite Transmitter
Support for One (1) Spacenet-Supported Software Protocol,
Software License and Maintenance,
48-state [*]-Band satellite capacity, non-preemptible and intra-satellite
protected,
Use of Spacenet's Shared Hub Facilities,
Standard Installation,
24-hour 2nd Level Help Desk Support,
Standard On-Site Maintenance Support, 5 x 9 (8 am to 5 pm, Mon-Fri
Business Days),
Satellite Network capacity to support Customer's Bandwidth Allocation
specified under "Network Information"***
* The price for Standard Service shall constitute the sole amount due to
Spacenet from ZapMe! under this or any prior agreement for such
Standard Service, subject to additional charges for all non-standard
requirements and subject to the terms and conditions of this Agreement.
** "Standard" mounts are: Non-penetrating, Close-in Wall,
Medium Reach Wall, and I-Beam.
*** The space segment purchased from Spacenet as part of the Standard
Service shall be dedicated to ZapMe!.
EXPANDED EQUIPMENT AND SERVICE
- ------------------------------
Expanded Service*-Includes: Monthly, Per Site Quotation
One permanent server
Ethernet hub at the Receive Site
Up to 25 Feet of CAT5 LAN cable
5-15 client PCs.
Expanded installation
* Both parties recognize that as of the Effective Date, Spacenet is
unable to provide the Expanded Service and that Spacenet will notify
Customer when it is able to provide such service. Upon such
notification, Spacenet will provide and ZapMe! will have the option to
purchase such Expanded Service (in addition to the Standard Service) at
a mutually agreed to price for Sites not installed as of the date of
notification.
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
ADDITIONAL (OPTIONAL)ACCESSORIES/EQUIPMENT/SERVICES
- ---------------------------------------------------
Upgrade to 1.8 Meter Antenna w/Non Penetrating Roof Mount, if required One-Time Charge [*]
Additional Required IFL Cable, Non-Plenum One-Time Charge [*]
Additional Required CAT5 LAN Cable (25 ft) One-Time Charge [*]
Additional client PC Monthly, Per PC [*]
Remote Network Management System (NMS) Console Each [*]
Additional one m/bps outbound channel (if available) Monthly [*]
Additional one MHz inbound channel (if available) Monthly [*]
Non-Standard Installation/Optional Antenna Mounts Each Quotation
7x16 Maintenance Option (8AM - Midnight, Local Time) Per Site [*]
Maintenance Call for Damaged Equipment or other "non-covered" calls T&M, with 1 hr minimum
Non-Covered Maintenance Call (T&M Rates):
Business hours Per Hour [*]
After business hours and Saturdays Per Hour [*]
Holidays and Sundays Per Hour [*]
Site Survey, if required Each [*]
Canceled Site Installation (Cancellation or Postponement with Four (4) Each [*]
Business Days Advance Notice or Less)
Terminated Site Visit Each [*]
Expedite Fee for Installations Each [*]
Site Charge for Unordered Minimum Site Quantity Monthly per Site [*]
(after Minimum Site Order Installation Period)
Relocation (de-install/re-install) of standard mount,
1.2-meter sites
(Same day, within 40 miles) Each [*]
Additional Requirements not detailed above shall be quoted on an individual basis.
</TABLE>
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
Notices and Points of Contact
- -----------------------------
SPACENET:
<TABLE>
<CAPTION>
<S> <C> <C>
Program Manager: For Payments: Notices:
- ---------------- ------------- --------
Jack Rathjen Accounts Receivable (703) 848-1330 Customer Contracts Dept.
SPACENET INC. SPACENET INC. SPACENET INC.
1750 Old Meadow Road P.O. Box 60420 1750 Old Meadow Road
McLean, Virginia 22102 Charlotte, North Carolina 28260 McLean, Virginia 22102
Telephone: (703) 848-1000 Telephone: (703) 848-1511
FAX: (703) 848-1010 FAX: (703) 848-1184
CUSTOMER:
Technical Contact: Billing Address: Notices:
- ---------------- ------------- --------
Bruce Murray Accounts Payable Lance Mortensen, Chairman - CEO
ZAPME! CORPORATION ZAPME! CORPORATION ZAPME! CORPORATION
3000 Executive Parkway 3000 Executive Parkway 3000 Executive Parkway
San Ramon, CA 94583 San Ramon, CA 94583 San Ramon, CA 94583
(925) 543-0300 Phone (925) 543-0300 Phone
(925) 543-0301 Fax (925) 543-0301 Fax
copy to:
Bruce Bower
General Counsel
ZAPME! CORPORATION
3000 Executive Parkway
San Ramon, CA 94583
(925) 543-0300 Phone
(925) 277-9356 Fax
</TABLE>
<PAGE>
SECTION B - GENERAL TERMS AND CONDITIONS
1. TERM
The Term of this Agreement ("Agreement Term") shall commence on the date of the
last party to sign on the signature page of this document ("Effective Date").
Each installed Site hereunder shall have the Minimum Site Service Term ("Minimum
Site Service Term") set forth under "Network Information" of Section A. Service
at each Site shall automatically continue after the Minimum Site Service Term to
the End Date of the Agreement ("Agreement End Date"), which shall be the last
day of service provided at the last Site, or the last day of the Minimum Network
Service Term, whichever occurs last. To the extent that the Minimum Site Service
Term has not expired at the Site, ceasing to do business at such Site by
Customer shall not relieve Customer of its obligation pertaining to the Minimum
Site Service Term. Any Site having completed its Minimum Site Service Term may
be terminated by either party by providing at least sixty (60) days advance
notification of termination. Notwithstanding the above, Spacenet shall only be
obligated to provide the Services, equipment and software under this Agreement
for six years commencing on the Effective Date, provided that the parties may
mutually agree to extend this date.
2. CHARGES AND PAYMENTS
A. PAYMENTS-All payments made under this Agreement shall be in U.S. Dollars.
The fees or prices for Services are as set forth in Section A. Spacenet will
bill Customer for monthly charges one (1) month in advance of the month's
service due and payable the last day of the billing calendar month (e.g.
September 1 billing for October's service is due and payable September 30.)
Monthly charges for partial months of Services will be prorated on a thirty
(30) day month basis. Invoicing for each Site shall commence once the Site is
available for transmission service. Non-recurring charges will be accrued
monthly and billed in arrears.
B. CREDIT-Spacenet shall provide ZapMe! a credit against Service fees equal to
[*] per month for thirty-six months commencing on the Effective Date. In the
event monthly Service fees are less than [*] per month, the difference may be
applied to Service fees for subsequent months.
C. LATE PAYMENTS-In the event that any fees or charges are not paid in full by
Customer when due, then Spacenet shall provide Customer with written notice of
such non-payment. If Customer fails to cure such non-payment within ten (10)
days after the date of such notice, then Spacenet, in addition to and not in
lieu of its rights under Article 10 ("Termination and Suspension of Service")
below, reserves the right to charge Customer a late payment charge calculated on
the past due balance at the rate of one and one-half percent (1.5%) interest per
month for each month or part thereof from the date the payment was due. This
late payment charge will not be imposed on the portion of an invoice which may
reasonably be under dispute by Customer, provided that Customer has paid the
undisputed portion in full and has notified Spacenet of the disputed amount
within 15 days of receipt of Spacenet's invoice along with a written explanation
of the dispute based on the terms of this Agreement.
D. PRICE VALIDITY-With prior notice of 60 days, the hourly rates in Section A
may be increased by Spacenet once per calendar year beginning in 2000 in an
amount not to exceed the lesser of (a) five percent (5%), or (b) the
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[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
percentage change from the previous year to the then-current year in the
Consumer Price Index (the "Consumer Price Index for all Urban Consumers, All
City Average"), as set forth by the US Department of Labor, Bureau of Labor
Statistics, or any successor to such Index by such Bureau. Time and Materials
Charges shall be applied at Spacenet's then-effective Time and Materials
rate. All other prices contained herein shall remain fixed for service
through the end of the initial Term of this Agreement.
E. MINIMUM COMMITMENT-In the event Customer does not order the Minimum Site
Order Quantity for installation within the Minimum Site Order Installation
Period or causes a delay in installation past the Minimum Site Order
Installation Period, Spacenet shall commence billing for the
unordered/uninstalled Sites up to and including the Minimum Site Order Quantity
at the rate set forth for the pricing item entitled "Site Charge for Unordered
Minimum Site Quantity." This charge shall apply on a monthly basis for each such
unordered/uninstalled Site until such time as the Site has been installed, at
which time the Minimum Site Service Term shall commence. Partial months of the
Site Charge for Unordered Minimum Site Quantity shall be prorated based on a
thirty (30) day month. In addition, after the Minimum Site Order Installation
Period and until the Agreement End Date, Customer must pay each month, at a
minimum, the Standard Service fee for the Minimum Site Order Quantity.
F. PURCHASE OPTION-With respect to each Site comprising the Minimum Site Order
Quantity, on the last day of the Minimum Site Service Term, Customer has the
option to purchase from Spacenet for [*] (plus any amounts outstanding for
Standard Service with respect to such Site) all of the Spacenet provided
equipment at such Site used to provide Spacenet's services hereunder to such
Site. In the event Customer exercises its purchase option with respect to a
Site, title to the Spacenet provided equipment at such Site used to provide
Spacenet's services hereunder to such Site shall transfer to Customer upon
payment of [*] (plus any amounts outstanding for Standard Service with
respect to such Site).
3. TAXES AND FEES
The Service Fee and other charges under this Agreement are as set forth in
Section A. These charges exclude all present and future taxes, duties, or fees
of any nature, including, but not limited to federal, state, or local sales or
use taxes, fees, excises, property or gross receipts taxes or fees,
telecommunication taxes, license, access, or universal service fees, or other
taxes or duties which may now or hereafter be levied on the services provided or
on payments made under this Agreement. Any such taxes, fees, or duties, however
denominated, which may now or hereafter be levied on the services provided, the
Equipment installed, or payments made under this Agreement, excluding taxes
based on Spacenet's net income, shall be paid by Customer. If Spacenet is
required to pay or pays any of these, Customer shall promptly reimburse Spacenet
for such payments including applicable penalties and interest, if any. Taxes,
late payment charges, and other charges (other than those imposed due to
Spacenet's negligence) will be invoiced following their accrual. Spacenet agrees
to provide reasonable documentation supporting any such charges.
4. ASSIGNMENT
Either party may, on written notice to the other, assign its rights and
obligations hereunder to (i) its parent
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[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
corporation or an affiliated corporation owned by a common parent in
connection with any corporate restructuring, and (ii) a third party entity in
connection with the transfer of all or substantially all of the assigning
party's assets to such entity or (iii) a successor entity in connection with
a merger or acquisition resulting in a change of control of the assigning
party. Except as provided above in this Section, either party may assign its
rights and obligations under this Agreement to a third party only upon
receiving the prior written consent of the other party, which consent may be
reasonably conditioned but will not be unreasonably withheld. The parties
agree that no assignments will be made unless the assignee agrees to accept
in full the responsibilities and obligations of the assigning party.
5. TITLE AND RISK OF LOSS
A. TITLE-Title to the Equipment installed or provided by Spacenet under this
Agreement shall remain with Spacenet. Customer shall not move the Equipment, nor
permit the Equipment to be moved, modify the Equipment nor permit the Equipment
to be modified, and Customer shall not permit any liens or encumbrances to be
placed upon the Equipment. Spacenet shall have the right and authority acting in
its own name or the name of Customer to complete and file such documents as its
deems necessary to protect its security interest in or ownership of the
Equipment or other equipment and Customer shall fully cooperate with and support
all such filings by Spacenet.
B. RISK OF LOSS-Risk of loss or damage for Equipment shall pass to Customer upon
installation of the Equipment at a Customer designated Site. Customer shall
insure all Spacenet-owned equipment on Customer's premises against risk of loss
or damage due to any cause other than normal wear and tear, and shall name
Spacenet as a loss payee to the extent of its losses. Proof of such insurance by
a national carrier shall be made available to Spacenet by Customer upon request
by Spacenet. Customer shall notify Spacenet of any material change in such
insurance coverage or insurance carrier.
6. DISPOSITION OF EQUIPMENT AFTER TERMINATION
A. REMOVAL-Upon expiration or termination of this Agreement or termination of
Service at any Site, and unless ZapMe! has exercised its Purchase Option with
respect to such Equipment, Spacenet may elect to remove all or portions of
Spacenet-owned Equipment that was used to provide services hereunder, and,
Customer shall use reasonable efforts to facilitate Spacenet's entry into all
applicable premises to permit Spacenet to remove any such Equipment. Before
exercising its right of removal, Spacenet shall provide ZapMe! with sixty (60)
days advance written notice of its intention to exercise such right. Spacenet
shall have the right to abandon any Spacenet-owned Equipment in place if it so
elects, after written notice has been provided to Customer. If Customer wants
Spacenet to remove any Equipment (antennas, mounts, etc.) that Spacenet has
elected to abandon in place. Spacenet will do so on a time and materials basis.
With regard to any Spacenet-licensed software that is contained in equipment
that is abandoned in place, Customer agrees to follow Spacenet's instructions
regarding the removal or disabling of any such software.
7. GOVERNING LAW
This Agreement shall be construed and enforced in accordance with and shall be
governed by, the laws of the United States and of the State of New York. The
parties agree to submit to the jurisdiction of the state and federal courts
sitting in Denver, Colorado. Venue for any claims hereunder shall be a court of
competent jurisdiction in or near Denver, Colorado.
<PAGE>
8. RESPONSIBILITIES OF THE PARTIES
A. COMPLIANCE AND APPROVALS-Each party shall comply with all applicable
governmental laws, rules and regulations. Each party is responsible to obtain
local permits, landlord consents or other waivers or consents as set forth in
Section C under "Site Installations" as may be necessary for Spacenet to install
the Equipment and for Customer to make use of the communications services. The
Customer is advised to obtain any such required permits or approvals well in
advance of installation. If on-Site installation is prevented due to any of the
above areas that are Customer's responsibility, the Terminated Site Visit charge
shall apply. The obligations of Customer under this Agreement are not
conditioned upon Customer's receipt of such authorizations or approvals.
B. BACKHAUL-Customer shall be responsible for all charges, non-recurring and
recurring, and communications hardware, associated with all terrestrial
communications links required for this service. Spacenet shall have no warranty
obligations in connection with any terrestrial communications link, and the
failure or disruption of such link shall not be included in Spacenet's network
availability commitment.
C. INSURANCE-Each party, at its own expense, will obtain and/or maintain
insurance to cover risks associated with their respective business activities
detailed herein.
D. MINIMUM ORDER QUANTITY. Within the Minimum Site Order Installation Period
stated in Section A of this Agreement, the Minimum Site Order shall have been
installed.
E. MAINTENANCE OBLIGATIONS. Spacenet shall maintain the Equipment as provided in
Section D of this Agreement.
9. LIABILITY OF SPACENET AND CUSTOMER
A. Customer shall defend, indemnify and save Spacenet harmless from and against
injuries, loss or damage to Spacenet's employees or property or to the person or
property of third parties to the extent they are caused by the willful or
negligent acts or omissions of Customer (and all risk of loss and damage to the
property caused by anyone other than Spacenet and its subcontractors while the
property is in Customer's control or custody), and from and against all claims,
expenses, or losses (including reasonable attorneys' fees and expenses) arising
out of or in connection with the application or content of Customer's
transmissions through the provided transmission services.
B. Spacenet shall defend, indemnify and save Customer harmless from and against
injuries, loss or damage to Customer's employees or property or to the person or
property of third parties to the extent they are caused by the willful or
negligent acts or omissions of Spacenet (and all risk of loss and damage to the
property caused by anyone other than Customer and its subcontractors while the
property is in Spacenet's control or custody).
C. Each party shall defend, indemnify and save the other harmless from and
against injuries, loss or damage to the other's employees or property or to the
person or property of third parties to the extent they are caused by the willful
or negligent acts or omissions of the perpetrating party or that of its
subcontractors, agents, or representatives while performing their duties at
Customer's or End-User's Sites.
D. Except for (a) the obligations to defend, indemnify and hold harmless
provided in B and C above, and (b) any credits provided to Customer pursuant to
Section D Spacenet's total liability under this Agreement shall in no case
exceed the recurring charges paid to it by Customer during the six months
immediately preceding the cause of
<PAGE>
action. Customer has accepted this limitation of liability for Services
provided hereunder and understands that the price of the Services would be
higher if Spacenet were requested to bear additional liability for damages.
E. Except for (i) its obligation to defend, indemnify and hold harmless provided
in A and C above, (ii) any payment obligations hereunder and (iii) any liability
arising out of or in connection with the application or content of its
transmissions through the provided transmission services, Customer's total
liability under this Agreement shall in no case exceed the recurring charging
due to Spacenet during the six months immediately preceding the cause of action.
F. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR TO
ANY THIRD PARTIES FOR INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OF
ANY KIND, INCLUDING LOST PROFITS, LOSS OR USE OF EQUIPMENT OR SERVICES, OR
DAMAGES TO BUSINESS OR REPUTATION ARISING FROM THE PERFORMANCE OR
NON-PERFORMANCE OF ANY ASPECT OF THIS AGREEMENT WHETHER IN CONTRACT OR TORT OR
OTHERWISE, AND WHETHER ADVISORY HAS BEEN MADE OF THE POSSIBILITY OF SUCH
DAMAGES.
G. EXCEPT AS STATED HEREIN, SPACENET PROVIDES NO WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE RESPECTING SERVICES
PERFORMED, LICENSED SOFTWARE, OR EQUIPMENT FURNISHED UNDER THIS AGREEMENT.
10. TERMINATION AND SUSPENSION OF SERVICE
A. Either party may terminate this Agreement only for default in the event of
material breach by the other party if such breach continues for a period of
sixty (60) days after written notice of intention to terminate describing the
default is given by the non-breaching party and such event of breach is not
remedied within the stated period. Notwithstanding the foregoing, Spacenet may,
on thirty (30) days' written notice, suspend or terminate the Service to be
provided under this Agreement due to Customer's non-payment of charges due. Upon
termination for material default by either party. Customer shall cease utilizing
the Service and shall remit to Spacenet upon receipt of a final invoice all
amounts accrued or due to Spacenet up to and including the termination date.
Customer hereby consents to the jurisdiction of any court or administrative
agency having subject matter jurisdiction in which Spacenet may elect to bring
an injunctive action to require Customer to cease using service at any or all
Sites, as applicable, if Customer fails or refuses to do so after receipt of
notice pursuant to this Article.
B. If default is due to the Customer, then Customer shall pay Spacenet (i) all
applicable amounts due for Equipment and Services provided to date, (ii) all
applicable amounts due for the lesser of (a) the remaining term or (b) fourteen
(14) months, and (iii) deinstallation, all in accordance with this Agreement.
Either party may pursue any other remedies existing at law or in equity to the
extent consistent with this Agreement and its governing law. Spacenet and
Customer agree that damages to Spacenet resulting from a termination hereunder
are not readily determinable either at the time of signing of this Agreement or
at the time of its termination and that the amount of the liquidated damages is
both necessary and reasonable. Either party may bring legal action for the
violation or breach of this Agreement, and shall be entitled to recover
reasonable attorneys' fees incurred in enforcing obligations as stated herein.
C. Sites which have completed their Minimum Site Service Term may be terminated
without penalty, though Customer shall be liable to Spacenet for all obligations
then accrued to Spacenet as of the effective date of termination. With sixty
(60) days notice and if a) at least one year of service have been rendered, and
b) if more
<PAGE>
than six months remains under the term of the Agreement. Customer may
terminate this Agreement by paying [*] of the total outstanding monthly
Standard Service charges for all Sites not having completed the Minimum Site
Service Term.
11. FORCE MAJEURE
Neither party shall be liable for failure to perform its obligations under this
Agreement to the extent such failure is due to causes beyond its commercially
reasonable control, including but not limited to externally caused transmission
interference and irreparable facility failure. In the event of a force majeure,
the party invoking this Section shall notify the other party in writting of the
events creating the force majeure and the performance obligations of the parties
will be extended by a period of time equal to the length of the delay caused by
the force majeure; provided, that if any such delay exceeds forty-five (45)
days, then following such forty-five day period either party hereto may
terminate the unperformed portions of this Agreement on ten (10) days' prior
written notice to the other party.
12. CONFIDENTIALITY
The content of this Agreement shall be treated as confidential and shall not be
disclosed by Customer or Spacenet to third parties without the prior written
consent of the other party. The existence of this Agreement may be disclosed in
advertising or publicity by either party, provided that such disclosure is
approved in writing by the non-disclosing party prior to release for
publication; provided, however, that either party may include the name of the
other party in a serial list of customers or vendors (as applicable) of each
others' products and services. Neither party may use the trademarks, trade
names, or logos of the other party without prior written permission of the other
party. Neither party shall disclose to third parties any proprietary information
furnished or disclosed by the other party.
13. SEVERABILITY
In the event any one or more of the provisions of this Agreement shall for any
reason be held to be invalid or unenforceable, the remaining provisions of this
Agreement shall be unimpaired, and upon mutual agreement of the parties the
invalid or unenforceable provision shall be replaced by a provision which, being
valid and enforceable, comes as close as lawfully possible to the intention of
the parties underlying the invalid or unenforceable provisions.
14. NON-WAIVER
The failure of either party to insist upon strict adherence to any material term
or condition of this Agreement on any occasion shall not be considered a waiver
of any right thereafter to insist upon strict adherence to that term or
condition or any other material term or condition of this Agreement.
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[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
15. RELATIONSHIP OF THE PARTIES
This Agreement is not intended by the parties to constitute or create a joint
venture, pooling arrangement, partnership, agency or formal business
organization of any kind. Spacenet and Customer shall be independent contractors
with each other for all purposes at all times and neither party shall act as or
hold itself out as agent for the other unless so designated in a separate
writing signed by the principal, nor shall either party create or attempt to
create liabilities for the other party.
16. NOTICES AND POINTS OF CONTACT
Except as otherwise provided, all important notices or other communications
required or desired to be given or sent in connection with this Agreement shall
be in writing and transmitted to the applicable party by hand delivery or U.S.
certified mail, return receipt requested, postage prepaid. Invoices and other
non-emergency communications may be transmitted via regular US mail or
facsimile.
17. COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
18. ENTIRE AGREEMENT
This Agreement, including all Sections listed herein, comprises the entire and
exclusive agreement of the parties with respect to the subject matter hereof and
supersedes any and all prior and contemporaneous agreements, understandings,
arrangements, proposals or representations whether written or oral, heretofore
made between the parties hereto and relating to this subject matter. It does
not, however, revoke or rescind any prior agreements for other services which
may have been executed by the parties. This Agreement may be modified, changed
or amended only by an express written agreement signed by duly authorized
representatives of both parties stating that it is an amendment. Waivers, or
purported waivers, of any provision of this Agreement shall be in writing and
signed by an authorized officer of both parties.
<PAGE>
SECTION C-NETWORK IMPLEMENTATION
ORDERING PROCEDURES
A. CONTENT OF ORDERS-Customer will notify Spacenet's designated Program Manager
(via purchase orders or other mutually agreed-upon means of communication) by
facsimile (or other mutually agreed upon means of communication) of specific
VSAT Sites that it wishes Spacenet to install. ZapMe! will provide a rolling
90-day forecast of anticipated installation sites by the end of each month. In
such notices, Customer must indicate:
- The street, city, and state where the VSAT Equipment will be
delivered and installed.
- The requested installation date (as outlined within the time
frames and procedures identified in this Agreement).
- The name or title and phone number of the person at each
VSAT Site authorized to work with Spacenet on all
installation activities.
- Any special instructions for the installation, including
deviations to the standard equipment configuration specified
in Section A.
- The Customer Unit number for the Site.
Additional ordering procedures applicable to "roll-out" installations are set
forth in section D under "Site Installations" below.
B. SCHEDULING-Customer agrees to use its best efforts to work with Spacenet to
schedule the initial Site roll-out in a geographically efficient manner.
C. PURCHASE ORDERS-Site Equipment and optional equipment and services may be
ordered via Customer's own purchase orders, within the lead times provided by
Spacenet. However, Customer understands and agrees that any such purchase orders
are to be used only for purposes of facilitating the ordering of Equipment and
Services under this Agreement, and for providing a purchase order number for
Customer's accounting purposes. Customer agrees that, notwithstanding any
statements to the contrary on Customer's purchase order or other documents, the
provision of Equipment and Services as contemplated in this Agreement shall be
governed solely by the terms and conditions of this Agreement, and that any
terms and conditions of Customer's purchase order or other documents shall be
null and void.
SITE INSTALLATIONS
A. STANDARD INSTALLATION-A Standard Installation includes the delivery and
installation of the equipment set forth under "Standard Service" in Section A,
and includes one (1) wall penetration for the cable run. The installation
process consists of VSAT assembly, installing and pointing the VSAT antenna,
installing the IFL cable, and installing and connecting the outdoor electronics.
Other required efforts, such as the installation of cable conduits, trenching,
or non-standard antenna mounts, are outside the scope of a Standard Installation
and subject to
<PAGE>
quotation.
Until Spacenet notifies Customer that it is able to supply "Expanded Service" as
set forth in Section A, the following shall apply:
(i) With respect to the SkyBlaster PCI hardware cards, at no additional cost to
ZapMe!, Spacenet will deliver such cards to ZapMe!'s designated computer
integrator for installation into ZapMe!-supplied PC's. ZapMe!'s computer
integrator will install the SkyBlaster PCI cards into the server PC's to allow
the SkyBlaster service to operate on the ZapMe!-supplied PC's. ZapMe! is
responsible for the integration and installation of the SkyBlaster cards and any
associated software (if required) for operation of ZapMe!'s services.
(ii) ZapMe! will provide to Spacenet, at Spacenet's expense, [*] fully
integrated servers to be used by Spacenet as testing units to verify the
installation and commissioning of the individual sites.
Following the successful commissioning of a site using a test server PC,
Spacenet will remove the test server and notify ZapMe! that the site is
available for ZapMe!'s designated computer integration service company to
install the permanent server, the ethernet hub, associated cabling and the
additional client PCs.
Spacenet recognizes that ZapMe! is currently utilizing SkySurfer 1 PCI cards in
connection with all of ZapMe!'s VSAT sites as of the Effective Date provided by
another service provider ("Legacy Sites"). As part of its Standard Service,
Spacenet will migrate and upgrade ("retrofit") these Legacy Sites to the
Spacenet provided service. Spacenet shall use commercially reasonable efforts to
complete the retrofitting of the Legacy Sites within 60 days of the date of this
Agreement.
Spacenet and ZapMe! will work together to perform the following items related to
the upgrade of ZapMe!'s Legacy Sites:
1. ZapMe! will provide a current list of Legacy Site locations.
2. ZapMe! will provide the site configurations of the Legacy Sites and a
description of the equipment at the Legacy Sites.
3. Spacenet will evaluate the Legacy Sites and determine the extent to
which ZapMe!'s existing equipment can be used with the Spacenet
provided service, including PCI cards and antennas. Spacenet may use
the existing equipment to meet its service obligations hereunder if it
determines that such equipment is compatible with its service.
4. ZapMe! and Spacenet will agree on a transition roll out schedule.
5. Once a transitioned Site becomes available for transmission on the
Spacenet provided service, Spacenet will commence invoicing for such
Site.
B. EXPANDED INSTALLATION-Both parties recognize that Spacenet will notify
Customer when it is able to deliver and install the equipment set forth under
"Expanded Service" in Section A. At such time Spacenet will provide and ZapMe!
will have the option to purchase such Expanded Service.
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[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
C. NON-STANDARD INSTALLATIONS-For any non-standard installation services or
equipment, if the cost of the service or equipment necessary to complete
installation is estimated to be equal to or less than [*] no prior approval is
needed from ZapMe! and Spacenet may complete the installation and bill
accordingly. However, if the non-standard installation service or equipment is
estimated to be greater than [*] Spacenet shall not complete the installation
unless they receive written approval from ZapMe!.
D. SPACENET RESPONSIBILITIES-As part of Spacenet's Standard installation
(above), Spacenet or its agents will:
- Obtain all licenses, permits, approvals, authorizations and
clearances required by the FCC for the operation of the VSAT
Equipment;
- Render reasonable assistance by telephone to support
Customer's efforts to secure landlord approvals at each
Site.
- Handle equipment orders
- Provide installation services as described herein
- Follow all applicable school safety procedures provided to
Spacenet by Customer in writing.
E. CUSTOMER RESPONSIBILITIES-At each Customer Site, Customer or its agents will:
- Designate one individual that is authorized to make decisions
relating to the installation of Spacenet-provided Equipment at
the particular Site and to interface with Spacenet during
installation.
- Obtain any landlord approvals, building or zoning permits or
zoning variances required for each Site;
- Provide to Spacenet any structural analyses or structural
drawings as may be needed by Spacenet.
- Pay Spacenet, on a Time and Materials basis, if Spacenet is
required to attend zoning hearings or other public meetings
in order to assist ZapMe! in obtaining a building or zoning
permit or zoning variance.
- Perform structural analyses, as required. The structure on
which the antenna shall be located must provide adequate
support for the antenna, and must provide an unobstructed
line-of-sight view of the satellite year-round.
- Provide building layout drawings as available for each Site
type to the Spacenet installation manager at least thirty
days prior to scheduled commencement of installation.
- Provide a suitable secure area for installation of the
antenna and all outdoor and indoor electronics associated
with the Equipment.
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[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
- Provide or cause to be provided standard electrical
requirements (a 120 volt electrical power receptacle within
five (5) feet of the server location, preferably with a
separate 15 amp. circuit breaker) and environmental
conditioning requirements as may be required in order to meet
Spacenet-provided specifications and/or local Building
Department codes. The server portion of the VSAT system shall
be located in an area suitable for a personal computer, in a
clear space, 18"D x 20"W x 10"H, adequately ventilated to
provide air circulation about the server and to be free of
excessive dust or dirt, preferably air conditioned.
- Subject to Customer's or schools' security policies and
procedures, provide Spacenet or its agents with access and
egress to the VSAT site and indoor communications equipment
location at all reasonable times for installation and
maintenance of the Equipment.
- Subject to the Non-Standard Installation paragraph above,
pay for any special conveyances (e.g. crane), services, or
facilities for transporting Equipment (e.g., the VSAT
antenna) and any materials that cannot be manually conveyed
to the point of installation.
- Arrange and pay for union labor if the local jurisdiction
requires labor union members to perform or supervise the
VSAT installation.
F. SCHEDULING ROLL-OUT INSTALLATIONS AND INDIVIDUAL INSTALLATIONS-For Roll-out
Installations (Minimum Site Order Quantity installed within Minimum Site Order
Installation Period", as set forth under the "Network Information" paragraph of
Section A), Spacenet and Customer shall agree to a mutually acceptable overall
roll-out installation schedule for the installation of Equipment at Customer's
Sites. Spacenet shall plan the specific roll-out schedule and routing of the
installations. For Individual Installations (installations outside the Roll-out
Installation described above), Spacenet will perform installations consistent
with the Spacenet-provided lead times. In any event, Spacenet will use
commercially reasonable efforts to install up to [*] Sites per month provided
that Customer delivers its purchase order for such installations at least thirty
(30) days prior to the requested installation date. There will be no Site Survey
charge applicable if Spacenet is able to perform an installation on its first
visit using one of the standard antenna mounts carried by the installer. Upon
arrival of the Spacenet installers at a Site, if it is determined that one of
the standard antenna mounts cannot be used, or if the Site is determined to be
non-Standard for other reasons, a Site Survey will be performed at that time
instead of the installation activity, and the installation will be rescheduled
to include the non-standard equipment and installation activities, subject to
Customer's approval of Spacenet's quotation for any non-standard items or
services not already priced in this Agreement. Late cancellation or postponement
of an installation, which is defined as cancellation or postponement less than
four (4) business days in advance of the scheduled installation, will result in
a Canceled Site Installation charge. A Terminated Site Visit charge will be paid
if Spacenet is not granted access to a site on the scheduled installation date,
or if the site is not ready for a VSAT installation on the scheduled install
date (e.g., site under construction, no A/C power, local approvals not obtained,
etc.)
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
SECTION D-OPERATION AND MAINTENANCE
NETWORK OPERATION
Spacenet is responsible for the overall operation of Customer's network. This
consists of activating new sites and deleting and re-locating existing sites
under Customer's direction. Customer is responsible to promptly notify Spacenet
of potential site problems following Customer's first-level diagnostics.
Spacenet is responsible for the operation of the network to meet the Performance
Specifications identified under "Network Information" of Section A.
OUT-OF-SCOPE SERVICES
If Customer desires Spacenet's assistance for such tasks as adding new
applications to the network, network analyses, system optimization, etc.,
Customer may make such request by providing details of the request in writing to
the Spacenet program manager. Spacenet will then respond with a fixed-price
quotation for performing the requested tasks along with an estimate of the time
it will take to perform the tasks. If Customer accepts Spacenet's estimate and
price, Spacenet will proceed with the tasks.
NETWORK AVAILABILITY COMMITMENT
The transmission services provided by Spacenet to Customer under this Agreement
have an overall Network Availability Commitment as set forth under Network
Information in Section A (calculated by dividing the number of on-line service
minutes by the number of total possible service minutes), averaged over an
annual basis. The annual measurement period shall commence when the minimum site
commitment has been installed. Spacenet shall provide Customer a credit against
future Service fees whenever the total of all service interruptions causes the
actual annual average Network Availability to fall below the Network
Availability Commitment. The credit shall be [*] times the mathematical
product of (i) the Network Availability Commitment less the actual annual
average network availability rounded to the nearest tenth of a percent (for
example: .9953 would be rounded to .995), and (ii) the total Monthly Recurring
Service Fee times the number of active Sites. The total amount of such credit
shall not exceed the total of all Service Fees for one month.
The Network Availability Commitment is measured over a 12-month period and
includes the following elements:
VSAT equipment
Hub earth station equipment
Satellite transponder
Hub sun transit
Spacenet will be relieved of its Network Availability Commitment to the extent
that any service interruptions are due to:
- failure or interruption of service due to the failure or
non-performance of any terrestrial equipment, connections,
or services not provided to Customer by Spacenet's
affiliates,
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
- action or inaction by Customer, its employees, invitees,
third parties, including, but not limited to, changes in
applications, protocols, or transmission parameters from
those tested and approved by Spacenet,
- Customer-scheduled/approved down-time (maintenance,
upgrades, etc.),
- breach of this Agreement by Customer,
- any other cause beyond Spacenet's reasonable control, to
include but not be limited to those actions set forth under
the Force Majeure provision of this Agreement,
- failure or unavailability of the Customer's Data Center.
SITE MAINTENANCE
A. MAINTENANCE DEFINITIONS-Subject to the terms and conditions hereof, Spacenet
shall provide maintenance support for all Equipment provided as part of this
Agreement as well as the PCI cards and SkyBlaster hub purchased from Gilat
Satellite Networks, Ltd. as of the Effective Date. Such maintenance shall
consist of:
- Equipment maintenance which includes travel to and from the
Site and technical trouble-shooting to isolate any problems;
- labor for on-Site repair and replacement, as required, of
malfunctioning Equipment;
- diagnostic support and repair of malfunctioning Equipment;
- software maintenance as needed for one protocol;
- coverage during Spacenet's normal Business Hours, provided,
however, that if the 7x16 ("Extended") maintenance option in
Section A is selected, the maintenance hours shall be from
8AM-Midnight, local time.
"Business Hours" means Monday through Friday, 8:00 a.m. to 5:00 p.m., excluding
holidays, local time of the serving field service center Business Day.
"Business Day" is defined as a day on which the serving field service center is
open for business. The excludes Saturdays, Sundays and Federal, state and local
holidays as applicable in the US, and Saturdays, Sundays, and local holidays as
applicable in each foreign country. US Federal holidays observed by Spacenet
maintenance and service personnel are:
New Year's Day* Labor Day
President's Day Thanksgiving Day
Memorial Day The day after Thanksgiving Day
Independence Day* Christmas Day*
* If the holiday falls on a Saturday or Sunday, it will be observed on
the nearest Friday or Monday, as observed by Federal employees.
B. MAINTENANCE RESPONSE TIME-Spacenet will respond to Maintenance Calls or other
indications of malfunction
<PAGE>
by dispatching a service technician to the Site to repair or replace the
defective component unless the trouble can be otherwise corrected through
remote repair. No less than [*] of the time, Spacenet shall respond to
Maintenance Calls no later than the next Business Day. In all other
instances, Spacenet shall respond to maintenance calls on a commercially
reasonable effort basis but no later than [*] Business Days. The average
response time will be based on results experienced during the prior 12-month
period of operation.
C. CUSTOMER'S MAINTENANCE RESPONSIBILITIES-Customer shall perform first-line
troubleshooting to attempt to assess whether a problem reported at a Site is due
to Spacenet-provided Equipment that needs repair, or some other cause. Calls and
requests for maintenance support shall be made only from Customer's "Central
Trouble Reporting Point." Response to maintenance calls from the Customer's
Central Trouble Reporting Point is predicated upon advisory by the Customer at
the time of notification of the service interruption that an authorized
representative shall be available at the Site to receive the Spacenet
maintenance technician(s), including security escort, if required. In the event
the Customer cannot verify that a representative and/or security escort will be
represent, Spacenet shall not dispatch or have dispatched a maintenance
technician until such time as the the Customer can verify that a representative
shall be available at the Site to receive the maintenance technician(s) and
contacts Spacenet with such information. Upon dispatch of a maintenance
technician, if an authorized representative is not available at the site to
receive the maintenance technician(s), including security escort, if required,
the Terminated Site Visit Charge shall apply and the period for Spacenet's
calculation of the service interruption period shall cease until such time as a
maintenance technician is granted access to the site.
ZapMe! will install and maintain a dedicated 56 Kbps line and equipment
connecting ZapMe!'s help desk in San Ramon, California to Spacenet's shared hub
network management system in order to perform remote diagnostics. Spacenet shall
provide Customer with remote access to Spacenet's shared hub network management
system in order for Customer to perform such remote diagnostics.
D. MAINTENANCE EXCLUSIONS-Spacenet's maintenance obligations under this
Agreement do not include provision of consumable supplies, repair or replacement
of Equipment failures or malfunctions caused by improper installation,
operations, or maintenance by other than Spacenet authorized representatives,
relocation or modification by Customer or others not under Spacenet's control,
failure or interruption of Customer-provided terrestrial communications or
electrical power, accident, fire, lightning, snow, snow removal, or other
hazards beyond normal range of use, vandalism, trouble calls where no problem is
found and the reported problem does not repeat within five calendar days, or
failures or malfunctions resulting from exposure of the Equipment to conditions
beyond its reasonable operating conditions. Any such failures and malfunctions
will be repaired as authorized by Customer on a commercially reasonable effort
basis and billed to Customer on a time and materials basis at Spacenet's
then-effective prices. Customer shall use reasonable efforts to facilitate
access as required for maintenance of the Equipment during maintenance hours,
including appropriate security escort when required. Failure to grant or have
granted access during a maintenance call will result in a Terminated Site Visit
charge.
SOFTWARE LICENSE AND SUPPORT
A. "Licensed SOFTWARE" means any computer program, including any modifications,
updates, or additions which may be included by Spacenet in any or with provided
Equipment as object code or in executable form in any medium, and related
materials such as diagrams, manuals and other documentation which are for use in
the Equipment provided to Customer under this Agreement.
B. By their signature of this Agreement, Spacenet grants to Customer and
Customer accepts a non-exclusive
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
license to use or have used the Licensed Software as it resides in Spacenet's
Equipment, but only for the purpose of causing such Equipment to operate for
the provision of transmission services and not otherwise. Customer shall not
permit any third party to gain access to the Licensed Software or transfer
the Licensed Software to any third party, copy or permit to have copied the
Licensed Software, reverse engineer, disassemble, de-compile, or transmit the
Licensed Software in any form or by any means. Violation of these
restrictions shall entitle Spacenet to terminate this License of Software
without liability, take possession of the Equipment, software, and terminate
this Agreement for default. Licensed Software is and shall remain the
exclusive property of Spacenet or Spacenet's vendors. No license other than
the specifically stated herein is granted to Customer, and Customer shall
have no right under patent, trademark, copyright, trade secret or other
intellectual property of Spacenet or Spacenet's vendors other than that
granted herein.
C. Spacenet's monthly charges include Software License and software support for
the term of the Agreement. During this term, Spacenet will provide remedial
software support services so that Spacenet's software operates on the
Spacenet-provided equipment in accordance with the Performance Specifications of
this Agreement. For clarity, the parties understand that this software support
consists of software maintenance, fixes, work-arounds, etc. which implement the
features and functionality already committed to by Spacenet in this Agreement.
Software releases or upgrades which provide NEW product functionality or
features beyond the functionality or features already committed to under this
Agreement may be offered and quoted to Customer as they become available,
including new features and functionality specifically requested by Customer.
Otherwise, for so long as Customer remains current in its payment of monthly
charges hereunder, there is no additional charge for Software releases or
upgrades that Spacenet may incorporate into its shared hub services to Customer.
D. Spacenet warrants to Customer through the initial term of this Agreement that
the software that operates in the Spacenet-provided Equipment under this
Agreement is "Year 2000 Capable," meaning that (1) its functionality will not be
materially adversely affected as a result of the date change from 1999 to 2000,
including leap year calculations, provided that all Customer-provided or other
non-Spacenet-provided products and equipment used with the Equipment function
properly including, without limitation, property exchanging date data with the
Equipment; and (2) to the extent applicable to the Equipment's normal operating
specifications and subject to any upper and lower limits in the Equipment's
systems design, the Equipment will accept, store, retrieve, compare and
otherwise process dates of January 1, 2000 and later. This warranty is subject
to the limitations set forth in Article 9 of this Agreement.
<PAGE>
Amendment No. 1
To Services Agreement
Between ZapMe! Corporation and Spacenet Inc.
This document will become effective as Amendment No. 1 to the Services
Agreement between Spacenet Inc. ("Spacenet") and ZapMe! Corporation ("ZapMe!")
as of the date of the last party to sign below.
WHEREAS, Spacenet and ZapMe! executed a Services Agreement on June 11, 1999
(hereinafter collectively referred to as the "Agreement"); and
WHEREAS, the parties wish to amend the price for Standard Equipment and Service
in Section A of the Agreement.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein, the parties agree as follows:
1. The price for Standard Equipment and Service in Section A of the
Agreement is hereby deleted in its entirety and replaced with the
following:
STANDARD EQUIPMENT AND SERVICE FREQUENCY SITES PRICE(1)
- ------------------------------ --------- ----- --------
Monthly, Per Site 1-510 [*]
Monthly, Per Site 511-1,613 [*]
Monthly, Per Site 1,614 and up [*]
Standard Service - Includes:
1.2 Meter Antenna,
One Standard Mount(2)
Up to 400 Feet of IFL Cable, Non-Plenum (dual 200' cable run)
Outdoor Unit (3) - 500 mw ODU and LNB,
Two PCI cards
- DVB Receiver(4)
- Satellite Transmitter(5),
Support for One (1) Spacenet-Supported Software Protocol,
Software License and Maintenance,
48-state [*]-Band satellite capacity, non-preemptible and intra-satellite
protected,
Use of Spacenet's Shared Hub Facilities,
Standard Installation, 24-hour 2nd Level Help Desk Support,
Next Business Day Maintenance Support,
Satellite Network capacity to support Customer's Bandwidth Allocation
specified under "Network Information"(6)
- -----------------
(1) The price for Standard Equipment and Service shall constitute the sole
amount due to Spacenet from ZapMe! under this or any prior agreement
for such Standard Equipment and Service, subject to additional
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
charges for all non-standard requirements and subject to the terms and
conditions of this Agreement.
(2) "Standard" mounts are: Non-penetrating, Close-in Wall, Medium Reach
Wall, and I-Beam.
(3) Outdoor Units will not be provided by Spacenet as part of the Standard
Service for the first 510 Sites installed under this Agreement. Outdoor
Units for such Sites will be provided by ZapMe!
(4) DVB Receivers will not be provided by Spacenet as part of the Standard
Service for the first 1,613 Sites installed under this Agreement. DVB
Receivers for such Sites will be provided by ZapMe!
(5) Satellite Transmitters will not be provided by Spacenet as part of the
Standard Service for the first 510 Sites installed under this
Agreement. Satellite Transmitters for such Sites will be provided by
ZapMe!
(6) The space segment purchased from Spacenet as part of the Standard
Service shall be dedicated to ZapMe!.
<PAGE>
2. Nothing contained in the Agreement effects Customer's
obligations to purchase from Gilat Satellite Networks, Inc.
("Gilat") the equipment specified in Customer's Purchase Order
No. 339 and Purchase Order No. 340 to Gilat dated November 24,
1998.
3. Terms not otherwise defined herein shall have the meanings set forth
in the Agreement.
4. This Amendment No. 1 and the Agreement comprise the entire agreement
and understanding between the parties with respect to the subject
matter hereof. Unless specifically amended herein, the terms and
conditions of the Agreement shall remain in full force and effect. In
the event of any conflict between the terms of this Amendment No. 1 and
the Agreement, the terms of this Amendment No. 1 shall prevail.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to the
Agreement to be executed as of the date of the last party to sign below.
AGREED TO BY ZAPME!: ACCEPTED BY SPACENET:
ZapMe! Corporation Spacenet Inc.
SIGNATURE: /s/ Robert A. Stoffregen /s/ Yoel Gat
------------------------- ------------
PRINTED NAME: Robert A. Stoffregen Yoel Gat
--------------------- --------
TITLE: CFO CEO
---- ---
DATE: 7/19/99 7/19/99
-------- -------
<PAGE>
Exhibit 10.19
Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
PRODUCTS AND SERVICES AGREEMENT
THIS PRODUCTS AND SERVICES AGREEMENT (this "Agreement") is dated as
of March 3, 1999, by and between Sylvan Learning Systems, Inc., a Maryland
corporation ("Sylvan") and ZapMe! Corporation, a California corporation
("ZapMe").
RECITALS
WHEREAS, Sylvan has developed or will develop those educational and
testing products and services enumerated on EXHIBIT A attached hereto (the
"Authorized Products and Services") for use on or with personal computers
("PCs");
WHEREAS, ZapMe is in the business of, among other things, providing
no cost PC-based computer systems consisting of a server networked with 5 to
15 personal computers and a laser printer to elementary, middle and high
schools at no cost (a "ZapMe" System"); the ZapMe Systems are connected to
the Internet via satellite or otherwise utilizing ZapMe's operating systems
and software; and
WHEREAS, Sylvan and ZapMe have agreed to enter into this Agreement
whereby ZapMe is entrusting Sylvan to maximize the value of certain business
opportunities available to ZapMe, by granting Sylvan the exclusive right to
provide the Authorized Products and Services through ZapMe Systems.
NOW THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements contained herein and other good and valuable
consideration, the parties, intending to be legally bound, hereby agree as
follows:
SECTION 1. GRANT OF EXCLUSIVE RIGHT; RIGHTS RESERVED.
1.1 ZapMe hereby grants to Sylvan, and Sylvan hereby
accepts from ZapMe, the exclusive right to deliver the Authorized Products
and Services on ZapMe Systems in Eligible Schools, as defined below, to
Sylvan customers.
1.2 In consideration of ZapMe granting such rights
to Sylvan, Sylvan agrees to use its best efforts to maximize the value to
ZapMe of the opportunities to which ZapMe is hereby entrusting Sylvan by
delivering all of the Authorized Products and Services to Eligible Schools.
1.3 This Agreement does not include or address goods
and services to be delivered outside of the United States, which rights are
specifically reserved by ZapMe.
1
Sylvan/ZapMe! Agreement
<PAGE>
SECTION 2. SYLVAN'S RESPONSIBILITIES. At all times during the
term hereof, Sylvan shall:
2.1 Promote and support all of the Authorized
Products and Services to students, teachers, administrators and other
potential end users in those schools having an installed and fully
functioning ZapMe System ("Eligible Schools");
2.2 Develop other fee-based products and services
("Additional Sylvan Products and Services") to be provided by Sylvan directly
or by a third party through Sylvan in addition to the Authorized Products and
Services for introduction into the Eligible Schools. ZapMe shall have the
right to approve, in its sole discretion, all proposed terms and conditions
regarding Additional Sylvan Products and Services before they may be
delivered on or through ZapMe Systems in Eligible Schools ("Eligible
Systems"), including specifically the terms and conditions under which ZapMe
will be compensated in connection therewith;
2.3 Interact with teachers, students, administrators
and other end users in the Eligible Schools in order to facilitate and
encourage the use of the Eligible Systems for the Authorized Products and
Services;
2.4 Promptly pay to ZapMe all Profit Share Fees (as
hereinafter defined) in accordance with Section 5 hereof; and
2.5 Use reasonable efforts to cooperate and
facilitate the use of Eligible Systems by third parties designated by ZapMe,
in such a way as not to unduly interfere with Sylvan's rights to offer the
Authorized Products and Services or Additional Sylvan Products and Services.
SECTION 3. ZAPME'S RESPONSIBILITIES. At all times during the
term hereof, ZapMe shall:
3.1 Actively market the ZapMe Systems to school
districts and individual schools throughout the United States so as to
increase the number of schools that may become Eligible Schools;
3.2 Use commercially reasonable efforts to support,
maintain and repair the ZapMe Systems at Eligible Schools, including the PCs,
all software and other components, so that workstation and network downtime
is minimized;
3.3 Not accept any advertising on Eligible Systems
for products or services that are directly competitive with the Authorized
Products and Services; and
3.4 Promptly remit to Sylvan any fees received by
ZapMe which represent fees for Authorized Products and Services and
Additional Sylvan Authorized Products and Services.
2
Sylvan/ZapMe! Agreement
<PAGE>
SECTION 4. COOPERATION AND INFORMATION SHARING.
4.1 ZapMe shall, subject to any confidentiality
restrictions it may be under, keep Sylvan apprised of and consult with Sylvan
on the types of educational products and services ZapMe intends to offer on
or through the ZapMe!-TM- netspace (the "ZapMe Netspace"). If such products
or services are similar to the Authorized Products and Services or other
products and services Sylvan offers, ZapMe will provide Sylvan with notice
thereof prior to committing to offering such products or services on the
ZapMe Netspace.
4.2 Sylvan will keep ZapMe apprised of its efforts
to deliver the Authorized Products and Services in as many Eligible Schools
as is practical.
SECTION 5. PROFIT SHARE FEES.
5.1 PERCENTAGE. For each calendar quarter
during the term of this Agreement, Sylvan shall pay to ZapMe a cash fee equal
to the Applicable Percent (as defined below) of the Net Operating Profit (as
defined below) generated during such quarter by the Authorized Products and
Services (as expressed on EXHIBIT A hereto) at the Eligible Schools. For
purposes of the foregoing, Net Operating Profit shall be calculated by Sylvan
in accordance with EXHIBIT B attached hereto, and all fees paid to ZapMe
during the term of this Agreement pursuant to this Section 5 (excluding any
credit against Profit Share Fees otherwise owing by reason of Section 5.3
hereof) are hereinafter referred to as "Profit Share Fees." ZapMe
acknowledges that Sylvan provides products and services to schools,
administrators, teachers and students independent of ZapMe Systems and ZapMe
agrees that only those Authorized Products and Services actually provided
making use of Eligible Systems are subject to payment of Profit Share Fees.
The Applicable Percent shall initially be [*], and for each [*] cumulative
Profit Share Fees paid to ZapMe, so long as this Agreement is in effect, the
Applicable Percent shall be reduced by [*] until it becomes [*], after which
it shall not be further reduced.
5.2 PAYMENT OF PROFIT SHARE FEES. After the
end of each calendar quarter during the term of this Agreement, Sylvan shall
calculate the estimated Profit Share Fees payable on account of such quarter
and shall remit the estimated Profit Share Fees to ZapMe not later than the
15th of the month following the end of the quarter, in all cases subject to
the verification procedures described in Section 6.2 of this Agreement. Such
Profit Share Fees shall be calculated net of any previous net operating
losses reported for prior quarters in that particular calendar year.
5.3 MINIMUM PROFIT SHARE FEES.
(a) During 1999 only, Sylvan shall pay a
minimum quarterly Profit Share Fee of [*] for each school that was an
Eligible School on the last day of the applicable quarter (the "1999 Minimum
Per School Quarterly Fee"). For 1999, Sylvan shall pay to ZapMe not less
than [*] cumulative Profit Share Fees. If the calculated amount of 1999
Profit Share Fees (including aggregate 1999 Minimum Per School Quarterly
Fees) is less than [*] Sylvan shall receive a credit against the fees to be
paid by Sylvan to ZapMe for
3
Sylvan/ZapMe! Agreement
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
2000, which credit shall equal the excess of [*] over the amount of fees
otherwise owing for 1999.
(b) For each year during the term of this
Agreement beginning with the year 2000, Sylvan shall pay to ZapMe an annual
Minimum Profit Share Fee, calculated in accordance with the following
formula: [*]
(c) Sylvan shall calculate and pay the
MPSF no later than January 15th of the following year, subject to
verification as provided for in Section 6 below. For purposes of the
calculation of MPSF, the FF for each school in question shall be as follows:
<TABLE>
<CAPTION>
Number of Full Years as Eligible School Fee Factor
--------------------------------------- ----------
<S> <C>
1 [*]
2 [*]
3 [*]
4 or more [*]
</TABLE>
SECTION 6. REPORTING; AUDIT RIGHTS.
6.1 ZAPME SCHEDULES. Within 10 days after the
end of each calendar quarter during the term of this Agreement, ZapMe shall
provide Sylvan a schedule showing each Eligible School as of the end of the
preceding quarter (the "Eligible School Schedule"), which shall separately
identify each Eligible School, when such school became an Eligible School and
the number of Eligible Schools added and deleted during such quarter.
Promptly after the end of each year during the term of this Agreement, ZapMe
shall verify its calculations through an independent auditor or other means
of verification acceptable to Sylvan (the "Verified Annual Schedule"), and
ZapMe shall provide Sylvan the Verified Annual Schedule within 30 days after
the end of each year.
6.2 SYLVAN QUARTERLY REPORT. Within 30 days
after receipt of each Eligible School Schedule, Sylvan shall provide ZapMe
with an accounting showing revenues, operating expenses and Net Operating
Profit from the Authorized Products and Services during the quarter covered
by that Eligible School Schedule (the "Sylvan Quarterly Report"). For the
four quarters of 1999, the Sylvan Quarterly Report also shall include a
calculation of the 1999 Minimum Fee, based upon the number of Eligible
Schools contained in the Eligible School Schedule for the applicable quarter.
Each Sylvan Quarterly Report shall be accompanied by either payment of the
amount by which the verified Profit Share Fee exceeded the Profit Share Fee
made previously for that quarter, or a credit memorandum for the amount by
which the estimated Profit Share Fee exceeded the Profit Share Fee made
previously for the Quarter.
4
Sylvan/ZapMe! Agreement
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
6.3 SYLVAN ANNUAL REPORT. Annually, Sylvan shall
cause its independent auditors to report on the accuracy of each Sylvan
Quarterly Report prepared by Sylvan during the preceding year (the "Sylvan
Annual Report") and to calculate the MPSF for each such year (beginning with
the year 2000), based upon the number of Eligible Schools shown on the
Verified Annual Schedule for that year. Sylvan shall provide the Sylvan
Annual Report to ZapMe by March 31 of the following year. If that Sylvan
Annual Report shows that Sylvan owes a MPSF for that year or that Sylvan has
underpaid the Profit Share Fees for that year, Sylvan shall pay the amount
due when it sends the Sylvan Annual Report to ZapMe. If the Sylvan Annual
Report shows that Sylvan has overpaid the Profit Share fees for the year, the
amount of the overpayment shall be credited against the Profit Share Fees for
the following year.
6.4 SYLVAN'S AUDIT RIGHTS. If Sylvan disagrees
with any Eligible Schools Schedule, Sylvan shall notify ZapMe of such
disagreement within 30 days of receiving such Eligible Schools Schedule.
Upon receipt of such notice, ZapMe shall promptly make available to Sylvan
and its auditors, during reasonable business hours, all books and records,
including financial records, pertaining to the Eligible Schools for purposes
of verifying the Eligible Schools Schedule. Sylvan's failure to provide
notice of disagreement within such 30 days shall constitute acceptance of the
Verified Annual Schedule. In the event the Sylvan audit determines that the
Eligible Schools Schedule has been overstated by more than 5%, then ZapMe
shall pay the reasonable cost of such audit.
6.5 ZAPME'S AUDIT RIGHTS. If ZapMe disagrees
with any Sylvan Quarterly Report or Sylvan Annual Report, ZapMe shall notify
Sylvan of such disagreement within 30 days of receiving such Sylvan Quarterly
Report and within one year of receiving such Sylvan Annual Report. Upon
receipt of such notice, Sylvan shall promptly make available to ZapMe and its
auditors, during reasonable business hours, all books and records, including
financial records, pertaining to Sylvan's revenues, operating expenses and
Net Operating Profit from the Authorized Products and Services for purposes
of verifying the Sylvan Quarterly Report or the Sylvan Annual Report, as the
case may be. ZapMe's failure to provide notice of disagreement within such
time frames shall constitute acceptance of the applicable report (subject in
the case of each Quarterly Report to final determination in the Annual
Report). In the event the ZapMe audit determines that the Profit Share Fees
have been understated by more than the greater of [*] of the Profit Share
Fees, then Sylvan shall pay the reasonable cost of such audit.
6.6 DISPUTES. If a dispute arises under
Section 6.4 or 6.5 which the parties are unable to resolve within 30 days,
the parties shall cause their respective auditors to seek to resolve the
dispute. If the auditors are unable to resolve the dispute within the next
30 days, the matter shall be submitted to binding arbitration in accordance
with Section 11 hereof.
SECTION 7. SPONSORSHIP; ADVERTISING.
7.1 CHARTER SPONSORSHIP. In 1999, Sylvan will
participate as a charter advertising sponsor on the ZapMe Network in the
amount of [*] payable as such
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Sylvan/ZapMe! Agreement
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
advertising expenses are incurred. As a charter sponsor, Sylvan shall be
entitled to require ZapMe to place Sylvan-created advertisements on the ZapMe
Network in accordance with ZapMe's charter sponsorship terms. Subject to
Sylvan's good faith determination that its customer acquisition cost goals
have been met for a particular year, Sylvan shall remain a sponsor of the
ZapMe Network for the following year, at a spending level of 20% above the
preceding annual level. In the event ZapMe is not able to deliver the minimum
amount of advertising substantially in accordance with reasonable
Sylvan-specified delivery frequencies to meet the sponsorship level provided
in this Section 7.1, then Sylvan shall receive an advertising credit the
following year in an amount equal to the value of advertising not delivered
which would have met the minimum sponsorship level.
7.2 ADVERTISING RATES. In 1999 and 2000,
Sylvan shall be entitled to preferred advertising rates that [*]
respectively, to ZapMe's published rates for those years. During the term of
this Agreement, Sylvan shall be charged advertising rates no greater than the
lowest rates charged by ZapMe to any advertiser during that year.
7.3 ANNUAL ADVERTISING CREDIT. ZapMe and
Sylvan agree that it is in their mutual best interests that the Authorized
Products and Services be promoted by advertisements on the ZapMe Network.
Sylvan shall be credited each calendar year of this agreement beginning in
1999 with an advertising credit equal (a) in 1999 to [*] and (b) thereafter
to the actual amount of spending by Sylvan on advertising on the ZapMe
Network the previous calendar year (the "Advertising Credit"). This
Advertising Credit will be repaid to ZapMe on a dollar for dollar basis until
repaid in full out of the Net Operating Profits from the sale of Authorized
Products and Services. Notwithstanding the foregoing, Sylvan will not be
required to repay any Advertising Credits to the extent that they in total
exceed cumulative Net Operating Profits, prior to termination of this
Agreement.
SECTION 8. TERM AND TERMINATION.
8.1 TERM. The initial term (the "Initial Term")
of this Agreement shall expire on December 31, 2003. Sylvan may renew this
Agreement for an additional five year period by providing written notice of
its intent to renew no later than November 15, 2003, but only if: (i) the
Profit Share Fees for the first three calendar quarters of 2003 would result
in an annualized Fee Factor (the "Annualized Fee Factor") of at least [*]
per school (the "Renewal Right Amount"), such calculation to be based on the
number of Eligible Schools in which a ZapMe System has been installed and is
operational for at least one year, on September 30, 2003; or (ii) the
Annualized Fee Factor is less than the Renewal Right Amount and Sylvan
remits to ZapMe such additional payment as is necessary to achieve the
Renewal Right Amount.
8.2 TERMINATION. This Agreement may be
terminated as follows:
(a) by mutual written consent of Sylvan
and ZapMe; or
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Sylvan/ZapMe! Agreement
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
(b) by Sylvan, if ZapMe breaches any
provision of Section 3 of this Agreement, which breach has not been cured
within 30 days after written notice from Sylvan to ZapMe; or
(c) by ZapMe, if Sylvan breaches any
provision of Section 1, 2, 5, 6 or 7 of this Agreement, which breach has not
been cured within 30 days after written notice from ZapMe to Sylvan; or
(d) by ZapMe, on one year's written
notice, if Sylvan offers or delivers PC-based Authorized Products or Services
through third parties whose business model is based on installing free or
subsidized PC systems in schools; or
(e) by Sylvan for any reason, upon not
less than one year's prior written notice, accompanied by a termination fee
equal to the greater of (i) $1 million; or (ii) the MPSF for the 12 months
preceding the month in which Sylvan provides such notice of termination; or
(f) by Sylvan, by written notice at any
time after December 31, 1999, if ZapMe has not achieved (i) [*] Eligible
Schools by December 31, 1999, (ii) [*] Eligible Schools by December 31,
2000; and (iii) [*] Eligible Schools by December 31, 2001 and each year
thereafter.
8.3 If Sylvan is precluded by any governmental
authority (including judicial authorities) from delivering any one or more of
the Authorized Products and Services to any Eligible School, (a) Sylvan shall
immediately so inform ZapMe thereof and (b) at any time thereafter, ZapMe
may, by written notice to Sylvan, determine that such school is no longer an
Eligible School.
8.4 REMEDIES UPON TERMINATION. In the event of
the termination of this Agreement, all legal rights and equitable remedies,
if any, of the terminating party shall survive and remain enforceable.
SECTION 9. PERFORMANCE WARRANT. In consideration of the
agreements hereunder, ZapMe shall deliver to Sylvan a warrant in substantially
the form attached hereto as EXHIBIT D.
SECTION 10. CONFIDENTIALITY. Each party hereto will hold in
confidence and not reveal to any third parties any knowledge or information
of a confidential nature with respect to the business, products, know-how and
methods of operation of the other party hereto, and will not disclose,
publish or make use of the same, provided, however, that the foregoing shall
not be applicable to any disclosure or use of confidential information or
knowledge that can be demonstrated to have (i) been publicly known prior to
the date of this Agreement, (ii) become known by publication or otherwise not
due to the unauthorized act or omission on the part of the recipient, or
(iii) been supplied to the recipient by a third party without violation of
the rights of any of the parties to this Agreement or any other party's
rights. Upon termination or expiration of this Agreement, each party shall
immediately return to the other confidential information
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Sylvan/ZapMe! Agreement
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
(regardless of the medium) in its possession and belonging to such other
party. The parties agree that the remedy at law for any breach of this
Section 10 may be inadequate and that the aggrieved party shall be entitled
to injunctive and other equitable relief in addition to any other remedy
available to it in law or equity. This Section 10 shall survive termination
or expiration of this Agreement and shall remain enforceable by injunctive or
other equitable relief.
SECTION 11. INDEMNIFICATION. Sylvan shall be responsible for
the Authorized Products and Services, and shall indemnify and hold ZapMe
harmless from any claim asserted by, or liability to, any third party based
solely upon one or more of the Authorized Products and Services or the
negligence of Sylvan. ZapMe shall be responsible for the Computer Labs, the
ZapMe Systems, and all computers and related equipment, and shall indemnify
and hold Sylvan harmless from any claim asserted by, or liability to, any
third party based solely upon one or more of the Computer Labs, the ZapMe
Systems, the related computers and other equipment or the negligence of ZapMe.
SECTION 12. DISPUTE RESOLUTION; CONSENT TO JURISDICTION.
Sylvan and ZapMe agree that any controversy or claim arising out of or
relating to this Agreement or the alleged breach thereof shall be settled
exclusively by arbitration in Tulsa, Oklahoma in accordance with the National
Rules of the American Arbitration Association. The decision of the arbitrator
or arbitrators shall be binding on all parties hereto, and judgment upon the
arbitration award may be entered by any court having jurisdiction. In
reaching its decision, the arbitrator shall have no authority to change or
modify any provision of this Agreement. Any party hereto may seek specific
performance, injunctive relief or other equitable relief before a court of
competent jurisdiction for purposes of compelling the other party hereto to
perform its obligations hereunder, or compelling the other party to arbitrate
any controversy or claim in the manner provided for above. The failure of a
court to grant the equitable relief sought by a party hereto shall not bar
such party from seeking to arbitrate the same claim, and such failure shall
not be taken into account by arbitrators in any arbitration. For purposes of
the foregoing, ZapMe and Sylvan each hereby irrevocably consent to the
jurisdiction of the federal and state courts of the State of Maryland and
California, respectively, and to arbitration located in Tulsa, Oklahoma. For
purposes of Section 10 of this Agreement, ZapMe and Sylvan irrevocably
consent to the jurisdiction of the federal and state courts of the State of
Maryland and California, respectively.
SECTION 13. MISCELLANEOUS.
13.1 NO AGENCY, JOINT VENTURE, ETC. Sylvan and
ZapMe acknowledge and agree that each is not an agent of the other for any
purpose whatsoever, and that each shall have no authority to legally bind the
other. Nothing contained in this Agreement shall be deemed to create a joint
venture or partnership between the parties.
13.2 EXPENSES. Each party to this Agreement
shall pay all of its expenses relating hereto, including fees and
disbursements of its counsel, accountants and financial advisors.
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Sylvan/ZapMe! Agreement
<PAGE>
13.3 SURVIVAL. The covenants and agreement
made by the parties in Sections 5, 10, 11 and 12 of this Agreement shall
survive the termination or expiration of this Agreement.
13.4 NOTICES. Except as otherwise provided
herein, all notices, requests, demands and other communications under or in
connection with this Agreement shall be in writing, and:
(a) if to Sylvan, shall be addressed to:
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
Attention: Douglas L. Becker, Co-Chief
Executive Officer
Fax: 410-843-8060
with a copy to:
Sylvan Learning Systems, Inc.
1000 Lancaster Street
Baltimore, Maryland 21202
Attention: Robert W. Zentz, Esq., General
Counsel
Fax: 410-576-1763
(b) if to ZapMe, shall be addressed to:
ZapMe Corporation
3000 Executive Parkway, Suite 150
San Ramon, California 94583
Attention: Lance Mortensen, Chief Executive
Officer
Fax: 925-543-0301
with a copy to:
ZapMe Corporation
3000 Executive Parkway, Suite 150
San Ramon, California 94583
Attention: Bruce Bower, General Counsel
Fax: 925-277-9356
All such notices, requests, demands or communications
shall be sent by overnight delivery, or certified mail (return receipt
requested), and shall be deemed delivered when sent. Any party may change the
address at which it is to receive notice by like written notice to the other.
13.5 ENTIRE AGREEMENT. This Agreement
(including the exhibits hereto and the lists, schedules and documents
delivered hereunder, which are a part hereof) is intended by the parties to
and does constitute the entire agreement of the parties with respect to the
matters contemplated by this Agreement. This Agreement supersedes any and all
prior
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Sylvan/ZapMe! Agreement
<PAGE>
understandings, written or oral, between the parties. This Agreement may be
amended, modified, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the amendment,
modification, waiver, discharge or termination is sought. This Agreement may
not be amended except by an instrument in writing signed by each of the
parties hereto.
13.6 HEADINGS. The paragraph headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
13.7 COUNTERPARTS. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
13.8 ASSIGNMENT. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns, but nothing herein, express or implied, is
intended to or shall confer any rights, remedies or benefits upon any person
other than the parties hereto. This Agreement may be assigned by either party
with the other party's consent, not unreasonably to be withheld, in the event
of a merger, acquisition, or sale of substantially all of the assets of the
assigning party (provided that the succeeding entity agrees to honor all of
the commitments and obligations of the assigning party under this Agreement,
and without the other party's consent in the event of a merger in connection
with the reincorporation of the assigning party.
13.9 TECHNICAL SPECIFICATIONS. Each ZapMe
System is based on the technical specifications set forth in EXHIBIT C.
13.10 GOVERNING LAW. This Agreement shall be
construed in accordance with and governed by the laws of the State of New
York, without giving effect to the principles of conflicts of law.
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Sylvan/ZapMe! Agreement
<PAGE>
IN WITNESS WHEREOF, Sylvan and ZapMe have executed this Agreement as
of the day and year first above written.
SYLVAN LEARNING SYSTEMS, INC.
By: /s/ Douglas Becker
---------------------------
Name: Douglas Becker
-------------------------
Title: President & Co-CEO
-------------------------
ZAPME CORPORATION
By: /s/ Lance Mortensen
---------------------------
Name: Lance Mortensen
-------------------------
Title: CEO
------------------------
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Sylvan/ZapMe! Agreement
<PAGE>
EXHIBIT A
to
Products and Services Agreement
AUTHORIZED PRODUCTS AND SERVICES
"Authorized Products and Services" include only the following items:
1. Student tutoring or information training services, delivered either
live or by computer.
2. Test preparation programs for academic tests, including but not
limited to the SAT, ACT and the PSAT ("Test Prep Programs").
3. The delivery of computer based tests, for a fee, for (i) academic or
institutional admission (e.g. SAT, ACT), (ii) academic recognition, or
scholarship (e.g. PSAT), (iii) professional or vocational designation or
certification (e.g. Microsoft Certified Systems Engineer), or (iv) academic
placement or credit (e.g. standardized AP testing).
Notwithstanding the foregoing, Authorized Products and Services shall in no
way:
(i) require that ZapMe block access to any sites available on the
Internet that are not operated by ZapMe;
(ii) preclude ZapMe from entering into agreements with on-line
retailers of educational material or content, other than on-line
retailers who specialize in 1, 2 or 3 above; or
(iii) preclude ZapMe from incorporating into the ZapMe Netscape
educational content (other than Test Prep Programs) for which
ZapMe is not compensated.
12
Sylvan/ZapMe! Agreement
<PAGE>
EXHIBIT B
to
Products and Services Agreement
[*]
13
Sylvan/ZapMe! Agreement
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
EXHIBIT C
SKYSURFER PRO NETWORK SCHEME
[Graphic]
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
EXHIBIT 10.20
Microsoft Corporaiton Tel 650 571 7737
950 Tower Lane, Suite 900 Fax 650 571 6040
Foster City, CA 94404 http://www.microsoft.com/
[MICROSOFT LOGO]
LETTER OF UNDERSTANDING
September 29, 1998
Joshua Marks
ZapMe!
3000 Executive Parkway, Suite 150
San Ramon, CA 94583
Dear Mr. Marks:
In response to your request, Microsoft Corporation, through its
Microsoft Consulting Services division ("MCS") is pleased to provide
technical assistance to ZapMe! ("Customer"). Based on our discussions, we
understand that Customer requires assistance with developing applications
with Microsoft Office Suite products. This technical assistance is defined in
more detail as follows:
ZapMe! experiences the following problems with writing its own Internet-based
applications to work with Microsoft Office products, or in particular,
Microsoft Word.
[*]
Our services are provided on a time and materials basis and are
based upon the rate(s) of the individual(s) assigned and the actual amount of
hours worked by those individuals. Our fees for this engagement for an MCS
Senior Consultant are [*] per hour, plus travel and expenses. This represents
a [*] discount off our standard fees of [*] per hour. The total estimated fee
for this project is [*] based on an estimated [*] hours of service during a
one month time period. Customer agrees to pay MCS for the actual time worked
by MCS consultants, plus all travel and other expenses incurred in connection
with the work.
The services to be provided by MCS will be in the form of advice or
consultation only, and will not result in the delivery of any computer
programs or code with associated title or license rights. In the event that
MCS services under this Letter Agreement includes delivery of a report to
Customer, Customer shall own the copyright in the report, however Microsoft
reserves the right to use for any purpose subsets or modules of the report
which by themselves provide generic technical information not unique to
Customer's business.
The terms and conditions of this Letter Agreement are confidential,
and any and all information identified
- --------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchanges commission.
<PAGE>
by either party as "Confidential" and/or "Proprietary", or which, under all
of the circumstances, ought reasonably to be treated as Confidential and/or
Proprietary ("Confidential Information"), will not be disclosed to any third
person without the express consent of the other party. These confidentiality
obligations shall not apply to any information which is, or becomes,
available to the general public other than through a breach by the receiving
party, or is developed through the independent efforts of the receiving
party. Either party shall be free to use for any purpose the residuals
resulting from access to or work with such Confidential Information, provided
that such party shall maintain the confidentiality of the Confidential
Information. The term "residuals" means information in nontangible form,
which may be retained by persons who have had access to the Confidential
Information. However, nothing in this paragraph shall be deemed to grant to
either party a license in the other party's copyrights or patents.
Neither party will be liable to the other for any consequential,
indirect or special damages which may arise out of the services provided
under this Letter Agreement, and in no event will either of us be liable to
the other for amounts in excess of the amount to be paid for services
rendered. Microsoft warrants that the services provided under this Letter
Agreement will be performed using generally accepted industry standards and
practices. No other warranties of any kind, including warranties of
merchantability or fitness for purpose, are extended by Microsoft.
This Letter Agreement constitutes the entire agreement between
Microsoft and Customer, and merges all prior and contemporaneous
communications with respect to the subject matter hereof. The terms on any
purchase order or other form submitted by Customer shall not apply. This
Letter Agreement shall be governed by the laws of the State of Washington,
U.S.A.
Please acknowledge acceptance of the terms of this Letter Agreement
by signing the enclosed duplicate copy and returning it to us. We look
forward to working with you. If you have any questions, please give me a call
at 650-573-5027.
Sincerely yours,
/s/ Walther De Petris
Walther De Petris
Partner and Developer Services
Accepted and Approved for
MICROSOFT CORPORATION
/s/ Walther DePetris
- ---------------------------
Signature
Walther DePetris
- ---------------------------
Name (Print)
Director
- ---------------------------
Title
10/13/98
- ---------------------------
Effective Date
Accepted and Approved for
ZAP ME!
/s/ Joshua Marks
- ---------------------------
Signature
<PAGE>
Joshua Marks
- ---------------------------
Name (Print)
Chief Operating Officer
- ---------------------------
Title
10/7/98
- ---------------------------
Date
<PAGE>
Microsoft Corporation Tel 425 882 8080
One Microsoft Way Fax 425 936 7329
Redmond, WA 98052-6399 http://www.microsoft.com/
AUTHORIZATION NUMBER X 9900183
(TO BE COMPLETED BY MS)
MICROSOFT CORPORATION
AUTHORIZED EDUCATION RESELLER APPLICATION
[MICROSOFT LOGO]
This Microsoft Corporation Authorized Education Reseller Application
("Application") is entered into as of this 24th day of August, 1998, between
MICROSOFT CORPORATION ("MS"), and Satellite Online Solutions Corporation
("RESELLER") (RESELLER: PLEASE ENTER DAY, DATE, YEAR AND COMPANY NAME ABOVE.)
THIS APPLICATION IS AVAILABLE ONLY TO RESELLERS WHO MEET THE FOLLOWING
CRITERIA:
A) LICENSED TO RESELL
RESELLER must have a current license to do business from an applicable local
government entity.
AND
B) RESELLER MINIMUM PURCHASE OR CAMPUS RESELLER CERTIFIED
For the six (6) month period prior to submitting this Application, and
for each six (6) month period following execution of this Application,
RESELLER must have an established record of Microsoft Academic Edition
("AE") products purchases from Microsoft authorized distributors
totaling a minimum of [*] in Microsoft AE product ("Minimum Purchase
Requirement"). MS shall review RESELLER's Minimum Purchase Requirements
semi-annually every December 1st and June 1st. Notwithstanding anything
to the contrary in Section 2, if RESELLER's Minimum Purchase
Requirements are not met, Microsoft will terminate this Application and
RESELLER will not be allowed to reapply for one (1) year following
termination.
"Campus Resellers" (defined as an entity officially owned, operated by, or
affiliated with a higher education institution) need not meet the
Minimum Purchase Requirement provided valid proof of affiliation (which
includes a letter of recognition from the applicable university
president or provost or equivalent) is submitted with this Application.
MS reserves the right, in its sole discretion, to refuse the Application of any
applicant or re-applicant for entry into the AER program.
AND
- --------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchanges commission.
<PAGE>
C) SUBMITTAL OF APPLICATION CHECKLIST
Upon submittal of this Application, RESELLER shall attach a completed
Application Checklist ("Checklist") attached hereto as Schedule B.
Completion and submission of the Checklist does not constitute
eligibility for or acceptance into the AER Program. MS shall not
approve any Application and shall refuse entry into the AER Program by
any applicant if Checklist is missing or incomplete.
1. PURPOSE
The purpose of this Application is to set forth the framework by which MS
appoints RESELLER as an Authorized Education Reseller ("AER"), and by which
MS authorizes RESELLER to purchase AE products from a MS authorized AE
distributor, and distribute said AE products to Qualified Educational Users
("Qualified Educational User(s)") as defined in the Microsoft Qualified
Educational User Definition & Distribution Guidelines ("Guidelines"),
attached hereto as Schedule A. Microsoft shall have the right to change the
Guidelines upon thirty (30) days' written notice.
2. TERM AND TERMINATION
The Application shall be effective upon the assignment by Microsoft of a new
authorization number. Either party may terminate this Application upon
providing thirty (30) days' notice to the other party. The Application shall
terminate immediately upon breach of any provision of the Application
including, without limitation, breaches of Section (A) or (B) above. Should
termination for a breach occur, RESELLER agrees that MS shall be entitled to
damages, including without limitation, the difference between MS estimated
retail price for AE product and MS full packaged product estimated retail
price for commercial versions of the same product. Microsoft reserves the
right to pursue any and all of its other legal and equitable remedies, as
well, including, without limitation, punitive damages, professional fees and
remedies under federal copyright law.
3. RESELLER OBLIGATIONS
During the term of this Application, RESELLER agrees:
3.1 RESELLER SHALL OBTAIN AE PRODUCT ONLY FROM A MS AUTHORIZED AE
DISTRIBUTOR;
3.2 RESELLER SHALL DISTRIBUTE AE PRODUCT ONLY TO QUALIFIED
EDUCATIONAL USERS AS DEFINED IN THE GUIDELINES;
3.3 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTION 3.2, RESELLER
SHALL DISTRIBUTE AE PRODUCT ONLY TO QUALIFIED EDUCATIONAL USERS AS END
USERS, AND NOT TO RESELLERS OF ANY KIND;
3.4 RESELLER SHALL DISTRIBUTE AE PRODUCT ONLY WITHIN THE GEOGRAPHIC
BOUNDARIES OF THE UNITED STATES OF AMERICA, AND SHALL NOT DISTRIBUTE AE
PRODUCT TO ANY END USER RESELLER HAS REASON TO BELIEVE MAY
RE-DISTRIBUTE SAID PRODUCT OUTSIDE THE UNITED STATES. RESELLER SHALL
NOT DISTRIBUTE AE PRODUCT TO FLEET POST OFFICES ("FPOS") OR ARMY POST
OFFICES ("APOS") OUTSIDE THE UNITED STATES;
<PAGE>
3.5 RESELLER SHALL DISTRIBUTE NO MORE THAN ONE (1) COPY OF EACH AE
PRODUCT TITLE TO ANY INDIVIDUAL END USER IN ANY TWELVE (12) MONTH
PERIOD;
3.6 RESELLER SHALL CONFORM TO ANY AND ALL DISTRIBUTION REQUIREMENTS
WHICH MAY BE ASSOCIATED WITH INDIVIDUAL AE PRODUCTS AND WHICH MAY, FROM
TIME TO TIME, BE SET BY MS;
3.7 RESELLER SHALL USE BEST EFFORTS TO ACTIVELY PROMOTE AE PRODUCT ONLY
TO QUALIFIED EDUCATIONAL USERS. RESELLER SHALL MARKET AE PRODUCT ONLY
IN CATALOGUES OR DIRECT MAIL TO QUALIFIED EDUCATIONAL USERS ONLY, AND
SHALL NOT MARKET AE PRODUCT OR PROMOTE AND ADVERTISE AE PRODUCT
AVAILABILITY IN PUBLICATIONS ACCESSIBLE BY THE GENERAL PUBLIC. IN
ADDITION, RESELLER SHALL NOT DISPLAY AE PRODUCT IN A RETAIL SETTING
UNLESS SAID RESELLER'S PRIMARY LINE OF BUSINESS IS EDUCATION SALES.
DURING THE TERM HEREOF, RESELLER MAY IN A RETAIL SETTING, DISPLAY
RESELLER'S STATUS AS A "MICROSOFT AUTHORIZED EDUCATION RESELLER",
PROVIDED RESELLER'S NAME IS MORE PROMINENTLY DISPLAYED THAN SUCH
PHRASE, AND PROVIDED FURTHER, THAT MS RESERVES THE RIGHT TO TERMINATE
AT ANY TIME RESELLER'S USE OF SUCH PHRASE.
4. AUDIT
(a) During the term of this Application and for two (2) years
thereafter, RESELLER agrees to keep all usual and proper
records and books of account and all usual and proper entries
relating to AE product distributed. RESELLER shall maintain
such records on RESELLER's premises.
(b) In order to verify statements issued by RESELLER and
RESELLER's compliance with the terms of this Application,
Microsoft may cause (i) an audit to be made of RESELLER's
books and records and/or (ii) an inspection to be made of
RESELLER's facilities and procedures. Any audit and/or
inspection shall be conducted during regular business hours at
RESELLER'S facilities, with or without notice. Any audit shall
be conducted either by MS or by an independent certified
public accountant selected by MS (other than on a contingent
fee basis).
(c) RESELLER agrees to provide MS' designated audit or inspection
team access to the relevant records and facilities.
(d) In the event that an audit discloses RESELLER distributing AE
product in violation of this Application, RESELLER shall be
obligated to compensate MS for the damages caused thereby. In
the event such violation involves RESELLER distributing AE
product to an individual or entity that is not a Qualified
Educational User, for each unit of AE Product distributed in
violation of this Application RESELLER shall be required to
pay MS the difference between MS estimated retail price for AE
product and MS estimated retail price for full packaged
product of commercial versions of the same products, plus any
other amounts allowed by law. Such amounts shall be paid
promptly upon receipt of an invoice from MS. Further, if a
violation is disclosed, RESELLER agrees to pay MS for all
costs associated with the audit. MS reserves its right to
terminate RESELLER, pursuant to Section 2.
<PAGE>
IN WITNESS WHEREOF, RESELLER has agreed to the terms and conditions of
this Application on the date indicated below. Any terms and conditions
of the Application not modified herein shall remain in full force and
effect. THIS APPLICATION IS NON-BINDING UNTIL APPROVED BY MS, AND A NEW
AUTHORIZATION NUMBER IS ASSIGNED. IN ANY EVENT, IF THIS APPLICATION IS
CHANGED IN ANY MANNER IT SHALL BE DEEMED NULL AND VOID.
AGREED AND ACCEPTED BY
MICROSOFT CORPORATION ("MS"):
/s/ Elizabeth King
- -------------------------------------------------------------------------------
By
LIZ KING
- -------------------------------------------------------------------------------
Name (please print)
GENERAL MANAGER
- -------------------------------------------------------------------------------
Title
AUG 21 1998
- -------------------------------------------------------------------------------
Date
AGREED AND ACCEPTED TO BY
RESELLER:
/s/ Joshua K. Marks
- -------------------------------------------------------------------------------
By (please sign your name)
Joshua K. Marks
- -------------------------------------------------------------------------------
Name (please clearly print your name)
COO (Chief Operating Officer)
- -------------------------------------------------------------------------------
Title
8/24/98
- -------------------------------------------------------------------------------
Date
Satellite Online Solutions Corporation
(DBA: Zapme!)
- -------------------------------------------------------------------------------
RESELLER NAME
3000 Executive Parkway, Suite 150
- -------------------------------------------------------------------------------
<PAGE>
RESELLER ADDRESS
San Ramon, CA 94583
- -------------------------------------------------------------------------------
CITY, STATE, ZIP
(925) 543-0300
- -------------------------------------------------------------------------------
PHONE
(925) 543-0301
- -------------------------------------------------------------------------------
FAX
[email protected]
- -------------------------------------------------------------------------------
EMAIL ADDRESS
www.zapme.com
- -------------------------------------------------------------------------------
URL
Darryl Deaton
- -------------------------------------------------------------------------------
MARKETING CONTACT NAME
RESELLER--AIL THIS APPLICATION TO:
Microsoft in Education
AER Progra--Building 18
One Microsoft Way
Redmond, WA 98052
PLEASE ALLOW UP TO 4 WEEKS FOR PROCESSING
PLEASE DO NOT FAX IN THIS APPLICATION FORM--FAXED APPLICATIONS WILL NOT BE
ACCEPTED
For Application questions call 1-800-933-8313 or e-mail [email protected]
For product related questions call 1-800-426-9400
<PAGE>
Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
EXHIBIT 10.21
[NEW SUB LOGO]
CONFIDENTIAL MEMORANDUM
To: Lance Mortensen Date: August 3, 1999
Chairman and CEO
ZAPME! Corporation
From: Jon Ellenthal cc: Michael Loeb
Re: Marketing Agreement
Michael and I are very pleased we were able to reach an agreement for NewSub
Services and ZAPME! to work together. We have shared our discussions with a
number of folks at NewSub. Everyone shares our enthusiasm for moving forward
with this relationship and is eager to get started.
The following is intended to describe the nature and terms of our agreement to
market NewSub Services' magazine subscription service through the ZAPME!
network. Most of these terms were agreed to during our last discussion. Some
items, however, were not discussed directly so we proposed what we think makes
sense. If everything meets with your satisfaction, we can use this agreement as
the basis for an expanded, more formal contract (the "Definitive Agreement"). I
will follow-up with you in a couple of days to review any open issues and
discuss next steps.
ZAPME! will offer students using the ZAPME! network the chance to sell
magazine subscriptions to friends, family and others. As an incentive for
selling magazines, students will earn ZAPME! points for him/herself and
his/her school.
1. ZAPME! will promote NSS's magazine service to students for its online
computer media network and quarterly CD-ROM distributions, and for
promotion of the magazine service which will begin with the next
release of the CD-ROM, scheduled for Fall, 1999.
2. ZAPME! and NSS agree to consult and work together on marketing and
promotional materials.
3. NSS will be responsible for all magazine subscription order processing,
fulfillment, merchant processing, customer service and publisher
payments.
4. NSS will pay ZAPME! a commission for each net magazine subscription
sold according to the following schedule:
i. [*] of year 1 net revenue, and;
- --------------------
[*]Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
<PAGE>
ii. [*] of year 2 net revenue, and;
iii. [*] of year 3 net revenue.
Net revenue is defined as gross subscription revenue less cancels.
For purposes of commission calculation and payment, a subscription
will be considered net if it has not been cancelled within 90 days
of the consumer being billed.
5. NSS will provide a supply of free magazine subscriptions for ZAPME!'s
use in creating interest and awareness for the program within schools.
NSS and ZAPME! will mutually agree on a method for allocating the free
subscriptions.
6. ZAPME! will be responsible for all of the costs associated with
promotion of the magazine service as well as the costs of ZAPME! points
distribution and redemption.
7. The terms of this agreement (the "Term") shall commence on July 12,
1999 and continue until July 12, 2002, unless earlier terminated in
accordance with paragraph 8. The Term shall be subject to successive,
automatic extensions of one year unless either party provides written
notice of termination to the other not less than three (3) months prior
to the then current termination date.
8. Either party may, through written notice to the other party, terminate
this Agreement for Cause. "Cause" shall be defined as follows:
i. a material breach of any warranty, representation, or obligation;
provided, however, that the breaching party shall have thirty (30)
calendar days after written notice of the breach, to cure said breach
to the reasonable satisfaction of the non-breaching party;
ii. the insolvency of either party as evidenced by bankruptcy,
conservatorship, receivership, or similar proceeding;
9. For the term of this agreement, NSS will be ZAPME!'s exclusive magazine
service provider in all ZAPME! media.
10. Neither party shall, during or after the Term, disclose any information
which is confidential or proprietary to the other party, except with
the prior written consent of the other party. Both parties agree to
distribute a mutual press release within 30 days of execution of the
Definitive Agreement.
NEWSUB SERVICES, INC. ZAPME! CORPORATION
/s/ John Ellenthal /s/ BRUCE D. BOWER
- ------------------- ------------------
Signature Signature
President, CEO Bruce D. Bower, VP
- --------------- ------------------
Name and Title Name and Title
8/3/99 8/3/99
- ------- ------
Date Date
<PAGE>
Confidential treatment has been requested with respect to certain information
contained in this document. Confidential portions have been omitted from the
public filing and have been filed separately with the Securities and Exchanges
commission.
EXHIBIT 10.22
MEMORANDUM OF UNDERSTANDING
The following Memorandum of Understanding describes the terms and
conditions of a proposed e-commerce relationship (the "Relationship") between
ZapMe! Corporation, a California corporation located at 3000 Executive Parkways,
San Ramon, CA 04583 ("ZapMe!"), and School Specialty, Inc., a Wisconsin
corporation located at 1000 North Bluemound Drive, Appleton, WI 54914 ("SSI").
This term sheet is preliminary, is subject to modification in the course of
negotiations between ZapMe! and SSI, and further is subject to entering into
definitive documentation expressing the final Relationship.
ZAPME: ZapMe! is in the business of, among other things,
installing into schools computer systems ("ZapMe
Systems") which run the ZapMe!-TM- netspace (the
"ZapMe Netspace"), a networked graphical user
interface software and Internet content delivery
package linked together by satellite. The ZapMe
Netspace is used by students, parents, teachers
and school administrators.
SSI: SSI is in the business of selling supplies to
schools and teachers, and operates an e-commerce
service that permits these transactions to be
conducted over the Internet.
PURPOSE OF ZapMe and SSI are entering into the
RELATIONSHIP: Relationship in order that SSI will
be the preferred e-commerce supplier
of non-technology school supplies and
materials over the ZapMe Netspace to
schools, teachers and school
administrators through ZapMe Systems.
TERM: The Relationship shall continue for an initial
period of 2 years, and will be automatically
renewed thereafter for successive one year
periods unless either party provides written
notice to the other 30 days prior to expiration
of the then prevailing Term that it intends to
terminate the Relationship.
INTEGRATION: ZapMe will integrate the SSI e-commerce system
into the ZapMe Netspace so that SSI products may
be purchased directly over ZapMe Systems. The SSI
link will be prominently featured on the teacher
and administrator versions of the ZapMe Netspace.
ZapMe and SSI will jointly develop the necessary
ordering and billing software necessary to ensure
that ordering SSI products over the ZapMe
Netspace is secure, convenient, safe and easy.
PRODUCTS COVERED: All products available for purchase from SSI.
FULFILLMENT: SSI will be responsible for fulfilling all orders
for SSI product, and will further be responsible
for all non-electronic invoicing and all
collection activities.
SPONSORSHIP: SSI agrees to become a sponsor of the ZapMe
Netspace in an amount and on terms to be agreed
on during the Term.
ZAPME! FEE: SSI will pay to ZapMe [*] of the published list
price (or the published special price, if
applicable) for all SSI products that are
ordered AT THAT price using a ZapMe System
(the "Fee").
ZAPPOINTS-TM-: SSI will participate in ZapMe's ZapPoints
program, designed to reward certain behavior
within the ZapMe Netspace. Under this program,
ZapMe users and schools
- ----------------------
[*]Confidential treatment has been requested with respect to certain
information contained in this document. Confidential portions have been
omitted from the public filing and have been filed separately with the
Securities and Exchanges commission.
<PAGE>
will be encouraged to be active
members of the ZapMe Network by
earning ZapPoints. ZapPoints may be
redeemed by ZapMe users for various
items, and schools may also be
rewarded with ZapPoints redeemable
for goods to be provided by SSI.
DEVELOPMENT: ZapMe and SSI will jointly collaborate on the
development of the systems and software necessary
to ensure that the ZapMe/SSS e-commerce offering
described herein shall be effectively
incorporated into the ZapMe! Netspace. The
allocation of expenses incurred in connection
therewith shall be as agreed on by the parties in
light of the respective allocation of
responsibilities. In the absence of any such
agreement, each party shall bear their respective
costs of development and implementation, and
shall share equally any third party costs and
expenses (including any licenses that may be
required to operate the service).
ZapMe! Corporation
By: /S/ Bruce D. Bower
-----------------------
Bruce D. Bower
VP Business Development
School Specialties, Inc.
By: /S/ Dan Spalding
-----------------------
Dan Spalding
CEO
<PAGE>
Exhibit 10.23
Advertising Pilot Agreement
Between
Zap Me! and Xerox
June 30, 1999
Xerox agrees to the following terms in association with the advertising pilot
proposed by Zap Me!
It is understood by all parties that the advertising pilot is a best effort
through December 31, 1999, by both companies, to provide resources to the
project for the creation, implementation, and testing of the marketing
messages Xerox deems will provide effective awareness and engagement for
Xerox products with school administrators and businesses using the Zap Me!
netspace.
- -- Zap Me! agrees to acquire Xerox printers at the agreed to price on
Attachment A.
- -- Xerox will provide a $120 advertising sponsorship for every N17b base
printer purchased or leased by Zap Me!
- -- Xerox will designate marketing resources to interface with Zap Me!
marketing resources to create and develop the Xerox message for the Zap
Me! Dynamic billboard. The content and most appropriate medium will be
defined by the Zap Me!/Xerox marketing team.
- -- Once the advertising message is completed and agreed to by both
companies, a test will be conducted with an agreed to number of school
administrators that are part of the Zap Me! school districts contracted
for Zap Me! networks.
- -- The intent of the testing will be to determine viability of the Zap Me!
Dynamic billboard as an advertising medium for providing incremental
sales opportunities for Xerox products via the Zap Me! netspace.
- -- Xerox will provide two test units to Zap Me! (most appropriate model) for
deployment into the pilot schools at no charge. One of these test units
will be deployed for an extended period of time and will be used as a
reference/showcase/testimonial for other Zap Me! schools or businesses
using the Zap Me! network.
- -- The Zap Me!/Xerox marketing team will develop demand creation marketing
programs to schools or businesses contracted for Zap Me! networks to test
the viability of the pilot program to deliver incremental Xerox product
purchases from Zap Me! netspace users.
<PAGE>
Advertising Pilot Agreement
(page 2 of 2)
- -- Should the pilot result in successful sales of incremental Xerox products
to Zap Me! schools with Zap Me! networks, Xerox will pay an agreed upon
amount to Zap Me! for each incremental hardware unit sold via the Zap Me!
netspace.
- -- Upon conclusion of the pilot, Xerox and Zap Me! will determine the
viability of the Zap Me! Dynamic billboard to deliver value to Xerox and
its targeted market segment of school administrators or businesses
participating in the Zap Me! netspace. If agreement on value is reached,
Zap Me! will begin redemption of the Xerox advertising sponsorship
dollars at a rate of $40 per 1000 impressions which will ensure that
Xerox's sponsorship commitment is consumed. The expected consumption
period is to be no longer than October 31, 1999.
- -- Zap Me! agrees to provide Xerox with a 3 month rolling forecast of
printer demand for total printer deployments. It is expected that Xerox
will earn a minimum of 50% share of the total printer units forecast for
deployment each month.
- -- For the month of June 1999, Zap Me! agrees to award a 631 unit printer
order to Xerox, 325 units of which will be financed on a 20 month lease,
with 30% downpayment, 17% interest rate and a zero buyout at the end of
the lease. This represents Xerox's fair share of Zap Me! total printer
requirements for the months of June (31 units), July (200 units), and
August (400 units).
- -- These units, while purchased in June, will be stored in inventory by Xerox
or its assigned distributor, for deployment as requested by Zap Me! in
the months of June, July, and August.
- -- Printers must be delivered to a designated integration site by Zap Me!
and should be requested 30 days in advance. Inventoried units must be
depleted by August 31, 1999.
/s/ R.A. Stoffregen /s/ Ann Moser
- --------------------------------------- -----------------------------------
Robert Stoffregen - CFO Ann Moser - VP/GM
ZAP ME! Corporation Xerox Channels Group
Western Region
/s/ Julia Winter
Area Director
Xerox Channels Group
<PAGE>
ATTACHMENT A
Pricing Summary
Zap Me! Printer Configuration
+
2 Year Extended Service
<TABLE>
<CAPTION>
DocuPrint N17B Part # Expected Price to Zap Me!
- -------------- ------ -------------------------
<S> <C> <C>
N17 base Printer W9G $920.00
N17b-1 Yr. On-Site Service 602E24150 $250.00
N17b-2 Yr. On-Site Service 602E24170 $450.00
</TABLE>
NOTES:
- -- All pricing based upon estimated volume of 2500 DocuPrint N17 base units
in a 12 month period.
- -- There is no minimum unit commitment associated with the pricing --
adjustments will be made in accordance with actual unit volumes achieved
after 6 months of contract period.
- -- Xerox assumes contractual obligation for pricing provided to the Channel
partner only.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Financial Data" and to the use of our report dated April 2, 1999
(except for Note 8, as to which the date is August , 1999) with respect to the
financial statements of ZapMe! Corporation as of December 31, 1997 and 1998, and
for the period June 25, 1997 (inception) through December 31, 1997 and for the
year ended December 31, 1998, in the Registration Statement (Form S-1) and the
related Prospectus of ZapMe! Corporation for the registration of shares of its
common stock.
Walnut Creek, California
August , 1999
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon final
computation of the number of common shares which may be received by holders of
Series C and D preferred stock and computation of an additional dividend amount,
if any, as described in Note 3 to the financial statements, the effect on pro
forma weighted average shares as described in Note 1 to the financial
statements, and 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
August 4, 1999
<TABLE> <S> <C>
<PAGE>
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<PERIOD-END> DEC-31-1997 DEC-31-1998 JUN-30-1998 JUN-30-1999
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<CASH> 275 815 0 20,415
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<SECURITIES> 0 0 0 0
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<RECEIVABLES> 0 127 0 145
0
<ALLOWANCES> 0 0 0 0
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<INVENTORY> 0 0 0 0
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<CURRENT-ASSETS> 288 1,092 0 22,090
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<PP&E> 53 2,686 0 10,758
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<DEPRECIATION> (10) (215) 0 (977)
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0 2,783 0 29,112
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<OTHER-SE> (581) (5,706) 0 (14,386)
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<SALES> 0 0 0 0
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<TOTAL-REVENUES> 0 0 0 147
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<CGS> 0 0 0 0
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<TOTAL-COSTS> 0 135 8 1,247
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<INTEREST-EXPENSE> 11 36 35 (29)
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</TABLE>
