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As filed with the Securities and Exchange Commission on May 27, 1999
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GARDEN.COM, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 5961 74-2765381
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction of Classification Code
incorporation or Number)
organization) Garden.com, Inc.
3301 Steck Avenue
Austin, Texas 78757
(512) 532-4000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Clifford A. Sharples
Garden.com, Inc.
President and Chief Executive Officer
3301 Steck Avenue
Austin, Texas 78757
(512) 532-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Martin J. Mclaughlin, Esq.
Benjamin G. Lombard, Esq.
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c.
1000 North Water Street, Suite 2100
Milwaukee, Wisconsin 53202
(414) 298-1000
David C. Drummond, Esq. Carla S. Newell, Esq.
Paul R. Tobias, Esq. Brian K. Beard, Esq.
William B. Owens, Jr., Esq. Anthony M. Allen, Esq.
Robert E. Horton, Esq. James D. Robinett, Esq.
Wilson Sonsini Goodrich & Rosati Gunderson Dettmer Stough Villeneuve
Professional Corporation Franklin & Hachigian, LLP
8911 Capital of Texas Highway, 8911 Capital of Texas Highway, Suite 4240
Suite 3350 Austin, Texas 78759
Austin, Texas 78759 (512) 342-2300
(512) 338-5400 ----------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement
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If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 145 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>
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<CAPTION>
Title of Each Class of Proposed Maximum Amount of
Securities to be Registered Aggregate Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $0.01 par
value................. $57,500,000 $15,985
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</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+Underwriters may not confirm sales of these securities until the registration +
+statement filed with the Securities and Exchange Commission becomes +
+effective. This prospectus is not an offer to sell these securities and it is +
+not soliciting offers to buy these securities in any jurisdiction where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 27, 1999
PROSPECTUS
Shares
[Garden.com Logo]
Common Stock
This is an initial public offering of common stock by Garden.com, Inc. The
estimated initial public offering price will be between $ and $ per share.
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Prior to this offering, there has been no public market for the common
stock. Garden.com has applied to have the common stock approved for quotation
on the Nasdaq National Market under the symbol GDEN.
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<CAPTION>
Per Share Total
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<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discounts and commissions.......................... $ $
Proceeds to Garden.com, Inc., before expenses................... $ $
</TABLE>
Garden.com, Inc. and certain selling stockholders have granted the
underwriters an option for a period of 30 days to purchase up to additional
shares of common stock.
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Investing in the common stock involves a high degree of risk.
See "Risk Factors" beginning on page 7.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities nor passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
Hambrecht & Quist
BancBoston Robertson Stephens
Thomas Weisel Partners LLC
, 1999
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[ART WORK]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary.................................................... 4
Risk Factors.......................................................... 7
Forward Looking Statements............................................ 20
Use of Proceeds....................................................... 21
Dividend Policy....................................................... 21
Preemptive Rights..................................................... 21
Capitalization........................................................ 22
Dilution.............................................................. 23
Selected Financial Data............................................... 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 25
Business.............................................................. 34
Management............................................................ 48
Related Party Transactions............................................ 55
Principal Stockholders................................................ 57
Description of Capital Stock.......................................... 60
Shares Eligible for Future Sale....................................... 63
Underwriting.......................................................... 65
Legal Matters......................................................... 68
Experts............................................................... 68
Additional Garden.com Information..................................... 68
Index to Financial Statements......................................... F-1
</TABLE>
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We maintain World Wide Web sites at www.garden.com, www.virtualgarden.com
and www.hortmag.com. References in this document to our Web site refer to
garden.com, our flagship site, and references to our Web sites collectively
refer to garden.com, virtualgarden.com and hortmag.com.
Information contained on our Web sites does not constitute part of this
prospectus.
GARDEN.COM, VIRTUALGARDEN and GARDEN ESCAPE are trademarks of Garden.com.
All other brand names or trademarks appearing in the prospectus are the
property of their respective holders.
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" and our financial statements and
the notes to those statements, before making an investment decision.
Garden.com
Garden.com is a leading online destination integrating gardening and
gardening-related commerce, content and community. We currently operate three
gardening Web sites, garden.com, our flagship Web site, virtualgarden.com, and
hortmag.com, which enable us to deliver a new value proposition to gardening
consumers and suppliers. Through our Web sites, we provide consumers with an
intuitive, easy-to-use environment through which they can access a wide variety
of gardening information and resources, purchase a broad selection of products,
receive specific gardening advice and other personalized services and interact
with an online gardening community. We offer our suppliers a branding
opportunity, increased sales potential through an expanded customer base and
the ability to improve demand forecasting. By interacting with our customers
through our internally developed Web sites, and with our suppliers through our
sophisticated extranet, we provide consistent, high quality customer service
and streamlined distribution. We currently have over 550,000 members and we had
1.6 million visitors during the month of April, the high point of the gardening
season. With over 16,000 products from over 60 suppliers, we believe we offer
the world's largest line of quality gardening and gardening-related products,
available in one convenient location.
The Online Gardening Opportunity
Gardening is one of the most popular pastimes in the U.S. According to the
National Gardening Association (NGA), U.S. households spent $46.8 billion on
garden and lawn products and landscaping services in 1998, with $30.1 billion
spent on garden and lawn products alone. In addition, the NGA estimates that
more than 67 million households in the U.S. participated in home gardening in
1998, 97% of which purchased garden and lawn products, such as flowers,
vegetables, herbs, trees, tools and shrubs. We believe that gardening-related
products, such as furniture, ornaments, outdoor living accessories and garden-
inspired gifts, which are not included in these totals, also represent
significant market opportunities.
Gardening appeals to a broad cross-section of the U.S. population and is
becoming an increasingly popular activity among the baby boom generation and
women. Despite the growth in gardening and its attractive demographics, the
traditional gardening retail channels have not evolved to meet the changing
needs of gardening consumers and suppliers. Consumers face inconsistent and
narrow product selection, limited information and personalized service,
resources for their gardening needs. Compounding this problem, suppliers lack
an integrated distribution channel to effectively meet consumers' needs. Given
the limitations of the traditional gardening retail channel, and the increasing
functionality and acceptance of the Internet, the Internet has emerged as an
ideal medium to provide a one-stop destination for commerce, content and
information to serve the attractive gardening market.
Our Solution
Our online destination integrates gardening and gardening-related
commerce, content and community to provide consumers and suppliers with a
compelling new value proposition. We believe we offer attractive benefits to
consumers, including convenience, ease of use, personalization, avenues for
community and enhanced selection. Our sophisticated extranet offers suppliers a
streamlined distribution channel with access to an expanded customer base. The
key features of our solution include:
. a complete shopping destination, offering centrally located content, a
broad selection of high quality gardening products and convenient
purchasing opportunities, 24 hours a day, seven days a week;
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. personalized services to consumers based on individual preferences,
geographic location and level of gardening sophistication;
. a new distribution channel to deliver a new value proposition to
consumers and suppliers, providing consistent customer service and
streamlined distribution;
. a broad and deep product selection to our customers, with over 16,000
products such as live plants, shrubs, trees, bulbs, seeds, tools,
furniture and garden accessories;
. compelling content, delivered on an interactive basis, including daily
and weekly online features and that are hyperlinked to companion
product offerings and which provide gardeners with planting advice,
design ideas and introductions to gardening trends; and
. an online community to make gardening information readily available
and to give gardeners from around the world the opportunity to
communicate with each other and with authors and other experts.
Our Strategy
Key components of our strategy to become the leading online destination
for gardening-related commerce, content and community include:
. leveraging the unique attributes of the Internet and information
technology to provide gardeners with a new, compelling value
proposition;
. continuing to execute a virtual warehouse model to expand our
selection of high quality products and to provide suppliers with
additional branding opportunities, increased sales and improved demand
forecasting;
. building the Garden.com brand to make our name synonymous with the
delivery of high quality gardening and gardening-related products and
services; and
. capitalizing on our growing product and customer databases to enable
targeted product, service and promotional offerings.
Our principal offices are located at 3301 Steck Avenue, Austin, Texas,
78757 and our telephone number is (512) 532-4000.
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The Offering
Common stock offered by Garden.com.......... shares
Common stock to be outstanding after this shares
offering....................................
Use of proceeds............................. For general corporate purposes,
including operating expenses,
capital expenditures and working
capital.
Proposed Nasdaq National Market symbol...... GDEN
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Unless otherwise indicated, all information in this prospectus relating to
our outstanding capital stock, options and warrants is as of March 31, 1999,
assumes that the over-allotment option will not be exercised and reflects the
conversion of all preferred stock into common stock, which will occur upon the
consummation of this offering. Please see "Capitalization" for a more complete
discussion regarding our capital stock, options and warrants. The terms
"Garden.com," "we," "us" and "our" refer to Garden.com, Inc., a Delaware
corporation.
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The following summary financial data are derived from the financial
statements of Garden.com. The pro forma balance sheet data give effect to the
issuance of 3,957,633 shares of Series E Preferred Stock in April and May 1999
and the conversion of all outstanding shares of preferred stock into common
stock upon the consummation of this offering. The pro forma as adjusted balance
sheet data reflect our receipt of the net proceeds from the sale of the shares
of common stock, at an assumed initial public offering price of $ , after
deducting the estimated underwriting discounts and commissions and offering
expenses.
Summary Financial Data
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
Period from Fiscal Year Ended Nine Months Ended
October 2, 1995 June 30, March 31,
(inception) to ---------------------- -----------------------
June 30, 1996 1997 1998 1998 1999
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(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues.............. $ 8 $ 316 $ 1,339 $ 687 $ 2,509
Operating loss........ $ (687) $ (2,480) $ (4,804) $ (2,651) $ (11,132)
Net loss.............. $ (665) $ (2,440) $ (4,611) $ (2,515) $ (10,568)
Basic net loss per
share................ $ (0.95) $ (1.73) $ (3.20) $ (1.73) $ (8.17)
Shares used to compute
basic net loss per
share................ 702,064 1,411,644 1,440,585 1,450,000 1,292,959
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
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Pro Forma
Actual Pro Forma As Adjusted
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<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $2,282 $24,919 $
Working capital................................. 7,142 29,779
Total assets.................................... 10,520 33,157
Total liabilities and deferred revenue.......... 2,026 2,026
Total redeemable convertible preferred stock and
stockholders' deficit.......................... 8,494 31,131
</TABLE>
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could harm our business, operating results and financial
condition and could result in a complete loss of your investment.
Risks Related to Our Business
We have a history of significant losses and we expect to incur substantial net
losses in the future
We incurred net losses of $0.7 million in our inception period from
October 2, 1995 through June 30, 1996, $2.4 million in fiscal 1997, $4.6
million in fiscal 1998 and $10.6 million in the nine months ended March 31,
1999. As of March 31, 1999, we have incurred cumulative net losses of $18.3
million. We expect to experience operating losses and negative cash flow for
the foreseeable future. We anticipate our losses will increase significantly
from current levels because future revenues may not increase sufficiently to
offset additional costs and expenses related to brand development, marketing
and other promotional activities, content development and technology and
infrastructure development. To date, we have funded our operations from the
sale of equity securities and have not generated cash from operations. As a
result, we will need to generate significant revenues to achieve and maintain
profitability. Although our revenues have grown significantly in recent
quarters, we cannot be certain that we can sustain these growth rates or that
we will achieve sufficient revenues for profitability. If we do achieve
profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis in the future.
We have a limited operating history and expect to encounter risks and
difficulties frequently faced by early stage companies in rapidly evolving
markets
We have a limited operating history on which to base an evaluation of our
business and prospects. We were formed in December 1995, and we initiated our
online operations and first recognized revenues in March 1996. Accordingly, you
must consider our prospects in light of the risks, expenses and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets such as online commerce. In particular, the online market for gardening
and gardening-related products is new and rapidly developing. As is typical for
any new, rapidly developing market, demand and market acceptance for recently
introduced products and services are subject to a high level of uncertainty and
risk. It is also difficult to predict the online gardening market's future
growth rate. The online gardening market may fail to develop, develop more
slowly than expected or become saturated with competitors, or our products may
not achieve or sustain market acceptance. To address these risks, we must,
among other things, maintain and expand our customer base, implement and
successfully execute our business and marketing strategy, continue to develop
and upgrade the technology and systems that we use to process customers' orders
and payments, improve our Web sites, provide superior customer service, respond
to competitive developments and attract, retain and motivate qualified
personnel. We cannot assure you that we will be successful in addressing these
risks, and our failure to do so could have a negative impact on our business,
operating results and financial condition.
Our dependence on the highly seasonal gardening industry will cause our
operating results to vary from quarter to quarter
Seasonal factors typically influence product availability and the timing
of product shipments, which may affect both product demand and the period of
revenue recognition and, in turn, influence our quarterly revenues and product
margins. For instance, we expect our revenues to be relatively higher in our
fourth fiscal quarter, which coincides with the spring gardening season, and
relatively lower in our first fiscal quarter, reflecting decreasing consumer
demand for garden products during the late summer. In addition, as is typical
for gardening retailers, our product mix generally varies by season. Due to
this variation in product
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mix offered during the year, our gross margin fluctuates on a quarterly basis
reflecting the sale of higher margin products during the holiday season, such
as gifts and decorating items, and the sale of lower margin products during the
spring season, such as live plants. Furthermore, we anticipate that operating
costs will typically increase in the third quarter of our fiscal year as
marketing expenses increase in anticipation of the spring planting season.
Due to our limited operating history, we believe it is difficult to
predict the seasonal pattern of our future revenues and operating costs and the
impact of such seasonality on our future operating results. If they become more
pronounced, seasonal revenue and cost patterns may strain our personnel and
fulfillment activities and could cause a shortfall in revenues as compared to
costs in a given period.
We expect our quarterly operating results to fluctuate, and if we fail to meet
the expectations of public market analysts and investors, the market price of
our common stock could decline
We expect to experience significant fluctuations in our future quarterly
operating results due to a variety of factors, many of which are outside our
control. As a result, we believe that quarterly comparisons of our operating
results are not necessarily meaningful and that investors should not rely on
the results of one quarter as an indication of our future performance. We
believe it is likely that, in the future, fluctuations in our quarterly
operating results will cause our results to fall below the expectations of
securities analysts and investors, which could cause the price of our common
stock to drop. Factors that may negatively affect our quarterly operating
results include:
. our ability to attract new visitors to our Web sites and convert them
into customers;
. frequency of repeat purchases by customers;
. our ability to attract and retain high quality suppliers;
. changes in inventory availability from suppliers;
. the announcement or introduction of new or enhanced sites, services
and products by us or our competitors;
. changes in our pricing policies or the pricing policies of our
competitors;
. the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure;
and
. our ability to attract new personnel in a timely and effective manner.
Our quarterly gross margins also may be impacted by a number of different
factors, including the mix of online product revenues as compared to
advertising revenues, the mix of products sold and the mix of revenues derived
from purchases originating from our Web sites and the Web sites of our
distribution and advertising partners.
Our limited operating history and the rapidly evolving nature of our
industry make forecasting quarterly operating results difficult. Accordingly,
we base our expenses in large part on our operating plans and future revenue
projections. Most of our expenses are fixed in the short term, and we may not
be able to quickly reduce spending if our revenues are lower than we project.
Therefore, any significant shortfall in revenues would likely have an
immediate, negative impact on our business, operating results and financial
condition.
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Establishing the Garden.com brand quickly and cost-effectively is essential for
us to be successful
We believe that we must establish, maintain and enhance the Garden.com
brand to attract more customers to our Web sites and to generate revenues from
product sales and advertising. Brand recognition and customer loyalty will
become increasingly important as more companies with well-established brands in
online services or the gardening industry offer competing services on the
Internet. Development of the Garden.com brand will depend largely on our
success in providing a high quality online experience supported by a high level
of customer service, which cannot be assured. We expect that we will need to
increase substantially our spending on programs designed to create and maintain
strong brand loyalty among customers and we cannot be certain that our efforts
will be successful.
We expect significant increases in our operating expenses which could have a
negative impact on our operating results
We plan to increase our operating expenses substantially to develop our
Garden.com brand nationally, offer new gardening-related products and services,
enter into additional strategic relationships and further develop our
technology and transaction-processing systems. These expenses will be incurred
before we derive any revenues from this increased spending. If our revenues do
not increase proportionately with these expenses, our net losses will be
greater than expected.
Gardening consumers may not accept our online solution
To be successful, we must attract and retain a significant number of
consumers to our garden.com Web site at a reasonable cost. Any significant
shortfall in the number of transactions occurring over our Web site will
negatively affect our financial results. Conversion of customers from
traditional shopping methods to electronic shopping may not occur as rapidly as
we expect, if at all. Therefore, we may not achieve the critical mass of
customer traffic we believe is necessary to become successful. Specific factors
that could prevent widespread customer acceptance of our solution, and our
ability to grow revenues, include:
. customer concerns about the security of online transactions;
. customer concerns about buying live plants and other gardening
materials without first seeing them;
. pricing that may not meet customer expectations;
. customer resistance to shipping charges, which generally do not apply
to purchases from traditional retail outlets;
. difficulties in timely shipment of plants, flowers and other live
goods;
. shipment of damaged goods or wrong products from our suppliers;
. delivery time before customers receive Internet orders, unlike the
immediate receipt of products at traditional retail outlets; and
. difficulties in returning or exchanging orders.
We depend on the economic strength of the gardening industry and favorable
general economic conditions
We derive substantially all of our revenues directly or indirectly from
the gardening industry, and our future operating results depend on the economic
strength of this industry. Any significant downturn in the gardening industry
could seriously harm our business, operating results and financial condition.
Purchases of
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gardening and gardening-related products are typically discretionary for
consumers and may be harmed by negative trends in the general economy. In
addition, our business strategy relies on advertising by and agreements with
other Internet companies. Any significant deterioration in general economic
conditions that harms these companies could also have a negative impact on our
business, operating results and financial condition.
Our business relies on our ability to maintain relationships with our suppliers
to obtain sufficient quantities of quality merchandise on acceptable commercial
terms
Because we carry minimal inventory and rely largely on rapid fulfillment
from our suppliers, our business would be seriously harmed if we were unable to
develop and maintain relationships with suppliers that allow us to obtain
sufficient quantities of quality merchandise on acceptable commercial terms. We
purchase our products from more than 60 suppliers. Our contracts or
arrangements with suppliers do not guarantee the availability of merchandise,
establish guaranteed prices or provide for the continuation of particular
pricing practices. Although we have alternative sources of supply for certain
of the products we offer, we have not established alternative sources for all
our products. Our current suppliers may not continue to sell products to us on
current terms or at all, and we may not be able to establish new supply
relationships to ensure delivery of product in a timely and efficient manner or
on terms acceptable to us. In addition, our supply contracts typically do not
restrict a supplier from selling products to retailers other than online
retailers, which could limit our ability to supply the quantity of product
requested by our customers.
We depend on our third party suppliers to provide quality products directly to
our customers
Because our revenues depend on the number of customers who buy products
from us, the reliability and quality of our products are critical to our
operating results. We are heavily dependent on suppliers for assuring the
quality and health of the products shipped directly to our customers. The
failure of our suppliers to consistently provide high quality products could
result in lost revenues, delays in customer acceptance, damage to our
reputation and harm to our brand name. In addition, we do not currently
maintain insurance against any product defect losses and, accordingly, could be
subject to significant defense costs or damages in the event of a significant
product defect claim.
Weather and other acts of nature could affect the supply of and demand for our
products
Weather and other acts of nature outside of our control could negatively
impact our business, operating results and financial condition. Adverse
weather, such as frost, droughts, floods and other severe weather patterns, as
well as plant diseases and pests can reduce or eliminate the supply of live
products, which could lead to increased prices for available products. In
addition, adverse weather or other growing conditions could negatively impact
consumer demand for gardening and gardening-related products. For example, a
late spring can lead to delayed or poor spring growing conditions for our live
goods reducing product availability or inclement weather during the peak
gardening season in spring and early summer may depress gardening purchases.
We face significant competition from established traditional gardening
retailers, mail order catalogs, online retailers and others
We may be unable to compete successfully against current and future
competitors, and competitive pressures could have a negative impact on our
business, operating results and financial condition. Online commerce, and
specifically the online retail gardening market, is new and rapidly evolving,
and we expect competition to intensify in the future. Our competition includes
existing companies that have built or are trying to establish an online retail
presence, as well as new entrants trying to build a brand online. We currently
or potentially compete with a variety of other companies, including:
. local nurseries and gardening centers;
. home improvement superstores, such as Lowe's and Home Depot, and mass
merchant retailers, such as Wal-Mart;
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. established gardening mail order catalogs, including Foster &
Gallagher and Smith & Hawken;
. media groups with existing, well-defined brands in the home and garden
market, such as Martha Stewart Living; and
. multi-channel online retailers seeking to diversify their product
offerings, such as 1-800-FLOWERS and FTD.
We expect competition to increase as current competitors increase the
sophistication of their offerings and as new participants enter the market.
Many of our current and potential store-based, catalog and online competitors
have longer operating histories, larger customer bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do and could enter into strategic or commercial relationships with
larger, more established and well-financed companies. Many of our current and
potential competitors may be able to secure services and products from
suppliers on more favorable terms, devote greater resources to marketing and
promotional campaigns and devote substantially more resources to Web site and
systems development than we do. In addition, new technologies and the expansion
of existing technologies, such as price comparison programs that select
specific products from a variety of Web sites, may increase competitive
pressures on us. Increased competition may result in reduced operating margins,
as well as loss of market share and brand recognition.
We depend upon Federal Express to deliver our products on a timely and
consistent basis
Our supply and distribution system is dependent upon our relationship with
Federal Express. Federal Express ships 90% of our orders, and we do not
currently maintain a distribution relationship with any other carrier. Because
we do not have a written agreement with Federal Express, we cannot be sure that
our relationship will continue on terms favorable to us, if at all. If our
relationship with Federal Express is terminated or impaired or if Federal
Express is unable to deliver product for us, whether through labor shortage,
slow down or stoppage, deteriorating financial or business condition or for any
other reason, we would be required to use alternative carriers for the shipment
of products to our customers. We may be unable to engage an alternative carrier
on a timely basis or upon terms favorable to us. Changing carriers would likely
have a negative effect on our business, operating results and financial
condition. Potential adverse consequences include:
. reduced visibility into order status and package tracking;
. delays in order processing and product delivery;
. increased cost of delivery, resulting in reduced gross margins; and
. reduced shipment quality which may result in damaged products and
customer dissatisfaction.
We rely substantially on our relationships with America Online and other online
services, search engines and directories to drive traffic to our Web sites
We have relationships with America Online and other online services,
search engines and directories to provide content and advertising banners that
hyperlink to our Web sites. We rely on search engines, directories and other
navigational tools to direct traffic to our Web sites. We cannot be sure that
such relationships will be available to us in the future on acceptable
commercial terms, if at all. If we are unable to maintain satisfactory
relationships with these parties on acceptable commercial terms, or if our
competitors are better able to leverage such relationships, our business,
operating results and financial condition could be negatively affected. We may
not achieve sufficient online traffic or product purchases to realize
sufficient sales to compensate for our significant obligations to these
distribution and advertising partners. Failure to achieve sufficient traffic or
generate sufficient revenues from purchases originating from third-party Web
sites would likely have a negative effect on our business, revenues, operating
results and financial condition.
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Our performance depends on our ability to offer new and expanded products and
services
We plan to introduce new and expanded products and services and to enter
into new relationships with third parties in order to generate additional
revenues, attract more consumers and respond to competition. We may be unable
to offer such products or services in a cost-effective or timely manner.
Furthermore, any new product or service we launch that is not favorably
received by consumers could damage our reputation and brand name. Expansion of
our products or services in this manner would also require significant
additional expenses and development and may strain our management, financial
and operational resources. Our business, operating results and financial
condition could be seriously harmed if we are unable to generate revenues from
expanded services or products sufficient to offset their cost. Our success also
depends on our ability to accurately determine the products and features
required by customers and to design and implement offerings that meet these
requirements in a timely and efficient manner. We may be unsuccessful in
determining customer requirements, and our offerings may not adequately satisfy
current or future customer demands. Furthermore, even if we correctly forecast
customer demands, we may be unable to design and implement a Web site that
meets these demands.
We have experienced significant growth in our business in recent periods and
any inability to manage this growth and any future growth could harm our
business
Our historical growth has placed, and any further growth is likely to
continue to place, a significant strain on our management and resources. Any
failure to manage growth effectively could seriously harm our business and
operating results. We have grown from 81 employees on December 31, 1998 to 149
employees on May 24, 1999. We have also recently moved into new headquarters
and significantly expanded our operations. To be successful, we will need to
continue to implement management information systems and improve our operating,
administrative, financing and accounting systems and controls. We will also
need to train new employees and maintain close coordination among our
executive, accounting, finance, marketing, sales and operations organizations.
These processes are time consuming and expensive, will increase management
responsibilities and will divert management attention.
Our success depends substantially upon our ability to attract and retain key
employees
We are substantially dependent on the continued services and on the
performance of our senior management and certain other key personnel. The loss
of their services could seriously harm our business. We also depend on our
ability to identify, attract, hire, train, retain and motivate other highly
skilled technical, managerial, editorial, marketing and customer service
personnel. Competition for such personnel is intense, and we may be unable to
successfully attract, assimilate or retain sufficiently qualified personnel. In
particular, we may encounter difficulties in attracting and retaining a
sufficient number of qualified software developers for our online services and
transaction-processing systems. The failure to retain and attract necessary
technical, managerial, editorial, merchandising, marketing and customer service
personnel could negatively impact our business, operating results and financial
condition.
We may be unable to adequately protect or enforce our intellectual property
rights
Our success and competitive position depend on our internally developed
methods, technologies and systems, which we generally protect through a
combination of copyright, trademark and trade secrecy laws, confidentiality
agreements with employees and protective contractual provisions. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or services or to obtain and use our proprietary
information. In addition, others could independently develop substantially
equivalent intellectual property. If we do not effectively protect our
intellectual property, our business could suffer. Litigation may be necessary
to enforce our intellectual property rights, to protect our trade secrets and
to determine the validity and scope of the proprietary rights of others. Any
litigation could result in substantial costs and diversion of resources and
could seriously harm our business, operating results and financial condition.
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We rely on content and technologies licensed from third parties
We intend to continue to strategically license certain content for our Web
sites from third parties, including content that is integrated with internally
developed content and used on our Web sites to provide key services. These
third party content licenses may be unavailable to us on commercially
reasonable terms, and we may be unable to integrate third party content
successfully. Such content licenses may expose us to increased risks,
including:
. the risks associated with the assimilation of new content;
. the diversion of resources from the development of our content;
. the inability to generate revenues from new content sufficient to
offset associated acquisition costs; and
. the maintenance of uniform, appealing content.
The inability to obtain any of these licenses could result in delays in
site development or services until equivalent content can be identified,
licensed and integrated. Any such delays in site development or services could
negatively impact our business, operating results and financial condition.
We currently license from third parties certain technologies and
information incorporated into our Web sites. As we continue to introduce new
services that incorporate new technologies and information, we may be required
to license additional technology and information from others. We cannot assure
you that these third-party technology and information licenses will continue to
be available to us on commercially reasonable terms, if at all. Additionally,
we cannot assure you that the third parties from which we currently license our
technology and information will be able to defend their proprietary rights
successfully against claims of infringement. Any failure to obtain any of these
technology and information licenses could result in delays or reductions in the
introduction of new features, functions or services. It could also negatively
affect the performance of our existing services until equivalent technology or
information can be identified, obtained and integrated.
Protection of our domain names is uncertain
We currently hold various World Wide Web domain names, including
garden.com. The acquisition and maintenance of domain names generally is
regulated by Internet regulatory bodies. The regulation of domain names in the
United States and in foreign countries is subject to change. Governing bodies
may establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
may be unable to acquire or maintain relevant domain names in all countries in
which we conduct business. Furthermore, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights is unclear. Therefore, we may be unable to prevent third parties from
acquiring domain names that are similar to, infringe upon or otherwise decrease
the value of our trademarks and other proprietary rights.
Our operating results depend on our internally developed Web sites, network
infrastructure and transaction-processing systems
The satisfactory performance, reliability and availability of our Web
sites, transaction-processing systems and network infrastructure are critical
to our operating results, as well as to our ability to attract and retain
customers and maintain adequate customer service levels. Any system
interruptions that result in the unavailability of our Web sites or reduced
performance of the transaction systems would reduce the volume of sales and the
attractiveness of our service offerings, which would seriously harm our
business, operating results and financial condition. We are currently upgrading
our system architecture to accommodate
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increased traffic and processing needs. We expect this process to be time
consuming and expensive and our upgrade may not be successful.
We use internally developed systems for our Web sites and substantially
all aspects of transaction processing, including customer profiling and order
verifications. We have experienced periodic systems interruptions due to server
failure, which we believe will continue to occur from time to time. If the
volume of traffic on our Web sites or the number of purchases made by customers
substantially increases, we will need to further expand and upgrade our
technology, transaction processing systems and network infrastructure. We have
experienced and expect to continue to experience temporary capacity constraints
due to sharply increased traffic during sales or other promotions, which cause
unanticipated system disruptions, slower response times, degradation in levels
of customer service, impaired quality and delays in reporting accurate
financial information.
Our transaction processing systems and network infrastructure may not be
able to accommodate increases in traffic in the future. We may be unable to
project accurately the rate or timing of traffic increases or successfully
upgrade our systems and infrastructure to accommodate future traffic levels on
our Web sites. In addition, we may be unable in a timely manner to effectively
upgrade and expand our transaction processing systems or to successfully
integrate any newly developed or purchased modules with our existing systems.
Any inability to do so could negatively impact our business, operating results
and financial condition.
Our computers and communications systems are vulnerable to damage or
interruption which may hinder our ability to deliver timely information or
execute online transactions
Our ability to successfully receive and fulfill orders and provide high
quality customer service depends on the efficient and uninterrupted operation
of our computer and communications hardware systems. Substantially all of our
computer and communications systems are located in three separate locations in
Austin, Texas. Our systems and operations are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure, break-
ins and similar events. Despite our implementation of network security
measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions, delays, loss of data or the inability to accept and confirm
customer orders. The occurrence of any of the foregoing risks could negatively
impact our business, operating results and financial condition.
Our results could suffer if we are required to collect additional sales and
other taxes in the future
We do not currently collect sales or other similar taxes for shipments of
goods into states other than California, Iowa and Texas. However, one or more
states into which our products are sold may seek to impose sales tax collection
obligations. In addition, any presence in states outside California, Iowa and
Texas could subject shipments into such states to state sales taxes under
current or future laws. If one or more states successfully assert that we
should collect sales or other taxes on the sale of merchandise, our business,
operating results and financial condition could be negatively impacted.
If we expand our business internationally, our business would become
increasingly susceptible to numerous international business risks and
challenges
Although we have not had international sales revenue to date, we may
increase our international sales efforts. International sales are subject to
inherent risks and challenges, including:
. the need to develop new supplier relationships;
. unexpected changes in international regulatory requirements and
tariffs;
. difficulties in staffing and managing foreign operations;
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. longer payment cycles;
. greater difficulty in accounts receivable collection;
. potential adverse tax consequences;
. price controls or other restrictions on foreign currency; and
. difficulties in obtaining export and import licenses.
To the extent we generate international sales in the future, any negative
effects on our international business could impact detrimentally our business,
operating results and financial condition as a whole. In particular, gains and
losses on the conversion of foreign payments into U.S. dollars may contribute
to fluctuations in our results of operations and fluctuating exchange rates
could cause reduced gross revenues and/or gross margins from dollar-denominated
international sales.
Future acquisitions could increase the risk of our business
We may broaden the scope and content of our Web sites by acquiring other
online services and businesses. Although none are currently contemplated, any
future acquisitions would expose us to increased risks, including:
. risks associated with the assimilation of new operations, Web sites
and personnel;
. the diversion of resources from our existing businesses, sites and
technologies;
. the inability to generate sufficient revenues from new sites to offset
associated acquisition costs;
. the maintenance of uniform standards, controls, procedures and
policies; and
. the impairment of relationships with employees and customers as a
result of any integration of new management personnel.
We are subject to government regulations relating to the shipment of live
goods, fertilizers and other products
We are subject to federal, state and local laws and regulations relating
to the shipment of live goods, fertilizers and other products. For instance,
various federal, state and local authorities regulate the shipment of plants
and products across their borders, in an attempt to restrict the introduction
of harmful plants, pests and diseases. Additionally, products marketed or that
may be marketed as fertilizers or pesticides are subject to federal, state and
local laws and regulations. We currently rely on our suppliers to comply with
these laws and regulations. However, we are unable to verify that our suppliers
have complied or will comply with all such laws and regulations. We could be
fined or exposed to civil or criminal liability, and we could receive potential
negative publicity, if these requirements have not been fully met by our
suppliers or by us directly.
We may be adversely impacted by the Year 2000
We believe that our internal computer systems are Year 2000 compliant and
we do not anticipate that we will incur significant expenditures to ensure that
such systems will function properly with respect to dates in the Year 2000 and
beyond. However, the systems and software of third parties on which we rely,
including content providers, advertisers and affiliates may contain errors or
faults with respect to the Year 2000. For example, we depend on financial
institutions to process credit card transactions, on telecommunications vendors
to maintain our network and on Federal Express to deliver product to customers.
Known or unknown errors or defects that affect the operation of our software
and systems and those of third parties, including content providers,
advertisers and affiliates, could result in delay or loss of
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revenue, interruption of services, cancellation of customer contracts,
diversion of development resources, damage to our reputation, increased service
and warranty costs, and litigation costs. A more detailed description of our
Year 2000 compliance is in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
Risks Related to the Internet Industry
Our performance depends on the growth and acceptance of the Internet as a
medium for commerce
We cannot be sure that a sufficiently broad base of consumers will adopt,
and continue to use, the Internet and commercial online services as a medium
for commerce, particularly for purchases of gardening and gardening-related
products. Even if consumers adopt the Internet as a medium for commerce, we
cannot be sure that the necessary infrastructure will be in place to process
such transactions. Our long-term viability depends substantially upon the
widespread acceptance and the development of the Internet as an effective
medium for consumer commerce. Use of the Internet to effect retail transactions
is at an early stage of development. Convincing consumers to purchase
gardening-related products online may be particularly difficult because
consumers are accustomed to a high degree of human interaction in purchasing
gardening-related products.
Demand for recently introduced services and products over the Internet and
commercial online services is subject to a high level of uncertainty and few
proven services and products exist. The development of the Internet and
commercial online services into a viable commercial marketplace is subject to a
number of factors, including:
. continued growth in the number of users of such services;
. concerns about transaction security;
. continued development of the necessary technological infrastructure;
. development of enabling technologies;
. uncertain and increasing government regulation; and
. the development of complementary services and products.
To the extent that the Internet and other online services continue to
experience growth in the number of users and frequency of use by consumers
resulting in increased bandwidth demands, there can be no assurance that the
infrastructure for the Internet and other online services will be able to
support the demands placed upon them. In addition, the Internet or other online
services could lose their viability due to delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet or other online service activity, or due to increased governmental
regulation. Insufficient availability of telecommunications services to support
the Internet or other online services also could result in slower response
times and negatively impact use of the Internet and other online services
generally and us in particular. If the use of the Internet and other online
services fails to grow or grows more slowly than expected, if the
infrastructure for the Internet and other online services do not effectively
support growth that may occur or if the Internet and other online services do
not become a viable commercial marketplace, our business, operating results and
financial condition will be negatively impacted.
Rapid technological change could render our Web sites and systems obsolete
If we are unable, for technical, legal, financial or other reasons, to
adapt in a timely manner in response to changing market conditions or customer
requirements, our business, operating results and
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financial condition could be harmed. The Internet and the online commerce
industry are characterized by rapid technological change, sudden changes in
user and customer requirements and preferences, frequent new product and
service introductions embodying new technologies and the emergence of new
industry standards and practices that could render our existing online sites
and proprietary technology and systems obsolete. The emerging nature of these
products and services and their rapid evolution will require that we
continually improve the performance, features and reliability of our online
services, particularly in response to competitive offerings. Our success will
depend, in part, on our ability:
. to enhance our existing services;
. to develop and license new services and technology that address the
increasingly sophisticated and varied needs of our prospective
customers; and
. to respond to technological advances and emerging industry standards
and practices on a cost-effective and timely basis.
The development of Web sites and other proprietary technology entails
significant technical and business risks and requires substantial expenditures
and lead time. We may be unable to use new technologies effectively or adapt
our Web sites, proprietary technology and transaction-processing systems to
customer requirements or emerging industry standards.
We are exposed to risks associated with online commerce security and credit
card fraud
Consumer concerns about the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. To securely transmit confidential information, such as
customer credit card numbers, we rely on encryption and authentication
technology that we license from third parties. We cannot predict whether events
or developments will result in a compromise or breach of the algorithms we use
to protect customer transaction data. Furthermore, our servers may be
vulnerable to computer viruses, physical or electronic break-ins and similar
disruptions. We may need to expend significant additional capital and other
resources to protect against a security breach or to alleviate problems caused
by any breaches. Our business may be adversely affected if our security
measures do not prevent security breaches and we cannot assure that we can
prevent all security breaches.
To date, we have suffered minor losses as a result of orders placed with
fraudulent credit card data even though the associated financial institution
approved payment of the orders in each case. Under current credit card
practices, a merchant is liable for fraudulent credit card transactions where,
as is the case with the transactions we process, that merchant does not obtain
a cardholder's signature. A failure to adequately control fraudulent credit
card transactions could harm our business.
We could face liability for information retrieved from or transmitted through
our Web sites which could result in high litigation or insurance costs
As a publisher and distributor of online content, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the nature and content of the materials
that we publish or distribute. Claims have been successfully brought against
online services. In addition, we do not and cannot practically screen all of
the content generated by our users on the bulletin board system on our Web
sites, and we could be exposed to liability with respect to such content.
Although we carry general liability insurance, our insurance may not cover
claims of these types or may not be adequate to indemnify us for all liability
that may be imposed. Any imposition of liability, particularly liability that
is not covered by insurance or is in excess of insurance coverage, could
negatively impact our reputation and our business, operating results and
financial condition.
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Future government regulations of the Internet could increase our costs of
conducting business
New Internet legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to the
Internet and online commerce, or the application of existing laws and
regulations to the Internet and online commerce could harm our business,
operating results and financial condition. We are subject to regulations
applicable to businesses generally and laws or regulations directly applicable
to communications over the Internet and access to online commerce. Although
there are currently few laws and regulations directly applicable to the
Internet and online retailing services, it is possible that a number of laws
and regulations may be adopted with respect to the Internet covering issues
such as user privacy, pricing, content, copyrights, distribution, antitrust,
taxation and characteristics and quality of products and services. For example,
the United States Congress recently enacted Internet laws regarding children's
privacy, copyrights, taxation and transmission of sexually explicit material
and the European Union recently enacted its own privacy regulations.
Furthermore, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations regarding Internet commerce and
communications may decrease the growth of the Internet or commercial online
services, which could, in turn, decrease the demand for our products and
services and increase our cost of doing business and have a negative impact on
our business, operating results and financial condition.
Moreover, the applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and may take years to resolve.
For example, tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in online commerce, and new
state tax regulations may subject us to additional state sales and income
taxes. Additionally, German authorities have challenged major U.S. online
services for making certain content accessible in Germany. If we were alleged
to have violated federal, state or foreign, civil or criminal law, even if we
could successfully defend such claims, it could have a negative impact on our
business, operating results and financial condition.
Risks Related to the Securities Markets
No public market for our common stock currently exists and our stock price may
fluctuate after this offering
The market price for our common stock will vary from the initial public
offering price. The market price of our common stock may fluctuate
significantly in response to a number of factors, some of which are beyond our
control, including:
. variations in quarterly operating results;
. changes in financial estimates by securities analysts;
. changes in market valuations of online commerce companies;
. announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. loss of a major supplier;
. additions or departures of key personnel;
. sales of common stock in the future; and
. fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of Internet and online
commerce companies.
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Our business may be harmed by class action litigation due to stock price
volatility
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could negatively impact our business, operating
results and financial condition.
We may be unable to meet our future capital requirements
We expect the net proceeds from this offering, current cash balances, cash
equivalents and commercial credit facilities to meet our working capital and
capital expenditure needs for at least the next 12 months. After that time, we
may need to raise additional funds, and we cannot be certain that we will be
able to obtain additional financing on favorable terms, if at all. Our capital
requirements depend upon several factors, including the rate of market
acceptance, our ability to expand our customer base, our level of expenditures
for marketing and sales, the cost of Web site upgrades and other factors. If
our capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated. Further, if we issue
equity securities, stockholders may experience additional dilution or the new
equity securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we cannot raise funds, if needed, on
acceptable terms, we may not be able to continue our operations, develop or
enhance our Web site, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements, which could negatively
impact our business, operating results and financial condition.
Substantial sales of our common stock could cause our stock price to decline
After this offering, we will have shares of outstanding common stock.
Sales of a substantial number of shares of common stock after the offering
could cause the market price of our common stock to decline.
All the shares sold in this offering will be fully transferable. We
anticipate that our directors, officers and significant securityholders will
enter into lock-up agreements in connection with this offering generally
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of our common stock or any securities
exercisable for or convertible into our common stock owned by them for a period
of 180 days after the date of this prospectus without the prior written consent
of Hambrecht & Quist LLC. Taking into account the lock-up agreements, and
assuming Hambrecht & Quist LLC does not release stockholders from these
agreements, the number of shares that will be available for sale in the public
market is as follows:
. Beginning on the effective date of this prospectus, only the shares
sold in this offering will be immediately available for sale in the
public market.
. Beginning 90 days after the effective date, approximately shares
will be eligible for sale.
. Beginning 180 days after the effective date, approximately shares
will be eligible for sale.
. At various times thereafter upon the expiration of applicable holding
periods, shares will become eligible for sale.
See "Shares Eligible for Future Sale" for further discussion of these
issues.
Our existing stockholders will exercise significant control over Garden.com
On completion of this offering, executive officers and directors and their
affiliates will beneficially own, in the aggregate, approximately % of our
outstanding common stock. As a result, these stockholders
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will be able to exercise significant control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, which could delay or prevent someone from
acquiring or merging with us. See "Principal Stockholders."
The broad discretion we have in the use of proceeds of this offering may
increase the risk that we will not use them effectively or that we will use
them in ways with which you may not agree
The net proceeds of this offering will be added to our working capital and
will be available for general corporate purposes, including operating expenses
and capital expenditures. In addition, we may use a portion of the net proceeds
to acquire or invest in complementary businesses, technologies, services or
products. We cannot state with certainty particular uses for the net proceeds
from this offering. Our management will have broad discretion in the use of the
net proceeds. See "Use of Proceeds."
Anti-takeover provisions in our charter documents and Delaware law could
prevent or delay a change in control of our company
Certain provisions of our Restated Certificate of Incorporation and
Amended and Restated By-laws may discourage, delay or prevent a merger or
acquisition that a stockholder may consider favorable. Such provisions include:
. authorizing the issuance of "blank check" preferred stock;
. providing for a classified board of directors with staggered, three-
year terms;
. prohibiting cumulative voting in the election of directors;
. limiting the persons who may call special meetings of stockholders;
. prohibiting stockholder action by written consent; and
. establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted
on by stockholders at stockholder meetings.
Certain provisions of Delaware law may also discourage, delay or prevent
someone from acquiring or merging with us. See "Description of Capital Stock--
Delaware Anti-Takeover Law and Our Restated Certificate of Incorporation and
Amended and Restated By-law Provisions."
FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other 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 of activity, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, those listed under "Risk Factors" and
elsewhere in this prospectus. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue" or
the negative of such terms or other comparable terminology. These statements
are only predictions. Actual events or results may differ materially. In
evaluating these statements, you should specifically consider various factors,
including the risks outlined under "Risk Factors." 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.
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USE OF PROCEEDS
We will receive net proceeds of $ from the sale of shares of
common stock at an assumed initial public offering price of $ per share after
deducting underwriting discounts and commissions of $ and expenses of $ . We
will not receive any proceeds from the sale of common stock by the selling
stockholders.
The primary purposes of this offering are to obtain additional capital,
create a public market for our common stock and facilitate future access to
public markets. We intend to use the proceeds for general corporate purposes,
including operating expenses, capital expenditures and working capital.
Although we may use a portion of the net proceeds to acquire technology or
businesses that are complementary to our business, we have no current plans in
this regard. Pending use of the net proceeds for the above purposes, we intend
to invest the net proceeds in short-term, interest-bearing, investment-grade
securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our common
stock. We intend to retain any future earnings for future growth and do not
anticipate paying any cash dividends in the foreseeable future.
PREEMPTIVE RIGHTS
Certain holders of our Series E Preferred Stock have a preemptive right to
purchase shares of common stock sold in this offering at the initial public
offering price. This preemptive right is limited to the right to purchase in
this offering up to 25% of that number of shares of common stock that would be
required to be sold to that Series E holder to maintain its pre-offering
percentage ownership. As of the date of this prospectus, such stockholders have
the right to purchase approximately of the shares to be issued in this
offering, assuming the over-allotment option will not be exercised. Shares
purchased by these stockholders under their preemptive rights will reduce the
number of shares available to new investors in this offering.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 on
an actual, pro forma and pro forma as adjusted basis. The "actual" column
reflects our capitalization as of March 31, 1999 on a historical basis, without
any adjustments to reflect subsequent events or anticipated events. The "pro
forma" column reflects our capitalization as of March 31, 1999 with adjustments
for the following:
. the filing of a Restated Certificate of Incorporation authorizing
50,000,000 shares of common stock and 5,000,000 shares of undesignated
preferred stock;
. the issuance in April and May 1999 of 3,957,633 shares of our Series E
Preferred Stock and a warrant to purchase 36,713 shares of our Series
E Preferred Stock for net proceeds of approximately $22,638 thousand;
and
. the automatic conversion of 14,546,780 shares of outstanding preferred
stock into common stock upon the closing of this offering.
The "pro forma as adjusted" column reflects our capitalization as of March
31, 1999 with the preceding "pro forma" adjustments plus:
. the receipt of the estimated net proceeds from our sale of shares
of common stock at an assumed initial public offering price of $ per
share.
None of the columns set forth below reflect the following:
. the exercise of options to purchase 1,379,000 shares of common stock
outstanding as of May 24, 1999, the exercise of warrants to purchase
730,587 shares of preferred stock outstanding as of May 24, 1999 and
1,332,450 shares of common stock reserved for issuance under our stock
plans.
The information shown in the table below is qualified by, and should be
read in conjunction with our more detailed financial statements and the related
notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
------------------------------------
Pro Forma As
Actual Pro Forma Adjusted
------- -------------- ------------
(in thousands)
--------------
<S> <C> <C> <C>
Current portion of long-term debt......... $ 151 $ 151 $
------- --------
Long-term debt, less current portion...... 40 40
Redeemable convertible preferred stock,
$0.01 par value; 12,107,158 shares
authorized, 10,589,147 issued and
outstanding actual; no shares authorized,
issued and outstanding pro forma and pro
forma as adjusted........................ 26,938 -- --
Warrants to purchase redeemable
convertible preferred stock.............. 24 24
Stockholders' equity:
Preferred Stock, $0.01 par value;
12,107,158 shares authorized, 10,589,147
shares issued and outstanding actual;
5,000,000 shares authorized, no shares
issued and outstanding pro forma and pro
forma as adjusted....................... -- -- --
Common Stock, $0.01 par value, 15,000,000
shares authorized, 1,414,800 issued and
outstanding actual; $0.01 par value
15,961,580 shares issued and outstanding
pro forma; shares issued and
outstanding pro forma as adjusted....... 14 160
Additional paid-in capital................ 785 50,216
Deferred compensation..................... (697) (697)
Accumulated deficit....................... (18,571) (18,571)
------- -------- ----
Total stockholders' deficit.............. (18,469) 31,108
------- -------- ----
Total capitalization.................... $ 8,684 $ 31,323 $
======= ======== ====
</TABLE>
22
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was $ , or
approximately $ per share of common stock. Pro forma net tangible book value
per share represents the amount of our total assets less total liabilities,
divided by the number of shares of common stock outstanding after giving effect
to the issuance of 3,957,633 shares of Series E Preferred Stock and the
conversion of all preferred stock into shares of common stock upon completion
of this offering. After giving effect to the sale of the shares of common
stock offered hereby at an assumed initial public offering price of $ per
share and after deducting the estimated underwriting discounts and commissions
and estimated offering expenses, the pro forma net tangible book value as of
March 31, 1999 would have been $ , or approximately $ per share. This
represents an immediate increase in pro forma net tangible book value of $ per
share to existing stockholders and an immediate dilution in net tangible book
value of $ per share to new investors of common stock in this offering. The
following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Pro forma net tangible book value per share as of March 31,
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 in pro forma net tangible book value per share to new
investors......................................................... $
====
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1999,
the number of shares of common stock purchased from Garden.com, the total
consideration paid and the average price per share paid by existing
stockholders and by the new investors purchasing shares of common stock in this
offering, before deducting underwriting discounts and commissions and estimated
offering expenses.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- ---------------------- Price
Number Percent Amount Percent Per Share
-------- -------- ---------- ---------- --------- ---
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New investors...........
-------- -------- ---------- ---------
Total................. % $ %
======== ======== ========== =========
</TABLE>
The foregoing discussion and tables assume no exercise of stock options or
warrants outstanding as of March 31, 1999. As of March 31, 1999, there were
outstanding options to purchase 902,750 shares of common stock at a weighted
average exercise price of $0.55 per share and 632,450 shares were reserved for
issuance under our stock plan. As of March 31, 1999, after giving effect to the
issuance of warrants to purchase 36,713 shares of Series E Preferred Stock,
there were outstanding warrants to purchase 730,587 shares of preferred stock
at a weighted average exercise price of $2.19 per share. The foregoing
discussion also excludes an additional 1,200,000 shares reserved for issuance
under stock plans amended or adopted in connection with this offering. To the
extent that any shares available for issuance upon exercise of outstanding
options or warrants or pursuant to our stock plans are issued, there will be
further dilution to new public investors. See "Management--Executive
Compensation" and "Description of Capital Stock."
23
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this prospectus. The statement of operations data for the period from
October 2, 1995 (inception) to June 30, 1996, for the fiscal years ended June
30, 1997 and 1998 and for the nine months ended March 31, 1999 and the balance
sheet data as of June 30, 1996, 1997 and 1998 and March 31, 1999 are derived
from our financial statements that have been audited by Ernst & Young LLP,
independent auditors, and are included elsewhere in this prospectus. The
statement of operations data for the nine months ended March 31, 1998 are
derived from our unaudited financial statements that, in the opinion of
management, include all normal recurring adjustments necessary for a fair
presentation of our financial position and results of operations for the
unaudited interim periods. The statement of operations data for the interim
periods are not necessarily indicative of results that may be expected for any
other interim period or for the year as a whole. Actual results are not
necessarily indicative of future results.
<TABLE>
<CAPTION>
Period from Fiscal Year Ended Nine Months Ended
October 2, 1995 June 30, March 31,
(inception) to -------------------- ---------------------
June 30, 1996 1997 1998 1998 1999
--------------- --------- --------- ----------- ---------
(unaudited)
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Products.............. $ 8 $ 308 $ 1,283 $ 648 $ 2,314
Advertising........... -- 8 56 39 195
------- --------- --------- --------- ---------
Total revenues...... 8 316 1,339 687 2,509
------- --------- --------- --------- ---------
Cost of revenues:
Products.............. 5 242 1,086 530 2,019
Advertising........... -- 4 22 15 54
------- --------- --------- --------- ---------
Total cost of
revenues........... 5 246 1,108 545 2,073
------- --------- --------- --------- ---------
Gross profit........... 3 70 231 142 436
Operating expenses:
Marketing and sales... 189 927 2,330 982 7,065
Content and product
development.......... 161 858 1,213 828 2,166
General and
administrative....... 340 765 1,492 983 2,337
------- --------- --------- --------- ---------
Total operating
expenses........... 690 2,550 5,035 2,793 11,568
------- --------- --------- --------- ---------
Operating loss......... (687) (2,480) (4,804) (2,651) (11,132)
Other income and
expense............... 22 40 193 136 564
------- --------- --------- --------- ---------
Net loss............... $ (665) $ (2,440) $ (4,611) $ (2,515) $ (10,568)
======= ========= ========= ========= =========
Basic net loss per
share................. $ (0.95) $ (1.73) $ (3.20) $ (1.73) $ (8.17)
======= ========= ========= ========= =========
Shares used to compute
basic net loss per
share................. 702,064 1,411,644 1,440,585 1,450,000 1,292,959
======= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
June 30,
-------------------- March 31,
1996 1997 1998 1999
---- ------ ------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................... $114 $4,948 $19,042 $ 2,282
Working capital................................ (10) 4,568 18,308 7,142
Total assets................................... 323 5,423 20,489 10,520
Total liabilities and deferred revenue......... 251 586 1,473 2,026
Total redeemable convertible preferred stock
and stockholders' deficit..................... 72 4,837 19,016 8,494
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with the Financial
Statements and the related notes. This discussion contains forward-looking
statements based upon current expectations that involve risks and
uncertainties, such as our plans, objectives, expectations and intentions. Our
actual results and the timing of certain events 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. See "Forward Looking Statements."
Overview
We were formed in December 1995 as Garden Escape, Inc. as a result of a
merger with The Asbury Group, Inc., a Texas company formed in October 1995. We
began offering products for sale on our Web site in March 1996. For the period
from our inception on October 2, 1995 through March 1996, we had no sales and
our operating activities related primarily to developing our Web site and
computer infrastructure and establishing supplier relationships. Since
launching our Web site, we have continued these operating activities and have
also focused on building sales momentum, extending our product offerings,
establishing supplier and vendor relationships, promoting our brand and
establishing distribution and customer solutions operations. As a result, our
cost of sales and operating expenses have increased significantly. In February
1999, we changed the name of our company to Garden.com, Inc.
We derive our revenues primarily from product sales and shipping charges.
Revenues for products are recognized when the products are shipped to the
customer. Revenues are recorded net of product returns, promotional discounts
and coupons. Seasonal factors typically influence product availability and the
timing of product shipments, which may affect the period of revenue recognition
and, therefore, may influence our quarterly revenues and product margins. For
instance, we expect our revenues to be relatively higher in our fourth fiscal
quarter, which coincides with the spring gardening season, and relatively lower
in our first fiscal quarter, reflecting decreasing consumer demand for garden
products during the late summer. In addition, as is typical for gardening
retailers, our product mix generally varies by season. Due to this variation in
product mix offered during the year, our gross margin fluctuates on a quarterly
basis reflecting the sale of higher margin products during the holiday season,
such as gifts and decorating items, and the sale of lower margin products
during the spring season, such as live plants.
We also generate revenues through advertising on our Web sites.
Advertising revenues are derived principally from short-term advertising
contracts in which we typically guarantee a minimum number of impressions to be
delivered to users over a specified period of time for a fixed fee. Advertising
revenues are recognized ratably in the period in which the advertisement is
displayed. Because advertising revenues are less seasonal than product
revenues, the higher gross margins associated with advertising revenue may have
a more pronounced effect on the total gross margin in periods when product
sales are lower.
Since inception, we have incurred significant losses and, as of March 31,
1999, had incurred cumulative net losses of $18.3 million. We expect to
experience operating losses and negative cash flow for the foreseeable future.
We anticipate our losses will increase significantly from current levels
because we expect to incur additional costs and expenses related to brand
development, marketing and other promotional activities, content development,
technology and infrastructure development and other capital expenditures. As a
result, we will need to generate significant revenues to achieve and maintain
profitability. Although our revenues have grown significantly in recent
quarters, we cannot be certain that we can sustain these growth rates or that
we will achieve sufficient revenues for profitability.
We have a limited operating history on which to base an evaluation of our
business and prospects. You must consider our prospects in light of the risks,
expenses and difficulties frequently encountered by
25
<PAGE>
companies in their early stage of development, particularly companies in new
and rapidly evolving markets such as online commerce. To address these risks,
we must, among other things, maintain and expand our customer base, implement
and successfully execute our business and marketing strategy, continue to
develop and upgrade the technology and systems that we use to process
customers' orders and payments, improve our Web site, provide superior customer
service, respond to competitive developments and attract, retain and motivate
qualified personnel. We cannot assure you that we will be successful in
addressing these risks, and our failure to do so could have a negative impact
on our business, operating results and financial condition.
Results of Operations
The following table sets forth the our results of operations expressed as
a percentage of total revenues. Our historical operating results are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
Percentage of Revenues
--------------------------------------------------
Fiscal Year
Period from Ended Nine Months
October 2, 1995 June 30, Ended March 31,
(inception) to --------------- ----------------
June 30, 1996 1997 1998 1998 1999
--------------- ------ ------ ----------- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Products................. 100% 97% 96% 94% 92%
Advertising.............. -- 3 4 6 8
------ ------ ------ ---- ----
Total Revenues.......... 100 100 100 100 100
------ ------ ------ ---- ----
Cost of revenues:
Products................. 63 77 81 77 80
Advertising.............. -- 1 2 2 3
------ ------ ------ ---- ----
Total cost of revenues.. 63 78 83 79 83
------ ------ ------ ---- ----
Gross profit.............. 37 22 17 21 17
Operating expenses:
Marketing and sales...... 2,363 293 174 143 282
Content and product
development............. 2,012 272 91 121 86
General and
administrative.......... 4,250 242 111 143 93
------ ------ ------ ---- ----
Total operating
expenses............... 8,625 807 376 407 461
------ ------ ------ ---- ----
Operating loss............ (8,588) (785) (359) (386) (444)
Other income and expense.. 275 13 15 20 23
------ ------ ------ ---- ----
Net loss.................. (8,313)% (772)% (344)% (366)% (421)%
====== ====== ====== ==== ====
</TABLE>
Comparison of Nine Months Ended March 31, 1998 and March 31, 1999
Revenues
Revenues consist of product revenues and advertising revenues. Revenues
increased 264% from $687,000 for the nine months ended March 31, 1998 to $2.5
million for the nine months ended March 31, 1999. The increase in revenues was
primarily attributable to an increase in product revenues and, to a lesser
extent, advertising revenues.
Products. Product revenues consist of product sales to customers and
charges to customers for shipping and are recorded net of product returns,
promotional discounts and coupons. Product revenues increased 255% from
$648,000, or 94% of revenues, for the nine months ended March 31, 1998 to $2.3
million, or 92% of revenues, for the nine months ended March 31, 1999. Product
revenues increased as a result of the significant growth of our customer base
and an increase in repeat purchases for our existing
26
<PAGE>
customers, which we believe were primarily influenced by increased marketing
activities, expanded product offerings and enhancements to the features and
functionality of our Web sites.
Advertising. Advertising revenues increased 400% from $39,000, or 6% of
revenues, for the nine months ended March 31, 1998 to $195,000, or 8% of
revenues, for the nine months ended March 31, 1999. Advertising revenues
increased due to an increase in the number of advertisers and number of
advertisements sold and, to a lesser extent, due to selling advertising
inventory more effectively through our internal advertising sales department
rather than through a third party agency. In October 1998, we created an
internal advertising sales department and, in February 1999, we discontinued
the use of a third party advertising agency.
Gross Profit
Gross profit consists of revenues minus cost of revenues. Cost of revenues
consists primarily of the cost of products sold to customers, shipping and
handling costs for product sales, and advertising sales commissions paid to
both a third party advertising agency and to our internal advertising sales
department. Gross profit increased from $142,000 for the nine months ended
March 31, 1998 to $436,000 for the nine months ended March 31, 1999. Gross
margin decreased from 21% of revenues for the nine months ended March 31, 1998
to 17% of revenues for the nine months ended March 31, 1999 due primarily to a
one-time promotional activity in the latter period designed to attract first-
time customers, which was partially offset by an increase in higher margin
advertising revenues.
Operating Expenses
Marketing and Sales. Marketing and sales expenses consist primarily of
advertising and promotional expenditures, payroll and related expenses for
personnel engaged in marketing, customer solutions, advertising sales and
distribution activities and distribution expenses. Marketing and sales expenses
increased from $982,000, or 143% of revenues, for the nine months ended March
31, 1998 to $7.1 million, or 282% of revenues, for the nine months ended March
31, 1999. Marketing and sales expenses increased primarily due to the expansion
of our online and offline advertising to promote our brand and to acquire new
customers as well as hiring additional marketing, sales, and customer solutions
personnel. We intend to continue to pursue an aggressive branding and marketing
campaign and hire additional marketing and sales personnel and, therefore,
expect marketing and sales expenses to increase significantly in absolute
dollars in future periods. In addition, if our sales volume increases in future
periods, we will need to continue to expand our customer solutions and
distribution departments, which will result in increased marketing and sales
expenses.
Content and Product Development. Content and product development expenses
consist of payroll and related expenses for publishing content and design,
merchandising, Web site development, information technology personnel and
maintenance. Content and product development expenses increased from $828,000,
or 121% of revenues, for the nine months ended March 31, 1998 to $2.2 million,
or 86% of revenues, for the nine months ended March 31, 1999. Content and
product development expenses increased in absolute dollars primarily due to
increased personnel and associated costs related to enhancing the products and
features, editorial content and functionality of our Web sites and to
increasing the capacity of the systems that we use to process customers' orders
and payments. As a percentage of revenues, content and product development
expenses decreased due to the increase in revenues during the period. We
believe that continued investment in content and product development is
critical to attaining our strategic objectives and, as a result, expect content
and product development expenses to increase in absolute dollars.
General and Administrative. General and administrative expenses consist of
payroll and related expenses for general corporate functions, including
supplier operations support, finance, facilities expenses and deferred
compensation expense. General and administrative expenses increased from
$983,000, or 143% of revenues, for the nine months ended March 31, 1998 to $2.3
million, or 93% of revenues, for the nine
27
<PAGE>
months ended March 31, 1999. General and administrative expenses increased in
absolute dollars primarily due to increased personnel and associated expenses
necessary to support the growth of our operations. As a percentage of revenues,
general and administrative expenses decreased due to the increase in revenues
during the period. We expect general and administrative expenses to increase as
we expand our staff, incur additional costs related to supplier operations
support and facilities and incur costs related to being a public company.
In the nine months ended March 31, 1999, we recorded total deferred stock
compensation expense of $776,000 in connection with stock options granted
during the period. Such amount is amortized over the vesting periods of the
applicable options, and resulted in additional general and administrative
expenses of $79,000 for the nine months ended March 31, 1999. These amounts
represent the difference between the exercise price of stock option grants and
the deemed fair value of our common stock at the time of such grants.
Other Income
Other income consists of interest earned on cash and cash equivalents and
short-term investments offset by interest expense on borrowings. Other income
increased from $136,000 for the nine months ended March 31, 1998 to $564,000
for the nine months ended March 31, 1999 as a result of interest earned on the
net proceeds from our sale of preferred stock in June 1998.
Comparison of the Period from October 2, 1995 to June 30, 1996, our inception
period, and the Fiscal Years Ended June 30, 1997 and June 30, 1998
Revenues
Revenues were $8,000 for our inception period and increased from $316,000
in fiscal 1997 to $1.3 million in fiscal 1998, an increase of 311%. We began
offering products for sale on our Web site in March 1996.
Products. Product revenues were $8,000 for our inception period and
increased from $308,000, or 97% of revenues, in fiscal 1997 to $1.3 million, or
96% of revenues, in fiscal 1998, an increase of 322%. Product revenues
increased as a result of the growth of our customer base.
Advertising. We did not generate any advertising revenues for our
inception period. Advertising revenues increased 600%, from $8,000, or 3% of
revenues, in fiscal 1997 to $56,000, or 4% of revenues, in fiscal 1998.
Advertising revenues increased due to an increase in the number of advertisers
and number of advertisements sold.
Gross Profit
Gross profit was $3,000 for the inception period and increased to $70,000
for fiscal 1997 and to $231,000 for fiscal 1998. Gross margin decreased from
22% of revenues for fiscal 1997 to 17% of revenues for fiscal 1998, due
primarily to discounts associated with promotional activity in the latter
period.
Operating Expenses
Marketing and Sales. Marketing and sales expenses were $189,000 for the
inception period and increased from $927,000, or 293% of revenues, in fiscal
1997 to $2.3 million, or 174% of revenues, in fiscal 1998. As a percentage of
revenues, marketing and sales expenses decreased primarily due to increased
revenues during the latter period.
Content and Product Development. Content and product development expenses
were $161,000 for the inception period and increased from $858,000, or 272% of
revenues, in fiscal 1997 to $1.2 million, or
28
<PAGE>
91% of revenues, in fiscal 1998. As a percentage of revenues, content and
product development expenses decreased due primarily to increased revenues
during the latter period.
General and Administrative. General and administrative expenses were
$340,000 for the inception period and increased from $765,000, or 242% of
revenues, in fiscal 1997 to $1.5 million, or 111% of revenues, in fiscal 1998.
As a percentage of revenues, general and administrative expenses decreased due
to the increase in revenues during the latter period. The increase in general
and administrative expenses was primarily attributable to increased expenses
associated with hiring additional personnel necessary to support the growth of
our operations.
Other Income
Other income was $22,000 for the inception period, increased from $40,000
in fiscal 1997 and increased to $193,000 in fiscal 1998.
29
<PAGE>
Quarterly Results of Operations
The following table sets forth selected unaudited statement of income data
for the five quarters ended March 31, 1999, both in dollar amounts and as a
percentage of revenues. This data should be read in conjunction with the
audited financial statements for the year ended June 30, 1998 and nine months
ended March 31, 1999 and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Products.................. $ 220 $ 636 $ 333 $ 1,125 $ 856
Advertising............... 10 16 25 87 83
------- ------- ------- ------- -------
Total revenues........... 230 652 358 1,212 939
------- ------- ------- ------- -------
Cost of revenues:
Products.................. 168 555 364 903 753
Advertising............... 4 8 13 32 8
------- ------- ------- ------- -------
Total cost of revenues... 172 563 377 935 761
------- ------- ------- ------- -------
Gross profit................ 58 89 (19) 277 178
Operating expenses:
Marketing and sales....... 380 1,347 2,133 1,246 3,686
Content and product
development.............. 321 386 640 603 923
General and
administrative........... 394 510 616 691 1,030
------- ------- ------- ------- -------
Total operating
expenses................ 1,095 2,243 3,389 2,540 5,639
------- ------- ------- ------- -------
Operating loss.............. (1,037) (2,154) (3,408) (2,263) (5,461)
Other income and expense.... 52 58 248 192 124
------- ------- ------- ------- -------
Net loss.................... $ (985) $(2,096) $(3,160) $(2,071) $(5,337)
======= ======= ======= ======= =======
<CAPTION>
Percentage of Total Revenues
----------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1998 1999
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Products.................. 96% 98% 93% 93% 91%
Advertising............... 4 2 7 7 9
------- ------- ------- ------- -------
Total revenues........... 100 100 100 100 100
------- ------- ------- ------- -------
Cost of revenues:
Products.................. 73 85 102 75 80
Advertising............... 2 1 3 2 1
------- ------- ------- ------- -------
Total cost of revenues... 75 86 105 77 81
------- ------- ------- ------- -------
Gross profit................ 25 14 (5) 23 19
Operating expenses:
Marketing and sales....... 165 207 596 103 392
Content and product
development.............. 140 59 179 50 98
General and
administrative........... 171 78 172 57 110
------- ------- ------- ------- -------
Total operating
expenses................ 476 344 947 210 600
------- ------- ------- ------- -------
Operating loss.............. (451) (330) (952) (187) (581)
Other income and expense.... 23 9 69 16 13
------- ------- ------- ------- -------
Net loss.................... (428)% (321)% (883)% (171)% (568)%
======= ======= ======= ======= =======
</TABLE>
Revenues decreased during the quarter ended September 30, 1998 due to the
seasonal nature of the gardening industry and shipment of gardening products
and, to a lesser extent, due to a promotion designed to encourage first time
buyers with a coupon to be used on their first purchase. Revenues increased
during the quarter ended December 31, 1998 as a result of increased holiday
purchases and shipments. Revenues decreased during the quarter ended March 31,
1999 due to weather factors that caused the shipment of gardening products for
the spring gardening season to extend into the next quarter. We expect that our
revenues in the quarters ended March 31 and June 30 will continue to fluctuate
from year to year depending on weather and other seasonal factors affecting
spring gardening purchases spanning those two quarters.
30
<PAGE>
The decrease in our gross margin in the quarter ended June 30, 1998
reflects a relative increase in sales of lower margin live goods compared to
higher margin products. The negative gross margin in the quarter ended
September 30, 1998 reflects costs associated with the coupon promotion during
that quarter.
Marketing and sales expenses fluctuate quarter to quarter primarily due to
varying levels of spending for seasonal brand promotion and marketing
initiatives. We generally increase our marketing and sales expenses in the
first and more so in the third fiscal quarter in an effort to generate
relatively higher revenues in our second and fourth fiscal quarters. For
example, we increased our marketing and sales expenses in the quarters ended
September 30, 1998 and March 31, 1999 in anticipation of the holiday and spring
gardening seasons. Marketing and sales expenses as a percentage of revenue were
higher during the quarters ended September 30, 1998 and March 31, 1999 due to
relatively lower revenues.
Content and product development expenses increased during the quarters
ended September 30, 1998 and March 31, 1999, as a result of hiring additional
personnel to support the growth of our business. Content and product
development expenses were also higher as a percentage of revenue due to lower
revenues during these quarters.
General and administrative expenses have increased each quarter as a
result of hiring additional personnel to support the growth of our business.
General and administrative expenses increased during the quarter ended March
31, 1999 due to increases in personnel and related expenses, and to a lesser
extent, expenses associated with moving into our new corporate headquarters.
General and administrative expenses increased as a percentage of revenue in the
quarters ended September 30, 1998 and March 31, 1999 due to lower revenues
during these quarters.
Other income increased in the quarter ended September 30, 1998 due to
interest earned on the proceeds received from our sale of our preferred stock
in June 1998.
We expect to continue to experience significant fluctuations in our future
operating results due to the above factors, and others which may be outside our
control. As a result, we believe that quarterly comparisons of our operating
results are not necessarily meaningful and that investors should not rely on
the results of one quarter as an indication of our future performance. We
believe it is likely that, in the future, fluctuations in our quarterly
operating results may cause our results to fall below the expectations of
securities analysts and investors, which could cause the price of our common
stock to decline.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through private
placements of preferred stock and, to a lesser extent, from revenues generated
by operations. As of March 31, 1999, we had approximately $2.3 million in cash
and cash equivalents and $4.9 million in short-term investments.
Net cash used in operating activities increased from $2.4 million for the
nine months ended March 31, 1998 to $10.8 million for the nine months ended
March 31, 1999. The increase in net cash used in operating activities can be
substantially attributed to the increased net loss, net of adjustments for
increased non-cash charges.
Net cash used in investing activities increased from $188,000 for the nine
months ended March 31, 1998 to $5.8 million for the nine months ended March 31,
1999. The increase in net cash used in investing activities resulted primarily
from the purchase of securities for investment purposes and, to a lesser
extent, from the purchase of property and computer equipment.
Net cash provided by financing activities increased from $129,000 for the
nine months ended March 31, 1998 to $171,000 for the nine months ended March
31, 1999. Net cash used in and provided by financing activities resulted
primarily from the proceeds from payments and borrowings under our line of
credit.
31
<PAGE>
Our line of credit term note totals $400,000. At March 31, 1999, $191,000
was outstanding under this line of credit term note. The facility bears
interest at the bank's prime rate plus 1%. The assets purchased with the
proceeds from the line of credit secure the borrowings under this line of
credit.
We have experienced a substantial increase in our capital expenditures
since our inception, consistent with our growth in operations and staffing, and
we anticipate that this will continue for the foreseeable future. Additionally,
we continue to evaluate possible investments in businesses, products and
technologies, and plan to expand our marketing programs and conduct more
aggressive brand promotions. We currently expect that the net proceeds from
this offering, together with our existing available funds, will be sufficient
to meet our anticipated need for working capital and capital expenditures for
at least the next 12 months. We cannot be certain that the underlying assumed
levels of revenues and expenses will prove to be accurate. We may seek
additional funding through public or private financings or other arrangements
prior to such time. Adequate funds may not be available when needed or may not
be available on terms favorable to us. If funding is insufficient at any time
in the future, we may be unable to develop or enhance our products or services,
take advantage of business opportunities or respond to competitive pressures,
any of which could have a negative impact on our business, operating results
and financial condition.
Effect of Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," regarding operating segments. FAS No.
131 will require us to use the "management approach" in disclosing segment
information and establishes requirements to report entity-wide disclosures
about products and services, major customers, and material countries in which
the entity holds assets and reports revenues. FAS No. 131 requires limited
segment data on a quarterly basis. FAS No. 131 is effective for us during
fiscal 1999. We do not believe that the adoption of FAS No. 131 will have a
negative impact on our business, operating results and financial condition.
The FASB recently issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 addresses the accounting for
derivative instruments, including derivative instruments embedded in other
contracts. Under SFAS No. 133, entities are required to carry all derivative
instruments on the balance sheet at fair value. The accounting for changes in
the fair value (i.e. gains or losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, the reason for holding it. We must adopt SFAS No. 133 by October 1,
1999. We do not anticipate that SFAS No. 133 will have an impact on our
financial statements.
Year 2000 Compliance
The Year 2000 issue is the potential for system and processing failures of
date-related data and is the result of the computer-controlled systems using
two digits rather than four to define the applicable year. For example,
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the Year 2000. This could result in system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
We may be affected by the Year 2000 issue related to non-compliant
information technology, or IT, systems or non-IT systems operated by us or by
third parties. We have not completed our assessment of our internal and
external (third-party) IT systems and non-IT systems. At this point in our
assessment, we believe we will require upgrades or patches from certain vendors
including Microsoft that have provided software that we have included in our
Web sites. We expect to receive their upgrades later in 1999. In addition, we
believe that we will be required to modify software on our Web site that we
developed. We intend to include these modifications in various upgrades to our
Web site throughout 1999. At this point in our assessment, we believe we will
become Year 2000 compliant shortly after receiving the necessary upgrades or
patches from certain vendors. We do not have a contingency plan. The costs
associated with
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remediating our non-compliant IT systems and non-IT systems have not been
material to date and we do not anticipate that such costs will be material in
the future, although we cannot assure you that such costs will not be material.
To the extent that our assessment is finalized without identifying any
material noncompliant IT systems operated by us or by third parties, the likely
worst case Year 2000 scenario is a systematic failure beyond our control, such
as a prolonged telecommunications or electrical failure. Such a failure could
prevent us from operating our business, prevent users from accessing our Web
sites, or change the behavior of advertising consumers or persons accessing our
Web sites. We believe that the primary business risks, in the event of such
failure, would include:
. lost advertising revenues;
. increased operating costs;
. loss of consumers or persons accessing our Web sites; and
. claims of mismanagement, misrepresentation or breach of contract.
Any of these risks would likely have a negative impact on our business,
operating results and financial condition.
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BUSINESS
Overview
Garden.com is a leading online destination integrating gardening and
gardening-related commerce, content and community. We currently operate three
gardening Web sites, garden.com, our flagship Web site, virtualgarden.com and
hortmag.com, which enable us to deliver a new value proposition to gardening
consumers and suppliers. Through our Web sites, we provide consumers with an
intuitive, easy-to-use environment through which they can access a wide variety
of gardening information and resources, purchase a broad selection of products,
receive specific gardening advice and other personalized services and interact
with an online gardening community. We offer our suppliers a branding
opportunity, increased sales potential through an expanded customer base and
the ability to improve demand forecasting. By interacting with our customers
through our internally developed Web sites, and with our suppliers through our
sophisticated extranet, we provide consistent, high quality customer service
and streamlined distribution. With over 16,000 products from over 60 suppliers,
we believe we offer the world's largest line of quality gardening and
gardening-related products, available in one convenient location.
The number of visitors to our Web sites and the level of our online sales
have grown rapidly over the last year. We estimate that the number of visitors
to our Web sites grew from 455,000 visitors in April 1998 to 1.6 million
visitors in April 1999. Our revenues have increased from $230,000 in the
quarter ended March 31, 1998 to $939,000 in the quarter ended March 31, 1999.
Industry Background
Gardening Industry
Traditional Home Gardening Market. Gardening is one of the most popular
pastimes in the U.S. According to the National Gardening Association (NGA),
U.S. households spent $46.8 billion on garden and lawn products and landscaping
services in 1998. In addition, the NGA estimates that more than 67 million
households in the U.S. participated in home gardening in 1998, 97% of which
purchased garden and lawn products, such as flowers, vegetables, herbs, trees,
tools and shrubs. Purchases of garden and lawn products in 1998 totaled $30.1
billion, a 13% increase from 1997. Moreover, the average gardening consumer's
annual spending increased from $342 in 1994 to $452 in 1998. In addition, we
believe that gardening-related products, such as furniture, ornaments, outdoor
living accessories and garden-inspired gifts, which are not included in these
totals, represent significant market opportunities.
Gardening Consumers. Gardening appeals to a broad cross-section of the
U.S. population and is an increasingly popular activity among the baby boom
generation, adults aged 35-53. As they move into their peak years in terms of
discretionary income and home ownership, the baby boomers are also spending
more time developing home-focused interests and hobbies, such as gardening and
cooking. In addition, we believe women, like baby boomers, are an important
component of the gardening market and, as consumers, influence 80% of all
household purchases according to the November 1997 issue of Advertising Age.
According to the NGA, gardeners typically purchase products from at least
two different points in the retail channel. We believe today's time constrained
gardener seeks the convenience of a single source for product information, high
quality product selections and advice on product care.
Traditional Retail Channel. The gardening industry's traditional retail
channel has numerous participants and is highly fragmented, with products
purchased from mail order catalogs, home improvement superstores and mass
merchant retailers and local nurseries and garden centers. The mail order
channel consists of more than 1,000 gardening and related product catalogs. We
believe that, while most mail order catalog companies offer high quality
products in specialized areas, the typically limited product offerings of these
catalogs require most mail order gardeners to shop from multiple catalogs
annually. Although home improvement superstores and mass merchant retailers
offer attractive pricing to home gardeners, they offer
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variable quality, narrow selection and limited information and advice related
to their product offerings. Local nurseries and garden centers often have
difficulty meeting gardeners' demands for breadth of product line,
accessibility, and price competitiveness. As a result, the traditional retail
channel fails to satisfy all of the customer's needs for product selection,
convenience, personalized service and advice and information.
Traditional Wholesale Distribution Channel. We believe the ability of the
traditional retail channel to satisfy consumers' demands is hampered by the
lack of an integrated supply chain between suppliers, retailers and consumers.
Currently, suppliers to the retail channel tend to be small, geographically
dispersed and limited in their ability to distribute to a broad retail base. In
addition, these small suppliers have fairly limited and unsophisticated
marketing and tracking systems which restrict their ability to make optimal
supply decisions to match the changing tastes of a broad customer base. These
supply limitations therefore inhibit retailers from offering the breadth and
depth of high quality products and services.
Growth of the Internet
The Internet has emerged as a global mass medium, enabling millions of
people to access and share information, build relationships online and conduct
business electronically. International Data Corporation (IDC) estimates that
there were 97 million Internet users worldwide at the end of 1998 and
anticipates that the number will increase to approximately 320 million users by
the end of 2002. As the Internet's functionality makes it an attractive
commercial medium by providing features and information that have been
historically unavailable through traditional channels, IDC estimates that the
total value of products and services sold over the Internet by retailers,
catalogers and online merchants will increase from approximately $26 billion in
1998 to approximately $268 billion by 2002. In addition, according to Forrester
Research, advertising spending on the Internet will increase from $1.5 billion
in 1998 to more than $10.9 billion in 2002.
Baby boomers and women represent attractive demographic groups for online
merchandisers and advertisers. According to The Industry Standard, baby boomers
represent 49% of all Internet users. At the same time, women are becoming
increasingly active users of the Internet. The percentage of female AOL
subscribers increased from 16% in 1994 to 51% in June 1998 and, according to
Jupiter Communications, women represented 45% of all Internet users as of
January 1998. Although women accounted for only 25% of online sales in 1996,
Jupiter Communications estimates that women will account for 47% of all online
sales by 2000. Thus, as both baby boomers and women continue to move to the
Internet for commercial purposes, we believe that there is a significant online
opportunity to sell products and information, while also allowing advertisers
to target these attractive demographic groups.
The Online Gardening Opportunity
Given the traditional structure and limitations of the gardening market,
we believe gardeners are currently under-served by the prevailing retail
channel and information sources available to them. They are often faced with
inconsistent and limited product selection, lack of information and the absence
of a centralized resource for their gardening needs. Moreover, consumers have
particular needs depending on several factors, such as interests, geography,
yard-specific conditions, time constraints and gardening expertise, that are
also inadequately served. In addition, the lack of an integrated supply chain
inhibits suppliers from meeting the particular needs of consumers.
The Internet has emerged as an ideal medium to provide a one-stop
destination for commerce, content and information related to the attractive
gardening market. According to a 1997 National Retail Federation study, 48% of
online shoppers consider themselves gardeners. The number of Internet consumers
is growing rapidly and includes baby boomers with relatively high discretionary
income and, increasingly, women with substantial influence over household
purchasing decisions. We believe that there is an opportunity to leverage
technology to offer consumers enhanced and deep product selection, customized
information and access to a community of fellow gardeners. For example, an
online gardening destination
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can capitalize on the customization capabilities of the Internet to offer its
customers proactive, personalized services, such as specific advice and
targeted product marketing. These services can be used to attract and retain
valuable long-term customers and promote repeat purchases.
The Internet also addresses the limitations of the traditional supply
channel in the gardening industry. To the supplier, online distribution
provides a new market for their products and the ability to combine their
product offerings with those of other suppliers to fulfill consumers' needs
more completely. Additionally, the information systems technology supporting
Internet and online commerce can be used to make operations more efficient,
increase the accuracy of forecasting and communicate with customers more
effectively. Finally, by aggregating consumers and suppliers in one location,
particularly online consumers with attractive demographics, such as baby
boomers and women, the online medium provides a highly effective promotional
vehicle.
The Garden.com Solution
Garden.com is a leading online destination integrating gardening and
gardening-related commerce, content and community. We provide consumers with an
intuitive, easy-to-use environment through which they can access a wide variety
of gardening information and resources, purchase a broad selection of products
and receive personalized services such as specific gardening advice and
interact with our online gardening community. With 550,000 members currently
and 1.6 million visitors during the month of April 1999, the high point of the
gardening season, we offer suppliers the opportunity to expand their customer
base, extend their presence and promote their brand nationally. Key features of
our solution include:
Convenient Shopping Experience. By offering compelling content, a broad
selection of high quality products and convenient purchasing opportunities, we
make gardening more approachable, accessible and enjoyable. We integrate our
interactive tools, editorial content and product offerings to inspire visitors
to garden and to quickly meet their product and information needs through our
shopping departments and in depth product database. We provide consumers the
ability to shop from home or work, 24 hours a day, seven days a week. We offer
consumers multiple opportunities throughout the year to seek information on
gardening and to make gardening purchases, and we deliver our products in a
timely manner. For example, plants arrive at the time they should be planted in
a given region. Lastly, we strive to achieve optimal customer satisfaction and
maximize customer loyalty by providing online customer service and a seven day
a week, toll free number.
Personalized Service. We believe our technology, combined with our
commitment to customer service, offers gardeners a greater level of
personalization than they would otherwise receive when interacting with retail
store clerks or direct mail customer service representatives. Our Web sites'
features are available to all visitors, from those who casually browse to those
who take advantage of our Web sites' personalization capabilities. We can
tailor our products and services to an individual's preferences, geographic
location and level of gardening expertise. Our customers can select plants and
products based on their own profiling information, save garden designs and
notes, create gift registries and gift reminders and access their complete
order history and current order status. Our detailed customer database allows
the narrowcasting of content, marketing programs and merchandise, based on a
customer's preferences, past purchasing history, geographic location and other
customer profile information.
New Distribution Channel. We believe that the Internet enables us to
deliver a new value proposition to consumers and suppliers. By interacting with
our customers through our internally developed Web sites and with our suppliers
through a sophisticated extranet, we provide consistent customer service and
streamlined distribution. In order to satisfy customer demand, we have created
what we believe is the largest integrated supply chain in the retail gardening
industry. Through our Web site, we provide consumers with complete visibility
into current and future product availability, order status and package
tracking. We continually work with our suppliers to forecast demand and to
ensure the necessary supply of products to support our growth. Additionally, we
can quickly adapt our product offerings to changing
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customer demand. Our extranet enables us to significantly control the quality
and cost of fulfilling our product orders and gives suppliers the ability to
update inventory, track perishable products and modify pricing.
Breadth and Depth of Product Selection. With over 16,000 products, we
believe we offer the world's largest line of quality gardening and gardening-
related products. Our product line includes live plants, shrubs, trees, bulbs,
seeds, organic fertilizers and pesticides, tools, furniture, garden ornaments,
clothing, garden accessories and a distinctive garden-inspired gift line. We
have selected top growers and manufacturers from around the world to provide
our customers with the highest quality and greatest variety of products. For
example, where a local nursery might carry one or two varieties of antique
roses, we offer approximately 200 varieties, and where a home improvement
superstore might offer 50 varieties of perennials, we offer over 2,000
varieties.
Compelling Content. We believe that we attract new and repeat customers by
creating compelling topical content. We deliver interactive, daily and weekly
online features, which are hyperlinked to companion product offerings and which
provide gardeners with planting advice, design ideas, introductions to trends
and entertaining stories. We maintain a large and growing library of gardening
photography which provides inspiration and a horticultural database which
allows consumers to research over 7,500 plants by attribute or keyword. In
order to expand our content offerings we have entered into agreements with
third parties, including Horticulture Magazine and Time/Life Plant
Encyclopedia.
Gardening Community. We have created a community for users to interact and
share interests, ideas and gardening information. We believe that this
environment makes gardening information accessible to a wide-range of gardeners
and allows the gardening community from around the world the opportunity to
communicate with each other, gardening experts and authors, friends and family,
Garden.com editors and the Garden Doctor. In addition, for those visitors
interested in additional information, virtualgarden.com's dig the net offers a
guide to other gardening Web sites, botanical gardens and plant societies, as
well as a calendar of events and other resources available to members of the
gardening community.
Strategy
Our objective is to be the leading online destination for gardening-
related commerce, content and community. Key components of our strategy are to:
Create a New Value Proposition to Home Gardeners. We seek to build
customer trust and loyalty by maintaining our focus as a valuable gardening
destination and by meeting and exceeding customer demands in all interactions.
We believe that by empowering gardeners to make informed decisions that yield
results, we create a sense of connection to our Web sites. The result is a
loyal customer base that will look to us to satisfy their gardening needs.
Execute a Virtual Warehouse Model. We plan to continue to employ a virtual
warehouse model based on strategic relationships with high quality product
suppliers. Through these relationships, we obtain exclusive online access to
high quality products. In return, we provide our suppliers with a branding
opportunity, increased sales through an expanded customer base and the ability
to improve demand forecasting. We believe that these relationships will help us
ensure product supply, minimize out of stock issues, lengthen the purchase
season and create substantial supplier switching costs.
Build the Garden.com Brand. We intend to make the Garden.com brand
synonymous with the delivery of high-quality gardening and gardening-related
products and services. We intend to capitalize on the lack of established
national brands in the gardening industry and plan to differentiate ourselves
based on our quality product and content offering. Our strategy is to
aggressively promote, advertise and increase our brand awareness through
excellent service and a variety of marketing and promotional techniques,
including:
. advertising on leading Web sites and in home and garden publications;
. engaging in targeted radio, television and other media campaigns;
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. developing cross-media partnerships and projects, such as Garden
Escape Magazine;
. conducting an ongoing public relations campaign;
. sponsoring key influencers and developing strategic business alliances
and partnerships such as our alliance with Scripps Howard Broadcasting
Company d/b/a Home & Garden Television (HGTV).
Capitalize on Our Growing Product and Customer Databases. We capitalize on
our growing horticulture and customer databases to enable targeted product,
service and promotional offerings. Our horticulture database includes thousands
of pages of original content and over 16,000 products with up to 50 attributes
per product. Our customer database is comprised of detailed customer
information, preferences and buying patterns. We believe that our databases
will enable us to tailor the marketing of our products and services to increase
conversion rates of visitors into customers and encourage repeat purchases. In
addition, we intend to use customer feedback and transactional history to
expand our existing offerings and to pursue additional revenue opportunities.
Maintain Technology Focus and Expertise. We intend to leverage our
scaleable commerce platform to enhance our service offerings and to take
advantage of the efficiencies of online retailing and our virtual warehouse
model. We are dedicated to maintaining our technology leadership in the online
distribution channel. To support this flexible and evolving platform, our core
development team is focused on building applications, authoring environments
and networks that are scaleable and easy to use, maintain and modify. We intend
to continue to develop more flexible merchandising and promotional systems, new
and enhanced application modules on our supplier extranet, intuitive interfaces
that enhance the overall customer experience and narrowcasting technologies to
further enhance the personalized experience of our customers.
Pursue Additional Revenue Opportunities. We intend to leverage our brand,
operating infrastructure and customer base to develop additional revenue
opportunities. For example, we believe significant incremental revenue
opportunities exist through:
. opening new departments on our Web site to expand into additional
gardening product categories;
. increasing product selection in our existing departments;
. adding more value-added services to further personalize the Garden.com
experience;
. pursuing advertising sales;
. exploring international market opportunities; and
. potentially acquiring complementary businesses, products or
technologies.
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The Garden.com Experience
We provide consumers with a complete online gardening destination
integrating gardening commerce, content and community. We believe we offer
attractive benefits to consumers, including convenience, ease-of-use,
personalization, enhanced product selection, depth of content and information
and avenues for community. Key features of the Garden.com experience include:
Shopping Departments and Utilities. We categorize our products into four
broad categories: plants, gardening-related products, gifts and plant
collections and garden designs.
. Plants. With over 9,000 perennials, herbs, bulbs, seeds, trees and
shrubs, we believe that we offer the largest selection of plants and
flowers available from a single source. We believe we offer consumers
a comprehensive selection of both traditional and specialty plants and
flowers.
. Gardening-Related Products. We offer an extensive selection of
gardening-related products including furniture, ornaments, tools,
books, organic pest and fertilizer solutions and gardening
accessories. We believe that our gardening-related products complement
our diverse plant product offerings, further establishing us as a
leading gardening retailer.
. Gifts. We offer a range of holiday, wedding, birthday and special
occasion gifts, including wreaths, cut flowers and bath and body
products. We have developed distinctive gift packaging to
differentiate our brand and to enhance the gift recipient's
experience. To stimulate interest in our gift products, we provide our
customers with a gift reminder service, where we automatically e-mail
them two weeks prior to important holidays, weddings, birthdays and
events, and a gift registry service.
. Plant Collections and Garden Designs. We offer over 500 preselected
combinations of plants and flowers, which we market through our Web
sites' editorial content. In addition, we sell complete garden kits
comprised of plant collections and complementary tools.
. Online Ordering. Visitors can place items into their shopping
"wheelbarrow" which can be saved from online session to online
session. Customers can make purchases via online secure credit card
transaction or via a toll-free number.
. Customer Solutions. Through the Customer Solutions Center, customers
gain full access to their order status, order history, frequently
asked questions and other customer services. In addition, Customer
Solutions provides general help and horticultural advice through
timely response to e-mail and a dedicated toll-free number.
Garden Design. We provide our users with the resources necessary to plan
their gardens, design garden plots and choose the appropriate plants for their
gardens. We offer the following specialized garden design features to our
users:
. Garden Planner. Garden Planner enables our users to graphically design
a garden plot, by dragging and dropping plants onto a grid. Once the
customer has completed the garden design, the customer can purchase
the plants used in the design. Using Garden Planner, customers can
further customize one of our garden designs to meet their needs and
preferences.
. Plant Finder. Members can use Plant Finder to search our proprietary
database of over 4,700 plants and flowers to get suggestions tailored
to a member's preferences, geographic location, and garden conditions.
Visitors can use a modified version of Plant Finder to create a
garden.
. Garden Designs and Collections / Design Portfolio. We have established
several predesigned garden plans to provide ideas, highlight many
facets of gardening and inspire creativity. Design
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Portfolio provides useful tips and information on garden design and
maintenance. Once a user has researched the garden designs, the user
can purchase the plants highlighted in our Design Portfolio.
Gardening Content. Our retailing strategy integrates content with product
merchandising, blending a publishing strategy with our retail efforts. To
pursue this strategy, we maintain five distinct test gardens where many of our
designs, products and how-to features are researched and photographed. Below
is a sampling of the content that we provide our users:
. Online Magazine. Created exclusively for online purposes, the magazine
section of garden.com includes weekly inspirational features, garden
ideas, practical tips, design advice and planting guides, which
incorporate the latest gardening trends. In addition, we provide more
targeted content focusing on topics such as weekend projects, kitchen
gardening, wildlife and famous gardens of the world. This content
serves as a merchandising platform to highlight various products and
gardening activities offered on our Web sites.
. Garden Escape Magazine. Sold throughout the United States in home
improvement superstores, local nurseries, garden centers and
newsstands, Garden Escape Magazine, our print publication, provides
informative and inspirational articles with links to corresponding
pages on our Web site that provide additional content, interactive
services, product buying guides and the opportunity to purchase
products. Many plants and products featured within Garden Escape
Magazine's articles are available for sale on our Web site. We believe
this editorial approach serves to simplify gardening and make high
quality gardening achievable by the ordinary gardener.
. Regional Gardening. For those seeking gardening advice specific to
their region, we offer specific ideas and planting advice from
Garden.com's nine regional gardening editors. In addition, our
Regional Gardening section highlights monthly to-do lists, activities
and native plants. Sales promotions and other gardening utilities are
tailored for each of the nine regions of the country designated by
Garden.com.
. Third Party Content. We have entered into agreements with third
parties in order to expand our content offerings. Such agreements
provide us with a cost-effective means of acquiring content and
provide our users with additional information. Our many resources
include the Time/Life Plant Encyclopedia, an online version of a
classic gardening reference set which covers approximately 3,000 types
of plants, trees, and shrubs; Barbara Barton's Gardening By Mail, a
database of mail order catalogs; the American Orchid Society's home
Web site about orchids; and seasonal features from the Royal
Horticulture Society in England.
. dig the net. A feature of virtualgarden.com, dig the net is a
directory of other gardening Web sites, botanical gardens and plant
societies as well as a calendar of events and other resources.
. Joint Venture with Horticulture Magazine. Launched in March 1998 as a
joint venture with Horticulture Magazine, www.hortmag.com uses our
development environment, backend applications, product database and
servers to showcase Horticulture Magazine's content, both from its
publication and from original content created exclusively for
Horticulture Magazine Online. This Web site targets expert gardeners
who subscribe monthly to Horticulture Magazine and provides them with
links to our products.
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Community. An important aspect of our strategy to become a leading online
gardening destination is to foster an online gardening community. We believe
that we have created an environment which makes gardening information
accessible to a wide-range of gardeners and facilitates discussion and exchange
between gardeners. In building a successful community of active members and
loyal customers, we use the following features:
. Chat Sessions. Through our newsgroups and chat rooms, members can
easily communicate with each other, authors and other gardening
experts. We also offer additional activities for our members such as
live chat sessions with gardening experts and online garden design
classes.
. Vertical Portal. In addition to providing useful applications and
content, virtualgarden.com serves as a directory to other quality
gardening Web sites and, thus, becomes a portal for the online
gardening community.
. Garden Doctor. Through Garden Doctor, we provide a network of
gardening experts dedicated to answering our users' questions. This
valuable resource offers personalized solutions to our users'
problems. In this way, we believe that we make gardening more
approachable and enjoyable to a wider range of consumers.
Advertising Sales
As we attract more consumers to our site and expand our internal
advertising sales department, we believe that our advertising sales will
increase. A variety of marketers, including eToys, GMC Trucks, Nestle's
Taster's Choice, Pacific Trail and Yahoo!, has advertised on either our Web
sites or Garden Escape Magazine. We intend to continue to explore promotional
and distribution arrangements that generally have longer terms and higher
dollar value than typical banner advertising deals to support brand marketing
objectives, including product awareness and introductions, online research and
editorial integration. Advertising sales accounted for approximately 8% of our
revenues in the nine months ended March 31, 1999.
Marketing and Promotion
Marketing and Promotion Strategy
Our marketing and promotion strategy is designed to:
. build brand recognition;
. increase consumer traffic to our Web site;
. add new customers;
. build strong customer loyalty;
. maximize repeat purchases; and
. develop incremental revenue opportunities.
Marketing and Promotion Channels. In order to implement our marketing and
promotion strategy, we have and will employ multiple channels, including:
. Traditional Advertising and Sponsorship. We engage in a program of
print, radio and television advertising to access our potential
customers. For example, we frequently advertise on HGTV, a cable
programming network wholly owned by The E.W. Scripps Company, which
has invested in Garden.com both through its subsidiary, Scripps
Ventures and through HGTV directly. In addition, we sponsor The
Perennial Gardner with Karen Strohbeen, a gardening television program
on public television.
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. Internet Advertising and Promotion. We place advertisements on various
high traffic aggregator Web sites and online services, including
America Online, AOL.com, CompuServ, MSN and Snap!. We also place
advertisements on targeted home and garden Web sites, including Better
Homes and Gardens' Web site, Condenet, GardenNet, Garden Web and
HomeArts. These advertisements usually take the form of banners that
we expect will encourage users to click through to a specific area of
our Web site. We also engage in promotional links such as the
MasterCard "Shop Smart" promotion, specific holiday promotions on
America Online and Yahoo!, the gift tab on Amazon.com and NetCentive's
Web-based incentives program.
. Direct Marketing. We are conducting an ongoing direct mail campaign
that distributes a variety of direct response pieces, including
catalogs and a monthly postcard which lists upcoming features and
promotions on our Web site. We send mailings to selected members and
third party lists.
. Customer Retention Efforts. Our customer retention efforts include our
one year, 110% guarantee on all products; Bloom Times, a monthly e-
mail newsletter distributed to our entire membership featuring
products, promotions, upcoming features and chat events; targeted e-
mail promotions, such as the first time buyer program, occasional
sales and holiday promotions; Shoppers' Preview, a service that sends
customized weekly e-mails about new products and promotions, tailored
to specific customer segments identified in the customer database; and
Secret Garden Club, a service that sends e-mails to preferred
customers notifying those customers of special offerings. Finally, we
purchase e-mail lists from third parties which we use in new customer
acquisition programs.
. The Virtual Garden Network. We are presently forming the Virtual
Garden Network, a group of selected gardening Web sites, including
gardenguides.com, gardens.com, Garden Launch Pad and
backyardgardener.com, that we expect will collectively offer their
advertising inventory for sale to lifestyle advertisers and to other
members of the network. We plan to aggregate the advertising that will
be sold to third parties and use the Virtual Garden Network for
internal Garden.com advertising. We believe the Virtual Garden Network
will provide us with an additional revenue source by allowing us to
share in the payments made by third party advertisers and will provide
a targeted base of consumers who are more likely to respond to
gardening-related advertisements.
. Public Relations. We have been featured on a variety of television
shows, radio programs, and in numerous articles.
Strategic Relationships
We continually seek to form strategic relationships to increase our access
to online customers, build brand recognition and expand our online presence. To
date, we have established the following relationships, among others, for
marketing, distribution and product enhancement:
HGTV. In May 1999, HGTV purchased 874,126 shares of our Series E Preferred
Stock. A portion of the shares were paid with an advertising credit which we
will use over the next 24 months to advertise on the HGTV network. In addition,
HGTV and Garden.com have entered into a strategic alliance to pursue mutually
beneficial opportunities to leverage each party's content, membership base and
expertise. We believe the HGTV alliance offers us the ability to target
promotions to a select group of prospective customers likely to have an
affinity for gardening.
Portal and ISPs. We have relationships with several major online portals
and Internet service providers to expand our online presence. For example, we
have entered into a strategic relationship with
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America Online under which we serve as an anchor merchant on AOL and CompuServe
and, under which we maintain an online gardening store within AOL.
PRIMEDIA. We have established a relationship with PRIMEDIA to expand our
content offering. Under this relationship, we have jointly developed
Horticulture Magazine Online which combines our Web site technology with the
content of Horticulture Magazine, one of the oldest and most prestigious
gardening publications in the U.S. In addition, we jointly produce Garden
Escape Magazine, which is sold throughout the United States in home improvement
superstores, local nurseries, garden centers and newsstands.
American Forests. We have established a relationship with American
Forests, the oldest non-profit organization in the U.S. dedicated to preserving
the world's forests. Through this relationship, we helped design and assist in
maintaining the American Forest Web site, promote and sell selected products
from their Famous and Historic Trees product line, participate in joint
marketing activities and offer promotions to our customers where a percentage
of their purchase is donated by Garden.com to American Forests' global re-leaf
projects around the world. We believe our sponsorship of these programs
emphasizes our interest in protecting the environment and furthers our broad
marketing objectives.
Supply Management
We combine over 60 supplier relationships and extranet technology to
"virtually integrate" the gardening supply chain to provide a broader product
selection to our customers than is currently available through any other
gardening retail channel. To address the highly fragmented supply base,
geographically dispersed suppliers and the perishability of live planting
material, we have assembled a virtual warehouse for our gardening and
gardening-related products.
Our suppliers benefit from our unique marketing channel without dedicating
resources to build an online presence. We have strategic mutually exclusive
online relationships with approximately 25 of our suppliers under which such
suppliers are our exclusive provider of a specific product line and we are the
exclusive online outlet for their products. For the nine months ended March 31,
1999, shipments from these 25 suppliers accounted for greater than 80% of our
total product revenue. However, in the event that our demand unexpectedly
exceeds the quantities our suppliers can provide, we are establishing
relationships with alternative suppliers that we believe can satisfy our demand
on reasonable terms. Finally, we negotiate pricing with suppliers using a
discount from the supplier's retail price to ensure that the relationship is
profitable for both the supplier and us.
To ensure that our automated supply network is efficient and scaleable, we
have built an extensive extranet that enables the efficient exchange of
information with our suppliers. Over 90% of product shipments are now processed
through our automated supply network as orders are placed online, automatically
downloaded to our suppliers for fulfillment and directly shipped to our
customers via Federal Express. By avoiding the expense and overhead of
traditional multi-tier distribution models that focus on centralized
distribution, we believe we have a competitive advantage over traditional
gardening retailers. While substantially all of our customer orders are
directly shipped from our suppliers, we maintain an inventory of specialty
gifts, promotional items and some high volume products in our Austin, Texas
warehouse.
We leverage information systems capabilities of Federal Express to link
Garden.com with our suppliers and customers. In conjunction with Federal
Express, we developed our proprietary extranet shipping module to virtually
integrate our supply chain. This system provides significant efficiencies by
automating the process for updating order status and offers the reliability of
Federal Express delivery.
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<PAGE>
Operations and Technology
Our Web sites are run off multiple front-end Web servers and an enterprise
database server. Our servers are located at a third-party network operating
center in Austin, Texas, which provides 24-hour systems support and
connectivity via high speed DS-3 and higher connections. We maintain two other
sets of servers in two different locations in Austin, Texas, to promote
redundancy from the primary servers. We have implemented scaleable Web site
management, search, customer interaction, transaction-processing and
fulfillment services and systems. These services and systems are based on a
combination of our own proprietary technologies and commercially available,
licensed technologies. Our Web site and extranet provide the amount of
customization, interactivity and performance required by online consumers and
suppliers. We use a set of applications for:
. accepting and validating customer orders;
. organizing, placing and managing orders with suppliers;
. notifying and updating customers of order status; and
. managing shipment of products to customers.
We incurred product development expenses of $417,000 in the fiscal year
ended June 30, 1998 and $441,000 in the nine months ended March 31, 1999. We
anticipate that we will continue to devote significant resources to product
development in the future as we add new features and functionality to our Web
site and extranet.
The market in which we compete is characterized by rapidly changing
technology, evolving industry standards and changing customer demands.
Accordingly, our future success will depend on our ability to adapt to rapidly
changing technologies, to adapt our services to evolving industry standards and
to continually improve the performance, features and reliability of our service
in response to competitive service and product offerings and evolving demands
of the marketplace. Our failure to adapt to such changes would have a negative
impact on our business, operating results and financial condition. In addition,
the widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes could require substantial
expenditures by us to modify or adapt our services or infrastructure which
could have a negative impact on our business, operating results and financial
condition.
To maintain our technological leadership in online commerce and garden
retail industries, we recently commenced a project to upgrade our system
architecture. In addition, as part of our continuing effort to refine our
automated supply network, we use our Austin, Texas warehouse to test
technological upgrades and enhancements to the network.
Competition
Internet and online commerce generally, and the online retail gardening
market specifically, are new, rapidly evolving and intensely competitive, and
we expect such competition to intensify in the future. We currently or
potentially compete with a variety of other companies, including:
. traditional local nurseries;
. home improvement superstores, such as Lowe's and Home Depot;
. established gardening mail-order catalogs, including Foster &
Gallagher and Smith & Hawken;
. media groups with existing, well-defined brands in the home and garden
market, such as Martha Stewart Living; and
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<PAGE>
. multi-channel online retailers seeking to diversify their product
offerings, such as 1-800-FLOWERS and FTD.
We believe that the following are principal competitive factors in our
market:
. convenience;
. quality;
. selection;
. customer service;
. information; and
. brand recognition.
We believe that any competitor which seeks to establish an Internet and
online commerce presence within the gardening industry will confront
significant challenges in cost effectively addressing secure transaction
processing, establishing an efficient supply and logistics system and
developing required software. While there can be no assurance that we will be
able to compete successfully against current and future competitors, we believe
our ability to compete favorably is enhanced by our sophisticated logistics and
supply management, our proprietary technology, our database and our strategic
supplier relationships.
Many of these current and potential competitors can devote substantially
more resources to Web site and systems development than we can. In addition,
larger, well-established and well-financed entities may acquire, invest in or
form joint ventures with our online competitors. Some of our competitors may be
able to secure products from suppliers on more favorable terms, fulfill
customer orders more efficiently and adopt more aggressive pricing or inventory
availability policies than we can. Finally, new technologies and the expansion
of existing technologies, such as price comparison programs that select
specific titles from a variety of Web sites, may direct customers to other
online gardening destinations. If we face increased competition, our operating
results may be negatively impacted.
Intellectual Property
We regard the protection of our copyrights, service marks, trademarks,
trade dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws and
contractual restrictions to establish and protect our proprietary rights in
products and services. We have entered into confidentiality and invention
assignment agreements with our employees and contractors, and nondisclosure
agreements with our suppliers and strategic partners in order to limit access
to and disclosure of our proprietary information. There can be no assurance
that these contractual arrangements or the other steps taken by us to protect
our intellectual property will prove sufficient to prevent misappropriation of
our technology or to deter independent third-party development of similar
technologies. We pursue the registration of our trademarks and service marks in
the U.S. and internationally. Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which our
services are made available online. We have licensed in the past, and expect
that we may license in the future, certain of our proprietary rights, such as
trademark or copyrighted material, to third parties. While we attempt to ensure
that the quality of our brand is maintained by such licensees, there can be no
assurance that such licensees will not take actions that might materially
adversely affect the value of our proprietary rights or reputation, which could
have a material adverse effect on our business, results of operations and
financial condition. We also rely on certain technologies that we license from
third parties, including the suppliers of the operating systems and financial
and reporting system for our business. There can be no assurance that these
third-party technology licenses will continue to be available to us on
commercially reasonable terms. The loss of such technology could require us to
obtain substitute technology
45
<PAGE>
of lower quality or performance standards or at greater cost, which could
negatively impact our business, results of operations and financial condition.
To date, we have not been notified that our technologies infringe the
proprietary rights of third parties. There can be no assurance that third
parties will not claim infringement by us with respect to past, current or
future technologies. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, whether meritorious
or not, could be time-consuming, result in costly litigation, cause service
upgrade delays or require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements might not be available on terms acceptable
to us or at all. As a result, any such claim could have a material adverse
effect upon our business, results of operations and financial condition.
Government Regulation
We are not currently subject to direct federal, state or local regulation,
and laws or regulations applicable to access to or commerce on the Internet,
other than regulations applicable to businesses generally. However, due to the
increasing popularity and use of the Internet and other online services, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet or other online services covering issues such as user privacy,
freedom of expression, pricing, content and quality of products and services,
taxation, advertising, intellectual property rights and information security.
The nature of such legislation and the manner in which it may be interpreted
and enforced cannot be fully determined and, therefore, such legislation could
subject us and/or our customers to potential liability, which in turn could
have an adverse effect on our business, results of operations and financial
condition. The adoption of any such laws or regulations might also decrease the
rate of growth of Internet use, which in turn could decrease the demand for our
service or increase the cost of doing business or in some other manner have a
material adverse effect on our business, results of operations and financial
condition. In addition, applicability to the Internet of existing laws
governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel, obscenity and personal privacy is uncertain.
The vast majority of such laws were adopted prior to the advent of the Internet
and related technologies and, as a result, do not contemplate or address the
unique issues of the Internet and related technologies.
Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also initiated
action against at least one online service regarding the manner in which
information is collected from users and provided to third parties. Changes to
existing laws or the passage of new laws intended to address these issues,
including some recently proposed changes, could create uncertainty in the
marketplace that could reduce demand for our services or increase the cost of
doing business as a result of litigation costs or increased service delivery
costs, or could in some other manner have a material adverse effect on our
business, results of operations and financial condition. In addition, because
our services are accessible throughout the United States, other jurisdictions
may claim that we are required to qualify to do business as a foreign
corporation in a particular state. We are qualified to do business in
California, Iowa and Texas, and our failure to qualify as a foreign corporation
in a jurisdiction where it is required to do so could subject us to taxes and
penalties for the failure to qualify and could result in our inability to
enforce contracts in such jurisdictions. Any such new legislation or
regulation, or the application of laws or regulations from jurisdictions whose
laws do not currently apply to our business, could have a material adverse
effect on our business, results of operations and financial condition.
In addition to regulations applicable to businesses generally, we are
regulated by federal, state and local governmental agencies with respect to the
shipment of plants and other live goods, fertilizers and pesticides. For
example, the California Department of Food and Agricultural restricts the
import of plants into California from those states or regions which may have
undesirable diseases, parasites or insects. We currently seek to rely upon our
suppliers to meet the various regulatory and other legal requirements
applicable to our business. However, we are unable to verify that they have in
the past, or will in the future,
46
<PAGE>
always do so, or that their actions are adequate or sufficient to satisfy all
governmental requirements that may be applicable to these sales. We would be
fined or exposed to civil or criminal liability, and we could receive potential
negative publicity, if these requirements have not been fully met by our
suppliers or by us directly.
There are, to our knowledge, currently no investigations, inquiries,
citations, fines, or allegations of violations or noncompliance pending by
government agencies or by third parties against us. It is possible that there
may be investigations or allegations in the future. The risk that any
noncompliance may be discovered in the future is currently unknown. Although
any potential impact on us for noncompliance cannot currently be established,
it could result in civil or criminal penalties, including monetary fines and
injunctions, for noncompliance and negative publicity, and have a material
adverse impact on our business, revenues, results of operations and financial
conditions.
Employees
As of May 24, 1999, we employed 149 people. Our future performance depends
in significant part upon the continued service of our key technical, sales and
senior management personnel. The loss of the services of one or more of our key
employees could negatively impact our business, operating results and financial
condition. Our future success also depends on our continuing ability to
attract, train and retain highly qualified personnel. Competition for such
personnel is intense, and we may not be able to retain our key personnel in the
future. None of our employees is represented by a labor union. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
Facilities
Our headquarters are located in Austin, Texas at 3301 Steck Avenue,
Austin, Texas 78757. We also maintain an office in Des Moines, Iowa, where our
publishing office is located and where we maintain five test gardens, where
products are grown, tested and evaluated for the main product line. We lease
all of our
facilities, with the Austin lease comprising approximately 27,000 square feet
of office and warehouse space and the Iowa lease comprising approximately 1,500
square feet of office space.
Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. As of the date
of this prospectus, we are not a party to any legal proceeding.
47
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding the executive
officers and directors of Garden.com as of May 24, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Clifford A Sharples..... 35 Chief Executive Officer, President and Director
James N. O'Neill........ 37 Chief Operating Officer and Director
Lisa W.A. Sharples...... 33 Chief Merchandising and Marketing Officer and Director
Andrew R. Martin........ 36 Chief Technology Officer
Douglas A. Jimerson..... 47 Vice President of Publishing and Editor-in-Chief
Jana D. Wilson.......... 34 Chief Financial Officer
John D. Thornton (1).... 34 Director
Donald J. Phillips (1).. 60 Director
Gerald R. Gallagher
(2).................... 58 Director
Douglas R. Stern (2).... 49 Director
Steven J. Dietz......... 35 Director
</TABLE>
- ------------------
(1)Member of the Compensation Committee.
(2)Member of the Audit Committee.
Clifford A. Sharples founded Garden.com and has served as our Chief
Executive Officer, President and a Director since December 1995. Prior to
founding Garden.com, from May 1995 to August 1995, he served as Director of
Business Development for pcOrder.com, Inc., an online computer merchant. From
December 1994 to April 1995, Mr. Sharples worked as a consultant at Enterprise
Integration Technologies Corporation, a research and development company
specializing in electronic commerce over the Internet. From July 1993 to
December 1994, Mr. Sharples worked as a Senior Associate in the Technology
Advisory Services practice of Coopers & Lybrand Consulting. Mr. Sharples holds
a Masters in Management from the J.L. Kellogg Graduate School of Management and
a B.S. in Information Systems from Carnegie Mellon University. Clifford A.
Sharples is the husband of Lisa W.A. Sharples.
James N. O'Neill founded Garden.com and has served as our Chief Operating
Officer since April 1998, served as our Vice President of Operations and Chief
Financial Officer from December 1995 to August 1998 and has served as a
Director since December 1995. Prior to founding Garden.com, from May 1995 to
August 1995, Mr. O'Neill was employed as a marketing manager by Trilogy
Software, Inc., an enterprise software company. From June 1993 to May 1995, Mr.
O'Neill served as an internal consultant for top management at W.W. Grainger,
Inc., a nationwide distributor of maintenance, repair and operations products.
Mr. O'Neill holds a Masters in Management from the J.L. Kellogg Graduate School
of Management and a B.A. in Economics from the University of Wisconsin.
Lisa W.A. Sharples founded Garden.com and has served as our Chief
Merchandising and Marketing Officer since August 1998, served as our Vice
President of Marketing from December 1995 to August 1998 and has served as a
Director since December 1995. Prior to founding Garden.com, from May 1995 to
August 1995, she served as Director of Marketing for pcOrder.com, Inc., an
online computer merchant. From October 1993 to May 1995, Ms. Sharples was
employed at Silicon Graphics, Inc., a computer workstation company, as
marketing manager for the Channel Development Group. Ms. Sharples holds a
Masters in Management from the J.L. Kellogg Graduate School of Management and a
B.A. in Biochemistry from Bowdoin College. Lisa W.A. Sharples is the wife of
Clifford A. Sharples.
Andrew R. Martin, Ph.D. started with Garden.com in January 1996 and has
served as our Chief Technology Officer since March 1996. Prior to joining
Garden.com, from April 1994 to December 1995,
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<PAGE>
Dr. Martin was a chief programmer in the DCE Client/Server division of Trilogy
Software, Inc., an enterprise software company. From February 1990 to April
1994, Dr. Martin worked as a chief programmer for IBM in the Advanced Object
Technology Group. Dr. Martin holds seven software patents granted by the U.S.
Patent and Trademark Office. He holds a D.Phil. in Computer Science and a B.S.
in Computational Science with Honors (Class II, Division I) from the School of
Computer Studies, The University of Leeds.
Douglas A. Jimerson has served as our Vice President of Publishing and
Editor-in-Chief since April 1996. Prior to April 1996, Mr. Jimerson worked for
over 19 years with Meredith Corporation, most recently as Editor-in-Chief of
Home Garden, a national gardening publication, and prior to Home Garden, as
Executive Garden Editor of Better Homes and Gardens from 1977 to 1995. In
addition, Mr. Jimerson is the editor or author of 14 gardening books. Mr.
Jimerson holds a B.S. in Journalism and a B.S. in Fisheries and Wildlife
Management from Iowa State University.
Jana D. Wilson has served as our Chief Financial Officer since August 1998
and served as our Controller from February 1998 to August 1998. Prior to
joining Garden.com, from March 1994 to December 1997, Ms. Wilson served as
Controller of Gadzooks, Inc., a specialty retailer of apparel for teenagers.
From April 1993 to March 1994, Ms. Wilson was a senior auditor for Brinker
International, Inc., a national restaurant chain operator. From April 1991 to
July 1992, Ms. Wilson served as a senior analyst in financial planning for The
Gap, Inc., an international apparel retailer. From June 1987 to April 1991, Ms.
Wilson worked in the audit division of KPMG Peat Marwick, an international
accounting firm. Ms. Wilson is a certified public accountant and holds a B.B.A.
from Baylor University.
John D. Thornton has served as a Director of Garden.com since December
1995. Mr. Thornton is a general partner of Austin Ventures, a venture capital
investment firm, which he joined in 1991. Prior to joining Austin Ventures, Mr.
Thornton was a consultant with McKinsey & Co., a management consulting firm. He
currently serves on the Board of Directors of Vignette Corporation, a computer
software company. Mr. Thornton holds an M.B.A. from Stanford University
Graduate School of Business and a B.A. from Trinity University.
Donald J. Phillips has served as a Director of Garden.com since August
1996. Mr. Phillips is managing general partner of Phillips-Smith Specialty
Retail Group, a venture capital investment firm, which he co-founded in 1986.
Prior to founding Phillips-Smith Specialty Retail Group, Mr. Phillips was
President and Chief Executive Officer of Pearle Health Services, a retailer of
optical products. He currently serves on the Board of Directors of Cheap
Tickets, Inc., a discount merchant of airline tickets. Mr. Phillips holds an
M.B.A. from Harvard Business School and a B.B.A. from Western Michigan
University.
Gerald R. Gallagher has served as a Director of Garden.com since May 1997.
Mr. Gallagher is a general partner of Oak Investment Partners, which he joined
in 1987. Before joining Oak Investment Partners, a venture capital investment
firm, he was Vice Chairman of Dayton Hudson Corporation, a national retailer,
where, during a ten-year period, he served in both operating and staff
positions. He currently serves on the Board of Directors of P.F. Chang's China
Bistro Inc., a national retail restaurant chain. Mr. Gallagher holds an M.B.A.
from The University of Chicago and a B.S.E. from Princeton University.
Douglas R. Stern has served as a Director of Garden.com since May 1997.
Mr. Stern is the President and Chief Executive Officer of Scripps Ventures, the
venture capital operations of The E.W. Scripps Company, which he joined in June
1996. Mr. Stern is also President and Chief Executive Officer of United Media,
a licensing and newspaper syndication company that is also wholly owned by The
E.W. Scripps Company, which he joined in August 1993. Mr. Stern holds a Ph.D.
in Psychology from Temple University and a B.A. from the University of
Rochester.
Steven J. Dietz has served as a Director of Garden.com since June 1998.
Mr. Dietz is a principal of Global Retail Partners, L.P., a venture capital
investment firm, which he joined when it was established in
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1996. Prior to 1996, Mr. Dietz was an officer in the investment banking
division of the Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Dietz
holds a B.S. in Finance from the University of Colorado.
Board of Directors
Our Board of Directors consists of eight members. Currently, each director
is elected for a period of one year at our annual meeting of stockholders and
serves until the next annual meeting of stockholders or until his or her
successor is duly elected and qualified. Our Restated Certificate of
Incorporation and our Amended and Restated By-laws provide, upon the completion
of this offering, that our Board of Directors will be divided into three
classes, Class I, Class II and Class III, with each class serving staggered
three year terms. The Class I directors, initially , and , will
stand for election or re-election at the 2000 annual meeting of stockholders.
The Class II directors, initially , and , will stand for election
or re-election at the 2001 annual meeting of stockholders. The Class III
directors, initially and , will stand for election or re-election at
the 2002 annual meeting of stockholders. Pursuant to our Amended and Restated
By-laws, our directors may only be removed for cause.
Committees of the Board of Directors
The Compensation Committee consists of Messrs. Phillips and Thornton. The
Compensation Committee reviews and approves the compensation and benefits for
our executive officers, administers our Amended and Restated 1996 Stock
Option/Stock Issuance Plan and our 1999 Employee Stock Purchase Plan and makes
recommendations to the Board of Directors regarding such matters.
The Audit Committee consists of Messrs. Gallagher and Stern. Among other
functions, the Audit Committee makes recommendations to the Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by our independent auditors, reviews
our balance sheet, statement of operations and cash flows and reviews and
evaluates our internal control functions.
Compensation Committee Interlocks and Insider Participation
None of Garden.com's executive officers serves on the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our Board of Directors or Compensation Committee.
Director Compensation
Garden.com currently does not compensate any non-employee member of its
Board of Directors. Members of the Board of Directors will be eligible to
receive discretionary option grants and stock issuances under our Amended and
Restated 1996 Stock Option/Stock Issuance Plan. We plan to implement a program
under our Amended and Restated 1996 Stock Option/Stock Issuance Plan to provide
non-employee directors with automatic stock option grants of shares of
common stock upon their initial appointment and at each of our annual
stockholders' meetings.
Limitation of Liability and Indemnification Matters
Our Restated Certificate of Incorporation limits the liability of
directors to the full extent permitted by Delaware law. Delaware law provides
that a corporation's certificate of incorporation may contain a provision
eliminating or limiting the personal liability of directors for monetary
damages for breach of their fiduciary duties as directors, except for
liability:
. for any breach of their duty of loyalty to the corporation or its
stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
50
<PAGE>
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
. for any transaction from which the director derived an improper
personal benefit.
Our Amended and Restated By-laws provide that we shall indemnify our
directors and executive officers and may indemnify our employees and agents to
the full extent permitted by Delaware law. We believe that indemnification
under our Amended and Restated By-laws covers at least negligence and gross
negligence on the part of indemnified parties. We have entered into agreements
to indemnify our directors and executive officers. These agreements, among
other things, indemnify our directors and officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred
by them in any action or proceeding arising out of their services as a director
or officer. We believe that these agreements are necessary to attract and
retain qualified directors and officers. Prior to the consummation of this
offering, we will obtain an insurance policy covering directors and officers
for claims they may otherwise be required to pay or for which we are required
to indemnify them, subject to certain exclusions.
Executive Compensation
The following table sets forth certain information concerning the
compensation of Garden.com's Chief Executive Officer and its only executive
officer who earned more than $100,000 for the fiscal year ended June 30, 1998
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------ ------------
Securities
Underlying All Other
Name and Principal Positions Fiscal Year Salary Options Compensation ($)
- ---------------------------- ----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Clifford A. Sharples ... 1998 $ 87,333 25,500 --
Chief Executive Officer
and President
Andrew R. Martin ....... 1998 115,500 25,500 --
Chief Technology
Officer
</TABLE>
Option Grants in Last Fiscal Year
The following table provides certain information regarding stock options
granted to our Named Executive Officers during the fiscal year ended June 30,
1998.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term (4)
----------------------------------------------- ----------------------
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in Price Per Expiration
Name Granted Fiscal Year (1) Share (2) Date (3) 5% 10%
- ---- ---------- --------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Clifford A. Sharples.... 500 * $0.17 12/25/97 $ 53 $ 135
25,000 9.0% 0.17 01/01/08 2,673 6,773
Andrew R. Martin........ 500 * 0.17 12/25/97 53 135
25,000 9.0 0.17 01/01/08 2,673 6,773
</TABLE>
- ------------------
* Represents less than 1.0% of the options granted to employees in the fiscal
year ended June 30, 1998.
(1) Based on options to purchase 237,250 shares of Garden.com granted during
fiscal year ended June 30, 1998.
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<PAGE>
(2) All options were granted at the fair market value of the common stock on
the date of grant, as determined by the Board of Directors.
(3) Options may terminate before their expiration date if the optionee's status
as an employee or consultant is terminated or upon death.
(4) In accordance with the rules of the Securities and Exchange Commission,
shown are the gains or "option spreads" that would exist for the respective
options granted. These gains are based on the assumed rates of annual
compound stock appreciation of 5% and 10% from the date the option was
granted over the full option term. These assumed annual compound rates of
stock price appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent Garden.com's estimate or
projection of future stock prices.
Aggregated Fiscal Year-End Option Values
The following table provides summary information regarding options held by
our Named Executive Officers as of June 30, 1998. No options were exercised by
the Named Executive Officers during the fiscal year ended June 30, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Year-End Fiscal Year End (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Clifford A. Sharples........ 20,000 25,500 $ $
Andrew R. Martin............ 82,000 63,500
</TABLE>
- ------------------
(1) Calculated based on an assumed initial public offering price of $ per
share.
Employment Contracts, Termination of Employment Agreements and Change in
Control Arrangements
On March 1, 1996, we entered into an employment agreement with Andrew R.
Martin. This employment agreement may be terminated by either party for any
reason with 30 days' prior written notice and provides for a base salary of
$100,000 per year. The employment agreement also provides that Mr. Martin is
eligible to receive an annual cash bonus of $20,000 and other benefits as are
generally made available to Garden.com's executive-level employees. Pursuant to
the employment agreement, Mr. Martin has agreed not to compete with Garden.com
during employment and for a period of two years following termination of
employment and has agreed to maintain the confidentiality of Garden.com's
proprietary information and trade secrets.
Employee Benefit Plans
Amended and Restated 1996 Stock Option/Stock Issuance Plan. The 1996 Stock
Option/Stock Issuance Plan, or the 1996 Plan, was adopted by the Board of
Directors and approved by the stockholders in March 1996. A total of 1,700,000
shares of common stock has been reserved for issuance under the 1996 Plan. The
Board of Directors and the stockholders have approved an amendment to the 1996
Plan which, effective upon the date of this offering, increases the total
number of shares of common stock reserved under the plan to 2,500,000 shares,
together with an annual increase in the number of shares reserved thereunder
beginning on the first day of Garden.com, Inc's fiscal year (commencing July 1,
2000) in an amount equal to the lesser of (i) 1,200,000 shares, (ii) five
percent (5%) of the outstanding shares of our common stock on such date or
(iii) such lessor amount as determined by the Board of Directors. The 1996 Plan
provides for grants of incentive stock options to employees (including officers
and employee directors) and nonstatutory stock options and stock purchase
rights to employees and consultants (including
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nonemployee directors) of Garden.com. The purposes of the 1996 Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to employees and consultants
of Garden.com and to promote the success of our business. At the request of
the Board of Directors, the compensation committee administers the 1996 Plan
and determines the optionees and the terms of options granted, including the
exercise price, number of shares subject to the option and the exercisability
thereof.
The term of options granted under the 1996 Plan is stated in the option
agreement. However, the term of an incentive stock option may not exceed ten
years and, in the case of an incentive stock option granted to an optionee
who, at the time of grant, owns stock representing more than 10% of
Garden.com's outstanding capital stock, the term of such option may not exceed
five years. Options granted under the 1996 Plan vest and become exercisable as
set forth in each option agreement.
With respect to any optionee who owns stock possessing more than 10% of
the voting rights of Garden.com'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.
No incentive stock options may be granted to an optionee, which, when
aggregated with all other incentive stock options granted to such person,
would have an aggregate fair market value in excess of $100,000 becoming
exercisable in any calendar year. No employee may be granted, in any fiscal
year, options to purchase more than 500,000 shares or, in the case of an
employee's initial employment, 1,000,000 shares.
The 1996 Plan will terminate in March 2006, unless sooner terminated by
the Board of Directors.
As of May 24, 1999, 188,550 shares of common stock had been issued upon
the exercise of options granted under the 1996 Plan, options to purchase
1,379,000 shares of common stock at a weighted average exercise price of $2.34
per share were outstanding and, upon the completion of this offering, 932,450
shares will be available for future option grants under the 1996 Plan.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan,
or the Purchase Plan, was adopted by the Board of Directors and approved by
the stockholders in May 1999 in contemplation of, and to become effective
upon, the date of this offering. A total of 400,000 shares of common stock
have been reserved for issuance under the Purchase Plan, together with an
annual increase in the number of shares reserved thereunder beginning on the
first day of our fiscal year (commencing July 1, 2000) in an amount equal to
the lesser of (i) 400,000 shares, (ii) one and one-half percent (1.5%) of the
outstanding shares of our common stock on such date or (iii) a lesser amount
determined by the Board of Directors.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, is administered by the Board of Directors. Employees (including our
officers and employee directors but excluding five percent stockholders) are
eligible to participate if they are customarily employed for at least 20 hours
per week and for more than five months in any calendar year. The Purchase Plan
permits eligible employees to purchase common stock through payroll
deductions, which may not exceed $25,000 worth of stock in any calendar year.
The Purchase Plan will be implemented in a series of overlapping offering
periods, each to be of approximately 24 months duration. The initial offering
period under the Purchase Plan will begin on the effective date of this
offering and subsequent offering periods will begin on the first trading day
on or after January 1st and July 1st of each year. Each participant will be
granted an option on the first day of the offering period and such option will
be automatically exercised on the last date of each semi-annual period
throughout the offering period. If the fair market value of the common stock
on any purchase date is lower than such fair market value on the start date of
that offering period, then all participants in that offering period will be
automatically withdrawn from such offering period and re-enrolled in the
immediately
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following offering period. The purchase price of the common stock under the
Purchase Plan will be equal to 85% of the lesser of the fair market value per
share of common stock on the start date of the offering period or at the end
of the purchase period. Employees may end their participation in an offering
period at any time during that period and participation ends automatically on
termination of employment with us.
The Purchase Plan will terminate in May 2009, unless sooner terminated by
the Board of Directors.
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RELATED PARTY TRANSACTIONS
Preferred Stock Financings
The following table summarizes private placement transactions in which we
sold shares of preferred stock to our directors and 5% stockholders and persons
and entities associated with them. Each share of preferred stock converts into
one share of common stock upon the closing of this offering. The shares of
Series A Preferred Stock were sold at $1.00 per share, the shares of Series B
Preferred Stock were sold at $1.40 per share, the shares of Series C Preferred
Stock were sold at $1.74 per share, the shares of Series D Preferred Stock were
sold at $3.76 per share and the shares of Series E Preferred Stock were sold at
$5.72 per share.
<TABLE>
<CAPTION>
5% Stockholders and
Entities Affiliated with Series A Series B Series C Series D Series E
Directors Preferred Preferred Preferred Preferred Preferred
- ------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Entities affiliated with
Austin Ventures......... 750,000 715,000 172,414(1) 124,577 53,779
Phillips-Smith Specialty
Retail Group III,
L.P. ................... -- 712,855 343,793(2) 66,639 35,023
Entities affiliated with
The E.W. Scripps
Company................. -- -- 2,068,966(3) 346,428 947,302
Entities affiliated with
Oak Investment
Partners................ -- -- 1,034,483(4) 332,788 41,642
Entities affiliated with
Global Retail Partners,
L.P..................... -- -- -- 2,000,000 --
Entities affiliated with
Pequot Capital
Management, Inc......... -- -- -- 1,523,936 48,265
Entities affiliated with
Attractor Ventures LLC.. -- -- -- -- 1,136,364
Entities affiliated with
Patricof
& Co. Ventures ......... -- -- -- -- 1,136,364
</TABLE>
- ------------------
(1) Includes warrants to purchase 28,736 shares exercisable at any time until
May 7, 2002 at an exercise price of $1.74 per share.
(2) Includes warrants to purchase 57,299 shares exercisable at any time until
May 7, 2002 at an exercise price of $1.74 per share.
(3) Includes warrants to purchase 344,828 shares exercisable at any time until
May 7, 2002 at an exercise price of $1.74 per share.
(4) Includes warrants to purchase 172,414 shares exercisable at any time until
May 7, 2002 at an exercise price of $1.74 per share.
Stockholders Agreement
Garden.com has entered into a Fourth Amended and Restated Stockholders
Agreement, dated as of April 13, 1999 (the "Stockholders Agreement"), with
Clifford A. Sharples, James N. O'Neill and Lisa W.A. Sharples, and each of the
holders of preferred stock. The Stockholders Agreement contains provisions with
respect to the election of directors of Garden.com, restrictions on the
transfer of shares of the Garden.com's capital stock and preemptive rights.
Each of these provisions will automatically terminate upon the completion of
this offering. The Stockholders Agreement also provides, subject to certain
limitations, the holders of Series E Preferred Stock with a limited preemptive
right in this offering to purchase up to 25% of that number of shares of common
stock that would be required to be sold to that Series E holder to maintain its
pre-offering percentage ownership.
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Transactions with The E.W. Scripps Company
The E.W. Scripps Company, through its wholly owned subsidiaries, Scripps
Ventures LLC and HGTV, is a 20.6% stockholder of Garden.com. Douglas R. Stern,
a director of Garden.com, is the President and Chief Executive Officer of
United Media, a newspaper syndication company and wholly-owned subsidiary of
The E.W. Scripps Company.
In April 1998, we launched our first television advertising campaign with
HGTV. In May 1999, HGTV purchased 874,126 shares of our Series E Preferred
Stock for a total purchase price of $5,000,000, or $5.72 per share.
Approximately $1,500,000 of the purchase price has been paid in the form of an
advertising credit, which we will use over the next 24 months to advertise on
HGTV. In addition, we have entered into a strategic alliance with HGTV to
pursue mutually beneficial opportunities to leverage each party's content,
subscriber/membership base and expertise.
Since March 1998, we have conducted a national marketing program with
United Media. In November 1998, we also entered into an agreement with
PRIMEDIA Special Interests Publication, Inc., a subsidiary of United Media,
regarding the publication of Garden Escape Magazine.
We made payments of approximately $75,000 to affiliates of The E.W.
Scripps Company during our fiscal year ended June 30, 1998 and payments of
approximately $311,000 in the nine months ended March 31, 1999.
Other Transactions
Kenneth Sharples, the brother of Clifford A. Sharples, our President,
Chief Executive Officer and Director, has provided legal services to
Garden.com. During our fiscal year ended June 30, 1998, we paid $27,522 for
these legal services. In addition, as of the date of this prospectus, we have
issued to Kenneth Sharples options to purchase a total of 8,000 shares of
common stock with a weighted average exercise price of $0.74 per share.
We maintain test gardens in Des Moines, Iowa on property owned by Douglas
A. Jimerson, our Vice President of Publishing and Editor-in-Chief. We pay for
the plants grown in the gardens and for the maintenance of the gardens. Other
than these maintenance expenses, we do not pay Mr. Jimerson rent for the use
of the gardens.
On February 27, 1996, we entered into a buy-sell agreement with Clifford
A. Sharples, James N. O'Neill, Lisa W.A. Sharples and Andrew R. Martin
pursuant to which Mr. Martin granted a right of first refusal in favor of Mr.
Sharples, Mr. O'Neill, Ms. Sharples and Garden.com in the event that Mr.
Martin attempts to transfer any of the 165,000 shares sold to Mr. Martin by
Mr. Sharples, Mr. O'Neill and Ms. Sharples. The buy-sell agreement terminates
upon completion of this offering.
We believe that all the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. Any future transactions, including loans, between us and our
officers, directors and principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested directors, and will be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
We have entered into indemnification agreements with each of our
executive officers and directors.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of May 24, 1999, as adjusted to
reflect the sale of shares of common stock in this offering and conversion
of all outstanding shares of preferred stock into shares of common stock, by:
. each stockholder known by us to own beneficially more than 5% of the
common stock;
. each director;
. the Named Executive Officers, and
. all directors and executive officers as a group.
<TABLE>
<CAPTION>
Percent of Common Stock
Shares of Beneficially Owned
Common Stock -----------------------
Beneficially Before the After the
Name of Beneficial Owner Owned (1) Offering Offering (2)
- ------------------------ ------------ ---------- ------------
<S> <C> <C> <C>
Douglas R. Stern ........................ 3,362,696 20.6% %
Entities affiliated with The E.W.
Scripps Company (3)
Steven J. Dietz ......................... 2,000,000 12.5
Entities affiliated with Global Retail
Partners, L.P. (4)
John D. Thornton ........................ 1,815,770 11.3
Entities affiliated with Austin Ventures
(5)
Entities affiliated with Pequot Capital
Management,
Inc. (6)................................ 1,572,201 9.8
Gerald R. Gallagher (7).................. 1,408,913 8.7
Entities affiliated with Oak Investment
Partners
Donald J. Phillips....................... 1,158,310 7.2
Phillips-Smith Specialty Retail Group,
III, L.P. (8)
Entities affiliated with Patricof & Co. 1,136,364 7.1
Ventures (9)............................
Entities affiliated with Attractor LLC 1,136,364 7.1
(10)....................................
Clifford A. Sharples (11)................ 393,766 2.5
James N. O'Neill (12).................... 393,766 2.5
Lisa W.A. Sharples (13).................. 393,766 2.5
Andrew R. Martin (14).................... 272,850 1.7
All directors and executive officers as a 11,246,937 68.7
group (11 persons) (15).................
</TABLE>
- ------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and
sole investment power with respect to all shares beneficially owned,
subject to community property laws where applicable. Shares of common stock
subject to options that are currently exercisable or exercisable within 60
days of May 24, 1999 are deemed to be outstanding and to be beneficially
owned by the person holding such options for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
(2) Assumes that the underwriters' over-allotment option to purchase up to
shares from Garden.com and from the Selling Stockholders is not exercised.
(3) Represents (i) 2,488,570 shares held of record by Scripps Ventures, LLC,
including 344,828 shares issuable upon exercise of outstanding warrants and
(ii) 874,126 shares held of record by HGTV.
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<PAGE>
Mr. Stern disclaims beneficial ownership of these shares. The address for
Mr. Stern and each of these entities is 200 Madison Avenue, New York, New
York 10016.
(4) Represents (i) 1,282,293 shares held of record by Global Retail Partners,
L.P., (ii) 382,097 shares held of record by DLJ Diversified Partners, L.P.,
(iii) 141,899 shares held of record by DLJ Diversified Partners-A, L.P.,
(iv) 83,359 shares held of record by GRP Partners, L.P., (v) 88,283 shares
held of record by Global Retail Partners Funding, Inc., and (vi) 22,069
shares held of record by DLJ ESC II, L.P. Mr. Dietz has shared voting and
investment power over all of these shares, and he disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest in
such shares. The address for Mr. Dietz and each of these entities is 2121
Avenue of the Stars, Suite 3000, Los Angeles, California 90067.
(5) Represents (i) 586,112 shares held of record by Austin Ventures IV-A, L.P.,
including 9,276 shares issuable upon exercise of outstanding warrants, and
(ii) 1,229,658 shares held of record by Austin Ventures IV-B, L.P.,
including 19,460 shares issuable upon exercise of warrants. Mr. Thornton
has shared voting and investment power over all of these shares, and he
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in such shares. The address for Mr. Thornton and each of
these entities is 1300 Norwood Tower, 114 West Seventh Street, Austin,
Texas 78701.
(6) Represents (i) 1,395,514 shares held of record by Pequot Private Equity
Fund, LP, and (ii) 176,687 shares held of record by Pequot Offshore Private
Equity Fund, Inc. The address for each of these entities is 500 Nyala Farm
Road, Westport, Connecticut 06880.
(7) Represents (i) 1,374,396 shares held of record by Oak Investment Partners
VII, Limited Partnership, including 168,190 shares issuable upon exercise
of outstanding warrants, and (ii) 34,517 shares held of record by Oak VII
Affiliates Fund, Limited Partnership, including 4,224 shares issuable upon
exercise of outstanding warrants. Mr. Gallagher has shared voting and
investment power over all of these shares, and he disclaims beneficial
ownership of these shares except to the extent of his pecuniary interest in
such shares. The address for Mr. Gallagher and each of these entities is
4550 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota 55402.
(8) Includes 57,299 shares issuable upon exercise of outstanding warrants. Mr.
Phillips has sole voting and investment power over all of the shares held
by Phillips-Smith Specialty Retail Group III, L.P., and he disclaims
beneficial ownership except to the extent of his pecuniary interest in such
shares. The address for Mr. Phillips and Phillips-Smith Specialty Retail
Group III, L.P., is 5080 Spectrum Drive, Suite 805 West, Addison, Texas
75001.
(9) Represents (i) 932,727 shares held of record by APA Excelsior V, L.P., (ii)
192,308 shares held of record by The P/A Fund III, L.P. and (iii) 11,329
shares held of record by Patricof Private Investment Club II, L.P. The
address for each of these entities is 445 Park Avenue, 11th Floor, New
York, New York 10022.
(10) Represents (i) 995,258 shares held of record by Attractor LP, (ii) 66,130
shares held of record by Attractor Institutional LP, and (iii) 74,976
shares held of record by Attractor Ventures LLC. The address for each of
these entities is 1110 Burlingame Avenue, Suite 211, Burlingame,
California 94010.
(11) Includes (i) 6,496 shares held of record by trusts for the benefit of the
minor child of Mr. Sharples and Lisa W.A. Sharples, the spouse of Mr.
Sharples, over which Mr. Sharples has sole voting power, and (ii) 24,000
shares subject to stock options held by Mr. Sharples. Excludes (i) 363,270
shares held of record by Mr. Sharples' spouse, (ii) 24,000 shares subject
to stock options held by Mr. Sharples' spouse and (iii) 6,496 shares held
of record by trusts for the benefit of the minor child of Mr. Sharples and
his spouse over which Mr. Sharples' spouse has sole voting power. Mr.
Sharples disclaims beneficial ownership of all shares held in the trusts
for the benefit of his minor child. Mr. Sharples has granted the
Underwriters a 30-day option to purchase up to shares to cover over-
allotments, if any. If such option is exercised in full, following
completion of the offering, Mr. Sharples will beneficially own shares,
or % of Garden.com common stock.
(12) Includes (i) 24,100 shares subject to exercise of stock options and (ii)
19,084 shares held of record by members of Mr. O'Neill's family over which
Mr. O'Neill has sole voting power. Mr. O'Neill disclaims beneficial
ownership of the shares held by the members of his family. Mr. O'Neill has
granted the Underwriters a 30-day option to purchase up to shares to
cover over-allotments, if any. If such
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<PAGE>
option is exercised in full, following completion of the offering, Mr.
O'Neill will beneficially own shares, or % of Garden.com common stock.
(13) Includes (i) 6,496 shares held of record by trusts for the benefit of the
minor child of Ms. Sharples and Clifford A. Sharples, the spouse of Ms.
Sharples, over which Ms. Sharples has sole voting power, and (ii) 24,000
shares subject to stock options held by Ms. Sharples. Excludes (i) 363,270
shares held of record by Ms. Sharples' spouse, (ii) 24,000 shares subject
to stock options held by Ms. Sharples' spouse and (iii) 6,496 shares held
of record by trusts for the benefit of the minor child of Ms. Sharples and
her spouse over which Ms. Sharples' spouse has sole voting power. Ms.
Sharples disclaims beneficial ownership of all shares held in the trusts
for the benefit of her minor child. Ms. Sharples has granted the
Underwriters a 30-day option to purchase up to shares to cover over-
allotments, if any. If such option is exercised in full, following
completion of the offering, Ms. Sharples will beneficially own shares,
or % of Garden.com common stock.
(14) Includes (i) 9,250 shares subject to exercise of stock options and (ii)
6,992 shares held of record by a trust for the benefit of the minor
children of Mr. Martin over which Mr. Martin has sole voting power. Mr.
Martin disclaims beneficial ownership of all shares held in the trust for
the benefit of his minor children.
(15) Includes 128,450 shares subject to exercise of stock options and 258,449
shares issuable upon exercise of outstanding warrants.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
50,000,000 shares of common stock, $0.01 par value, and 5,000,000 shares of
undesignated preferred stock, $0.01 par value. The following description of our
capital stock does not purport to be complete and is subject to and qualified
in its entirety by our Restated Certificate of Incorporation and Amended and
Restated By-laws, which are included as exhibits to the registration statement
of which this prospectus forms a part, and by the provisions of applicable
Delaware law.
Common Stock
As of May 24, 1999, there were 15,985,330 shares of common stock
outstanding, held of record by approximately 51 stockholders, which reflects
the conversion of all outstanding shares of preferred stock into common stock.
In addition, as of May 24, 1999, there were 1,379,000 shares of common stock
subject to outstanding options. Upon completion of this offering, there will be
shares of common stock outstanding assuming no exercise of the underwriters'
over-allotment option, no exercise of outstanding warrants and no additional
exercise of outstanding options under our stock option plan.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, holders of common stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available for that purpose. See "Dividend
Policy." In the event of our liquidation, dissolution or winding up, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any outstanding
preferred stock. The common stock has no preemptive or conversion rights, other
subscription rights, or redemption or sinking fund provisions. All outstanding
shares of common stock are fully paid and non-assessable, and the shares of
common stock to be issued upon completion of this offering will be fully paid
and non-assessable.
Preferred Stock
Upon the closing of this offering, all outstanding shares of preferred
stock will be converted into 14,546,780 shares of common stock and
automatically retired. Thereafter, the Board of Directors will have the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series and to designate the rights,
preferences, privileges and restrictions of each such series. The issuance of
preferred stock could have the effect of restricting dividends on the common
stock, diluting the voting power of the common stock, impairing the liquidation
rights of the common stock or delaying or preventing our change in control
without further action by the stockholders. We have no present plans to issue
any shares of preferred stock after the completion of this offering.
Warrants
As of May 24, 1999, there were outstanding warrants to purchase 730,587
shares of our preferred stock with a weighted average exercise price of $2.19
per share. These warrants to purchase preferred stock shall automatically
convert into warrants to purchase common stock upon completion of this
offering.
Registration Rights
The holders of 14,546,780 shares of preferred stock and 730,587 shares
subject to the exercise of warrants are entitled to have their shares
registered by us under the Securities Act pursuant to the terms of an agreement
between us and the holders of these registrable securities. Subject to
limitations specified in the agreement, these registration rights include the
following:
. The holders of at least 50% of the then outstanding registrable
securities issued upon conversion of the Series E Preferred Stock may
require, on one occasion beginning after the completion of
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<PAGE>
this offering, that we use our best efforts to register the
registrable securities of such holders for public resale.
. The holders of at least 66 2/3% of the then outstanding registrable
securities may require, on three occasions beginning on January 1,
2001, that we use our best efforts to register no less than 33 1/3% of
the then outstanding registrable securities for public resale.
. If we register any common stock, either for our own account or for the
account of other security holders, the holders of registrable
securities are entitled to include their shares of common stock in
such registration, subject to the ability of the underwriters to limit
the number of shares included in the offering in view of market
conditions.
. The holders of registrable securities with a fair market value of at
least $750,000 may require us on two occasions to register all or a
portion of their registrable securities on Form S-2 and on an
unlimited number of occasions to register all or a portion of their
registrable securities on Form S-3 when use of such forms becomes
available to us.
We will bear all registration expenses other than underwriting discounts
and commissions. All registration rights terminate at such time as the holder
is entitled to sell all of its registrable securities pursuant to Rule 144(k)
under the Securities Act.
Delaware Anti-Takeover Law and Our Restated Certificate of Incorporation and
Amended and Restated By-law Provisions
Provisions of Delaware law and our Restated Certificate of Incorporation
and Amended and Restated By-laws could make more difficult our acquisition by a
third party and the removal of our incumbent officers and directors. These
provisions, summarized below, are expected to discourage coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of Garden.com to first negotiate with us. We believe that the
benefits of increased protection of our ability to negotiate with the proponent
of an unfriendly or unsolicited acquisition proposal outweigh the disadvantages
of discouraging such proposals because, among other things, negotiation could
result in an improvement of their terms.
We are subject to Section 203 of the Delaware General Corporation Law
which regulates corporate acquisitions. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless:
. the Board of Directors approved the transaction in which such
stockholder became an interested stockholder prior to the date the
interested stockholder attained such status;
. upon consummation of the transaction that resulted in the
stockholder's becoming an interested stockholder, he or she owned at
least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding shares owned by persons who
are directors and also officers; or
. on or subsequent to such date the business combination is approved by
the Board of Directors and authorized at an annual or special meeting
of stockholders by the holders of at least 66 2/3% of our outstanding
voting stock which is not owned by the interested stockholder.
A "business combination" generally includes a merger, asset or stock sale,
or other transaction resulting in a financial benefit to the interested
stockholder. In general, an "interested stockholder" is a person who, together
with affiliates and associates, owns, or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
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Our Restated Certificate of Incorporation and Amended and Restated By-laws
do not provide for the right of stockholders to act by written consent without
a meeting or for cumulative voting in the election of directors. In addition,
our Restated Certificate of Incorporation permits the Board of Directors to
issue preferred stock with voting or other rights without any stockholder
action. Our Restated Certificate of Incorporation and our Amended and Restated
By-laws provide, upon the completion of this offering, that our Board of
Directors will be divided into three classes, with each class serving staggered
three year terms. The classification of our Board of Directors could have the
effect of making it more difficult for a third party to acquire control of
Garden.com or discourage a third party from attempting to acquire control of
Garden.com. In addition, our Amended and Restated By-laws establish an advance
notice procedure for stockholder proposals to be brought before any meeting of
stockholders of Garden.com and for nominations by stockholders of candidates
for election as directors at any meeting of stockholders at which directors are
to be elected. These provisions, which require the vote of stockholders holding
at least a majority of the outstanding voting securities of Garden.com to
amend, may have the effect of deterring hostile takeovers or delaying changes
in our management.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is . The
transfer agent's address and telephone number is .
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market
could lower prevailing market prices. As described below, no shares currently
outstanding will be available for sale immediately after this offering because
of contractual restrictions on resale. Sales of substantial amounts of our
common stock in the public market after the restrictions lapse could harm the
prevailing market price and impair our ability to raise equity capital in the
future.
Upon completion of the offering, we will have outstanding shares of
common stock. Of these shares, the shares sold in the offering, plus any
shares issued upon exercise of the underwriters' over-allotment option, will be
freely tradable without restriction under the Securities Act, unless purchased
by our "affiliates" as that term is defined in Rule 144 under the Securities
Act. In general, affiliates include officers, directors or 10% stockholders.
The remaining 15,985,330 shares outstanding are "restricted securities"
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of the restricted securities in the public market, or
the availability of such shares for sale, could adversely affect the market
price of the common stock.
We anticipate that our directors, officers and significant securityholders
will enter into lock-up agreements in connection with this offering generally
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of our common stock or any securities
exercisable for or convertible into our common stock owned by them for a period
of 180 days after the date of this prospectus without the prior written consent
of Hambrecht & Quist LLC. Taking into account the lock-up agreements, and
assuming Hambrecht & Quist LLC does not release stockholders from these
agreements, the number of shares that will be available for sale in the public
market under the provisions of Rule 144, 144(k) and 701 will be as follows:
. Beginning on the effective date of this prospectus, only the shares
sold in this offering will be immediately available for sale in the
public market.
. Beginning 90 days after the effective date, approximately shares
will be eligible for sale.
. Beginning 180 days after the effective date, approximately shares
will be eligible for sale.
. At various times thereafter upon the expiration of applicable holding
periods, shares will become eligible for sale.
In general, under Rule 144, after the expiration of the lock-up
agreements, a person who has beneficially owned restricted securities for at
least one year would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding
which will equal approximately shares immediately after the
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to
manner of sale, notice and the availability of current public information about
us. Under Rule 144(k), a person who is not deemed to have been our affiliate at
any time during the three months preceding a sale and who has beneficially
owned the
63
<PAGE>
shares proposed to be sold for at least two years, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701 permits our employees, officers, directors or consultants who
purchased shares pursuant to a written compensatory plan or contract to resell
such shares in reliance upon Rule 144 but without compliance with specific
restrictions. Rule 701 provides that affiliates may sell their Rule 701 shares
under Rule 144 without complying with the holding period requirement and that
non-affiliates may sell such shares in reliance on Rule 144 without complying
with the holding period, public information, volume limitation or notice
provisions of Rule 144.
64
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
the date hereof, the underwriters named below, through their representatives,
Hambrecht & Quist LLC, BancBoston Robertson Stephens Inc. and Thomas Weisel
Partners LLC, have severally agreed to purchase, and we and the selling
stockholders have agreed to sell them, an aggregate of shares of common
stock. The number of shares of common stock that each underwriter has agreed to
purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Hambrecht & Quist LLC.............................................
BancBoston Robertson Stephens Inc. ...............................
Thomas Weisel Partners LLC........................................
---
Total.........................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in Garden.com's business and the receipt of
certain certificates, opinions and letters from Garden.com and the selling
stockholders, their counsel and the independent auditors. The nature of the
underwriters' obligation is such that they are committed to purchase all shares
of common stock offered hereby if any of the shares are purchased.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the initial public offering price set forth on
the cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. The underwriters may allow, and such dealers may reallow a
concession not in excess of $ per share to other underwriters or certain
other dealers. After the initial public offering of the shares of common stock,
the offering price and other selling terms may be changed by the
representatives of the underwriters.
An electronic prospectus is available on the Web site maintained by
. The underwriters have agreed to allocate a limited number of shares to
for sale to its brokerage account holders.
Pursuant to the underwriting agreement, Garden.com and certain selling
stockholders have granted to the underwriters an option, exercisable no later
than 30 days after the date of this prospectus, to purchase up to an aggregate
of additional shares of common stock at the initial public offering price,
less underwriting discounts and commissions, set forth on the cover page
hereof. To the extent that the underwriters exercise this option, each
underwriter will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of common stock to be purchased
by it shown in the above table bears to the total number of shares of common
stock offered hereby.
At our request, the underwriters have reserved up to shares of common
stock to be sold in the offering and offered hereby for sale, at the public
offering price, to our directors, officers employees, business associates and
related persons. The number of shares of common stock available for sale to the
general public will be reduced to the extent such individuals purchase such
reserved shares. In addition, the underwriters have agreed that each holder of
our Series E Preferred Stock shall have the right to purchase up to 25% of that
number of shares of common stock that would be required to be sold to the
Series E holder to maintain its pre-offering percentage ownership. Any reserved
shares which are not so purchased will be offered by the underwriters to the
general public on the same basis as the other shares offered hereby.
65
<PAGE>
The offering of the shares is made for delivery when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation
or modification of the offering without notice. The underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
Garden.com and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the underwriters may be required
to make in respect thereof.
We anticipate that our directors, officers and our significant
stockholders will agree not to directly or indirectly, without the prior
written consent of Hambrecht & Quist LLC on behalf of the underwriters, whether
any such transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise, during the 180-day period
following the date of this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose
of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common
stock (whether any such shares or any such securities are then owned
by such person or are thereafter acquired directly from us); or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of
common stock.
We have also agreed that we will not, without the prior written consent of
Hambrecht & Quist LLC, offer or sell any shares of common stock, options or
warrants to acquire shares of our common stock or securities exchangeable for
or convertible into shares of common stock during the 180-day period following
the date of this prospectus. We may issue shares upon the exercise of options
granted prior to the date of this prospectus, and may grant additional options
under our stock option plans, providing that, without the prior written consent
of Hambrecht & Quist LLC, the additional options shall not be exercisable
during the 180-day period.
The restrictions described in the previous paragraph do not apply to:
. the sale to the underwriters of the shares of common stock under the
underwriting agreement;
. the issuance of shares of our common stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the
date of this prospectus which is described in the prospectus;
. transactions by any person other than Garden.com relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering of the shares of common stock; or
. issuance of shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans as in existence on
the date of the prospectus and consistent with past practices.
In our June 1998 Series D Preferred Stock private placement, Hambrecht &
Quist California purchased 79,787 shares of Series D Preferred Stock for
approximately $300,000, or $3.76 per share, and H&Q Garden Escape Investors, LP
purchased 186,170 shares of Series D Preferred Stock for approximately
$700,000, or $3.76 per share. Hambrecht & Quist California and H&Q Garden
Escape Investors, LP purchased these shares on the same terms as the other
investors in the private placement. As partial consideration for its services
as placement agent for the private placement, we issued a warrant, expiring on
December 31, 2002, to purchase 90,425 shares of Series D Preferred Stock at
$3.76 per share to Hambrecht & Quist LLC. In January 1999, Hambrecht & Quist
California transferred 29,596 shares of Series D
66
<PAGE>
Preferred Stock to Hambrecht & Quist Employee Venture Fund, L.P. Each of
Hambrecht & Quist California, H&Q Garden Escape Investors, LP and Hambrecht &
Quist Employee Venture Fund, L.P. is an affiliate of Hambrecht & Quist LLC.
In our April 1999 Series E Preferred Stock private placement, Hambrecht &
Quist California purchased 3,762 shares of Series E Preferred Stock for
$21,518.64, or $5.72 per share, and Hambrecht & Quist Employee Venture Fund,
L.P. II purchased 3,762 shares of Series E Preferred Stock for $21,518.64 or
$5.72 per share. Hambrecht & Quist California and Hambrecht & Quist Employee
Venture Fund, L.P. purchased these shares on the same terms as the other
investors in the private placement. As partial consideration for its services
as placement agent for the private placement, we issued Hambrecht & Quist LLC a
warrant, expiring on May 24, 2004, to purchase 36,713 shares of Series E
Preferred Stock at $5.72 per share to Hambrecht & Quist LLC. Hambrecht & Quist
Employee Venture Fund, L.P. II is an affiliate of Hambrecht & Quist LLC. In
addition, 1,880 shares of Series E Preferred Stock are beneficially owned by
other persons affiliated with Hambrecht & Quist LLC.
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase, for the purpose of pegging,
fixing or maintaining the price of the common stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. A penalty bid means an arrangement that
permits the underwriters to reclaim a selling concession from a syndicate
member in connection with the offering when shares of common stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq National Market, in the over-the-
counter market or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
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 LLC has been named as a lead or co-
manager of 35 filed public offerings of equity securities, of which 16 have
been completed, and has acted as a syndicate member in an additional 10 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or controlling
persons, except with respect to its contractual relationship with us under the
underwriting agreement entered into in connection with this offering.
Prior to the offering, there has been no public market for the common
stock. The initial public offering price for the common stock will be
determined by negotiation among Garden.com, the selling stockholders and the
representatives of the underwriters. Among the factors that will be considered
in determining the initial public offering price are prevailing market and
economic conditions, our revenues and earnings, market valuations of other
companies engaged in activities similar to us, estimates of our business
potential and prospects, the present state of our business operations, our
management and other factors deemed relevant. The estimated initial public
offering price range set forth on the cover of this preliminary prospectus is
subject to change as a result of market conditions or other factors.
67
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c., Milwaukee,
Wisconsin, and Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California and Austin, Texas. Certain legal matters will be passed upon
for the underwriters by Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, Austin, Texas. Certain entities affiliated with Gunderson
Dettmer Stough Villeneuve Franklin & Hachigian, LLP are partners in one of our
stockholders, H&Q Garden Escape Investors, LP. As a result, the entities
affiliated with Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
maintain a beneficial interest in 13,298 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at June 30, 1997 and 1998 and March 31, 1999, and for the period
from October 2, 1995 (inception) to June 30, 1996, each of the two years in the
period ended June 30, 1998, and the nine months in the period ended March 31,
1999, as set forth in their report. We've included our financial statements in
the prospectus and elsewhere in the registration statement in reliance on Ernst
& Young LLP's report, given on their authority as experts in accounting and
auditing.
ADDITIONAL GARDEN.COM INFORMATION
We have filed a registration statement on Form S-1 with the SEC with
respect to the common stock sold in this offering. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement or the exhibits and
schedules which are part of the registration statement. For further information
with respect to Garden.com and the common stock sold in this offering, we refer
you to the registration statement and its exhibits and schedules. You may read
and copy any document we file at the SEC'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 further information on the public reference rooms. Our
SEC filings are also available to the public from the SEC's Web site at
www.sec.gov.
Upon completion of this offering, we will become subject to the
information and periodic reporting requirements of the Securities and Exchange
Act of 1934, as amended, and, accordingly, will file periodic reports, proxy
statements and other information with the SEC. Our periodic reports, proxy
statements and other information will be available for inspection and copying
at the SEC's public reference rooms and the SEC's Web site.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Garden.com, Inc. ----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.................... F-2
Balance Sheets....................................................... F-3
Statements of Operations............................................. F-4
Statements of Changes in Redeemable Convertible Preferred Stock and
Stockholders' Deficit............................................... F-5
Statements of Cash Flows............................................. F-6
Notes to Financial Statements........................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Garden.com, Inc.
We have audited the accompanying balance sheets of Garden.com, Inc. (the
"Company") as of June 30, 1997 and 1998 and March 31, 1999 and the related
statements of operations, changes in redeemable convertible preferred stock and
stockholders' deficit and cash flows for the period from October 2, 1995
(inception) to June 30, 1996, each of the two years in the period ended June
30, 1998, and the nine months ended March 31, 1999. 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 Garden.com, Inc. at June
30, 1997 and 1998 and March 31, 1999 and the results of its operations and its
cash flows for the period from October 2, 1995 (inception) to June 30, 1996,
each of the two years in the period ended June 30, 1998, and the nine months
ended March 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
May 25, 1999
Austin, Texas
F-2
<PAGE>
GARDEN.COM, INC.
<TABLE>
<CAPTION>
Pro Forma
Redeemable
Convertible
Preferred
Stock and
Stockholders'
June 30, Deficit at
------------------------ March 31, March 31,
1997 1998 1999 1999
----------- ----------- ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 4,948,319 $19,042,218 $ 2,281,529
Investments............ -- -- 4,881,981
Prepaid advertising.... 3,922 378,065 768,974
Other prepaid expenses
and current assets.... 55,240 47,250 805,711
Inventory.............. 24,379 158,818 389,794
----------- ----------- ------------
Total current assets.. 5,031,860 19,626,351 9,127,989
Property and equipment:
Equipment.............. 27,487 54,262 110,335
Leasehold
improvements.......... 8,077 29,224 54,486
Computers and purchased
software.............. 460,214 829,338 1,617,567
Furniture and
fixtures.............. 10,327 15,064 40,343
----------- ----------- ------------
Total property and
equipment............ 506,105 927,888 1,822,731
Accumulated
depreciation........... (124,472) (328,176) (633,469)
----------- ----------- ------------
Property and
equipment, net....... 381,633 599,712 1,189,262
Other assets, net of
accumulated
amortization of $1,157,
$16,901 and $86,155 as
of June 30, 1997 and
1998 and March 31,
1999, respectively..... 9,357 262,489 202,650
----------- ----------- ------------
Total assets.......... $ 5,422,850 $20,488,552 $ 10,519,901
=========== =========== ============
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable....... $ 235,608 $ 910,378 $ 978,470
Accrued expenses and
other liabilities..... 81,011 137,323 360,147
Unearned revenue....... 24,534 95,759 496,031
Current portion of
long-term debt........ 122,529 175,312 151,487
----------- ----------- ------------
Total current
liabilities.......... 463,682 1,318,772 1,986,135
Long-term debt, less
current portion........ 122,530 154,332 40,005
Commitments and
contingencies:
Redeemable convertible
preferred stock........ 7,878,832 26,975,496 26,938,227
Warrants to purchase
redeemable convertible
preferred stock........ 22,931 23,835 23,835 23,835
Stockholders' deficit:
Common Stock--$.01 par
value: 15,000,000
authorized, actual;
27,107,158 authorized,
pro forma; 1,450,000,
1,258,200, 1,414,800
and 12,003,947 shares
issued and outstanding
on June 30, 1997 and
1998 and on March 31,
1999, and on a pro
forma basis,
respectively.......... 14,500 12,582 14,148 120,039
Additional paid-in
capital............... 26,000 5,865 785,317 $ 27,617,653
Deferred stock
compensation.......... - - (696,984) (696,984)
Retained deficit....... (3,105,625) (8,002,330) (18,570,782) (18,570,782)
----------- ----------- ------------ ------------
Total stockholders'
deficit................ (3,065,125) (7,983,883) (18,468,301) 8,469,926
----------- ----------- ------------ ------------
Total liabilities and
stockholders' deficit.. $ 5,422,850 $20,488,552 $ 10,519,901 $ 8,493,761
=========== =========== ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
GARDEN.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Fiscal Year Ended Nine Months Ended
October 2, 1995 June 30, March 31,
(inception) to ------------------------ -------------------------
June 30, 1996 1997 1998 1998 1999
--------------- ----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Products............... $ 8,099 $ 308,469 $ 1,283,114 $ 647,583 $ 2,314,573
Advertising............ -- 7,500 55,487 39,090 194,799
--------- ----------- ----------- ----------- ------------
Total revenues........ 8,099 315,969 1,338,601 686,673 2,509,372
--------- ----------- ----------- ----------- ------------
Cost of revenues:.......
Products............... 5,442 242,239 1,085,497 530,163 2,019,293
Advertising............ -- 3,750 21,852 14,462 53,578
--------- ----------- ----------- ----------- ------------
Total cost of
revenues............. 5,442 245,989 1,107,349 544,625 2,072,871
--------- ----------- ----------- ----------- ------------
Gross profit............ 2,657 69,980 231,252 142,048 436,501
--------- ----------- ----------- ----------- ------------
Operating expenses:
Marketing and sales.... 189,299 927,343 2,329,737 982,370 7,065,458
Content and product
development........... 160,788 858,388 1,213,235 827,450 2,166,640
General and
administrative........ 339,641 764,741 1,492,436 982,825 2,336,774
--------- ----------- ----------- ----------- ------------
Total operating
expenses............. 689,728 2,550,472 5,035,408 2,792,645 11,568,872
--------- ----------- ----------- ----------- ------------
Operating loss.......... (687,071) (2,480,492) (4,804,156) (2,650,597) (11,132,371)
Other income (expense):
Interest income........ 3,301 62,170 226,246 157,202 594,479
Interest expense....... (2,907) (22,126) (32,902) (21,542) (30,560)
Consulting income...... 21,500 -- -- -- --
--------- ----------- ----------- ----------- ------------
Net loss................ $(665,177) $(2,440,448) $(4,610,812) $(2,514,937) $(10,568,452)
========= =========== =========== =========== ============
Basic net loss per
share.................. $ (0.95) $ (1.73) $ (3.20) $ (1.73) $ (8.17)
========= =========== =========== =========== ============
Shares used in computing
basic net loss per
share.................. 1,292,959
============
Pro forma basic net loss
per share.............. $ (0.89)
============
Shares used in computing
pro forma basic net
loss per share......... 11,882,106
============
</TABLE>
See accompanying notes.
F-4
<PAGE>
GARDEN.COM, INC.
STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Total
Redeemable
Convertible
Redeemable Convertible Preferred
Preferred Stock Common Stock Additional Deferred Stock and
-------------------------------- -------------------- Paid-in Stock Retained Stockholders'
Shares Amount Warrants Shares Par Value Capital Compensation Deficit Deficit
---------- ----------- -------- --------- --------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial capital
contribution... -- $ -- $ -- 300 $ 3 $ -- $ -- $ -- $ 3
Effect of merger
with the
Asbury Group.. -- -- -- 1,249,700 12,497 -- -- -- 12,497
Issuance of
Series A
Redeemable
Convertible
Preferred
Stock, net of
issuance costs
of $25,359..... 750,000 724,641 -- -- -- -- -- -- 724,641
Net loss........ -- -- -- -- -- -- -- (665,177) (665,177)
---------- ----------- ------- --------- ------- -------- --------- ------------ ------------
Balance at June
30, 1996........ 750,000 724,641 -- 1,250,000 12,500 -- -- (665,177) 71,964
Issuance of
Common Stock... -- -- -- 200,000 2,000 26,000 -- 28,000
Issuance of
Series B, C-1
and C-2
Redeemable
Convertible
Preferred
Stock, net of
issuance costs
of $75,877..... 4,447,241 7,154,191 -- -- -- -- -- -- 7,154,191
Issuance of
warrants to
purchase
603,449 shares
of Series C-1
Redeemable
Convertible
Preferred
Stock.......... -- -- 22,931 -- -- -- -- -- 22,931
Net loss........ -- -- -- -- -- -- -- (2,440,448) (2,440,448)
---------- ----------- ------- --------- ------- -------- --------- ------------ ------------
Balance at June
30, 1997........ 5,197,241 7,878,832 22,931 1,450,000 14,500 26,000 -- (3,105,625) 4,836,638
Issuance of
Series D
Redeemable
Convertible
Preferred Stock
and warrants,
net of issuance
costs of
$1,176,890..... 5,319,143 18,823,075 904 -- -- -- -- -- 18,823,979
Dividends
accrued for
Series A, B,
C-1 and C-2
Preferred
Stock.......... -- -- -- -- -- -- -- (285,893) (285,893)
Conversion of
cumulative
dividend to
Series D
Redeemable
Convertible
Preferred
Stock.......... 72,763 273,589 -- -- -- -- -- -- 273,589
Repurchase of
common stock... -- -- -- (200,000) (2,000) (26,000) -- -- (28,000)
Exercise of
stock options.. -- -- -- 8,200 82 5,865 -- -- 5,947
Net loss........ -- -- -- -- -- -- -- (4,610,812) (4,610,812)
---------- ----------- ------- --------- ------- -------- --------- ------------ ------------
Balance at June
30, 1998........ 10,589,147 26,975,496 23,835 1,258,200 12,582 5,865 -- (8,002,330) 19,015,448
Issuance costs
related to
Series D
Redeemable
Convertible
Preferred Stock
and warrants,.. -- (37,269) -- -- -- -- -- -- (37,269)
Deferred stock
compensation... -- -- -- -- -- 776,275 (696,984) -- 79,291
Exercise of
stock options.. -- -- -- 156,600 1,566 3,177 -- -- 4,743
Net loss........ -- -- -- -- -- -- -- (10,568,452) (10,568,452)
---------- ----------- ------- --------- ------- -------- --------- ------------ ------------
Balance at March
31, 1999........ 10,589,147 $26,938,227 $23,835 1,414,800 $14,148 $785,317 $(696,984) $(18,570,782) $ 8,493,761
========== =========== ======= ========= ======= ======== ========= ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
GARDEN.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Fiscal Year Ended Nine Months Ended March
October 2, 1995 June 30, 31,
(inception) to ------------------------ -------------------------
June 30, 1996 1997 1998 1998 1999
--------------- ----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss.............. $(665,177) $(2,440,448) $(4,610,812) $(2,514,937) $(10,568,452)
Adjustment to
reconcile net loss to
cash used in
operating activities:
Depreciation.......... 29,012 96,617 219,448 141,271 305,293
Amortization.......... -- -- -- 495 69,255
Amortization of
deferred stock
compensation......... -- -- -- -- 79,291
Common stock, issued
for services
received............. 11,050 -- -- -- --
Changes in operating
assets and
liabilities:
Prepaid advertising.. -- (3,922) (374,143) (92,007) (390,909)
Other prepaid
expenses and current
assets.............. (12,299) (50,973) 7,990 (39,675) (758,461)
Inventory............ -- (24,379) (134,439) (73,661) (230,976)
Other assets......... -- (2,482) (6,876) 7,200 --
Accounts payable..... 82,862 152,746 674,770 144,020 68,092
Accrued expenses and
other liabilities... 17,820 59,404 47,325 (39,603) 222,824
Unearned revenue..... -- 28,321 80,212 82,766 400,272
--------- ----------- ----------- ----------- ------------
Net cash used in
operating
activities......... (536,732) (2,185,116) (4,096,525) (2,384,131) (10,803,771)
--------- ----------- ----------- ----------- ------------
Investing activities;
Proceeds from sale of
investments.......... -- -- -- -- 6,859,738
Purchase of
investments.......... -- -- -- -- (11,741,719)
Purchase of property
and equipment........ (224,257) (280,398) (421,783) (187,549) (894,843)
Purchase of other
assets............... -- -- (262,000) -- (9,416)
--------- ----------- ----------- ----------- ------------
Net cash used in
investing
activities......... (224,257) (280,398) (683,783) (187,549) (5,786,240)
--------- ----------- ----------- ----------- ------------
Financing activities;
Proceeds from long-
term debt............ 150,059 95,000 200,028 200,028 --
Repayments of long-
term debt............ -- -- (115,443) (78,282) (138,152)
Proceeds from issuance
of common stock...... -- 28,000 -- -- --
Repurchase of common
stock................ -- -- (28,000) -- --
Proceeds from issuance
of Series A
Redeemable
Convertible Preferred
Stock, net of
issuance costs of
$25,359.............. 724,641 -- -- -- --
Proceeds from issuance
of Series B, C-1 and
C-2 Redeemable
Convertible Preferred
Stock and warrants,
net of issuance costs
of $75,877........... -- 7,177,122 -- 6,878 --
Proceeds from issuance
of Series D
Redeemable
Convertible Preferred
Stock and warrants,
net of issuance costs
of $1,176,890 in 1998
and $37,269 as of
March 31, 1999....... -- -- 18,823,979 -- (37,269)
Exercises of stock
options.............. -- -- 5,947 -- 4,743
Dividend paid on
Series A, B and C
Redeemable
Convertible Preferred
Stock................ -- -- (12,304) -- --
--------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 874,700 7,300,122 18,874,207 128,624 (170,678)
--------- ----------- ----------- ----------- ------------
Increase (decrease) in
cash and cash
equivalents........... 113,711 4,834,608 14,093,899 (2,443,056) (16,760,689)
Cash and cash
equivalents, beginning
of period............. -- 113,711 4,948,319 4,948,319 19,042,218
--------- ----------- ----------- ----------- ------------
Cash and cash
equivalents, end of
period................ $ 113,711 $ 4,948,319 $19,042,218 $ 2,505,263 $ 2,281,529
========= =========== =========== =========== ============
Supplemental
disclosures:
Interest paid......... $ 2,516 $ 29,767 $ 30,649 $ 21,997 $ 33,267
========= =========== =========== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization
The Company was originally incorporated in Texas on October 2, 1995 as The
Asbury Group, Inc. On November 30, 1995, The Asbury Group, Inc. incorporated a
wholly-owned subsidiary, Garden Escape, Inc., in Delaware. Effective
December 11, 1995, The Asbury Group, Inc. was merged into Garden Escape, Inc.
In February 1999, the Company changed its name to Garden.com, Inc. The Company
is a leading online destination integrating gardening and gardening-related
commerce, content and community. All of the Company's sales are conducted via
its Web sites, garden.com, virtualgarden.com and hortmag.com.
2. Significant Accounting Policies
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, and such
differences could be material to the financial statements.
Revenue Recognition
Revenues for products and shipping charges are recognized when the
products are shipped to the customer. Revenues are recorded net of product
returns, promotional discounts and coupons. The Company records unearned
revenue for customer orders received and paid for that have not been shipped.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and marketable securities
with original maturities of three months or less. Cash and cash equivalents are
recorded at cost, which approximates fair value due to the short maturity of
these instruments.
Securities Available-For-Sale
Management determines the appropriate classification of debt and
marketable equity securities at the time of purchase and reevaluates such
designation as of each balance sheet date. Debt and marketable equity
securities as of March 31, 1999 are classified as available-for-sale and are
reported at an amount that approximates fair market value as of March 31, 1999.
Inventory
Inventory, which consists of finished goods, is stated at the lower of
cost or market, with cost determined using the average cost method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is based on the useful lives of the
assets, generally three to seven years, computed using the straight-line
method. Amortization of leasehold improvements is computed on the straight-line
method over estimated useful lives or lease terms if shorter.
Other Assets
Other assets are recorded at cost and include a Web site and a licensing
agreement for related databases purchased during fiscal 1998. Amortization of
these assets is computed on the straight-line method over the four-year
estimated useful life for the Web site and the two-year term of the agreement
for the license.
F-7
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2.Significant Accounting Policies (continued)
Long-Lived Assets
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
would be recognized when estimated future cash flows expected to result from
the use of the asset and its eventual disposition is less than its carrying
amount. No such impairment losses have been identified by the Company.
Advertising Costs
The cost of advertising is expensed as incurred. For the period from
October 2, 1995 (inception) to June 30, 1996, for the fiscal years ended June
30, 1997 and 1998 and for the nine months ended March 31, 1998 (unaudited) and
1999, the Company incurred advertising expenses of $24,000, $197,000,
$1,364,000, $321,342 and $5,733,832, respectively.
Income Taxes
Income taxes are accounted for under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Accounting for Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that
stock awards granted subsequent to January 1, 1995 be recognized as
compensation expense based on their fair value at the date of grant.
Alternatively, a company may use Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees," and disclose pro forma income
amounts which would have resulted from recognizing such awards at their fair
value. The Company has elected to account for stock-based compensation expense
under APB No. 25 and make the required pro forma disclosures for compensation
(see Note 6).
Interim Financial Information
The financial information for the nine months ended March 31, 1998 are
unaudited but include all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the financial position, operating results and cash flows for the period.
Results for the nine months ended March 31, 1999 are not necessarily indicative
of the results for the entire year.
Net Loss Per Share
The Company follows the provisions of SFAS 128, "Earnings Per Share."
Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of common shares outstanding
during the period. Shares associated with stock options and the Redeemable
Convertible Preferred Stock are not included because they are antidilutive.
Segments
Effective July 1, 1998, the Company adopted the Financial Accounting
Standards Board's SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." The adoption of SFAS
F-8
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2.Significant Accounting Policies (continued)
No. 131 did not have a significant effect on the disclosure of segment
information as the Company continues to consider its business activities as a
single segment.
Reclassifications
Certain amounts in previously issued financial statements have been
reclassified to conform to the fiscal 1999 presentation.
3.Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, March 31,
-------------------- ---------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Line of credit term note payable to a bank
due October 14, 2000, payable in monthly
installments of $6,668 with interest at
the prime rate (7.75% at March 31, 1999)
plus 1%, collateralized by the assets of
the Company............................... $ -- $ 186,693 $ 120,016
Line of credit term note payable to a bank
due December 14, 1999, payable in monthly
installments of $7,942 with interest at
the prime rate (7.75% at March 31, 1999)
plus 1%, collateralized by the assets of
the Company............................... 245,059 142,951 71,476
--------- --------- ---------
Total long-term debt......................... 245,059 329,644 191,492
Less current portion......................... (122,529) (175,312) (151,487)
--------- --------- ---------
Long-term debt, net of current portion....... $ 122,530 $ 154,332 $ 40,005
========= ========= =========
</TABLE>
Long-term debt as of June 30, 1998 matures as follows:
<TABLE>
<CAPTION>
Fiscal year Maturities
----------- ----------
<S> <C>
1999........................................................... $175,312
2000........................................................... 127,662
2001........................................................... 26,670
--------
$329,644
========
</TABLE>
Long-term debt as of March 31, 1999 matures as follows:
<TABLE>
<CAPTION>
Twelve Months Ended Maturities
------------------- ----------
<S> <C>
March 31, 2000................................................. $151,487
March 31, 2001................................................. 40,005
--------
$191,492
========
</TABLE>
The Company has approximately $208,500 available under the two lines of
credit. As of June 30, 1997 and 1998 and as of March 31, 1999, all of the
Company's outstanding long-term debt had a variable interest rate, and
accordingly, the Company believes the carrying value of the long-term debt
approximates its fair value.
F-9
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4.Income Taxes
As of March 31, 1999, the Company had net operating loss carryforwards of
approximately $18,745,000 for federal tax reporting purposes. The net operating
loss carryforwards will begin to expire at various dates beginning in 2011, if
not utilized. In addition, as of March 31, 1999, the Company had federal
research and development tax credit carryforwards of approximately $58,000. The
research and development credit carryforwards will begin to expire at various
dates beginning in 2012, if not utilized.
Utilization of the net operating loss and tax credit carryforwards will be
subject to a substantial annual limitation due to the "change in ownership"
provisions of the Internal Revenue Code of 1986. The annual limitation may
result in the expiration of net operating losses and tax credits before
utilization.
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
June 30, June 30, March 31,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciable assets....................... $ 668 $ -- $ --
Prepaid expenses and other............... -- -- 318,049
---------- ---------- ----------
Total deferred tax liabilities.......... 668 -- 318,049
---------- ---------- ----------
Deferred tax assets:
Depreciable assets....................... -- 23,658 68,531
Accrued liabilities and other............ 8,524 17,629 28,055
Tax carryforwards........................ 1,153,132 2,841,314 6,993,980
---------- ---------- ----------
Total deferred tax assets............... 1,161,656 2,882,601 7,090,566
---------- ---------- ----------
Net deferred tax assets................... 1,160,988 2,882,601 6,772,517
Valuation allowance for net deferred tax
assets................................... (1,160,988) (2,882,601) (6,772,517)
---------- ---------- ----------
Net deferred taxes........................ $ -- $ -- $ --
========== ========== ==========
</TABLE>
The Company has established a valuation allowance equal to the net
deferred tax asset due to uncertainties regarding the realization of deferred
tax assets based on the Company's lack of earnings history. The valuation
allowance increased by approximately $3,889,916 during the nine months ended
March 31, 1999.
The Company's provision (benefit) for income taxes differs from the
expected tax expense (benefit) amount computed by applying the statutory
federal income tax rate of 34% to income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
Period from Fiscal year ended Nine Months Ended
October 2, 1995 June 30, March 31,
(inception) to ------------------- -----------------
June 30, 1996 1997 1998 1998 1999
--------------- -------- -------- ----------- -----
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal statutory rate.. (34.0)% (34.0)% (34.0)% (34.0)% (34.0)%
State taxes, net of
federal benefit........ (3.0) (3.0) (3.0) (3.0) (3.0)
Change in valuation
allowance.............. 37.0 38.0 37.0 37.0 37.0
Other................... (1.0) --
----- -------- -------- ----- -----
Effective tax rate...... 0.0% 0.0% 0.0% 0.0% 0.0%
===== ======== ======== ===== =====
</TABLE>
F-10
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5.Commitments
The Company leases its office facilities under an operating lease
agreement expiring in November 2000. Future minimum payments as of June 30,
1998, under this lease, are as follows:
<TABLE>
<CAPTION>
Operating
Fiscal Year Ended June 30, Leases
-------------------------- ---------
<S> <C>
1999............................................................ $ 99,300
2000............................................................ 99,300
2001............................................................ 41,375
--------
Total........................................................... $239,975
========
</TABLE>
Future minimum payments as of March 31, 1999, under this lease, are as follows:
<TABLE>
<S> <C>
2000............................................................. $154,080
2001............................................................. 140,580
2002............................................................. 140,580
--------
Total............................................................ $435,240
========
</TABLE>
Rent expense for the period from October 2, 1995 (inception) to June 30,
1996, the two fiscal years ended June 30, 1997 and 1998 and the nine months
ended March 31, 1998 (unaudited) and 1999 was $13,575, $42,810, $113,913,
$76,437 and $122,281, respectively.
F-11
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6.Redeemable Convertible Preferred Stock and Stockholders' Deficit
Summary of Preferred Stock
The Company's redeemable convertible preferred stock has the following
characteristics at June 30, 1998, and March 31, 1999:
<TABLE>
<CAPTION>
Liquidation Conversion Redemption
Description Dividend Features Preferences Features Features Voting Rights
----------- -------------------- -------------------- ---------------------------- --------------- -----------------------
<C> <C> <C> <C> <C> <S>
Series A All cumulative $1.00 per share plus One for one subject to $1.00 per share One per converted share
dividend rights any declared and certain anti dilution of common stock
terminated upon unpaid dividends adjustments, as defined.
the Series D Also, automatically converts
issuance (none upon public offering
in arrears)
Series B All cumulative $1.40 per share plus One for one subject to $1.40 per share One per converted share
dividend rights any declared and certain anti dilution of common stock
terminated upon unpaid dividends adjustments, as
the Series D defined. Also,
issuance (none automatically converts
in arrears) upon public offering
Series C-1 All cumulative $1.74 per share plus One for one subject to $1.74 per share One per converted share
dividend rights any declared and certain anti dilution of common stock
terminated upon unpaid dividends adjustments, as
the Series D defined. Also,
issuance (none automatically converts
in arrears) upon public offering
Series C-2 All cumulative $1.74 per share plus One for one subject to $1.74 per share None
dividend rights any declared and certain anti dilution
terminated upon unpaid dividends adjustments, as
the Series D defined. Also,
issuance (none automatically converts
in arrears) upon public offering
Series D Per the Dividend $3.76 per share plus One for one subject to $3.76 per share One per converted share
Agreement dated any declared and certain anti dilution of common stock
June 2, 1998, all unpaid dividends adjustments, as
cumulative dividend defined. Also,
rights for Series A automatically converts
through C have upon public offering
been terminated at
the point of sale of
Series D stock
</TABLE>
All common and preferred shares of the Company are subject to certain
restrictions including transferability of the shares and voting requirements on
certain issues including the election of directors of the Company. Holders of
A, B, C-1 and D vote together as a single class with the common stock on all
matters of the Company.
Beginning on January 1, 1998, the Series A, B, C-1 and C-2 Redeemable
Convertible Preferred Stock accrued annual dividends equal to 8% of the
original purchase price paid per share. In connection with the Series D
financing, the stockholders elected to terminate their right to receive future
cumulative dividends. Through a noncash financing transaction, $285,893 of
accrued dividends, approximately $0.04 per share, were converted into 72,763
shares of Series D Preferred Stock based on the accrued amount through June 5,
1998. In addition, cash dividends of $12,304 were paid based on the accrued
amount from June 5, 1998 through June 11, 1998, the date of the Series D
issuance.
F-12
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6.Redeemable Convertible Preferred Stock and Stockholders' Deficit (continued)
Each holder of Series A through D Preferred Stock may elect to require the
Company to redeem on or after the dates specified below, and in the amounts
specified below, any such shares which were purchased by the stockholder, net
of any shares previously redeemed, plus any accrued and unpaid dividends:
<TABLE>
<CAPTION>
Percentage of Shares
Mandatory Acquired Which May be
Redemption Date Redeemed Redemption Amount
--------------- --------------------- -----------------
<S> <C> <C>
December 31, 2004 50% $14,115,836
December 31, 2005 25 7,068,893
December 31, 2006 25 7,068,893
</TABLE>
The five series of preferred stock designated as of June 30, 1998, and
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
Consideration
per Share
Shares Shares Issued Received in
Par Value Authorized and Outstanding Issuance
--------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Redeemable convertible pre-
ferred stock
Series A................. $0.01 750,000 750,000 $1.00 cash
Series B................. 0.01 1,430,000 1,430,000 1.40 cash
Series C-1............... 0.01 3,620,000 2,193,103 1.74 cash
Series C-2............... 0.01 824,138 824,138 1.74 cash
Series D................. 0.01 5,482,330 5,391,908 3.76 cash
---------- ----------
12,107,158 10,589,147
========== ==========
</TABLE>
Warrants
In connection with the issuance of the Series C-1 Redeemable Convertible
Preferred Stock, the Company also issued a warrant to purchase 603,449 shares
of Series C-1 Redeemable Convertible Preferred Stock at $1.74 per share to an
existing stockholder. The warrant is exercisable for a five-year period
beginning May 7, 1997. The Company has reserved 603,449 shares of Series C-1
Redeemable Convertible Preferred Stock for issuance upon conversion of the
warrant.
In connection with the issuance of the Series D Redeemable Convertible
Preferred Stock, the Company issued a warrant to purchase 90,425 shares of
Series D Redeemable Convertible Preferred Stock at $3.76 per share to the
placement agent as partial consideration for their services. The warrant
expires on December 31, 2002. The Company has reserved 90,425 shares of Series
D Redeemable Convertible Preferred Stock for issuance upon conversion of the
warrant.
Stock Options
The Company has a stock option plan whereby options for the purchase of
shares of the Company's common stock may be granted to its employees. During
1999, the maximum number of options that may be granted through the plan was
increased from 1,200,000 to 1,700,000. The Company has reserved 1,700,000
shares of common stock for issuance upon conversion of the options.
Pro forma information regarding net income (loss) per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock
F-13
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6.Redeemable Convertible Preferred Stock and Stockholders' Deficit (continued)
options granted subsequent to June 30, 1995 under the fair value method of
that Statement. The fair value for these options was estimated at the date of
grant using a minimum value option pricing model with the following weighted-
average assumptions for fiscal year 1998 and 1999: weighted-average risk free
interest rate was 5.5%, a dividend yield of 0%, a volatility factor of the
expected market price of the Company's common stock of near zero, and a
weighted-average expected life of the option of ten years.
Based upon the minimum value pricing model and assumptions used, the pro
forma net loss would not differ materially from the net loss as reported.
Because SFAS No. 123 is applicable only to options granted subsequent to
June 30, 1995, its pro forma effect will not be fully reflected until 2000.
The following represents a summary of the Company's stock option activity,
and related information:
<TABLE>
<CAPTION>
Weighted
Average
Number of Price Per Exercise
Shares Share Price
--------- -------------- --------
<S> <C> <C> <C>
Outstanding at June 30, 1996................. 170,500 $ 0.01 to 0.01 $0.01
Granted.................................... 245,250 0.09 to 0.09 0.09
Exercised.................................. -- 0.01 to 0.01 --
Canceled................................... -- -- --
Outstanding at June 30, 1997................. 415,750 0.01 to 0.09 0.06
Granted.................................... 273,250 0.01 to 0.75 0.20
Exercised.................................. (8,200) 0.01 to 0.17 0.05
Canceled................................... (23,300) 0.01 to 0.17 0.10
-------- -------------- -----
Outstanding at June 30, 1998................. 662,500 0.01 to 0.75 0.12
Granted (at fair value).................... 204,750 0.75 to 0.75 0.75
Granted (below fair value)................. 206,500 0.75 to 3.00 1.38
Exercised.................................. (156,600) 0.01 to 0.17 0.03
Canceled................................... (14,400) 0.01 to 0.17 0.08
-------- -------------- -----
Outstanding at March 31, 1999................ 902,750 $0.01 to $3.00 $0.55
======== ============== =====
</TABLE>
The following table summarizes outstanding options at June 30, 1998 by
price range:
<TABLE>
<CAPTION>
Outstanding Exercisable
- ---------------------------------------------------------------- ------------------------
Range of Weighted- Weighted- Average Weighted-
Number of Exercise Average Remaining Contractual Number of Average
Options Price Exercise Price Life of Options in Years Options Exercise Price
- --------- ------------- -------------- ------------------------ --------- --------------
<S> <C> <C> <C> <C> <C>
256,000 $0.01 to 0.01 $0.01 7.9 78,500 $0.01
385,000 0.14 to 0.17 0.16 9.1 29,900 0.14
21,500 0.75 to 0.75 0.75 10.0 -- --
------- ------------- ----- ---- ------- -----
662,500 $0.01 to 0.75 $0.12 8.6 108,400 $0.05
======= ============= ===== ==== ======= =====
</TABLE>
F-14
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6.Redeemable Convertible Preferred Stock and Stockholders' Deficit (continued)
The following table summarizes outstanding options at March 31, 1999 by
price range:
<TABLE>
<CAPTION>
Outstanding Exercisable
- ----------------------------------------------------------------- ------------------------
Weighted- Weighted- Average Weighted-
Number of Range of Average Remaining Contractual Number of Average
Options Exercise Price Exercise Price Life of Options in Years Options Exercise Price
- --------- -------------- -------------- ------------------------ --------- --------------
<S> <C> <C> <C> <C> <C>
204,450 $0.01 to $0.01 $0.01 7.27 92,600 $0.01
28,450 0.14 to 0.14 0.14 7.71 3,500 0.14
240,350 0.17 to 0.17 0.17 8.75 29,750 0.17
371,500 0.75 to 0.75 0.75 9.55 -- --
58,000 3.00 to 3.00 3.00 9.95 -- --
------- -------------- ----- ---- ------- -----
902,750 $0.01 to $3.00 $0.55 8.79 125,850 $0.05
======= ============== ===== ==== ======= =====
</TABLE>
F-15
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7.Net Loss Per Share and Pro Forma Net Loss Per Share
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the automatic
conversion of the Company's redeemable convertible preferred stock into shares
of the Company's common stock effective upon the closing of the Company's
initial public offering as if such conversion occurred on the respective
original date of issuance for each series of redeemable convertible preferred
stock.
The following table sets forth the computation of basic and pro forma net
loss per share for the periods indicated:
<TABLE>
<CAPTION>
Period from
October 2 1995
(inception) to Fiscal Year Ended Nine Months Ended
June 30, 1996 June 30, March 31,
-------------- ------------------------ -------------------------
1996 1997 1998 1998 1999
-------------- ----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss............... $(665,177) $(2,440,448) $(4,610,812) $(2,514,937) $(10,568,452)
Denominator:
Weighted average
shares................ 702,064 1,411,644 1,440,585 1,450,000 1,292,959
--------- ----------- ----------- ----------- ------------
Denominator for basic
calculation............ 702,064 1,411,644 1,440,585 1,450,000 1,292,959
Weighted average effect
of pro forma
securities:............
Series A Redeemable
Convertible Preferred
Stock................. 750,000 750,000 750,000 750,000 750,000
Series B Redeemable
Convertible Preferred
Stock................. -- 1,430,000 1,430,000 1,430,000 1,430,000
Series C-1 Redeemable
Convertible Preferred
Stock................. -- 2,193,103 2,193,103 2,193,103 2,193,103
Series C-2 Redeemable
Convertible Preferred
Stock................. -- 824,138 824,138 824,138 824,138
Series D Redeemable
Convertible Preferred
Stock................. -- -- 5,391,906 5,391,906 5,391,906
--------- ----------- ----------- ----------- ------------
Denominator for pro
forma calculation...... 1,452,064 6,608,885 12,029,732 12,039,147 11,882,106
========= =========== =========== =========== ============
Net loss per share:.....
Basic.................. $ (0.95) $ (1.73) $ (3.20) $ (1.73) $ (8.17)
========= =========== =========== =========== ============
Pro forma.............. $ (0.46) $ (0.37) $ (0.38) $ (0.21) $ (0.89)
========= =========== =========== =========== ============
</TABLE>
8.Related Parties
The Company paid $-0-, $18,640, $27,552, $26,409, and $25,000 for the
period from October 2, 1995 (inception) to June 30, 1996, the fiscal years
ended 1997 and 1998, and the nine months ended March 31, 1998 (unaudited) and
1999, respectively, for legal services to Kenneth Sharples, the brother of the
Company's President. These expenses were primarily for intellectual property
legal issues.
The Company is a founding member of Shop.Org, Inc., a California non-
profit trade organization of Internet retailers with a mission to enhance the
visibility and viability of consumer commerce on the Internet. The
CEO/President of the Company is also the Chairman of Shop.Org, Inc. The Company
paid $12,373 of expenses on behalf of Shop.Org, Inc. during the fiscal year
ended June 30, 1997, which was subsequently reimbursed during the fiscal year
ended June 30, 1998.
F-16
<PAGE>
GARDEN.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company made payments of approximately $72,000 to affiliates of (a
stockholder) during our fiscal year ended June 30, 1998 and payments of
approximately $126,000 in the nine months ended March 31, 1999.
The Company maintain test gardens in Des Moines, Iowa on property owned by
Douglas A. Jimerson, our Vice President of Publishing and Editor-in-Chief. We
pay for the plants grown in the gardens and for the maintenance of the gardens.
Other than these maintenance expenses, we do not pay Mr. Jimerson rent for the
use of the gardens.
9.Deferred Compensation
The Company recorded deferred compensation for the nine months ended March
31, 1999 of $776,275. The amount recorded represents the difference between the
grant price and the deemed fair value of the Company's Common Stock for shares
subject to options granted. The amortization of deferred compensation will be
charged to operations over the vesting period of the options, which is
typically four years. Total amortization recognized was $79,291 for the nine
months ended March 31, 1999.
10.Subsequent Events
On April 13, 1999 and May 24, 1999, the Company issued a total of
3,957,633 shares of Series E Preferred Stock and warrants to purchase 36,713
shares of Series E Preferred Stock to various outside investors in
consideration for $22,637,661 in cash and advertising services to be rendered.
Approximately $1.5 million has been allocated to prepaid advertising to be used
50% in the first year and 50% in the second year as direct credits against
advertising charges. Terms of the advertising are to be negotiated separately.
The stock is convertible at any time to common stock on a one-for-one basis
subject to certain antidilution provisions. The stock is first redeemable on
December 31, 2002 at the option of the holders of a majority of all holders of
preferred stock. Upon such election, the Company will be obligated to redeem
the outstanding stock. In addition, the Series E Preferred Stock will
automatically convert to common stock upon a public stock offering.
On May 7, 1999, the Company's Board of Directors authorized management to
file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its Common Stock to the public. Upon
completion of the Company's initial public offering, the Series A, Series B
Series C, Series D and Series E Redeemable Convertible Preferred Stock will
convert into 14,546,780 shares of common stock. The unaudited pro forma
redeemable convertible preferred stock and stockholders' deficit at March 31,
1999 shown at F-3 reflects the assumed conversion of the redeemable convertible
preferred stock as of March 31, 1999.
The Board of Directors and the stockholders have approved an amendment to
the 1996 Plan which, effective upon the date of an initial public offering,
increases the total number of shares of common stock reserved for issuance
under the plan to 2,500,000 shares.
The 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors and approved by the stockholders in May 1999 in contemplation of, and
to become effective upon, the date of an initial public offering.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ ] Shares
[Logo]
Common Stock
------------
PROSPECTUS
------------
Hambrecht & Quist
BancBoston Robertson Stephens
Thomas Weisel Partners LLC
------------
, 1999
------------
You should rely only on information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.
Until , 1999, all dealers that buy, sell or trade in the common
stock, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 and commissions, payable by Garden.com in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 15,985
NASD filing fee.................................................. 6,250
Nasdaq National Market listing fee............................... 17,500
Printing and engraving costs..................................... 130,000
Legal fees and expenses.......................................... 350,000
Accounting fees and expenses..................................... 150,000
Blue Sky fees and expenses....................................... 10,000
Transfer Agent and Registrar fees................................ 10,000
Miscellaneous expenses........................................... 60,265
--------
Total........................................................ $750,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article VII of Garden.com's Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of Garden.com's Amended and Restated By-laws provides for the
indemnification of officers, directors and third parties acting on behalf of
the Registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the Registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
Garden.com has entered into indemnification agreements with its directors
and executive officers, in addition to indemnification provided for in
Garden.com's Amended and Restated By-laws, and intends to enter into
indemnification agreements with any new directors and executive officers in the
future.
The Delaware law permits and Article VI of the Amended and Restated By-
laws authorizes Garden.com to purchase and maintain insurance on behalf of any
director, officer, employee or agent of Garden.com against any liability
asserted against or incurred by them in such capacity or arising out of their
status as such whether or not Garden.com would have the power to indemnify such
director, officer, employee or agent against such liability under the
applicable provisions of the Delaware law, the Restated Certificate of
Incorporation or the Amended and Restated By-laws.
The general effect of the foregoing provisions is to reduce the
circumstances in which an officer or director may be required to bear the
economic burdens of the foregoing liabilities and expenses.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
Since May 24, 1996, Garden.com has sold and issued the following
securities:
(a) On August 12, 1996, Garden.com issued 1,430,000 shares of Series B
Preferred Stock to three accredited investors for aggregate consideration
of approximately $2,000,000. The issuance of the shares of Series B
Preferred Stock was made in a transaction exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act and
Rule 506 of Regulation D thereunder.
(b) On May 7, 1997 and May 15, 1997, Garden.com issued a total of
2,193,103 shares of Series C-1 Preferred Stock, 824,138 shares of Series C-
2 Preferred Stock and issued warrants to purchase 603,449 Series C
Preferred Stock to seven accredited investors for aggregate consideration
of approximately $5,250,000. The issuance of the shares of Series C
Preferred Stock and the Series C Preferred Stock warrants was made in a
transaction exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder. The Series C Preferred Stock warrants may be exercised at any
time until May 7, 2002 to purchase a total of 603,449 shares of Series C
Preferred Stock at an exercise price of $1.74 per share.
(c) On June 11, 1998, Garden.com issued 5,391,906 shares of Series D
Preferred Stock to 19 accredited investors for aggregate consideration of
approximately $20,274,000. Garden.com paid $797,000 in placement agent fees
and issued a warrant to purchase 90,425 shares of Series D Preferred Stock
to its placement agent. The issuance of the shares of Series D Preferred
Stock and the Series D Preferred Stock warrant was made in a transaction
exempt from registration under the Securities Act in reliance on Section
4(2) of the Securities Act and Rule 506 of Regulation D thereunder. The
Series D Preferred Stock warrant may be exercised at any time until
December 31, 2002 to purchase a total of 90,425 shares of Series D
Preferred Stock at an exercise price of $3.76 per share.
(d) On April 13, 1999, Garden.com issued 3,083,507 shares of Series E
Preferred Stock to 24 accredited investors for aggregate consideration of
approximately $17,638,000, and on May 24, 1999, Garden.com issued 874,126
shares of Series E Preferred Stock to one accredited investor for aggregate
consideration of approximately $5,000,000. Garden.com paid $1,260,000 in
placement agent fees and issued a warrant to purchase 36,713 shares of
Series E Preferred Stock to its placement agent. The issuance of the shares
of Series E Preferred Stock and the Series E Preferred Stock warrant was
made in a transaction exempt from registration under the Securities Act in
reliance on Section 4(2) of the Securities Act and Rule 506 of Regulation D
thereunder. The Series E Preferred Stock warrant may be exercised at any
time until May 24, 2004 to purchase a total of 36,713 shares of Series E
Preferred Stock at an exercise price of $5.72 per share.
(e) Since inception, Garden.com has issued an aggregate of 1,606,750
options to purchase shares of its common stock to a number of our
employees, directors and consultants. Options to purchase 188,550 shares of
common stock have been exercised and options to purchase 39,200 shares of
common stock have been canceled. These options have been issued in
transactions exempt from registration under the Securities Act in reliance
upon Rule 701 promulgated under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1A Restated Articles of Incorporation of the Registrant, as currently in
effect.
3.1B Form of Restated Certificate of Incorporation of the Registrant to be
filed after the closing of the offering made under this Registration
Statement.
3.2A By-laws of the Registrant, as currently in effect.
3.2B Form of Amended and Restated by-laws of the Registrant to be in
effect after the closing of the offering made under this Registration
Statement.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
4.1* Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each
of its directors and officers.
10.2A Amended and Restated 1996 Stock Option/Stock Issuance Plan.
10.2B Form of Option Agreement under the Amended and Restated 1996 Stock
Option/Stock Issuance Plan.
10.2C Form of Restricted Stock Purchase Agreement under the Amended and
Restated 1996 Stock Option/Stock Issuance Plan.
10.3 1999 Employee Stock Purchase Plan.
10.4 Fourth Amended and Restated Stockholders Agreement, dated as of
April 13, 1999, among the Registrant and the stockholders of the
Registrant listed on the signature page thereto.
10.5 Fourth Amended and Restated Registration Rights Agreement, dated
as of April 13, 1999, among the Registrant and the stockholders of
the Registrant listed on the signature page thereto.
10.6 Letter Agreement, dated May 24, 1999, between the Registrant and
Scripps Howard Broadcasting Company d/b/a Home & Garden
Television.
10.7* Shopping Channel Promotional Agreement, dated as of October 2,
1998, between the Registrant and American Online, Inc.
10.8 License Agreement, dated as of April 13, 1998, between the
Registrant and Time Life Inc.
10.9 Client Service Agreement, dated July 1, 1997, between the
Registrant and Administaff Companies, Inc.
10.10 Sublease Agreement, dated as of February 24, 1999, between the
Registrant and Hart Graphics, Inc.
10.11A+ Letter of Agreement, dated January 12, 1997, between the
Registrant and Milaeger's Gardens.
10.11B+ Letter of Agreement, dated January 29, 1998, between the
Registrant and McClure and Zimmerman.
10.11C+ Letter of Agreement, dated July 16, 1997, between the Registrant
and Gardener's Supply Company.
10.12 Employment Agreement, dated as of March 1, 1996, between the
Registrant and Andrew R. Martin.
10.13 Buy-Sell Agreement, dated February 27, 1997, among the Registrant,
Clifford A. Sharples, James N. O'Neill, Lisa W.A. Sharples and
Andrew R. Martin.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see Page II-5)
27.1 Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions of this Exhibit.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedules not listed above 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 by the Registrant 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 SEC 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 a 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 that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Austin, State of Texas,
on the 27th day of May, 1999.
GARDEN.COM, INC.
/s/ Clifford A. Sharples
By: _________________________________
Clifford A. Sharples,
President and Chief Executive
Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Clifford A. Sharples and Jana D. Wilson
and each of them, his attorneys-in-fact, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement, and to sign any registration statement for the same
offering covered by this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as
amended, and all post-effective amendments thereto, and to file the same, with
all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that such attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------- -------------------
<S> <C> <C>
/s/ Clifford A. Sharples President, Chief Executive May 27, 1999
______________________________________ Officer (Principal
Clifford A. Sharples Executive Officer) and
Director
/s/ Jana D. Wilson Chief Financial Officer May 27, 1999
______________________________________ (Principal Financial and
Jana D. Wilson Accounting Officer)
/s/ Steven J. Dietz Director May 27, 1999
______________________________________
Steven J. Dietz
/s/ Gerald R. Gallagher Director May 27, 1999
______________________________________
Gerald R. Gallagher
/s/ James N. O'Neill Director May 27, 1999
______________________________________
James N. O'Neill
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
Signature Title Date
- -------------------------------------- -------------------------- -------------------
/s/ Donald J. Phillips Director May 27, 1999
______________________________________
(Donald J. Phillips)
/s/ Lisa W.A. Sharples Director May 27, 1999
______________________________________
(Lisa W.A. Sharples)
/s/ Douglas R. Stern Director May 27, 1999
______________________________________
(Douglas R. Stern)
/s/ John D. Thornton Director May 27, 1999
______________________________________
(John D. Thornton)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1A Restated Articles of Incorporation of the Registrant, as currently in
effect.
3.1B Form of Restated Certificate of Incorporation of the Registrant to be
filed after the closing of the offering made under this Registration
Statement.
3.2A By-laws of the Registrant, as currently in effect.
3.2B Form of Amended and Restated by-laws of the Registrant to be in effect
after the closing of the offering made under this Registration
Statement.
4.1* Specimen Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2A Amended and Restated 1996 Stock Option/Stock Issuance Plan.
10.2B Form of Option Agreement under the Amended and Restated 1996 Stock
Option/Stock Issuance Plan.
10.2C Form of Restricted Stock Purchase Agreement under the Amended and
Restated 1996 Stock Option/Stock Issuance Plan.
10.3 1999 Employee Stock Purchase Plan.
10.4 Fourth Amended and Restated Stockholders Agreement, dated as of April
13, 1999, among the Registrant and the stockholders of the Registrant
listed on the signature page thereto.
10.5 Fourth Amended and Restated Registration Rights Agreement, dated as of
April 13, 1999, among the Registrant and the stockholders of the
Registrant listed on the signature page thereto.
10.6 Letter Agreement, dated May 24, 1999, between the Registrant and
Scripps Howard Broadcasting Company d/b/a Home & Garden Television.
10.7* Shopping Channel Promotional Agreement, dated as of October 2, 1998,
between the Registrant and American Online, Inc.
10.8 License Agreement, dated as of April 13, 1998, between the Registrant
and Time Life Inc.
10.9 Client Service Agreement, dated July 1, 1997, between the Registrant
and Administaff Companies, Inc.
10.10 Sublease Agreement, dated as of February 24, 1999, between the
Registrant and Hart Graphics, Inc.
10.11A+ Letter of Agreement, dated January 12, 1997, between the Registrant
and Milaeger's Gardens.
10.11B+ Letter of Agreement, dated January 29, 1998, between the Registrant
and McClure and Zimmerman.
10.11C+ Letter of Agreement, dated July 16, 1997, between the Registrant and
Gardener's Supply Company.
10.12 Employment Agreement, dated as of March 1, 1996, between the
Registrant and Andrew R. Martin.
10.13 Buy-Sell Agreement, dated February 27, 1997, among the Registrant,
Clifford A. Sharples, James N. O'Neill, Lisa W.A. Sharples and Andrew
R. Martin.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see Page II-5)
27.1 Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment
+ Confidential treatment requested as to certain portions of this Exhibit.
<PAGE>
EXHIBIT 3.1A
RESTATED CERTIFICATE OF INCORPORATION
OF
GARDEN.COM, INC.
Garden.com, Inc. (the "Company") is a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware.
The original Certificate of Incorporation was filed with the Secretary of State
of Delaware on November 30, 1995 under the name GardenEscape, Inc. A
Certificate of Amendment to the Certificate of Incorporation was filed with the
Secretary of State of Delaware on December 20, 1995. A Certificate of
Designation of Preferences of Series A Convertible Preferred Stock was filed
with the Secretary of State of Delaware on December 21, 1995. A Restated
Certificate of Incorporation, which restated and further amended the Certificate
of Incorporation, by setting forth the relative rights and preferences of Series
B Convertible Preferred Stock of the Company was filed with the Secretary of
State of Delaware on August 9, 1996. A Restated Certificate of Incorporation,
which restated and further amended the Certificate of Incorporation, by setting
forth the rights and preferences of Series C-1 Convertible Preferred Stock of
the Company and the Series C-2 Convertible Non-Voting Preferred Stock of the
Company, was filed with the Secretary of State of Delaware on May 6, 1997. A
Restated Certificate of Incorporation, which restated and further amended the
Certificate of Incorporation, by setting forth the rights and preferences of
Series D Convertible Preferred Stock of the Company, was filed on June 11, 1998.
A Certificate of Amendment to the Restated Certificate of Incorporation which
changed the name of the Company to Garden.com, Inc. was filed with the Secretary
of State of Delaware on February 18, 1999. A Restated Certificate of
Incorporation, which restated and further amended the Certificate of
Incorporation, by setting forth the rights and preferences of the Series E
Preferred Stock, was filed with the Secretary of State of Delaware on April 13,
1999. This Restated Certificate of Incorporation restates, integrates and
further amends the Certificate of Incorporation, and has been duly adopted in
accordance with the provisions of Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware; including the requirements of Section
228(d) thereof to the effect that written consent has been given and written
notice provided in accordance with such section. The provisions of the original
Certificate of Incorporation and any and all amendments thereto and restatements
thereof, are hereby further amended and restated so as to read, in their
entirety, as follows:
FIRST. The name of this corporation shall be:
Garden.com, Inc.
SECOND. Its registered office in the State of Delaware is to be
located at 1013 Centre Road, in the City of Wilmington, County of New
Castle and its registered agent at such address is Corporation Service
Company.
<PAGE>
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH.
A. Authorized Shares. The aggregate number of all shares that the
-----------------
corporation (the "Company") shall have authority to issue is 65,277,368
shares consisting of the following:
1. 50,000,000 shares of Common Stock with a par value of $0.01
per share; and
2. 15,277,368 shares of Preferred Stock with a par value of
$0.01 per share (the "Preferred Stock") containing such rights, terms and
preferences as determined pursuant to Section B of this Article FOURTH.
B. Preferred Stock.
---------------
1. Authority to Issue in Series. The Preferred Stock may be
----------------------------
issued from time to time in one or more series. The Board of Directors
shall have authority to divide the Preferred Stock into one or more series,
and to fix and determine by resolution or by resolutions providing for the
issuance of such series the relative rights and preferences of the shares
of any series so established ("Preferred Shares") including, without
limitation, the following:
(a) The rate of dividend with respect to such series;
(b) Whether the dividends with respect to any series of
Preferred Shares will be cumulative;
(c) The price at and the terms and conditions upon which
such series of Preferred Shares may be issued;
(d) The price at and the terms and conditions upon which
such Preferred Shares may be redeemed;
(e) The amount payable with respect to such series of
Preferred Shares in the event of dissolution, voluntary or involuntary
liquidation or the winding up of the Corporation;
(f) Sinking fund provisions for the redemption or purchase
of a series of Preferred Shares;
2
<PAGE>
(g) The terms and conditions on which a series of Preferred
Shares may be converted to shares of any other class of stock of the
Corporation or series of Preferred Shares, and whether any series of
Preferred Shares are issued with the privilege of conversion;
(h) Voting rights (whether full, limited or special) with
respect to a series of Preferred Shares; and
(i) Whether such Preferred Shares have preemptive or other
rights.
Except as to the matters specifically addressed by the Board
of Directors and with respect to relative rights, preferences and
limitations of a series of Preferred Shares, all series of Preferred Shares
of the Company, whenever designated and issued, shall have the same
preferences, limitations and relative rights and shall rank equally, share
ratably and be identical in all respects as to all matters. All shares of
any one series of Preferred Stock hereinabove authorized shall be alike in
every particular, and each series of Preferred Stock shall be so designated
as to distinguish therefrom the shares of all other series and classes.
2. Dividends. Before any dividends shall be paid or set apart
---------
for payment upon Common Stock (other than dividends payable in shares of
Common Stock) the holders of a series of Preferred Shares shall be entitled
to receive dividends at the rate per annum specified by the Board of
Directors, as determined in Section B1 above, out of any amounts legally
available for the payment of such dividends, when and as declared by the
Board of Directors. The Board of Directors may determine whether any series
of Preferred Shares is to be treated preferentially, with respect to
dividends, over any other series of Preferred Shares.
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In case of voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of each series of
Preferred Shares shall be entitled to receive out of the assets of the
Company, in money or money's worth, the amount specified by the Board of
Directors, pursuant to Section B1 above, with respect to that series of
Preferred Shares.
(b) In the case of voluntary or involuntary liquidation,
dissolution or winding up of the Company, (i) the holders of an outstanding
series of the Preferred Shares shall share ratably in such assets in
proportion to their respective aggregate liquidation prices, and (ii) the
holders of the Preferred Shares of different series shall share such assets
in accordance with the preferences and designations established by the
Board of Directors pursuant to Section B1 above.
3
<PAGE>
Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock,
Series C-1 Convertible Preferred Stock,
Series D Convertible Preferred Stock, and
Series E Convertible Preferred Stock
The Board of Directors has provided for the issuance of a (i) series of
750,000 shares of Preferred Stock designated as "Series A Convertible Preferred
Stock" (the "Series A Preferred Stock"), (ii) another series of 1,430,000 shares
of Preferred Stock designated as "Series B Convertible Preferred Stock" (the
"Series B Preferred Stock"), (iii) another series of 3,620,690 shares of
Preferred Stock designated as "Series C-1 Convertible Preferred Stock" (the
"Series C Preferred Stock"), , (iv) another series of 5,482,331 shares of
Preferred Stock designated as "Series D Convertible Preferred Stock" (the
"Series D Preferred Stock") and (v) another series of 3,994,347 shares of
Preferred Stock designated as "Series E Convertible Preferred Stock" (the
"Series E Preferred Stock"). The voting powers, preferences and relative
participation, optional or other special rights and qualifications, limitations
or restrictions of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
are as follows:
Part 1. Dividends
---------
1A. All dividends declared by the Board of Directors shall be shared
equally, as may be specified by the Board of Directors, among either (i) all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, or
(ii) all outstanding shares of Common Stock and all outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock (as if fully converted to
Common Stock pursuant to part 5 below).
1B. Each share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
shall rank equally in all respects with each other share of each other class or
series of Preferred Stock with respect to dividends; provided, however, that the
Company shall not declare or pay dividends which are insufficient to pay all
accrued dividends on each class or series of Preferred Stock outstanding unless
such dividends are declared and paid to each class or series of Preferred Stock
pro rata based on the accrued dividends with respect to such class or series as
a percentage of accrued dividends for all classes or series of Preferred Stock.
Part 2. Liquidation Preference.
----------------------
2A. In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to receive, prior and in
preference to any payment or distribution and setting apart for payment or
distribution of any of the assets or surplus funds of the Company to the holders
of the Common
4
<PAGE>
Stock, an amount (the "Liquidation Preference") for each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock then held by them equal to $1.00,
$1.40, $1.74, $3.76 and $5.72, respectively, plus, in each case, any declared
and unpaid dividends on the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock,
to and including the date of full payment of such Liquidation Preference. If
upon the occurrence of such event, the assets and funds thus distributed among
the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be
insufficient to permit the payment to such holders of the full Liquidation
Preference, then the entire assets and funds of the Company legally available
for distribution shall be distributed among the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock in proportion to the aggregate
Liquidation Preferences of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock then held by each such holder.
2B. If the assets and funds of the Company available for distribution to
the Company's stockholders exceed the aggregate Liquidation Preferences payable
to the holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock pursuant
to paragraph 2A, then after the payments required by paragraph 2A shall have
been made or irrevocably set apart for payment, all of such assets and funds
legally available for distribution shall be distributed among the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock (as if fully converted
into Common Stock pursuant to part 5) and the holders of Common Stock, on a per
share basis.
2C. A consolidation or merger of the Company with or into any other
corporation or other business organization, or the sale, lease or transfer of
all or substantially all of the assets of the Company, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this part 2, except
for any merger or consolidation in which (i) the Company is the sole surviving
corporation, (ii) the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock outstanding immediately prior to such transaction will hold the same
number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, with
substantially identical designations, preferences, limitations, and relative
rights, immediately after such transaction as they held immediately prior to
such transaction, (iii) the voting power of the number of voting shares
outstanding immediately after such transaction, plus the number of voting shares
issuable as a result of such transaction (either by conversion of securities
issued pursuant to such transaction or the exercise of rights to purchase
securities issued pursuant to such transaction), will not exceed by more than
33-1/3% the voting power of the total number of voting shares of the Company
outstanding immediately prior to such transaction, and (iv) the number of
participating shares outstanding immediately after such transaction, plus the
number of participating shares issuable as a result of such transaction (either
by conversion of securities issued pursuant to such transaction or the exercise
of rights to purchase securities issued pursuant to such transaction), will not
exceed by more than 33-1/3%
5
<PAGE>
the total number of participating shares of the Company outstanding immediately
before the merger. As used in this paragraph 2B, "voting shares" means shares
that entitle the holders thereof to vote unconditionally in elections of
directors, and "participating shares" means shares that entitle the holders
thereof to participate directly or indirectly without limitation in
distributions by the Company.
2D. The Company will give written notice of any liquidation, dissolution
or winding up (or any transaction which might reasonably be deemed to be a
liquidation, dissolution or winding up pursuant to paragraph 2C) to each record
holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock not less than 15
days prior to the date stated therein for the distribution and payment of the
amounts provided in this part 2. Each holder of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock may convert all or any portion of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock held by such holder into Common
Stock pursuant to part 5 at any time on or prior to the date fixed in such
notice for distribution and payment or the date of a merger, consolidation or
sale of assets deemed to be a liquidation, dissolution or winding up of the
Company as described in paragraph 2C.
2E No share of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock shall be
entitled to any dividends accruing after the date on which the Liquidation
Preference of such share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
as applicable, is paid. On such date, but subject to the rights of distribution
set forth in paragraph 2B above, all rights of the holder of such share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock will cease, and such share
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock will not be deemed to be
outstanding.
6
<PAGE>
Part 3. Redemptions.
-----------
3A. The holders of a majority of the outstanding Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock, voting together as a single class, (the "Requisite
Holders") may elect to require the Company to redeem (the "Mandatory
Redemptions") the outstanding Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock on December 31, 2004 and on December 31 of each year thereafter (each a
"Mandatory Redemption Date"). The Requisite Holders may require the Company to
effect the Mandatory Redemptions by giving written notice to the Company of such
election not less than 30 nor more than 90 days prior to December 31, 2004.
Upon receipt of such election, the Company and all holders of the outstanding
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock will be obligated to
redeem the outstanding Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
as provided in this part 3.
If the Requisite Holders have elected to require the Company to effect the
Mandatory Redemptions as provided above, on each Mandatory Redemption Date, so
long as any shares of Series A Preferred Stock shall be outstanding, the Company
shall redeem the lesser of (i) the number of shares of Series A Preferred Stock
set forth opposite such Mandatory Redemption Date below or (ii) the number of
shares of Series A Preferred Stock outstanding on such Mandatory Redemption
Date. The shares of Series A Preferred Stock to be redeemed on a Mandatory
Redemption Date shall be determined pro rata among the holders of shares of
Series A Preferred Stock.
If the Requisite Holders have elected to require the Company to effect the
Mandatory Redemptions as provided above, on each Mandatory Redemption Date, so
long as any shares of Series B Preferred Stock shall be outstanding, the Company
shall redeem the lesser of (i) the number of shares of Series B Preferred Stock
set forth opposite such Mandatory Redemption Date below or (ii) the number of
shares of Series B Preferred Stock outstanding on such Mandatory Redemption
Date. The shares of Series B Preferred Stock to be redeemed on a Mandatory
Redemption Date shall be determined pro rata among the holders of shares of
Series B Preferred Stock.
If the Requisite Holders have elected to require the Company to effect the
Mandatory Redemptions as provided above, on each Mandatory Redemption Date, so
long as any shares of Series C Preferred Stock shall be outstanding, the Company
shall redeem the number of shares of Series C Preferred Stock equal to the
lesser of (i) the product of (x) the fraction set forth opposite such Mandatory
Redemption Date below, multiplied by (y) the total number of shares of Series C
Preferred Stock issued by the Company on or prior to December 31, 2004,, or (ii)
the number of shares of Series C Preferred Stock outstanding on such Mandatory
Redemption Date. The number of shares of Series C Preferred Stock to be
redeemed on a Mandatory Redemption Date shall be determined pro rata among the
holders of shares of Series C Preferred Stock.
7
<PAGE>
If the Requisite Holders have elected to require the Company to effect the
Mandatory Redemptions as provided above, on each Mandatory Redemption Date, so
long as any shares of Series D Preferred Stock shall be outstanding, the Company
shall redeem the number of shares of Series D Preferred Stock equal to the
lesser of (i) the product of (x) the fraction set forth opposite such Mandatory
Redemption Date below, multiplied by (y) the total number of shares of Series D
Preferred Stock issued by the Company on or prior to December 31, 2004, or (ii)
the number of shares of Series D Preferred Stock outstanding on such Mandatory
Redemption Date. The number of shares of Series D Preferred Stock to be
redeemed on a Mandatory Redemption Date shall be determined pro rata among the
holders of shares of Series D Preferred Stock.
If the Requisite Holders have elected to require the Company to effect the
Mandatory Redemptions as provided above, on each Mandatory Redemption Date, so
long as any shares of Series E Preferred Stock shall be outstanding, the Company
shall redeem the number of shares of Series E Preferred Stock equal to the
lesser of (i) the product of (x) the fraction set forth opposite such Mandatory
Redemption Date below multiplied by (y) the total number of shares of Series E
Preferred Stock issued by the Company on or prior to December 31, 2004, or (ii)
the number of shares of Series E Preferred Stock outstanding on such Mandatory
Redemption Date. The number of shares of Series E Preferred Stock to be
redeemed on a Mandatory Redemption Date shall be determined pro rata among the
holders of shares of Series E Preferred Stock.
<TABLE>
<CAPTION>
Number or Fraction of
Shares to be Redeemed
--------------------------------------------------
Mandatory Series A Series B Series C Series D Series E
Redemption Preferred Preferred Preferred Preferred Preferred
Date Stock Stock Stock Stock Stock
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 2004 375,000 715,000 .50 .50 .50
December 31, 2005 187,500 357,500 .25 .25 .25
December 31, 2006 187,500 357,500 .25 .25 .25
</TABLE>
3B. The redemption price of each share of Series A Preferred Stock shall
be cash in an amount equal to the Liquidation Preference of such share of Series
A Preferred Stock, the redemption price of each share of Series B Preferred
Stock shall be cash in an amount equal to the Liquidation Preference of such
share of Series B Preferred Stock, the redemption price of each share of Series
C Preferred Stock shall be cash in an amount equal to the Liquidation Preference
of such share of Series C Preferred Stock, the redemption price of each share of
Series D Preferred Stock shall be cash in an amount equal to the Liquidation
Preference of such share of Series D Preferred Stock and the redemption price of
each share of Series E Preferred Stock shall be cash in an amount equal to the
Liquidation Preference of such share of Series E Preferred Stock.
3C. If the funds of the Company legally available for redemption of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock on any Mandatory Redemption Date
are insufficient to redeem the total
8
<PAGE>
number of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock to be
redeemed on such Mandatory Redemption Date, those funds that are legally
available will be used to redeem the maximum possible number of shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock pro rata among the holders of the
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock to be redeemed
based upon the aggregate Liquidation Preference of such shares owned by each
such holder. At any time and from time to time thereafter when additional funds
of the Company are legally available for redemption of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, such funds immediately will be
used to redeem the balance of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock which the Company has become obligated to redeem on any
Mandatory Redemption Date but which it has not redeemed, pro rata among the
holders of such shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
based upon the aggregate Liquidation Preference of such shares held by each such
holder, and such funds will not be used for any other purpose, including to
redeem any shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock which
the Company is obligated to redeem on any subsequent Mandatory Redemption Date.
3D. Any shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
which are redeemed or otherwise acquired by the Company will be canceled and
will not be reissued, sold or transferred. If fewer than the total number of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock represented by any
certificate are redeemed, a new certificate representing the number of
unredeemed shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock will be
issued to the holder thereof without cost to such holder within three business
days after surrender of the certificate representing the redeemed shares.
3E. Neither the Company nor any Subsidiary will redeem or otherwise
acquire any shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock except
as expressly authorized herein or in the Stockholders Agreement or pursuant to a
purchase offer made pro rata to all holders of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock on the basis of the aggregate Liquidation
Preference of such Shares owned by each such holder.
Part 4. Voting Rights.
-------------
4A. Each holder of shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock shall be entitled to vote on all matters to come before the stockholders
of the Company and shall be entitled to the
9
<PAGE>
number of votes equal to the largest number of full shares of Common Stock into
which all shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock held of
record by such holder could then be converted, pursuant to part 5, at the record
date for the 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 first executed.
4B. Except as otherwise expressly provided herein, or as required by law,
the holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common
Stock shall vote together as a single class, and not as separate class or series
on all matters to come before the stockholders of the Company.
4C. Without the affirmative vote of the holders of 66-2/3% of the
outstanding Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, voting
together as a single class, the Company shall not:
(i) effect any sale, lease, assignment, transfer or other
conveyance of all or substantially all of the assets of the Company or any of
its Significant Subsidiaries, or any consolidation or merger involving the
Company or any reclassification or other change of any stock, or any
recapitalization, or any dissolution, liquidation or winding up of the Company
or, unless the obligations of the Company under an agreement are expressly
conditional upon the requisite approval of the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock as provided for herein, make any agreement or
become obligated to do so;
(ii) purchase, redeem or otherwise acquire for value (or pay into or
set aside as a sinking fund for such purpose) any of the Common Stock; provided,
that this provision shall not apply to the purchase of shares of Common Stock
from directors, officers, employees or consultants of or advisers to the Company
or any Subsidiary pursuant to agreements under which the Company has the option
to repurchase such shares upon the occurrence of certain events, including the
termination of employment by or service to the Company or any Subsidiary;
(iii) authorize or issue, or obligate itself to issue, any other
Equity Securities ranking senior to or on a parity with the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock as to dividend or redemption rights,
liquidation preferences, conversion rights, voting rights or otherwise;
(iv) declare or pay any dividends or declare or make any other
distribution, direct or indirect (other than a dividend payable solely in shares
of Common Stock) on account of the Common Stock or set apart any sum for any
such purpose;
(v) increase or decrease (other than by the redemption or
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D
10
<PAGE>
Preferred Stock or Series E Preferred Stock) the total number of authorized
shares of Preferred Stock or Common Stock;
(vi) amend or repeal any provision of, or add any provision to, the
Company's Restated Certificate of Incorporation or By-Laws if such action would
materially and adversely alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock; or
(vii) acquire, by purchase, exchange, merger or otherwise, all or
substantially all of the properties or assets of any other corporation or entity
for a purchase price equal to or in excess of $5,000,000.
4D. Without the affirmative vote of the holders of a majority of the
outstanding Series E Preferred Stock, voting separately as a class or series,
the Company shall not:
(i) amend or repeal any provision of, or add any provision to, the
Company's Restated Certificate of Incorporation or By-Laws if such action would
materially or adversely alter or change the preferences, rights, privileges or
powers of, or the restriction provided for the benefit of, the Series E
Preferred Stock; or
(ii) increase or decrease (other than by the redemption or
conversion of the Series E Preferred Stock) the total number of authorized
shares of the Series E Preferred Stock.
Part 5. Conversion.
----------
5A. Conversion Procedure.
--------------------
(i) Any holder of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock may at any time or from time to time convert all or any portion
of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock (including
any fraction of a share) held by such holder into a number of shares of Common
Stock computed (a) with respect to shares of Series A Preferred Stock, by
multiplying the number of shares of Series A Preferred Stock to be converted by
$1.00 and dividing the result by the "Series A Conversion Price" (determined
pursuant to paragraph 5B) then in effect, (b) with respect to shares of Series B
Preferred Stock, by multiplying the number of shares of Series B Preferred Stock
to be converted by $1.40 and dividing the result by the "Series B Conversion
Price" (determined pursuant to paragraph 5B) then in effect, (c) with respect to
shares of Series C Preferred Stock, by multiplying the number of shares of
Series C Preferred Stock to be converted by $1.74 and dividing the result by the
"Series C Conversion Price" (determined pursuant to paragraph 5B) then in
effect, (d) with respect to shares of Series D Preferred Stock, by multiplying
the number of shares of Series D Preferred Stock to be converted by $3.76 and
dividing the result by the "Series D Conversion Price" (determined pursuant to
paragraph 5B) then in effect and (e) with respect to shares of Series E
Preferred Stock, by
11
<PAGE>
multiplying the number of shares of Series E Preferred Stock to be converted by
$5.72 and dividing the result by the "Series E Conversion Price" (determined
pursuant to paragraph 5B) then in effect.
(ii) Each conversion of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock will be deemed to have been effected as of the close of business
on the date on which the certificate or certificates representing the shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock, as applicable, to be
converted, together with properly executed conversion instructions or powers,
have been surrendered for conversion at the principal office of the Company. At
such time as such conversion has been effected, the rights of the holder of such
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock as such holder will
cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon such conversion
will be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(iii) As soon as possible after a conversion has been effected (but
in any event within three Business Days in the case of subparagraphs (a) and (b)
below), the Company will deliver to the converting holder:
(a) a certificate or certificates representing the number of
shares of Common Stock issuable by reason of such conversion in such name or
names and such denomination or denominations as the converting holder has
specified;
(b) a certificate representing any shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock which were represented by the
certificate or certificates delivered to the Company in connection with such
conversion but which were not converted; and
(c) cash or a certificate or certificates representing shares
of Common Stock in payment of declared and unpaid dividends as provided in
paragraph 5A(vii).
(iv) The issuance of certificates for shares of Common Stock upon
conversion of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
will be made without charge to the holders of such shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock for any issuance tax in respect thereof or
other cost incurred by the Company in connection with such conversion and the
related issuance of shares of Common Stock. Upon conversion of each share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock, the Company will take all
such actions as are necessary in order to insure that the Common Stock issuable
with respect to such conversion will be validly issued, fully paid and
nonassessable.
12
<PAGE>
(v) If any fractional interest in a share of Common Stock would,
except for the provisions of this subparagraph (v), be deliverable upon any
conversion of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
the Company, in lieu of delivering the fractional share therefor, will pay an
amount to the holder thereof equal to the Fair Market Value of such fractional
interest as of the date of conversion.
(vi) All declared and unpaid dividends on shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock to be converted into Common Stock
shall be payable upon conversion of such shares in cash or, at the option of the
Company, in shares of Common Stock having a Fair Market Value as of the date of
conversion equal to the amount of such declared but unpaid dividends.
5B. Conversion Price.
----------------
(i) The initial Series A Conversion Price will be $1.00 per share of
Series A Preferred Stock. The initial Series B Conversion Price will be $1.40
per share of Series B Preferred Stock. The initial Series C Conversion Price
will be $1.74 per share of Series C Preferred Stock. The initial Series D
Conversion Price will be $3.76 per share of Series D Preferred Stock. The
initial Series E Conversion Price will be $5.72 per share of Series E Preferred
Stock. In order to prevent dilution of the conversion rights granted under this
subdivision, the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price, the Series D Conversion Price and the Series E
Conversion Price also will be subject to adjustment from time to time pursuant
to this part 5B.
(ii) If and whenever on or after the original date of issuance of the
shares of Series A Preferred Stock, the Company issues or sells, or is deemed to
have issued or sold, any shares of its Common Stock for consideration per share
less than the Series A Conversion Price in effect immediately prior to the time
of such issue or sale, then immediately upon such issue or sale the Series A
Conversion Price of a share of Series A Preferred Stock will be reduced to the
price determined by multiplying the Series A Conversion Price by a fraction, the
numerator of which shall be (a) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, plus (b) the number of shares of Common
Stock which the aggregate consideration received by the Company for the total
number of additional shares of Common Stock so issued or sold would purchase at
such Series A Conversion Price, and the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue or sale
plus the number of additional shares of Common Stock so issued. For example, if
after the original date of issuance of the shares of Series A Preferred Stock,
the Company issues 1,000,000 shares of Common Stock for consideration per share
of $0.50, the Series A Conversion Price immediately would be reduced to the
price determined by multiplying $1.00, the Series A Conversion Price then in
effect, by the following fraction:
13
<PAGE>
$500,000
--------
1,406,000 + $1.00
-------------------------
1,406,000 + 1,000,000
= 1,406,000 + 500,000
-----------------------
2,406,000
= 1,906,000
---------
2,406,000
= .79,
resulting in an adjusted Series A Conversion Price of $0.79 ($1.00 x .79).
(iii) If and whenever on or after the original date of issuance of
the shares of Series B Preferred Stock, the Company issues or sells, or is
deemed to have issued or sold, any shares of its Common Stock for consideration
per share less than the Series B Conversion Price in effect immediately prior to
the time of such issue or sale, then immediately upon such issue or sale the
Series B Conversion Price of a share of Series B Preferred Stock will be reduced
to the price determined by multiplying the Series B Conversion Price by a
fraction, the numerator of which shall be (a) the number of shares of Common
Stock outstanding immediately prior to such issue or sale, plus (b) the number
of shares of Common Stock which the aggregate consideration received by the
Company for the total number of additional shares of Common Stock so issued or
sold would purchase at such Series B Conversion Price, and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue or sale plus the number of additional shares of Common Stock
so issued. For example, if after the original date of issuance of the shares of
Series B Preferred Stock, the Company issues 1,000,000 shares of Common Stock
for consideration per share of $0.50, the Series B Conversion Price immediately
would be reduced to the price determined by multiplying $1.40, the Series B
Conversion Price then in effect, by the following fraction:
$500,000
--------
1,406,000 + $1.40
-------------------------
1,406,000 + 1,000,000
= 1,406,000 + 357,142
-----------------------
2,406,000
= 1,763,142
---------
2,406,000
= .73,
resulting in an adjusted Series B Conversion Price of $1.03 ($1.40 x .73).
14
<PAGE>
(iv) If and whenever on or after the original date of issuance of the
shares of Series C Preferred Stock, the Company issues or sells, or is deemed to
have issued or sold, any shares of its Common Stock for consideration per share
less than the Series C Conversion Price in effect immediately prior to the time
of such issue or sale, then immediately upon such issue or sale the Series C
Conversion Price of a share of Series C Preferred Stock will be reduced to the
price determined by multiplying the Series C Conversion Price by a fraction the
numerator of which shall be (a) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, plus (b) the number of shares of Common
Stock which the aggregate consideration received by the Company for the total
number of additional shares of Common Stock so issued or sold would purchase at
such Series C Conversion Price, and the denominator of which shall be the number
of shares of Common Stock outstanding immediately prior to such issue or sale
plus the number of additional shares of Common Stock so issued. For example, if
after the original date of issuance of the shares of Series C Preferred Stock,
the Company issues 1,000,000 shares of Common Stock for consideration per share
of $0.50, the Series C Conversion Price immediately would be reduced to the
price determined by multiplying $1.74, the Series C Conversion Price then in
effect, by the following fraction:
$ 500,000
----------
1,406,000 + $1.74
--------------------------
1,406,000 + 1,000,000
= 1,406,000 + 287,356
-------------------------
2,406,000
= 1,693,356
---------
2,406,000
= .70
resulting in an adjusted Series C Conversion Price of $1.22 ($ 1.74 x .70).
(v) If and whenever on or after the original date of issuance of the
shares of Series D Preferred Stock, the Company issues or sells, or is deemed to
have issued or sold, any shares of its Common Stock (a) for consideration per
share less than the Series D Conversion Price in effect immediately prior to the
time of such issue or sale but greater than or equal to $3.00 per share, then
immediately upon such issue or sale the Series D Conversion Price of a share of
Series D Preferred Stock will be reduced to a price equal to the value of the
consideration per share at which the Company has issued or sold, or been deemed
to have issued or sold, shares of its Common Stock, or (b) for consideration per
share less than $3.00 per share, then immediately upon such issue or sale the
Series D Conversion Price of a share of Series D Preferred Stock will be reduced
to the price determined by multiplying the lesser of (x) $3.00 and (y) the
Series D Conversion Price by a fraction the numerator of which shall be (A) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received by the Company
15
<PAGE>
for the total number of additional shares of Common Stock so issued or sold
would purchase at such Series D Conversion Price, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue or sale plus the number of additional shares of Common Stock so
issued. For example, if after the original date of issuance of the shares of
Series D Preferred Stock, the Company issues 1,000,000 shares of Common Stock
for consideration per share of $0.50, the Series D Conversion Price immediately
would be reduced to the price determined by multiplying $3.00, the Series D
Conversion Price then in effect, by the following fraction:
$500,000
--------
1,406,000 + $3.00
-------------------------
1,406,000 + 1,000,000
= 1,406,000 + 166,667
-----------------------
2,406,000
= 1,572,667
---------
2,406,000
= .65
resulting in an adjusted Series D Conversion Price of $1.96 ($ 3.00 x .65).
(vi) If and whenever on or after the original date of issuance of the
shares of Series E Preferred Stock, the Company issues or sells, or is deemed to
have issued or sold, any shares of its Common Stock for consideration per share
less than the Series E Conversion Price in effect immediately prior to the time
of such issue or sale, then immediately upon such issue or sale the Series E
Conversion Price of a share of the Series E Preferred Stock will be reduced to
the price determined by multiplying the Series E Conversion Price by a fraction,
the numerator of which shall be (a) the number of shares of Common Stock
outstanding immediately prior to such issue or sale, plus (b) the number of
shares of Common Stock which the aggregate consideration received by the Company
for the total number of additional shares of Common Stock so issued or sold
would purchase at such Series E Conversion Price, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue or sale plus the number of additional shares of Common Stock so
issued. For example, if after the original date of issuance of the shares of
Series E Preferred Stock, the Company issues 1,000,000 shares of Common Stock
for consideration per share of $0.50, the Series E Conversion Price immediately
would be reduced to the price determined by multiplying $5.72, the Series E
Conversion Price then in effect, by the following fraction:
16
<PAGE>
$500,000
--------
1,406,000 + $5.72
-------------------------
1,406,000 + 1,000,000
= 1,406,000 + 87,413
----------------------
2,406,000
= 1,493,413
---------
2,406,000
= .62
resulting in an adjusted Series E Conversion Price of $3.55 ($ 5.72 x .62).
(vii) The following transactions will not result in any adjustment of
the Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price or the Series E Conversion
Price: (a) the issuance of Common Stock and the grant of options, warrants or
rights and the issuance of Common Stock upon exercise thereof pursuant to any
Approved Plan, (b) the issuance and sale of shares of Common Stock to the
original holders of Series B Preferred Stock pursuant to the Series B Stock
Purchase Agreement, (c) the issuance of Warrants to purchase shares of Series D
Preferred Stock and Series E Preferred Stock to Hambrecht & Quist in
consideration of its services as exclusive placement agent in connection with
the issuance of the Series D Preferred Stock and Series E Preferred Stock and
the issuance of such shares upon the exercise of such warrants, (d) the issuance
of shares of Series C Preferred Stock upon exercise of Warrants issued pursuant
to the Series C Stock Purchase Agreement, and (e) the issuance of Common Stock
upon conversion of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or the Series E Conversion Price, (f)
the issuance of shares of Common Stock or other Equity Securities to investment
banks, financial institutions, equipment lessors or other commercial lenders in
connection with financing activities approved by a two-thirds majority of the
Board of Directors, and (g) the issuance of shares of Common Stock or other
Equity Securities in connection with strategic relationships or acquisitions
approved by a two-thirds majority of the Board of Directors.
5C. Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------
determining the adjusted Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price, Series D Conversion Price and Series E Conversion
Price under paragraph 5B, the following will be applicable:
(i) If the Company in any manner grants any Options or Convertible
Securities and the "price per share for which Common Stock is issuable" upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price or the
Series E Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of Common
17
<PAGE>
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options will be deemed to be outstanding and to have been
issued and sold by the Company for the "price per share for which Common Stock
is issuable." For purposes of this paragraph, the "price per share for which
Common Stock is issuable" will be determined by dividing (a) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration payable to the Company upon exercise of all such
Options or the sale, conversion or exchange of such Convertible Security, plus,
in the case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or exchange of
all such Convertible Securities issuable upon the exercise of such Options. No
further adjustment of the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price or the
Series E Conversion Price will be made when Convertible Securities are actually
issued upon the exercise of such Options or when Common Stock is actually issued
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(ii) If the Company in any manner issues or sells any Convertible
Securities and the "price per share for which Common Stock is issuable" upon
such conversion or exchange is less than the Series A Conversion Price, the
Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price or the Series E Conversion Price in effect immediately prior to
the time of such issue or sale, then the maximum number of shares of Common
Stock issuable upon conversion or exchange of such Convertible Securities will
be deemed to be outstanding and to have been issued and sold by the Company for
the "price per share for which Common Stock is issuable." For the purposes of
this paragraph, the "price per share for which Common Stock is issuable" will be
determined by dividing (a) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (b) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment of the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price, the Series
D Conversion Price or the Series E Conversion Price will be made when Common
Stock is actually issued upon the conversion or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustments of the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price, the Series
D Conversion Price or the Series E Conversion Price had been or are to be made
pursuant to other provisions of this part 5, no further adjustment of the Series
A Conversion Price, the Series B Conversion Price, the Series C Conversion
Price, the Series D Conversion Price or the Series E Conversion Price will be
made by reason of such issue or sale.
(iii) If the purchase price provided for in any Options, the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities, or
18
<PAGE>
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price, the Series
D Conversion Price or the Series E Conversion Price in effect at the time of
such change will be readjusted to the Series A Conversion Price, the Series B
Conversion Price, the Series C Conversion Price, the Series D Conversion Price
or the Series E Conversion Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold.
(iv) Upon the expiration of any Option or the termination of any
right to convert or exchange any Convertible Security without the exercise of
any such Option or right, the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price or the
Series E Conversion Price then in effect hereunder will be adjusted to the
Series A Conversion Price, the Series B Conversion Price, the Series C
Conversion Price, the Series D Conversion Price or the Series E Conversion Price
which would have been in effect at the time of such expiration or termination
had such Option or Convertible Security, to the extent outstanding immediately
prior to such expiration or termination, never been issued.
(v) If any Common Stock, Option or Convertible Security is issued
or sold or deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by the Company
therefor. In case any Common Stock, Options or Convertible Securities are issued
or sold for a consideration other than cash, the amount of the consideration
other than cash received by the Company will be the fair market value thereof as
of the date of receipt, as reasonably determined by the Board of Directors. If
any Common Stock, Option or Convertible Security is issued in connection with
any merger in which the Company is the surviving corporation, the amount of
consideration therefor will be deemed to be the fair market value, as reasonably
determined by the Board of Directors, of such portion of the net assets and
business of the non-surviving corporation as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be.
(vi) In case any Option is issued in connection with the issue or
sale of other securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such Option by
the parties thereto, the Option will be deemed to have been issued for a
consideration consistent with the fair value of the Option as determined using
Black Scholes methodology or a methodology mutually agreed to by the Company and
the Purchaser Director designated by the Series D Preferred Stock pursuant to
the Stockholders Agreement.
(vii) The number of shares of Common Stock outstanding at any given
time does not include shares owned or held by or for the account of the Company
or any Subsidiary and the disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
19
<PAGE>
(viii) If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (a) to receive a dividend or other
distribution payable in Common Stock, Options or Convertible Securities or (b)
to subscribe for or purchase Common Stock, Options or Convertible Securities,
then such record date will be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the declaration
of such dividend or upon the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the case may be.
5D. Subdivision, Combination, Reclassification, Exchange or Substitution
--------------------------------------------------------------------
of Common Stock. If the Company at any time subdivides (by any stock split,
- ---------------
stock dividend, recapitalization, or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price,
the Series D Conversion Price and the Series E Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced, if the
Company at any time combines (by reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Series A Conversion Price, the Series B Conversion Price, the Series
C Conversion Price, the Series D Conversion Price and the Series E Conversion
Price in effect immediately prior to such combination will be proportionately
increased and if the Company at any time changes the Common Stock into the same
or a different number of shares of any other class or classes of stock, whether
by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for above), the Series A Preferred
Conversion Price, the Series B Conversion Price, the Series C Conversion Price,
the Series D Conversion Price and the Series E Conversion Price shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted such that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of Common Stock or
of such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Preferred Stock immediately before that change.
5E. No Impairment. The Company will not, by amendment of its Restated
-------------
Certificate 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 Company but will at all
times in good faith assist in the carrying out of all of the provisions of this
part 5 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 Preferred Stock
against impairment.
5F. Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of any Conversion Price pursuant to this part 5, the Company at
its expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of Preferred Stock a
certificate certified by the Company's chief financial officer setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written request
at any time of any holder of Preferred Stock, furnish or caused to be furnished
to such holder a like
20
<PAGE>
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price in effect at that time for each series of Preferred Stock, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of Preferred
Stock.
5G. Certain Events. If any event occurs of the type contemplated by the
--------------
provisions of this part 5 but not expressly provided for by such provisions,
then the Board of Directors will make an appropriate adjustment in the Series A
Conversion Price, the Series B Conversion Price, the Series C Conversion Price,
the Series D Conversion Price and the Series E Conversion Price so as to protect
the rights of the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, the Series D Preferred Stock and the
Series E Preferred Stock, respectively; provided, that no such adjustment will
--------
increase the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price, the Series D Conversion Price or the Series E
Conversion Price as otherwise determined pursuant to this part 5 or decrease the
number of shares of Common Stock issuable upon conversion of each share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock.
5H. Notices.
-------
(i) Immediately upon any adjustment of the Series A Conversion Price,
the Series B Conversion Price, the Series C Conversion Price, the Series D
Conversion Price or the Series E Conversion Price, the Company will give written
notice thereof to all holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock.
(ii) The Company will give written notice to all holders of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock at least 10 days prior to
the date on which the Company closes its books or takes a record (a) with
respect to any dividend or distribution upon Common Stock, (b) with respect to
any pro rata subscription offer to holders of Common Stock or (c) for
determining rights to vote with respect to any matter referred to in paragraphs
4C and 4D hereof.
5I. Automatic Conversion. All of the outstanding shares of Series A
--------------------
Preferred Stock shall be converted into Common Stock at the Series A Conversion
Price then in effect without any further action on the part of the Company or
any holder of Series A Preferred Stock (i) at the time of and subject to the
closing and funding of a Qualified Public Offering or (ii) upon the date that
through the redemption or conversion of Series A Preferred Stock, fewer than
250,000 shares of Series A Preferred Stock remain outstanding. All of the
outstanding shares of Series B Preferred Stock shall be converted into Common
Stock at the Series B Conversion Price then in effect without any further action
on the part of the Company or any holder of Series B Preferred Stock (i) at the
time of and subject to the closing and finding of a Qualified Public Offering or
(ii) upon the date that through the redemption or conversion of Series B
Preferred Stock, fewer than 250,000 shares of Series B Preferred Stock remain
outstanding. All of the outstanding shares of Series C Preferred Stock shall be
converted into Common Stock at the
21
<PAGE>
Series C Conversion Price then in effect without any further action on the part
of the Company or any holder of Series C Preferred Stock (i) at the time of and
subject to the closing and funding of a Qualified Public Offering or (ii) upon
the date that through the redemption or conversion of Series C Preferred Stock,
fewer than 250,000 shares of Series C Preferred Stock remain outstanding. All of
the outstanding shares of Series D Preferred Stock shall be converted into
Common Stock at the Series D Conversion Price then in effect without any further
action on the part of the Company or any holder of Series D Preferred Stock (i)
at the time of and subject to the closing and funding of a Qualified Public
Offering or (ii) upon the date that through the redemption or conversion of
Series D Preferred Stock, fewer than 250,000 shares of Series D Preferred Stock
remain outstanding. All of the outstanding shares of Series E Preferred Stock
shall be converted into Common Stock at the Series E Conversion Price then in
effect without any further action on the part of the Company or any holder of
Series E Preferred Stock (i) at the time of and subject to the closing and the
funding of a Qualified Public Offering or (ii) upon the date that through the
redemption or conversion of Series E Preferred Stock, fewer than 250,000 shares
of Series E Preferred Stock remain outstanding.
5J. Reservation of Shares. The Company shall at all times reserved
---------------------
and keep available such number of authorized shares of its Common Stock, free
from any preemptive rights with respect thereto, which will be sufficient to
permit the conversion of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
into the full number of shares of Common Stock specified herein.
Part 6. Registration of Transfer.
------------------------
The Company will keep at its principal office registers for the
registration of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock.
Upon the surrender of any certificate representing shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock at such place, the Company will, at the
request of the record holder of such certificate, execute and deliver (at the
Company's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock represented by the surrendered certificate. Each such
new certificate will be registered in such name and will represent such number
of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock as is
requested by the holder of the surrendered certificate and will be substantially
identical in form to the surrendered certificate, and dividends will accrue on
the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
represented by the surrendered certificate.
22
<PAGE>
Part 7. Replacement.
------------
Upon receipt of evidence reasonably satisfactory to the Company (an
affidavit of the registered holder will be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Company or, in the case of any mutilation, upon surrender of
such certificate the Company will (at its expense) execute and deliver in lieu
of such certificate a new certificate of like kind representing the number of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock represented by such
lost, stolen, destroyed or mutilated certificate, and dividends will accrue on
the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such lost, stolen, destroyed or mutilated certificate.
Part 8. Definitions.
-----------
"Approved Plan" means the Garden Escape, Inc. 1996 Stock Option/Stock
-------------
Issuance Plan, as amended, and any other written stock option, stock purchase or
similar incentive plan approved by a two-thirds majority of the Board of
Directors.
"Board of Directors" shall mean the board of directors of the Company.
------------------
"Business Day" means any day other than a Saturday, a Sunday or any day
------------
that national banks in Texas are required or authorized to close.
"Common Stock" means, collectively, the Company's Common Stock, par value
------------
$.01 per share, and any capital stock of any class of the Company hereafter
authorized which is not limited to a fixed sum or percentage of par or stated
value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Common Stock Deemed Outstanding" means, at any given time, the number of
-------------------------------
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to part 5.
"Convertible Securities" means securities convertible into or exchangeable
----------------------
for Common Stock or other Equity Securities.
"Equity Security" means any stock or similar security, including without
---------------
limitation, securities containing equity features and securities containing
profit participation features, or any security convertible or exchangeable, with
or without consideration, into or for any stock or similar security, or any
security carrying any warrant or right to subscribe for or purchase any stock or
similar security, or any such warrant or right.
23
<PAGE>
"Fair Market Value" means the fair market value as reasonably determined by
-----------------
a majority of the Board of Directors, with a majority of the Purchaser Directors
concurring.
"Options" means any rights or options to subscribe for or to purchase
-------
Common Stock or other Equity Securities.
"Person" means an individual, a partnership, a corporation, an association,
------
a joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof.
"Purchaser Directors" means any director designated by the holders of
-------------------
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock pursuant to the
Stockholders Agreement.
"Qualified Public Offering" means any underwritten offering by the
-------------------------
Company of shares of Common Stock to the public pursuant to an effective
registration statement under the Securities Act of 1933, then in effect, or any
comparable statement under any similar federal statute then in force, in which
(i) the aggregate cash proceeds to be received by the Company and selling
stockholders from such offering (without deducting underwriting discounts,
expenses and commissions) are at least $20,000,000, and (ii) the price per share
paid by the public for such shares is at least $8.65.
"Series B Stock Purchase Agreement" means the Stock Purchase Agreement
---------------------------------
dated as of August 12, 1996 among the Company, the original holders of Series B
Preferred Stock and certain other persons.
"Series C Stock Purchase Agreement" means the Stock and Warrant Purchase
---------------------------------
Agreement dated as of May 6, 1997 among the Company, the original holders of
Series C Preferred Stock and certain other persons.
"Significant Subsidiary" means any Subsidiary which would constitute a
----------------------
significant subsidiary within the meaning of Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission or any successor rule.
"Stockholders Agreement" means the Fourth Amended and Restated Stockholders
----------------------
Agreement dated April 13, 1999 among the Company, the original purchasers of the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock; Warrants to purchase Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock, and certain holders of Common Stock, as
amended from time to time.
"Subsidiary" means any corporation more than 50% of the outstanding voting
----------
securities are owned by the Company or any Subsidiary, directly or indirectly,
or a partnership or limited liability company in which the Company or any
Subsidiary is a general partner or manager or
24
<PAGE>
holds interests entitling it to receive more than 50% of the profits or losses
of the partnership or limited liability company.
Part 9. Amendment and Waiver.
---------------------
No amendment, modification or waiver of the designations of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and the Series E Preferred Stock will be binding or effective
with respect to any provision of these terms without the affirmative vote of the
holders of at least 66-2/3% of the outstanding shares of Series A Preferred
Stock, the holders of at least 66-2/3% of the outstanding shares of Series B
Preferred Stock, the holders of at least 66-2/3% of the outstanding shares of
the Series C Preferred Stock, the holders of at least 66-2/3% of the outstanding
shares of the Series D Preferred Stock and the holders of more than 50% of the
outstanding shares of the Series E Preferred Stock, each series voting
separately as a class or series; provided that no such action will change (a)
the rate at which or the manner in which dividends on the shares of Series A
Preferred Stock, Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock or the Series E Preferred Stock accrue or the times at
which such dividends become payable, (b) the Liquidation Preference or the
participation by the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or the
Series E Preferred Stock in payments or distributions of any assets or surplus
funds of the Company upon the liquidation, dissolution or winding up of the
Company, (c) the amount payable on redemption of the shares of Series A
Preferred Stock, Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock or the Series E Preferred Stock or the times at which
redemption of shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or the Series E Preferred
Stock is to occur, (d) the Series A Conversion Price, Series B Conversion Price,
the Series C Conversion Price, the Series D Conversion Price or the Series E
Conversion Price or the number of shares or class of stock into which the shares
of Series A Preferred Stock, Series B Preferred Stock, the Series C Preferred
Stock, Series D Preferred Stock or the Series E Preferred Stock are convertible,
or (e) the percentage required to approve any change described in this part 9,
without the affirmative vote of the holders of all the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or the Series E Preferred Stock then outstanding; and provided
further that no change in the terms of this part 9 may be accomplished by merger
or consolidation of the Company with another corporation unless the Company has
obtained the prior approval of the holders of the applicable percentage of the
shares (50%, 66-2/3% or unanimous, as applicable) of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
the Series E Preferred Stock then outstanding each voting separately as a class
as required by the terms of this part 9.
Part 10. Notices.
-------
Except as otherwise expressly provided herein, all notices referred to
herein shall be in writing and shall be delivered in the manner specified in the
Stockholders Agreement.
25
<PAGE>
FIFTH. The Board of Directors shall have the power to adopt, amend or
repeal the Bylaws.
SIXTH. No director shall be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a known
violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article SIXTH shall
apply to or have any effect on the liability or alleged liability of any
director of the Company for or with respect to any acts or omissions of such
director occurring prior to such amendment.
I, THE UNDERSIGNED, being the president of Garden.com, Inc., do hereby
execute this Restated Certificate of Incorporation, declaring and certifying
that the facts herein stated are true on this 24th day of May, 1999.
/s/ James N. O'Neill
-------------------------------------------
James N. O'Neill, Chief Operating Officer
26
<PAGE>
EXHIBIT 3.1B
RESTATED CERTIFICATE OF INCORPORATION
OF
GARDEN.COM, INC.
Garden.com, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:
A. The name of the corporation is Garden.com, Inc. The corporation was
originally incorporated under the name GardenEscape, Inc., and the original
Certificate of Incorporation was filed with the Secretary of State of the State
of Delaware on November 30, 1995.
B. Pursuant to Sections 228, 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of the corporation.
C. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ARTICLE I
The name of this corporation is Garden.com, Inc.
ARTICLE II
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
The corporation is authorized to issue two classes of shares of stock to be
designated, respectively, Common Stock, $0.01 par value, and Preferred Stock,
$0.01 par value. The total number of shares that the corporation is authorized
to issue is 55,000,000 shares. The number of shares of Common Stock authorized
is 50,000,000. The number of shares of Preferred Stock authorized is 5,000,000.
<PAGE>
The Preferred Stock may be issued from time to time in one or more series
pursuant to a resolution or resolutions providing for such issue duly adopted by
the board of directors (authority to do so being hereby expressly vested in the
board). The board of directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The board of directors, within the limits and restrictions stated in any
resolution or resolutions of the board of directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
The authority of the board of directors with respect to each such class or
series shall include, without limitation of the foregoing, the right to
determine and fix:
(a) the distinctive designation of such class or series and the number
of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or series
shall be declared and paid, or set aside for payment, whether dividends at the
rate so determined shall be cumulative or accruing, and whether the shares of
such class or series shall be entitled to any participating or other dividends
in addition to dividends at the rate so determined, and if so, on what terms;
(c) the right or obligation, if any, of the corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and the
amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
(e) the terms and conditions, if any, upon which shares of such class
or series shall be convertible into, or exchangeable for, shares of capital
stock of any other class or series, including the price or prices or the rate or
rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the corporation to retire, redeem or
purchase shares of such class or series pursuant to a sinking fund or fund of a
similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock;
(h) limitations, if any, on the issuance of additional shares of such
class or series or any shares of any other class or series of Preferred Stock;
and
(i) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the board of directors of the
corporation, acting in accordance with this Restated
2
<PAGE>
Certificate of Incorporation, may deem advisable and are not inconsistent with
law and the provisions of this Restated Certificate of Incorporation.
ARTICLE V
The corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
ARTICLE VI
The corporation is to have perpetual existence.
ARTICLE VII
1. Limitation of Liability. To the fullest extent permitted by the
-----------------------
General Corporation Law of the State of Delaware as the same exists or as may
hereafter be amended, a director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
2. Indemnification. The corporation shall indemnify to the fullest extent
---------------
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the corporation, or any predecessor of
the corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the corporation or any predecessor to the
corporation.
3. Amendments. Neither any amendment nor repeal of this Article VII, nor
----------
the adoption of any provision of the corporation's Certificate of Incorporation
inconsistent with this Article VII, shall eliminate or reduce the effect of this
Article VII, in respect of any matter occurring, or any action or proceeding
accruing or arising or that, but for this Article VII, would accrue or arise,
prior to such amendment, repeal, or adoption of an inconsistent provision.
3
<PAGE>
ARTICLE VIII
In the event any shares of Preferred Stock shall be redeemed or converted
pursuant to the terms hereof, the shares so converted or redeemed shall not
revert to the status of authorized but unissued shares, but instead shall be
canceled and shall not be re-issuable by the corporation.
ARTICLE IX
1. Number of Directors. The number of directors which constitutes the
-------------------
whole Board of Directors of the corporation shall be designated in the By-Laws
of the corporation. The directors shall be divided into three classes, as equal
in number as possible, with the term of office of the first class (Class I) to
expire at the annual meeting of stockholders held in 2000; the term of office of
the second class (Class II) to expire at the annual meeting of stockholders held
in 2001; the term of office of the third class (Class III) to expire at the
annual meeting of stockholders held in 2002; and thereafter for each such term
to expire at each third succeeding annual meeting of stockholders after such
election.
2. Election of Directors. Elections of directors need not be by written
---------------------
ballot unless the By-Laws of the corporation shall so provide.
ARTICLE X
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the By-Laws of the corporation.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of the stockholders called in accordance with the
By-Laws and no action shall be taken by the stockholders by written consent.
The affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then
outstanding voting securities of the corporation, voting together as a single
class, shall be required for the amendment, repeal or modification of the
provisions of Article IX, Article X, Article XI or Article XII of this Restated
Certificate of Incorporation or Sections 2.3 (Special Meeting), 2.4 (Notice of
Stockholders' Meetings), 2.5 (Advanced Notice of Stockholder Nominees and
Stockholder Business), 2.9 (Voting), or 2.10 (Stockholder Action by Written
Consent Without a Meeting), 3.2 (Number of Directors) or 3.5 (Removal of
Directors) of the corporation's By-Laws.
4
<PAGE>
ARTICLE XII
Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the corporation.
IN WITNESS WHEREOF, Garden.com, Inc. has caused this certificate to be
signed by Clifford A. Sharples, its President and Chief Executive Officer, this
_________ day of________, 1999.
--------------------------------------
Clifford A. Sharples, President and
Chief Executive Officer
5
<PAGE>
EXHIBIT 3.2A
BY-LAWS
OF
GARDEN.COM, INC. F/K/A GARDEN ESCAPE, INC.,
a Delaware Corporation
<PAGE>
REFERENCE TABLE
BY-LAWS OF
GARDEN.COM, INC.,
a Delaware Corporation
<TABLE>
<CAPTION>
SECTION SUBJECT MATTER PAGE
<S> <C>
============================================================================================================
ARTICLE I. OFFICES
1.01 Principal and Business Offices......................................................... I-1
1.02 Registered Office...................................................................... I-1
ARTICLE II. STOCKHOLDERS
2.01 Annual Meeting......................................................................... II-1
2.02 Special Meeting........................................................................ II-1
2.03 Place of Meeting....................................................................... II-1
2.04 Notice of Meeting...................................................................... II-1
2.05 Closing Of Transfer Books Or Fixing Of Record Date..................................... II-2
2.06 Voting Lists........................................................................... II-3
2.07 Quorum................................................................................. II-3
2.08 Conduct of Meetings.................................................................... II-3
2.09 Proxies................................................................................ II-4
2.10 Voting of Shares....................................................................... II-4
2.11 Action Without Meeting................................................................. II-4
2.12 Voting of Shares by Certain Holders.................................................... II-4
(a) Other Corporations............................................................. II-4
(b) Legal Representatives and Fiduciaries.......................................... II-5
(c) Pledgees....................................................................... II-5
(d) Treasury Stock and Subsidiaries................................................ II-5
(e) Minors......................................................................... II-5
(f) Incompetents and Spendthrifts.................................................. II-5
(g) Joint Tenants.................................................................. II-6
2.13 Waiver of Notice by Shareholders....................................................... II-6
ARTICLE III. BOARD OF DIRECTORS
3.01 General Powers and Number.............................................................. III-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECTION SUBJECT MATTER PAGE
<S> <C>
=============================================================================================================
3.02 Tenure and Qualifications............................................................. III-1
3.03 Regular Meetings...................................................................... III-1
3.04 Special Meetings...................................................................... III-1
3.05 Notice; Waiver........................................................................ III-2
3.06 Quorum................................................................................ III-2
3.07 Telephonic Attendance................................................................. III-2
3.08 Manner of Acting...................................................................... III-2
3.09 Conduct of Meetings................................................................... III-3
3.10 Vacancies............................................................................. III-3
3.11 Compensation.......................................................................... III-3
3.12 Presumption of Assent................................................................. III-4
3.13 Committees............................................................................ III-4
3.14 Unanimous Consent Without Meeting..................................................... III-5
ARTICLE IV. OFFICERS
4.01 Number................................................................................ IV-1
4.02 Election and Term of Office........................................................... IV-1
4.03 Removal............................................................................... IV-1
4.04 Vacancies............................................................................. IV-1
4.05 President............................................................................. IV-1
4.06 The Executive Vice President.......................................................... IV-2
4.07 The Senior Vice President............................................................. IV-2
4.08 The Vice Presidents................................................................... IV-2
4.09 The Secretary......................................................................... IV-3
4.10 The Treasurer......................................................................... IV-3
4.11 Assistant Secretaries and Assistant Treasurers........................................ IV-3
4.12 Other Assistants and Acting Officers.................................................. IV-4
4.13 Salaries.............................................................................. IV-4
ARTICLE V.
LIABILITY OF OFFICERS AND DIRECTORS................................................... V-1
ARTICLE VI. INDEMNIFICATION
6.01 Actions Other Than by the Corporation................................................. VI-1
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
SECTION SUBJECT MATTER PAGE
<S> <C>
=============================================================================================================
6.02 Actions by or in the Right of the Corporation.......................................... VI-1
6.03 Successful Defense of Actions.......................................................... VI-2
6.04 Procedure for Indemnification.......................................................... VI-2
6.05 Advance Payment of Expenses............................................................ VI-3
6.06 Partial Indemnification................................................................ VI-3
6.07 Other Rights........................................................................... VI-4
(a) General........................................................................ VI-4
(b) Contribution................................................................... VI-4
(c) Arbitration.................................................................... VI-5
6.08 Severability of Provisions............................................................. VI-5
6.09 Purchase of Insurance.................................................................. VI-5
6.10 Benefit................................................................................ VI-6
6.11 Amendment.............................................................................. VI-6
ARTICLE VII.
CONTRACTS BETWEEN CORPORATION
AND RELATED PERSONS.................................................................... VII-1
ARTICLE VIII. INDEMNIFICATION, LIMITED LIABILITY
AND INSURANCE
8.01 Contracts.............................................................................. VIII-1
8.02 Loans.................................................................................. VIII-1
8.03 Checks, Drafts, Etc.................................................................... VIII-1
8.04 Deposits............................................................................... VIII-1
8.05 Voting of Shares Owned by the Corporation.............................................. VIII-1
8.06 Corporate Payments..................................................................... VIII-2
ARTICLE IX. CERTIFICATES FOR SHARES AND THEIR TRANSFER
9.01 Certificates for Shares................................................................ IX-1
9.02 Facsimile Signatures and Seal.......................................................... IX-1
9.03 Signature by Former Officers........................................................... IX-1
9.04 Transfer of Shares..................................................................... IX-1
9.05 Restrictions on Transfer............................................................... IX-2
9.06 Lost, Destroyed or Stolen Certificates................................................. IX-2
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
SECTION SUBJECT MATTER PAGE
<S> <C>
============================================================================================================
9.07 Consideration for Shares............................................................... IX-2
9.08 Stock Regulations...................................................................... IX-2
ARTICLE X.
DIVIDENDS.............................................................................. X-1
ARTICLE XI.
CORPORATE SEAL......................................................................... XI-1
ARTICLE XI. AMENDMENTS
12.01 By Stockholders........................................................................ XII-1
12.02 By Directors........................................................................... XII-1
12.03 Implied Amendments..................................................................... XII-1
</TABLE>
iv
<PAGE>
BY-LAWS
OF
GARDEN.COM, INC.,
a Delaware Corporation
ARTICLE I. OFFICES.
SECTION 1.01 Principal and Business Offices. The corporation may
------------------------------
have such principal and other business offices, as the Board of Directors may
designate or as the business of the corporation may require from time to time,
both within and without the State of Delaware, in any and all States of the
United States of America, in the District of Columbia, in any or all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America, and in any foreign countries.
SECTION 1.02 Registered Office. The registered office of the
-----------------
corporation required by the Delaware General Corporation Law to be maintained in
the State of Delaware may be, but need not be, identical with the principal
office in the State of Delaware, and the address of the registered office may be
changed from time to time by the Board of Directors. The business office of the
registered agent of the corporation shall be identical to such registered
office.
<PAGE>
ARTICLE II. STOCKHOLDERS
SECTION 2.01 Annual Meeting. The annual meeting of the stockholders
--------------
shall be held on the second Tuesday in the month of March in the year beginning
with the year 1996, or at such other date within thirty days before or after
said date as may be authorized by the Board of Directors and set forth in the
notice of meeting, for the purpose of electing directors and for the transaction
of such other business as may come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day or any other permissible date set by the Board of
Directors.
SECTION 2.02 Special Meeting. Special meetings of the stockholders,
---------------
for any purpose or purposes, unless otherwise prescribed by statute, may be
called by the President or the Board of Directors or by the person designated in
the written request of the holders of not less than one-tenth of all shares of
the corporation entitled to vote at the meeting.
SECTION 2.03 Place of Meeting. The Board of Directors may designate
----------------
any place, either within or without the State of Delaware, as the place of
meeting for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all stockholders entitled to vote at a
meeting may designate any place, either within or without the State of Delaware,
as the place for the holding of such meeting. If no designation is made, or if
a special meeting be otherwise called, the place of meeting shall be the
principal business office of the corporation in the State of Texas or such other
suitable place in the county of such principal office as may be designated by
the person calling such meeting, but any meeting may be adjourned to reconvene
at any place designated by vote of a majority of the shares represented thereat.
SECTION 2.04 Notice of Meeting. Written notice stating the place,
-----------------
day and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
days (unless a longer period is required by law or the Certificate of
Incorporation) nor more than 60 days before the date of the meeting, either
personally, by mail or by telegram, by or at the direction of the President, the
Secretary or other officer or persons calling the meeting, to each stockholder
of record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail, addressed to
the stockholder at his address as it appears on the stock record books of the
corporation, with postage thereon prepaid. An affidavit of the Secretary or an
Assistant Secretary or of the transfer agent of the
<PAGE>
corporation, if one be appointed, that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. If any
meeting of stockholders is adjourned for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. Otherwise, when a meeting is adjourned to another time and
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
SECTION 2.05 Closing of Transfer Books or Fixing of Record Date. For
--------------------------------------------------
the purpose of determining stockholders entitled to notice of or to vote at any
meeting of the stockholders or any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or change of stock or
for the purpose of any other lawful action, or in order to make a determination
of stockholders for any other purpose, the Board of Directors may provide that
the stock transfer books shall be closed for a stated period ending at least ten
days before the action for which eligibility notice or voting is being
determined. In lieu of closing the stock transfer books, the Board of Directors
may fix in advance a date as the record date for any such determination of
stockholders, such date in any case not to be more than 60 days and, in case of
a meeting of stockholders, not less than ten days prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders the record date for such determination of stockholders shall be at
the close of business on the date next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. If no record date is fixed, the
record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior action by the Board
of Directors is necessary, shall be the day on which the first written consent
is expressed, and the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
2
<PAGE>
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 2.06 Voting Lists. The officer or agent having charge of the
------------
stock transfer books for shares of the corporation shall, at least ten days
before every meeting of stockholders, make a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. This list shall be opened to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The original stock transfer books shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by this section or the books of the corporation, or to vote in
person or by proxy at any meeting of stockholders. Failure to comply with the
requirements of this section shall not affect the validity of any action taken
at such meeting.
SECTION 2.07 Quorum. Except as otherwise provided in the Certificate
------
of Incorporation, a majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders. If
a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the stockholders unless the vote of a greater number or voting by
classes is required by law or the Certificate of Incorporation. Though less
than a quorum of the outstanding shares are represented at a meeting, a majority
of the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 2.08 Conduct of Meetings. Meetings of the stockholders shall
-------------------
be presided over by one of the following officers in the order of seniority, if
present and acting: the President, the Executive Vice President, a Vice
President in the order provided under SECTION 4.08 or if none of the foregoing
is in office and present and acting, by a chairman chosen by the stockholders
present. The
3
<PAGE>
Secretary of the corporation, or in his absence, an Assistant Secretary, or if
none be present, any person appointed by the presiding officer shall act as
secretary of the meeting.
SECTION 2.09 Proxies. At all meetings of stockholders, a stockholder
-------
entitled to vote may vote in person or by proxy appointed in writing by the
stockholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the Secretary of the corporation before or at the time of the
meeting. Unless otherwise provided in the proxy, a proxy may be revoked at any
time before it is voted, either by written notice filed with the Secretary or
the acting secretary of the meeting or by oral notice given by the stockholder
to the presiding officer during the meeting. The presence of a stockholder who
has filed his proxy shall not of itself constitute a revocation. No proxy shall
be valid after three years from the date of its execution, unless otherwise
provided in the proxy. The Board of Directors shall have the power and
authority to make rules establishing presumptions as to the validity and
sufficiency of proxies.
SECTION 2.10 Voting of Shares. Each outstanding share shall be
----------------
entitled to one vote upon each matter submitted to a vote at a meeting of
stockholders, except to the extent that the voting rights of the shares of any
class or classes are enlarged, limited or denied by the Certificate of
Incorporation.
SECTION 2.11 Action Without Meeting. Unless otherwise provided in
----------------------
the Certificate of Incorporation, any action required to be taken at any annual
or special meeting of stockholders of the corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
SECTION 2.12 Voting of Shares by Certain Holders.
-----------------------------------
(a) Other Corporations. Shares standing in the name of another
------------------
corporation may be voted either in person or by proxy, by the president of such
corporation or any other officer appointed by such president. A proxy executed
by any principal officer of such other corporation or assistant thereto shall be
conclusive evidence of the signer's authority to act, in the absence of
4
<PAGE>
express notice to this corporation, given in writing to the Secretary, of the
designation of some other person by the Board of Directors or the By-Laws of
such other corporation.
(b) Legal Representatives and Fiduciaries. Shares held by an
-------------------------------------
administrator, executor, guardian, conservator, trustee in bankruptcy, receiver
or assignee for creditors may be voted by him either in person or by proxy,
without a transfer of such shares into his name, provided that there is filed
with the Secretary before or at the time of meeting proper evidence of his
incumbency and the number of shares held. Shares standing in the name of a
fiduciary may be voted by him, either in person or by proxy. A proxy executed
by a fiduciary shall be conclusive evidence of the signer's authority to act, in
the absence of express notice to this corporation, given in writing to the
Secretary of this corporation, that such manner of voting is expressly
prohibited or otherwise directed by the document creating the fiduciary
relationship.
(c) Pledgees. A stockholder whose shares are pledged shall be
--------
entitled to vote such shares, unless there is a transfer by the pledgor on the
books of the corporation in which he has expressly empowered the pledgee to vote
thereon, in which case only the pledgee or his proxy may represent such stock
and vote thereon.
(d) Treasury Stock and Subsidiaries. Neither treasury shares nor
-------------------------------
shares held by another corporation if a majority of the shares entitled to vote
for the election of directors of such other corporation is held, directly or
indirectly, by this corporation, shall be voted at any meeting or counted in
determining the total number of outstanding shares entitled to vote, but shares
of its own issue held by this corporation in a fiduciary capacity, or held by
such other corporation in a fiduciary capacity, may be voted and shall be
counted in determining the total number of outstanding shares entitled to vote.
(e) Minors. Shares held by a minor may be voted by such minor in
------
person or by proxy and no such vote shall be subject to disaffirmance or
avoidance, unless prior to such vote the Secretary of the corporation has
received written notice or has actual knowledge that such stockholder is a
minor.
(f) Incompetents and Spendthrifts. Shares held by an incompetent or
-----------------------------
spendthrift may be voted by such incompetent or spendthrift in person or by
proxy and no such vote shall be subject to disaffirmance or avoidance, unless
prior to such vote the Secretary of the corporation has actual knowledge that
such stockholder has been adjudicated an incompetent or
5
<PAGE>
spendthrift or actual knowledge of filing of judicial proceedings for
appointment of a guardian.
(g) Joint Tenants. Shares registered in the names of two or more
-------------
individuals who are named in the registration as joint tenants may be voted in
person or by proxy signed by any one or more of such individuals if either (i)
no other such individual or his legal representative is present and claims the
right to participate in the voting of such shares or prior to the vote files
with the Secretary of the corporation a contrary written voting authorization or
direction or written denial of authority of the individual present or signing
the proxy proposed to be voted, or (ii) all such other individuals are deceased
and the Secretary of the corporation has no actual knowledge that the survivor
has been adjudicated not to be the successor to the interests of those deceased.
SECTION 2.13 Waiver of Notice by Stockholders. Whenever any notice
--------------------------------
whatever is required to be given to any stockholder of the corporation under the
Certificate of Incorporation or By-Laws or any provision of law, a waiver
thereof in writing, signed at any time, whether before or after the time of
meeting, by the stockholder entitled to such notice, shall be deemed equivalent
to the giving of such notice; provided that such waiver in respect to any matter
of which notice is required under any provision of the Delaware General
Corporation Law, shall contain the same information as would have been required
to be included in such notice, except the time and place of meeting. Attendance
of a stockholder at a meeting shall constitute a waiver of notice of such
meeting, except when the stockholder attends for the express purpose of
objecting at the beginning to the transaction of any business because the
meeting was not properly called. Neither the business to be transacted at nor
the purpose of any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
6
<PAGE>
ARTICLE III. BOARD OF DIRECTORS
SECTION 3.01. General Powers and Number. The business and affairs of
-------------------------
the Corporation shall be managed under the direction of its Board of Directors.
Unless otherwise provided in the Articles of Incorporation, the authorized
number of Directors shall be not less than eight nor more than eleven. The
current number of directors shall be within the limits specified above, and as
determined (or as amended from time to time) by resolution adopted by either the
shareholders or the Directors. After any shares of this Corporation are issued,
the maximum or minimum number of Directors cannot be changed, nor can a fixed
number be substituted for the maximum and minimum numbers, except by an
amendment to this section 3.01, duly approved by the outstanding shares entitled
to vote.
SECTION 3.02 Tenure and Qualifications. Each director shall hold
-------------------------
office until the next annual meeting of stockholders and until his successor
shall have been elected, or until his prior death, resignation or removal. A
director may be removed from office by affirmative vote of a majority of the
outstanding shares entitled to vote for the election of such director, taken at
a meeting of stockholders called for that purpose. A director may resign at any
time by filing his written resignation with the Secretary of the corporation.
Directors need not be residents of the State of Delaware or stockholders of the
corporation.
SECTION 3.03 Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held without other notice than this By-Law immediately after
the annual meeting of stockholders, and each adjourned session thereof. The
place of such regular meeting shall be the same as the place of the meeting of
stockholders which precedes it, or such other suitable place as may be announced
at such meeting of stockholders. The Board of Directors may provide, by
resolution, the time and place, either within or without the State of Delaware,
for the holding of additional regular meetings without other notice than such
resolution.
SECTION 3.04 Special Meetings. Special meetings of the Board of
----------------
Directors may be called by or at the request of the President, Secretary or any
two directors. The person or persons authorized to call special meetings of the
Board of Directors may fix any place, either within or without the State of
Delaware, as the place for holding any special meeting of the Board of Directors
called by them, and if no other place is fixed the place of meeting shall be the
principal business office of the corporation in the State of Delaware.
<PAGE>
SECTION 3.05 Notice; Waiver. Notice of each meeting of the Board of
--------------
Directors (unless otherwise provided in or pursuant to SECTION 3.03) shall be
given by written notice delivered personally, by mail, by telegram or by telex
to each director at his business address or at such other address as such
director shall have designated in writing filed with the Secretary, not less
than 48 hours in advance of such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice is given by telegram, such notice shall
be deemed to be delivered when the telegram is delivered to the telegraph
company. If notice is given by telex such notice shall be deemed to be
delivered 48 hours after it is sent. Whenever any notice whatever is required
to be given to any director of the corporation under the Certificate of
Incorporation or By-Laws or any provision of law, a waiver thereof in writing,
signed at any time, whether before or after the time of meeting, by the director
entitled to such notice, shall be deemed equivalent to the giving of such
notice. The attendance of a director at a meeting shall constitute a waiver of
such notice, except where a director attends a meeting and objects thereat to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 3.06 Quorum. Except as otherwise provided by law or by the
------
Certificate of Incorporation or these By-Laws, number of directors set forth in
SECTION 3.01 shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, but a majority of the directors present
(though less than such quorum) may adjourn the meeting from time to time without
further notice.
SECTION 3.07 Telephonic Attendance. The Board of Directors, or any
---------------------
individual member thereof, may participate in a meeting of the Board, or any
committee designated by the Board, by means of conference, telephone or a
similar communications equipment provided that during the conduct of such
meeting all persons participating therein can hear each other. Participation in
a meeting pursuant to this section shall constitute a presence in person at such
meeting.
SECTION 3.08 Manner of Acting. The act of the majority of the
----------------
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, unless the act of a greater number is required by law or
by the Certificate of Incorporation or these By-Laws.
2
<PAGE>
SECTION 3.09 Conduct of Meetings. The meetings of the Board of
-------------------
Directors shall be presided over by one of the following officers in the order
of seniority, if present and acting: the President, the Executive Vice
President, provided he be a director, a Vice President designated pursuant to
SECTION 4.08, provided he be a director, or any director chosen by the directors
present. The Secretary of the corporation shall act as secretary of all
meetings of the Board of Directors, but in the absence of the Secretary, the
presiding officer may appoint any Assistant Secretary or any director or other
person present to act as secretary of the meeting.
SECTION 3.10 Vacancies. Any vacancy occurring in the Board of
---------
Directors, including a vacancy created by an increase in the number of
directors, may be filled until the next succeeding annual election by the
affirmative vote of a majority of the directors then in office, though less than
a quorum of the Board of Directors, or by a sole remaining director, and the
directors so chosen shall hold office until the next annual election and until
their successors are duly elected and shall qualify, unless sooner displaced;
provided that in case of a vacancy created by the removal of a director by the
vote of stockholders, the stockholders shall have the right to fill such vacancy
at the same meeting or any adjournment thereof. If there are no directors in
office, then any officer or any stockholder or an executor, administrator,
trustee or guardian of a stockholder, or other fiduciary entrusted with like
responsibility for the person or estate of a stockholder, may call a special
meeting of stockholders in accordance with the provisions of the Certificate of
Incorporation or the By-Laws, or may apply to the Court of Chancery for a decree
summarily ordering an election. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least 10% of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorship, or
to replace the directors chosen by the directors then in office.
SECTION 3.11 Compensation. The Board of Directors, irrespective of
------------
any personal interest of any of its members, may establish reasonable
compensation of all directors for services to the corporation as directors,
officers or otherwise, or may delegate such authority to an appropriate
committee. Members of the Board may be paid their expenses, if any, of
attendance at each meeting of the Board at any place other than the county in
which the principal business office of the corporation is located. The Board of
Directors also shall
3
<PAGE>
have authority to provide for or to delegate authority to an appropriate
committee to provide for reasonable pensions, disability or death benefits and
other benefits or payments, to directors, officers and employees and to their
estates, families, dependents or beneficiaries on account of prior services
rendered by such directors, officers and employees to the corporation.
SECTION 3.12 Presumption of Assent. A director of the corporation
---------------------
who is present at a meeting of the Board of Directors or a committee thereof of
which he is a member at which action on any corporate matter is taken shall be
presumed to have assented to the action unless his dissent shall be entered in
the minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
SECTION 3.13 Committees. The Board of Directors may, by resolution
----------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternative members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority to amend the Certificate of
Incorporation, adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommend to the stockholders a dissolution
of the corporation or a revocation of a dissolution or amend the By-Laws of the
corporation; and, unless the resolution, By-Laws or certificate of Incorporation
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. Each such committee
shall fix its own rules governing the conduct of its activities and shall make
such
4
<PAGE>
reports to the Board of Directors of its activities as the Board of Directors
may request.
SECTION 3.14 Unanimous Consent Without Meeting. Any action required
---------------------------------
or permitted by the Certificate of Incorporation or By-Laws or any provision of
law to be taken by the Board of Directors at a meeting or by resolution may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all the directors then in office, and such written
consent is filed with the minutes of proceedings of the Board.
5
<PAGE>
ARTICLE IV. OFFICERS.
SECTION 4.01. Number. The principal officers of the Corporation
------
shall consist of the a President, one or more Vice Presidents (the number,
precedence and duties thereof to be determined by the Board of Directors), a
Secretary and a Treasurer. The Board of Directors, in its discretion, may elect
or appoint any or all of such principal officers. The Board of Directors may
also designate and elect a Vice President as Executive Vice President and may
designate and elect any other Vice President as Senior Vice President. Such
other officers and assistant officers as may be deemed necessary may be elected
or appointed by the Board of Directors. Any two or more offices may be held by
the same person.
SECTION 4.02. Election and Term of Office. The officers of the
---------------------------
Corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his successor shall
have been duly elected or until his prior death, resignation or removal.
SECTION 4.03. Removal. Any officer or agent may be removed by the
-------
Board of Directors whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment shall not of itself create contract rights.
SECTION 4.04. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 4.05. President. The President shall be the principal
---------
executive officer of the Corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the Corporation. He shall preside at all meetings of the shareholders
and of the Board of Directors. He shall have authority, subject to such rules as
may be prescribed by the Board of Directors, to appoint such agents and
employees of the Corporation as he shall deem necessary, to prescribe their
powers, duties and compensation, and to delegate authority to them. Such agents
and employees shall hold office at the discretion of the President. He shall
have authority to sign, execute and acknowledge, on behalf of the Corporation,
all deeds, mortgages,
<PAGE>
bonds, stock certificates, contracts, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the
Corporation's regular business, or which shall be authorized by resolution of
the Board of Directors; and, except as otherwise provided by law or the Board of
Directors, he may authorize any Vice President or other officer or agent of the
Corporation to sign, execute and acknowledge such documents or instruments in
his place and stead. In general he shall perform all duties incident to the
office of President and such other duties as may be prescribed by the Board of
Directors from time to time.
SECTION 4.06. The Executive Vice President. The Executive Vice
----------------------------
President, if one is designated, shall assist the President in the discharge of
supervisory, managerial and executive duties and functions. In the absence of
the President or in the event of his death, inability or refusal to act, the
Executive Vice President shall perform the duties of the President and when so
acting shall have all the powers and duties of the President. He shall perform
such other duties and shall have such authority as from time to time may be
assigned to him by the Board of Directors or the President.
SECTION 4.07. The Senior Vice President. The Senior Vice President,
-------------------------
if one is designated, in the absence of the Executive Vice President or in the
event of his death, inability or refusal to act, or in the event for any reason
it shall be impracticable for the Executive Vice President to act personally,
shall perform the duties of the Executive Vice President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
Executive Vice President. The Senior Vice President shall perform such other
duties and have such authority as from time to time may be delegated or assigned
to him by the President or by the Board of Directors.
SECTION 4.08. The Vice Presidents. In the absence of the President
-------------------
or, if designated, the Executive Vice President or the Senior Vice President, or
in the event of his or their death, inability or refusal to act, or in the event
for any reason it shall be impracticable for the President or, if designated,
the Executive Vice President or the Senior Vice President to act personally, the
Vice President (or in the event there be more than one Vice President, the Vice
Presidents in the order designated by the Board of Directors, or in the absence
of any designation, then in the order of their election) shall perform the
duties of the President, the Executive Vice President or the Senior Vice
President, as applicable, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the President, the Executive Vice
President or the Senior Vice President, as applicable. A Vice President shall
perform such other duties and
2
<PAGE>
have such authority as from time to time may be delegated or assigned to him by
the President or by the Board of Directors. The execution of any instrument of
the Corporation by any Vice President shall be conclusive evidence, as to third
parties, of his authority to act in the stead of the President, the Executive
Vice President or the Senior Vice President.
SECTION 4.09. The Secretary. The Secretary shall: (a) keep the
-------------
minutes of the meetings of the shareholders and of the Board of Directors in one
or more books provided for that purpose; (b) see that all notices are duly given
in accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation, if any;
(d) keep or arrange for the keeping of a register of the post office address of
each shareholder, officer and director, as furnished to the Secretary; (e) have
general charge of the stock transfer books of the Corporation; and (f) in
general perform all duties and exercise such authority as from time to time may
be delegated or assigned to him by the President or by the Board of Directors.
SECTION 4.10. The Treasurer. If required by the Board of Directors,
-------------
the Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors shall determine.
He shall: (a) have charge and custody of and be responsible for all funds and
securities of the Corporation; (b) receive and give receipts for monies due and
payable to the Corporation from any source whatsoever, and deposit all such
monies in the name of the Corporation in such banks, trust companies or other
depositaries as shall be selected in accordance with the provisions of section
6.04; and (c) in general perform all of the duties incident to the office of
Treasurer and have such other duties and exercise such other authority as from
time to time may be delegated or assigned to him by the President or by the
Board of Directors.
SECTION 4.11. Assistant Secretaries and Assistant Treasurers. There
----------------------------------------------
shall be such number of Assistant Secretaries and Assistant Treasurers as the
Board of Directors may from time to time authorize. The Assistant Secretaries
may sign with the President or a Vice President certificates for shares of the
Corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. An Assistant Treasurer shall, if required by the Board
of Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties and
have such authority as shall from time to time be delegated or assigned to them
by
3
<PAGE>
the Secretary or the Treasurer, respectively, or by the President or the Board
of Directors.
SECTION 4.12. Other Assistants and Acting Officers. The Board of
------------------------------------
Directors shall have the power to appoint any person to act as assistant to any
officer, or as agent for the Corporation in his stead, or to perform the duties
of such officer whenever for any reason it is impracticable for such officer to
act personally, and such assistant or acting officer or other agent so appointed
by the Board of Directors shall have the power to perform all the duties of the
office to which he is so appointed to be assistant, or as to which he is so
appointed to act, except as such power may be otherwise defined or restricted by
the Board of Directors.
SECTION 4.13. Salaries. The salaries of the principal officers shall
--------
be fixed from time to time by the Board of Directors or by a duly authorized
committee thereof, and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the Corporation.
4
<PAGE>
ARTICLE V. LIABILITY OF OFFICERS
AND DIRECTORS
No person shall be liable to the corporation for any loss or damage
suffered by it on account of any action taken or omitted to be taken by him as a
director or officer of this corporation, or of any other corporation which he
serves as a director or officer at the request of this corporation, in good
faith, if such person (a) exercised and used the same degree of care and skill
as a prudent man would have exercised or used under the circumstances in the
conduct of his own affairs or (b) took or omitted to take such action in
reliance upon advice of counsel for the corporation or upon statements made or
information furnished by officers or employees of the corporation which he had
reasonable grounds to believe to be true. The foregoing shall not be exclusive
of other rights and defenses to which he may be entitled as a matter of law.
<PAGE>
ARTICLE VI. INDEMNIFICATION
SECTION 6.01. Actions Other Than by the Corporation. Subject to the
-------------------------------------
limitations contained in this ARTICLE VI, the corporation shall, to the fullest
extent permitted by the Delaware General Corporation Law and other applicable
laws, as in effect from time to time, indemnify any person who was or is a party
or is threatened to be made a party to any formal or informal threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including, without limitation, any action
brought under federal or state securities laws, rules or regulations
(collectively, "Actions" and individually an "Action"), other than an Action by
or in the right of the corporation and other than an Action asserted by such
person against the corporation for any reason other than to enforce his rights
under this ARTICLE VI, by reason of the fact that he is or was a director or
officer of the corporation, or by reason of the fact that such person is or was
a director or officer of the corporation and is or was serving at the request of
the corporation as a director, officer, employee, consultant or agent of another
corporation, partnership, joint venture, trust or other enterprise, or is or was
serving at the request of the corporation as a fiduciary of an employee benefit
plan or as an employee or agent of the corporation against (a) expenses,
including, without limitation, attorneys' fees, actually and reasonably incurred
in connection with any Action; (b) amounts actually and reasonably incurred in
settlement of any Action; and (c) judgments, fines, penalties or other amounts
actually incurred pursuant to an adjudication of liability in connection with
any Action; provided, however, that no director or officer shall be entitled to
indemnification under this section unless, with respect to the conduct that is
the subject of the Action, he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, he had no reasonable cause to
believe his conduct was unlawful. The termination of any Action by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, that the person had reasonable cause to believe
that his conduct was unlawful.
SECTION 6.02. Actions by or in the Right of the Corporation. Subject
---------------------------------------------
to the limitations contained in this ARTICLE VI, any person who was or is a
party or is threatened to be made a party to any Action by or in the right of
the corporation to procure a judgment in its favor by reason of the fact he is
or was a director or officer of the corporation, or by reason of the fact that
such person is or
<PAGE>
was a director or officer of the corporation and is or was serving at the
request of the corporation as a director, officer, employee, consultant or agent
of another corporation, partnership, joint venture, trust or other enterprise,
or is or was serving at the request of the corporation as a fiduciary of an
employee benefit plan or as an employee or agent of the corporation, shall be
indemnified by the corporation, to the fullest extent permitted by the Delaware
General Corporation Law and other applicable laws, as in effect from time to
time, against (a) expenses, including, without limitation, attorneys' fees
actually and reasonably incurred in connection with any Action; (b) amounts
actually and reasonably incurred in settlement of any Action; and (c) judgments,
fines, penalties or other amounts actually incurred pursuant to an adjudication
of liability in connection with any Action; provided, however, that no director
or officer shall be entitled to indemnification under this section unless, with
respect to the conduct that is the subject of the Action, he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court in which such Action was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
SECTION 6.03. Successful Defense of Actions. To the extent that a
-----------------------------
director or officer of the corporation has been successful on the merits or
otherwise in defending any Action described in SECTION 6.01 or 6.02 (including,
without limitation, the settlement, dismissal, abandonment or withdrawal of any
Action where he does not pay or assume any material liability), he shall be
indemnified by the corporation against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection therewith.
SECTION 6.04. Procedure for Indemnification. Any indemnification
-----------------------------
under SECTIONS 6.01 and 6.02 of this ARTICLE VI, unless ordered by a court,
shall be made by the corporation only as authorized in the specific case upon a
determination that indemnification of such director or officer of the
corporation is proper in the circumstances because he has met the applicable
standard of conduct set forth in said SECTIONS 6.01 and 6.02. Such determination
shall be made within 60 days following a request for indemnification by a
director or officer (a) by arbitration if requested or directed pursuant to
SECTION 6.07(c); (b) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the subject Action; (c) if
2
<PAGE>
such a quorum is not obtainable or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion; or (d) by the affirmative vote of a majority of the shares entitled to
vote thereon. The person or persons making the determination with respect to
indemnification hereunder may, to the extent they deem appropriate, authorize
the corporation to pay interest to a director or officer, at a reasonable
interest rate, for amounts actually paid by him and determined to be a proper
subject for indemnification. All fees, costs and expenses associated with the
indemnification procedures set forth in this SECTION 6.04 or otherwise incurred
by a director or officer to enforce his rights to indemnification provided in
this ARTICLE VI, including, without limitation, the fees, costs and expenses of
the independent legal counsel selected hereunder, shall be paid by the
corporation.
SECTION 6.05. Advance Payment of Expenses. Expenses, including,
---------------------------
without limitation, attorneys' fees, actually and reasonably incurred by a
director or officer in connection with any Action, no matter by whom brought,
shall be paid by the corporation to the director or officer in advance of the
final disposition of such Action within 30 days of a written request for advance
payment of expenses which shall be accompanied by reasonable documentation of
the amount of the claimed expenses. To receive advanced expenses under this
SECTION 6.05, a director or officer must first enter into a written agreement
with the corporation in which he warrants his good faith belief that he has met
the appropriate standard of conduct set forth in SECTION 6.01 or 6.02, as the
case may be, of this ARTICLE VI and agrees to repay any advances made pursuant
to this SECTION 6.05 if it is determined that such director or officer is not
entitled to indemnification by the corporation for such amounts pursuant to the
procedures of SECTION 6.04 of this ARTICLE VI.
SECTION 6.06. Partial Indemnification.
-----------------------
(a) If it is determined pursuant to SECTION 6.04 of this ARTICLE
VI that a director or officer is entitled to indemnification as to some claims,
issues or matters, but not as to other claims, issues or matters, involved in
any Action, no matter by whom brought, the person or persons making such
determination shall reasonably determine which expenses, including, without
limitation, attorneys' fees, amounts paid in settlement and/or judgments,
penalties or fines, are the result of claims, issues or matters that are a
proper subject for indemnification hereunder in light of all of the
circumstances of such Action.
(b) If it is determined pursuant to SECTION 6.04 of this ARTICLE
VI that certain amounts paid by a director or officer, whether for
3
<PAGE>
expenses, attorneys' fees and/or amounts paid in settlement in connection with
any Action, no matter by whom brought, are for any reason unreasonable in amount
in light of all the circumstances of such Action, the person or persons making
such determination shall authorize the indemnification of the director or
officer for only such amounts as he or they shall deem reasonable.
SECTION 6.07. Other Rights.
------------
(a) General. The indemnification and advancement of expenses
-------
provided for in this ARTICLE VI shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any agreement with the corporation, any By-Law of the
corporation, any vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office. Nothing contained in this ARTICLE VI shall preclude
the Board of Directors from determining, in its discretion, that persons serving
as agents or employees of the corporation or as fiduciaries of an employee
benefit plan of the corporation shall be entitled to the indemnification and
advancement of expenses provided to directors and officers of the corporation in
this ARTICLE VI.
(b) Contribution. If a director or officer requesting indemnity
------------
due to any Action is determined to be ineligible for the indemnity provided for
in SECTION 6.01 or SECTION 6.02, as the case may be, of this ARTICLE VI, the
Corporation, in lieu of indemnifying such officer or director, shall contribute
to the amount actually and reasonably incurred by him, whether for expenses,
including, without limitation, attorneys' fees, amounts reasonably paid in
settlement and/or judgments, fines or penalties incurred in connection with any
Action, no matter by whom brought, in such proportion as is determined to be
fair and reasonable by the person or persons making the determination as to
indemnification pursuant to SECTION 6.04 of this ARTICLE VI, or by the court
before which such Action was brought, in light of all the circumstances of such
Action, in order to reflect the relative benefits received by the corporation
and the director or officer as a result of the occurrences giving cause to such
Action and/or the relative fault of the corporation and the director or officer
in connection with such occurrences; provided, however, that no director or
officer shall be entitled to contribution from the corporation under this
SECTION 6.07(b) if it is determined pursuant to SECTION 6.04, or by the court
before which such Action was brought, that the director or officer engaged in
criminal, fraudulent, reckless or willful misconduct in or disregard for the
performance of his duty to the corporation.
4
<PAGE>
(c) Arbitration. If requested by the director or officer seeking
-----------
indemnification, contribution or any other rights provided under this ARTICLE
VI, or by any person or persons authorized to make determinations pursuant to
SECTION 6.04, any indemnification or other rights to be provided to an officer
or director under this ARTICLE VI, unless ordered by the court before which an
Action was brought, shall be authorized by a panel of three arbitrators in the
city in which the corporation's principal executive offices are then located in
accordance with the rules then prevailing of the American Arbitration
Association, upon a determination in each specific case that the indemnification
or other rights provided to the officer or director is proper under the
circumstances because he has met the applicable standard of conduct set forth in
the respective provisions of this ARTICLE VI. One of the arbitrators shall be
selected by the Board of Directors of the corporation by a majority vote of a
quorum consisting of directors who were not parties to the Action that is the
subject of the indemnification (or, if such a quorum is not obtainable, by an
independent legal counsel chosen by the Board of Directors of the corporation),
the second arbitrator shall be selected by the director or officer who may be
entitled to indemnification or other rights under this ARTICLE VI and the third
arbitrator shall be a member in good standing of the American Arbitration
Association of 180 North LaSalle Street, Chicago, Illinois, who will be selected
by the two arbitrators selected by the foregoing parties.
SECTION 6.08. Severability of Provisions. The provisions of this
--------------------------
ARTICLE VI and the several rights to indemnification, advancement of expenses,
contribution, arbitration and limitation of actions created hereby are
independent and severable and, in the event that any such provision and/or right
shall be held by a court of competent jurisdiction in which an Action relating
to such provisions and/or rights is brought to be against public policy or
otherwise to be unenforceable, the other provisions of this ARTICLE VI shall
remain enforceable and in full effect.
SECTION 6.09. Purchase of Insurance. The corporation may purchase
---------------------
and maintain insurance on behalf of any person who is or was a director or
officer of the corporation, to the extent that such director or officer is
insurable and such insurance coverage can be secured by the corporation at
rates, and in amounts and subject to such terms and conditions as shall be
determined in good faith to be reasonable and appropriate by the Board of
Directors of the corporation, and whose determination shall be conclusive,
against liability asserted against him or incurred by him in any such capacity
or arising out of his status as
5
<PAGE>
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this ARTICLE VI.
SECTION 6.10. Benefit. The rights to indemnification and advancement
-------
of expenses provided by, or granted pursuant to, this ARTICLE VI shall continue
as to a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 6.11. Amendment. No amendment or repeal of this ARTICLE VI
---------
shall be effective to reduce the obligations of the corporation under this
ARTICLE VI with respect to any Action based upon occurrences which take place
prior to such amendment or repeal.
6
<PAGE>
ARTICLE VII. CONTRACTS BETWEEN
CORPORATION AND RELATED PERSONS
No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee thereof which authorizes the contract or transaction solely because
his or their votes are counted for such purposes, if (a) the material facts as
to his relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; (b) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by a vote of the
stockholders; or (c) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction. This ARTICLE VII shall not be construed to invalidate any contract
or other transaction which would otherwise be valid under the common and
statutory law applicable thereto.
<PAGE>
ARTICLE VIII. CONTRACTS, LOANS, CHECKS AND
DEPOSITS: SPECIAL CORPORATE ACTS
SECTION 8.01 Contracts. The Board of Directors may authorize any
---------
officer or officers, agent or agents, to enter into any contract or execute or
deliver any instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all contracts, deeds, mortgages and instruments of
assignment or pledge made by the corporation shall be executed in the name of
the corporation by the President and Chief Operating Officer or any other
officer of the corporation authorized by the Board of Directors, and if required
by the transaction or operation of law, by the Secretary, an Assistant
Secretary, the Treasurer or an Assistant Treasurer. The Secretary or an
Assistant Secretary, when necessary or required, shall affix the corporate seal
thereto; and when so executed no other party to such instrument or any third
party shall be required to make any inquiry into the authority of the signing
officer or officers.
SECTION 8.02 Loans. No loans shall be contracted on behalf of the
-----
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by or under the authority of a resolution of the Board of Directors.
Such authorization may be general or confined to specific instances.
SECTION 8.03 Checks, Drafts, Etc. All checks, drafts or other orders
--------------------
for the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by or under the authority of a resolution of the Board of Directors.
SECTION 8.04 Deposits. All funds of the corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as may be selected by or
under the authority of a resolution of the Board of Directors.
SECTION 8.05 Voting of Shares Owned by the Corporation. Subject
-----------------------------------------
always to the specific directions of the Board of Directors, (a) any shares or
other securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders of such other
corporation by the President, or in his absence the Executive Vice President, or
if he be absent any Vice President of this corporation who may be present and
(b) whenever, in the judgment of the President, or in his absence the Executive
Vice President, or if he be absent any Vice President, it is desirable for this
<PAGE>
corporation to execute a proxy or written consent in respect to any shares or
other securities issued by any other corporation and owned by this corporation,
such proxy or consent shall be executed in the name of this corporation by the
President, the Executive Vice President or one of the Vice Presidents of this
corporation without necessity of any authorization by the Board of Directors,
affixation of corporate seal or countersignature or attestation by another
officer. Any person or persons designated in the manner above stated as the
proxy or proxies of this corporation shall have full right, power and authority
to vote the shares or other securities issued by such other corporation and
owned by this corporation the same as such shares or other securities might be
voted by this corporation.
SECTION 8.06. Corporate Payments. If any compensation paid to an
------------------
employee, officer or director of the Corporation or expenses paid for or on
behalf of any employee, officer or director shall be determined, upon audit or
other examination of the income tax returns of the Corporation, as not an
allowable deduction from the gross income or otherwise net taxable income of the
Corporation and such determination shall be obtained by the appropriate federal
or state taxing authority or by a final judgment of a court or competent
jurisdiction and neither the Corporation nor employee, officer or director
appeals therefrom, or the applicable period for filing a notice of appeal or
objection has expired, the employee, officer or director shall immediately repay
to the Corporation the amount of such disallowed compensation or expense or both
and the Corporation's Board of Directors and officers shall have the authority
to waive such repayment. This section 8.06 shall be deemed part of any and all
agreements, written or explicitly recited therein and may be amended or repealed
only by action of the stockholders pursuant to ARTICLE XIII below.
2
<PAGE>
ARTICLE IX. CERTIFICATES FOR
SHARES AND THEIR TRANSFER
SECTION 9.01 Certificates for Shares. Certificates representing
-----------------------
shares of the corporation shall be in such form, consistent with law, as shall
be determined by the Board of Directors. Such certificates shall be signed by
the President and Chief Operating Officer, the Executive Vice President or a
Vice President and, if required by the Board of Directors, the transaction or
operation of law, by the Secretary or an Assistant Secretary. All certificates
for shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except as provided in SECTION 9.06.
SECTION 9.02 Facsimile Signatures and Seal. The seal of the
-----------------------------
corporation on any certificates for shares may be a facsimile. The signatures of
the President, the Executive Vice President or Vice President and the Secretary
or Assistant Secretary upon a certificate may be facsimiles if the certificate
is countersigned by a transfer agent, or registered by a registrar, other than
the corporation itself or an employee of the corporation.
SECTION 9.03 Signature by Former Officers. In case any officer, who
----------------------------
has signed or whose facsimile signature has been placed upon any certificate for
shares, shall have ceased to be such officer before such certificate is issued,
it may be issued by the corporation with the same effect as if he were such
officer at the date of its issue.
SECTION 9.04 Transfer of Shares. The Board of Directors may appoint
------------------
one or more transfer agents and one or more registrars of its stock of any class
or classes, whose respective duties shall be defined by the Board of Directors.
Prior to due presentment of a certificate for the shares for registration of
transfer the corporation may treat the registered owner of such shares as the
person exclusively entitled to vote, to receive notifications and otherwise to
exercise all the rights and powers of an owner. Where a certificate for shares
is presented to a transfer agent of the corporation, if one be appointed, or to
the corporation if no transfer agent has been appointed, with a request to
register for transfer, the transfer agent and corporation shall not be liable to
the owner or any other person suffering loss as a result of such registration of
transfer if (a) there
<PAGE>
were on or with the certificate the necessary endorsements and (b) the transfer
agent, if one be appointed, and the corporation had no duty to inquire into
adverse claims or has discharged any such duty. The transfer agent, if one be
appointed, and the corporation may require reasonable assurance that said
endorsements are genuine and effective and comply with such other regulations as
may be prescribed under the authority of the Board of Directors.
SECTION 9.05 Restrictions on Transfer. The face or reverse side of
------------------------
each certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
SECTION 9.06 Lost, Destroyed or Stolen Certificates. Where the owner
--------------------------------------
claims that his certificate for shares has been lost, destroyed or wrongfully
taken, a new certificate shall be issued in place thereof if the owner (a) so
requests before the corporation has notice that such shares have been acquired
by a bona fide purchaser, (b) files with the corporation a sufficient indemnity
bond, and (c) satisfies such other reasonable requirements as the Board of
Directors may prescribe.
SECTION 9.07 Consideration for Shares. The shares of the corporation
------------------------
may be issued for such consideration, not less than the par value thereof (if
any), as shall be fixed from time to time by the Board of Directors. The
consideration to be paid for shares may be paid in whole or in part, in money,
in other property, tangible or intangible, or in labor or services actually
performed for the corporation. When payment of the consideration for which
shares are to be issued shall have been received by the corporation, such shares
shall be deemed to be fully paid and nonassessable by the corporation. No
certificate shall be issued for any share until it is fully paid.
SECTION 9.08 Stock Regulations. The Board of Directors shall have
-----------------
the power and authority to make all such further rules and regulations not
inconsistent with the statutes of the State of Delaware as it may deem expedient
concerning the issue, transfer and registration of certificates representing
shares of the corporation.
2
<PAGE>
ARTICLE X. DIVIDENDS
The Board of Directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its Certificate of Incorporation.
<PAGE>
ARTICLE XI. CORPORATE SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation,
the state of incorporation and the words "Corporate Seal".
<PAGE>
ARTICLE XII. AMENDMENTS
SECTION 12.01 By Stockholders. These By-Laws may be altered, amended
---------------
or repealed and new By-Laws may be adopted by the stockholders by affirmative
vote of not less than a majority of the shares present or represented at any
annual or special meeting of the stockholders at which a quorum is in
attendance.
SECTION 12.02 By Directors. These By-Laws may also be altered,
------------
amended or repealed and new By-Laws may be adopted by the Board of Directors by
affirmative vote of a majority of the number of directors present at any meeting
at which a quorum is in attendance; but no By-Law adopted by the stockholders
shall be amended or repealed by the Board of Directors if the By-Law so adopted
so provides.
SECTION 12.03 Implied Amendments. Any action taken or authorized by
------------------
the stockholders or by the Board of Directors, which would be inconsistent with
the By-Laws then in effect but is taken or authorized by affirmative vote of not
less than the number of shares or the number of directors required to amend the
By-Laws so that the By-Laws would be consistent with such action, shall be given
the same effect as though the By-Laws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so taken
or authorized.
<PAGE>
EXHIBIT 3.2B
AMENDED AND RESTATED BYLAWS
OF
GARDEN.COM, INC.
(a Delaware corporation)
<PAGE>
AMENDED AND RESTATED BYLAWS OF
GARDEN.COM, INC.
(a Delaware corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I CORPORATE OFFICES.............................................................................. 1
-----------------
1.1 REGISTERED OFFICE............................................................................. 1
1.2 OTHER OFFICES................................................................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS...................................................................... 1
------------------------
2.1 PLACE OF MEETINGS............................................................................. 1
2.2 ANNUAL MEETING................................................................................ 1
2.3 SPECIAL MEETING............................................................................... 2
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.............................................................. 2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS............................... 2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................................................. 3
2.7 QUORUM........................................................................................ 4
2.8 ADJOURNED MEETING; NOTICE..................................................................... 4
2.9 VOTING........................................................................................ 4
2.10 PROHIBITION OF STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING........................ 5
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.................................................... 5
2.12 PROXIES....................................................................................... 5
2.13 ORGANIZATION.................................................................................. 6
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE......................................................... 6
2.15 WAIVER OF NOTICE.............................................................................. 6
ARTICLE III DIRECTORS.................................................................................... 7
---------
3.1 POWERS........................................................................................ 7
3.2 NUMBER OF DIRECTORS........................................................................... 7
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS...................................................... 7
3.4 RESIGNATION AND VACANCIES..................................................................... 7
3.5 REMOVAL OF DIRECTORS.......................................................................... 8
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE...................................................... 9
3.7 REGULAR MEETINGS.............................................................................. 9
3.8 SPECIAL MEETINGS; NOTICE...................................................................... 9
3.9 QUORUM........................................................................................ 9
3.10 WAIVER OF NOTICE.............................................................................. 10
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.11 ADJOURNMENT............................................................................... 10
3.12 NOTICE OF ADJOURNMENT..................................................................... 10
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING......................................... 10
3.14 FEES AND COMPENSATION OF DIRECTORS........................................................ 10
3.15 APPROVAL OF LOANS TO OFFICERS............................................................. 11
3.16 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION.................................... 11
ARTICLE IV COMMITTEES................................................................................ 11
----------
4.1 COMMITTEES OF DIRECTORS................................................................... 11
4.2 MEETINGS AND ACTION OF COMMITTEES......................................................... 12
4.3 COMMITTEE MINUTES......................................................................... 12
ARTICLE V OFFICERS................................................................................... 12
--------
5.1 OFFICERS.................................................................................. 12
5.2 ELECTION OF OFFICERS...................................................................... 13
5.3 SUBORDINATE OFFICERS...................................................................... 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS....................................................... 13
5.5 VACANCIES IN OFFICES...................................................................... 14
5.6 CHAIRMAN OF THE BOARD..................................................................... 14
5.7 PRESIDENT AND CHIEF EXECUTIVE OFFICER..................................................... 14
5.8 CHIEF OPERATING OFFICER................................................................... 14
5.9 CHIEF MERCHANDISING AND MARKETING OFFICER................................................. 14
5.10 CHIEF TECHNOLOGY OFFICER.................................................................. 15
5.11 VICE PRESIDENTS........................................................................... 15
5.12 SECRETARY................................................................................. 15
5.13 CHIEF FINANCIAL OFFICER................................................................... 16
5.14 ASSISTANT SECRETARY....................................................................... 16
5.15 ADMINISTRATIVE OFFICERS................................................................... 16
5.16 AUTHORITY AND DUTIES OF OFFICERS.......................................................... 17
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS........................ 17
------------------------------------------------------------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................................................. 17
6.2 INDEMNIFICATION OF OTHERS................................................................. 18
6.3 INSURANCE................................................................................. 18
ARTICLE VII RECORDS AND REPORTS...................................................................... 18
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS..................................................... 18
7.2 INSPECTION BY DIRECTORS................................................................... 19
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.3 ANNUAL STATEMENT TO STOCKHOLDERS................................................................ 19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.................................................. 19
7.5 CERTIFICATION AND INSPECTION OF AMENDED AND RESTATED BYLAWS..................................... 19
ARTICLE VIII GENERAL MATTERS............................................................................... 20
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING........................................... 20
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS....................................................... 20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.............................................. 20
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES................................................ 20
8.5 SPECIAL DESIGNATION ON CERTIFICATES............................................................. 21
8.6 LOST CERTIFICATES............................................................................... 22
8.7 TRANSFER AGENTS AND REGISTRARS.................................................................. 22
8.8 CONSTRUCTION; DEFINITIONS....................................................................... 22
ARTICLE IX AMENDMENTS...................................................................................... 22
----------
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED BYLAWS
---------------------------
OF
--
GARDEN.COM, INC.
----------------
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be fixed in the certificate
of incorporation of the corporation.
1.2 OTHER OFFICES
-------------
The corporation may have such principal and other business offices as the
Board of Directors may designate or the business of the corporation may require
from time to time, both within and without the State of Delaware, in any and all
States of the United States of America, in the District of Columbia, in any or
all commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States, and in any foreign countries.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place within or outside the
State of Delaware designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the last
Wednesday of May in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full
<PAGE>
business day. At the meeting, directors shall be elected, and any other proper
business may be transacted.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, by the chairman of the board, or by the president.
If a special meeting is called by any person or persons other than the
board of directors, then the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the president, or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.6 of these Amended and Restated
Bylaws, that a meeting will be held at the time requested by the person or
persons calling the meeting, so long as that time is not less than 35 nor more
than 60 days after the receipt of the request. If the notice is not given
within 20 days after receipt of the request, then the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing or affecting the time
when a meeting of stockholders called by action of the board of directors may be
held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Section 2.6 of these Amended and Restated Bylaws not less than
ten nor more than 60 days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS
---------------------------------------------------------------
Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,
(a) nominations for the election of directors, and
(b) business proposed to be brought before any stockholder meeting
2
<PAGE>
may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such stockholder has given timely notice in
proper written form of their intent to make such nomination or nominations or to
propose such business. To be timely, such stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 120 calendar days in advance of the date specified in
the corporation's proxy statement released to stockholders in connection with
the previous year's annual meeting of stockholders; provided, however, that in
the event that no annual meeting was held in the previous year or the date of
the annual meeting has been changed by more than 30 days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received a reasonable time before the
solicitation is made. To be in proper form, a stockholder's notice to the
secretary shall set forth:
(i) the name and address of the stockholder who intends to make
the nominations or propose the business and, as the case may be, of the person
or persons to be nominated or of the business to be proposed;
(ii) a representation that the stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting and, if applicable,
intends to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder;
(iv) such other information regarding each nominee or each
matter of business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or intended
to be nominated, or the matter been proposed, or intended to be proposed by the
board of directors; and
(v) if applicable, the consent of each nominee to serve as
director of the corporation if so elected.
The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing
3
<PAGE>
on the books of the corporation or given by the stockholder to the corporation
for the purpose of notice. Notice shall be deemed to have been given at the time
when delivered personally or deposited in the mail or sent by telegram or other
means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
------
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these Amended and Restated Bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these Amended and Restated Bylaws, a
different vote is required, in which case such express provision shall govern
and control the decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time and place, unless these Amended
and Restated Bylaws otherwise require, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact any
business that might have been transacted at the original meeting. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting.
2.9 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these Amended
and Restated Bylaws, subject to the
4
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provisions of Sections 217 and 218 of the General Corporation Law of Delaware
(relating to voting rights of fiduciaries, pledgors and joint owners, and to
voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these Amended and Restated Bylaws, each stockholder shall be entitled to one
vote for each share of capital stock held by such stockholder and stockholders
shall not be entitled to cumulate their votes in the election of directors or
with respect to any matter submitted to a vote of the stockholders.
2.10 PROHIBITION OF STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
--------------------------------------------------------------
MEETING
- -------
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of the
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
------------------------------------------
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than 60 days nor less than ten days before the date of any such meeting, and in
such event only stockholders of record on the date so fixed are entitled to
notice and to vote, notwithstanding any transfer of any shares on the books of
the corporation after the record date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than 30 days from the date set for the original meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these Amended and Restated Bylaws.
2.12 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and filed with the secretary of the
corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic
5
<PAGE>
transmission, telefacsimile or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(e) of the General Corporation Law of Delaware.
2.13 ORGANIZATION
------------
The president, or in the absence of the president, the chairman of the
board, or, in the absence of the president and the chairman of the board, one of
the corporation's vice presidents, shall call the meeting of the stockholders to
order, and shall act as chairman of the meeting. In the absence of the
president, the chairman of the board, and all of the vice presidents, the
stockholders shall appoint a chairman for such meeting. The chairman of any
meeting of stockholders shall determine the order of business and the procedures
at the meeting, including such matters as the regulation of the manner of voting
and the conduct of business. The secretary of the corporation shall act as
secretary of all meetings of the stockholders, but in the absence of the
secretary at any meeting of the stockholders, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.15 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
Amended and Restated Bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these
Amended and Restated Bylaws.
6
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the Certificate of Incorporation or these Amended and
Restated Bylaws relating to action required to be approved by the stockholders
or by the outstanding shares, the business and affairs of the corporation shall
be managed and all corporate powers shall be exercised by or under the direction
of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors which shall constitute the whole Board shall be not
less than five nor more than 15, as may be designated from time to time by the
Board of Directors. The directors shall be divided into three classes, as
nearly equal in number as possible, with the term of office of the first class
(Class I) to expire at the annual meeting of stockholders held in 2000; the term
of office of the second class (Class II) to expire at the annual meeting of
stockholders held in 2001; the term of office of the third class (Class III) to
expire at the annual meeting of stockholders held in 2002; and thereafter for
each such term to expire at each third succeeding annual meeting of stockholders
after such election.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Except as provided in Section 3.4 of these Amended and Restated Bylaws,
directors shall be elected at each annual meeting of stockholders to hold office
until the next annual meeting. Each director, including a director elected or
appointed to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote of
the stockholders or by court order may be filled only by the affirmative vote of
a majority of the shares represented and voting at a duly held meeting at which
a quorum is present
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<PAGE>
(which shares voting affirmatively also constitute a majority of the required
quorum). Each director so elected shall hold office until the next election of
the class for which such director shall have been chosen and until a successor
has been elected and qualified.
Unless otherwise provided in the certificate of incorporation or these
Amended and Restated Bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these Amended and Restated
Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an
election as provided in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least 10% of the total number of the shares at the time outstanding having the
right to vote for such directors, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office as aforesaid, which election shall be
governed by the provisions of Section 211 of the General Corporation Law of
Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute or by the certificate of
incorporation, any director or the entire board of directors may only be removed
only for cause by the holders of a majority of the shares then entitled to vote
at an election of directors.
8
<PAGE>
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding full business day.
3.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
days before the time of the holding of the meeting. If the notice is delivered
personally or by telephone, telecopy or telegram, it shall be delivered
personally or by telephone or to the telegraph company at least 48 hours before
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.9 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these Amended and Restated Bylaws. Every act or decision done or made by a
majority of the directors present at a duly held meeting at
9
<PAGE>
which a quorum is present shall be regarded as the act of the board of
directors, subject to the provisions of the certificate of incorporation and
applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the quorum for that meeting.
3.10 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.11 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting of the board to another time and place.
3.12 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting of the board
need not be given unless the meeting is adjourned for more than 24 hours. If
the meeting is adjourned for more than 24 hours, then notice of the time and
place of the adjourned meeting shall be given before the adjourned meeting takes
place, in the manner specified in Section 3.9 of these Amended and Restated
Bylaws, to the directors who were not present at the time of the adjournment.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board of directors.
3.14 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
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<PAGE>
3.15 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.16 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
------------------------------------------------------
In the event only one director is required by these Amended and Restated
Bylaws or the certificate of incorporation, then any reference herein to
notices, waivers, consents, meetings or other actions by a majority or quorum of
the directors shall be deemed to refer to such notice, waiver, etc., by such
sole director, who shall have all the rights and duties and shall be entitled to
exercise all of the powers and shall assume all the responsibilities otherwise
herein described as given to the board of directors.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the
11
<PAGE>
corporation's property and assets, (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution or (v) amend the
Amended and Restated Bylaws of the corporation; and, unless the board resolution
establishing the committee, the Amended and Restated Bylaws or the certificate
of incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the following provisions of Article III of these Amended and
Restated Bylaws: Section 3.6 (place of meetings; meetings by telephone), Section
3.8 (regular meetings), Section 3.9 (special meetings; notice), Section 3.10
(quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section
3.13 (notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those Amended and Restated
Bylaws as are necessary to substitute the committee and its members for the
board of directors and its members; provided, however, that the time of regular
meetings of committees may be determined either by resolution of the board of
directors or by resolution of the committee, that special meetings of committees
may also be called by resolution of the board of directors, and that notice of
special meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The board of
directors may adopt rules for the government of any committee not inconsistent
with the provisions of these Amended and Restated Bylaws.
4.3 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The Corporate Officers of the corporation shall be a chief executive
officer, a president, a secretary and a chief financial officer. The
corporation may also have, at the discretion of the board of directors, a
chairman of the board, a chief operating officer, a chief merchandising and
marketing officer, a chief technology officer, one or more vice presidents
(however denominated), one or more assistant secretaries, a treasurer and one or
more assistant treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these Amended and Restated
Bylaws. Any number of offices may be held by the same person.
12
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In addition to the Corporate Officers of the Company described above, there
may also be such Administrative Officers of the corporation as may be designated
and appointed from time to time by the president of the corporation in
accordance with the provisions of Section 5.12 of these Amended and Restated
Bylaws.
5.2 ELECTION OF OFFICERS
--------------------
The Corporate Officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these Amended and Restated Bylaws, shall be chosen by the board of directors,
subject to the rights, if any, of an officer under any contract of employment,
and shall hold their respective offices for such terms as the board of directors
may from time to time determine.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these Amended and Restated
Bylaws or as the board of directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.12 of
these Amended and Restated Bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of a Corporate Officer under any contract of
employment, any Corporate Officer may be removed, either with or without cause,
by the board of directors at any regular or special meeting of the board or,
except in case of a Corporate Officer chosen by the board of directors, by any
Corporate Officer upon whom such power of removal may be conferred by the board
of directors.
Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may be
removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
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5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Amended and Restated Bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise such other
powers and perform such other duties as may from time to time be assigned to him
by the board of directors or as may be prescribed by these Amended and Restated
Bylaws. If there is no president, then the chairman of the board shall also be
the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 5.7 of these Amended and Restated Bylaws.
5.7 PRESIDENT AND CHIEF EXECUTIVE OFFICER
-------------------------------------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president and chief executive officer shall be the chief executive officer of
the corporation and shall, subject to the control of the board of directors,
have general supervision, direction and control of the business and the officers
of the corporation. He or she shall preside at all meetings of the stockholders
and, in the absence or nonexistence of a chairman of the board, at all meetings
of the board of directors. He or she shall have the general powers and duties
of management usually vested in the office of president and chief executive
officer of a corporation, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or these Amended and
Restated Bylaws.
5.8 CHIEF OPERATING OFFICER
-----------------------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the president and chief executive officer, the chief operating
officer shall be the principal operating officer and shall, subject to the
control of the board of directors and/or the president and chief executive
officer, have general supervision, direction and control of the business and the
officers of the corporation. In general, he or she shall perform all duties
incident to the office of chief operating officer and such other duties as may
be assigned to him or her from time to time by the board of directors or the
president and chief executive officer.
5.9 CHIEF MERCHANDISING AND MARKETING OFFICER
-----------------------------------------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the president and chief executive officer, the chief merchandising
and marketing officer shall be the principal officer in charge of the
corporation's merchandising, marketing and similar functions. In general, he or
she shall perform all duties incident to the office of chief merchandising and
marketing
14
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officer and such other duties as may be assigned to him or her from time to time
by the board of directors or the president and chief executiveofficer.
5.10 CHIEF TECHNOLOGY OFFICER
------------------------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the president and chief executive officer, the chief technology
officer shall be the principal officer in charge of the corporation's
information and non-information technology and systems. In general, he or she
shall perform all duties incident to the office of chief technology officer and
such other duties as may be assigned to him or her from time to time by the
board of directors or the president and chief executive officer.
5.11 VICE PRESIDENTS
---------------
In the absence or disability of the president, and if there is no chairman
of the board, the vice presidents, if any, in order of their rank as fixed by
the board of directors or, if not ranked, a vice president designated by the
board of directors, shall perform all the duties of the president and when so
acting shall have all the powers of, and be subject to all the restrictions
upon, the president. The vice presidents shall have such other powers and
perform such other duties as from time to time may be prescribed for them
respectively by the board of directors, these Amended and Restated Bylaws, the
president or the chairman of the board.
5.12 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the board of directors,
committees of directors and stockholders. The minutes shall show the time and
place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these Amended and Restated Bylaws. He or she shall keep the seal of the
corporation, if one be adopted, in safe custody and shall have such other powers
and perform such other duties as may be prescribed by the board of directors or
by these Amended and Restated Bylaws.
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5.13 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director for a purpose reasonably related to
his position as a director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He or she shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his or
her transactions as chief financial officer and of the financial condition of
the corporation, and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or these Amended and Restated
Bylaws.
5.14 ASSISTANT SECRETARY
-------------------
The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his or her inability or refusal
to act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
5.15 ADMINISTRATIVE OFFICERS
-----------------------
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these Amended and Restated Bylaws and such subordinate Corporate
Officers as may be appointed in accordance with Section 5.3 of these Amended and
Restated Bylaws, there may also be such Administrative Officers of the
corporation as may be designated and appointed from time to time by the
president of the corporation. Administrative Officers shall perform such duties
and have such powers as from time to time may be determined by the president or
the board of directors in order to assist the Corporate Officers in the
furtherance of their duties. In the performance of such duties and the exercise
of such powers, however, such Administrative Officers shall have limited
authority to act on behalf of the corporation as the board of directors shall
establish, including but not limited to limitations on the dollar amount and on
the scope of agreements or commitments that may be made by such Administrative
Officers on behalf of the corporation, which limitations may not be exceeded by
such individuals or altered by the president without further approval by the
board of directors.
5.16 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing powers, authority and duties, all officers of
the corporation shall respectively have such authority and powers and perform
such duties in the management of the business of the corporation as may be
designated from time to time by the board of directors.
16
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
-------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware as the same now exists or may hereafter
be amended, indemnify any person against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action, suit,
or proceeding in which such person was or is a party or is threatened to be made
a party by reason of the fact that such person is or was a director or officer
of the corporation. For purposes of this Section 6.1, a "director" or "officer"
of the corporation shall mean any person (i) who is or was a director or officer
of the corporation, (ii) who is or was serving at the request of the corporation
as a director or officer of another corporation, partnership, joint venture,
trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the corporation.
The corporation shall pay the expenses (including attorney's fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director of officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the corporation's Certificate of Incorporation, these
Amended and Restated Bylaws, agreement, vote of the stockholders or
disinterested directors or otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
17
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The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or is a party or is threatened to be made a
party by reason of the fact that such person is or was an employee or agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or officer) shall mean any person (i) who
is or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Amended and Restated Bylaws as
amended to date, accounting books and other records of its business and
properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent
18
<PAGE>
to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in Delaware or at its principal
place of business.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine (and to make copies of) the
corporation's stock ledger, a list of its stockholders and its other books and
records for a purpose reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF AMENDED AND RESTATED BYLAWS
-----------------------------------------------------------
The original or a copy of these Amended and Restated Bylaws, as amended or
otherwise altered to date, certified by the secretary, shall be kept at the
corporation's principal executive office and shall be open to inspection by the
stockholders of the corporation, at all reasonable times during office hours.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date
19
<PAGE>
so fixed are entitled to receive the dividend, distribution or allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date so
fixed, except as otherwise provided by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these Amended and
Restated Bylaws, may authorize and empower any officer or officers, or agent or
agents, to enter into any contract or execute any instrument in the name of and
on behalf of the corporation; such power and authority may be general or
confined to specific instances. Unless so authorized or ratified by the board
of directors or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
------------------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and, upon
request, every holder of uncertificated shares, shall be entitled to have a
certificate signed by, or in the name of the corporation by, the chairman or
vice-chairman of the board of directors, or the president or vice-president, and
by the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of
20
<PAGE>
issuance; the number of shares for which it is issued; a summary statement or
reference to the powers, designations, preferences or other special rights of
such stock and the qualifications, limitations or restrictions of such
preferences and/or rights, if any; a statement or summary of liens, if any; a
conspicuous notice of restrictions upon transfer or registration of transfer, if
any; a statement as to any applicable voting trust agreement; if the shares be
assessable, or, if assessments are collectible by personal action, a plain
statement of such facts.
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim
21
<PAGE>
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
------------------------------
The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be an incorporated bank
or trust company -- either domestic or foreign, who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
board of directors may designate.
8.8 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these Amended and Restated Bylaws. Without limiting
the generality of this provision, as used in these Amended and Restated Bylaws,
the singular number includes the plural, the plural number includes the
singular, and the term "person" includes both an entity and a natural person.
ARTICLE IX
AMENDMENTS
----------
The original or other Amended and Restated Bylaws of the corporation may be
adopted, amended or repealed by the stockholders entitled to vote or by the
board of directors of the corporation. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal Amended and Restated Bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of Amended and Restated Bylaws with the original Amended and Restated
Bylaws, in the appropriate place. If any bylaw is repealed, the fact of repeal
with the date of the meeting at which the repeal was enacted or the filing of
the operative written consent(s) shall be stated in said book.
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<PAGE>
EXHIBIT 5.1
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
8911 CAPITAL OF TEXAS HIGHWAY, SUITE 3350
AUSTIN, TEXAS 78759
TELEPHONE: 512-338-5400 FACSIMILE 512-338-5499
WWW.WSGR.COM
_________, 1999
Garden.com, Inc.
3301 Steck Avenue
Austin, Texas 78757
RE: REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (File No. 333-____)
to be filed by you with the Securities and Exchange Commission on _______, 1999
(the "Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of _______ shares (including shares issuable
upon exercise of the underwriters' over-allotment option) of Common Stock of
Garden.com, Inc. (the "Shares"). As your counsel in connection with this
transaction, we have examined the proceedings proposed to be taken in connection
with such sale and issuance of the Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares, and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
various states, where required, the Shares when issued and sold in the manner
referred to in the Registration Statement will be legally and validly issued,
fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON, SONSINI, GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini Goodrich & Rosati
<PAGE>
EXHIBIT 10.1
GARDEN.COM, INC.
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT is entered into as of the __th day of
___, ____ by and between GARDEN.COM, INC., a Delaware corporation (the
"Company"), and the Indemnitee identified on the signature page hereto
(collectively with his or her respective Affiliated Persons, as defined below,
the "Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees,
controlling persons, fiduciaries and other agents and affiliates, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, controlling persons, fiduciaries and other agents and affiliates to
expensive litigation risks at the same time as the availability and coverage of
liability insurance has been severely limited.
C. The current protection available to directors, officers,
employees, controlling persons, fiduciaries and other agents and affiliates of
the Company may not be adequate under the present circumstances, and directors,
officers, employees, controlling persons, fiduciaries and other agents and
affiliates of the Company (or persons who may be alleged or deemed to be the
same), including the Indemnitee, may not be willing to continue to serve or be
associated with the Company in such capacities without additional protection.
D. The Company (1) desires to attract and retain the involvement of
highly qualified persons, such as Indemnitee, to serve and be associated with
the Company, and (2) accordingly, wishes to provide for the indemnification and
advancement of expenses to the Indemnitee to the maximum extent permitted by
law.
<PAGE>
AGREEMENTS
NOW, THEREFORE, the Company and the Indemnitee hereby agree as
follows:
1. Indemnification.
---------------
(a) Indemnification of Expenses. Subject to the provisions of
---------------------------
section 1(b), the Company shall indemnify and hold harmless the Indemnitee
(including all of his or her respective Affiliated Persons (as defined below))
to the fullest extent permitted by law if such 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 threatened, pending or completed
action, suit, proceeding or alternative dispute resolution mechanism, or any
hearing, inquiry or investigation that such 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 (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was (or is alleged to be or to have been) a director, officer,
employee, controlling person, fiduciary or other agent or affiliate of the
Company, or any subsidiary of the Company, or is or was (or is alleged to be or
to have been) serving at the request of the Company as a director, officer,
employee, controlling person, fiduciary or other agent or affiliate of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of such Indemnitee while serving (or
allegedly serving) in such capacity including, without limitation, any and all
losses, claims, damages, expenses and liabilities, joint or several (including
any investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit proceeding or any claim asserted)
under the Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, or other federal or state statutory law or regulation, at
common law or otherwise, which relate directly or indirectly to the
registration, purchase, sale or ownership of any securities of the Company or to
any fiduciary obligation owed with respect to the Company and its stockholders
(hereinafter an "Indemnification Event"), against any and all expenses
(including attorneys' fees and all other costs, expenses and obligations
incurred in connection with investigating, defending a witness in or
participating in (including on appeal), or preparing to defend, be a witness in
or participate in, any such 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) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitee
as a result of the actual or deemed receipt of any payments
2
<PAGE>
under this Agreement (collectively, hereinafter "Expenses"), including all
interest, assessments and other charges paid or payable in connection with or in
respect of such Expenses. Such payment of Expenses shall be made by the Company
as soon as practicable but in any event no later than ten days after written
demand by the Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under section 1(a) shall be subject to the condition
that the Reviewing Party (as defined in section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitees(who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in section 10(c) hereof), the
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), the Reviewing Party shall be the
Independent Legal Counsel referred to in section 10(d) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified 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 the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
3
<PAGE>
(c) Contribution. If the indemnification provided for in section
------------
l(a) above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnitee in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the Company, in lieu of indemnifying
such Indemnitee thereunder, shall contribute to the amount paid or payable by
such Indemnitee as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Indemnitee, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Indemnitee in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In connection with the registration of the Company's
securities, the relative benefits received by the Company and the Indemnitee
shall be deemed to be in the same respective proportions that the net proceeds
from the offering (before deducting expenses) received by the Company and the
Indemnitee, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Indemnitee
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Indemnitee and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Indemnitee agree that it would not be
just and equitable if contribution pursuant to this section l(c) were determined
by pro rata or per capita allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. In connection with the registration of the
Company's securities, in no event shall an Indemnitee be required to contribute
any amount under this section l(c) in excess of the lesser of (i) that
proportion of the total of such losses, claims, damages or liabilities
indemnified against equal to the proportion of the total securities sold under
such registration statement which is being sold by such Indemnitee or (ii) the
proceeds received by such Indemnitee from its sale of securities under such
registration statement. No person found guilty of fraudulent misrepresentation
(within the meaning of section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
(d) Survival Regardless of Investigation. The indemnification
------------------------------------
and contribution provided for in this section 1 will remain in full force and
effect regardless of any investigation made by or on behalf of the
4
<PAGE>
Indemnitee or any officer, director, employee, agent or controlling person of
the Indemnitee.
(e) Change in Control. The Company agrees that if there is a
-----------------
Change in Control (as defined below) of the Company (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) then,
with respect to all matters thereafter arising concerning the rights of the
Indemnitee to payments of Expenses under, this Agreement or any other agreement
or under the Company's Certificate of Incorporation or By-Laws as now or
hereafter in effect, Independent Legal Counsel (as defined in section 10(d)
hereof) shall be selected by the 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 permitted to be indemnified under applicable
law. The Company agrees to abide by such opinion and to pay the reasonable fees
of the Independent Legal Counsel referred to above and to fully indemnify 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.
(f) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than section 9 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 the defense of any
action, suit, proceeding, inquiry or investigation referred to in section (1)(a)
hereof or in the defense of any claim, issue or matter therein, such Indemnitee
shall be indemnified against all Expenses incurred by such Indemnitee in
connection therewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all
-----------------------
Expenses incurred by the Indemnitee. The advances to be made hereunder shall be
paid by the Company to the Indemnitee as soon as practicable but in any event no
later than ten days after written demand by such Indemnitee therefor to the
Company.
(b) Notice/Cooperation by Indemnitee. The Indemnitee shall 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, but the delay or omission to so notify the Company shall not relieve
the Company from any liability which it may have to Indemnitee under this
5
<PAGE>
Agreement, except to the extent the the Company is materially prejudiced by such
delay or omission. 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, the 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 contende,
-------------
or its equivalent, shall not create a presumption that the 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 applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether an Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that the 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 the Indemnitee should be
indemnified under applicable law, shall be a defense to the Indemnitee's claim
or create a presumption that the Indemnitee has not met any particular standard
of conduct or did not have any particular belief. In connection with any
determination by the 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 the 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 2(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 action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim, with counsel approved by the
applicable Indemnitee, which approval shall not be unreasonably withheld, upon
the delivery to such Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
such
6
<PAGE>
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
such Indemnitee with respect to the same Claim; provided that, (i) the
Indemnitee shall have the right to employ such Indemnitee's counsel in any such
Claim at the Indemnitee's expense and (ii) if [a] the employment of counsel by
the Indemnitee has been previously authorized by the Company, [b] such
Indemnitee shall have reasonably concluded that there is a conflict of interest
between the Company and such 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 the Indemnitee's counsel shall be at the expense
of the Company. The Company shall have the right to conduct such defense as it
sees fit in its sole discretion, including the right to settle any claim against
the Indemnitee without the consent of such Indemnitee.
3. 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 may not be specifically authorized by the other provisions of
this Agreement, the Company's Certificate of Incorporation, the Company's By-
Laws 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, controlling person, agent or fiduciary, it is the intent of the
parties hereto that the 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 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this
--------------
Agreement shall be in addition to any rights to which the Indemnitee may be
entitled under the Company's Certificate of Incorporation, its By-Laws, any
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware, or otherwise. The indemnification
provided under this Agreement shall continue as to the Indemnitee for any action
such Indemnitee took or did not take while serving in an indemnified capacity
even though the Indemnitee may have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against the
Indemnitee to the extent such Indemnitee has otherwise actually
7
<PAGE>
received payment (under any insurance policy, Certificate of Incorporation, By-
Law or otherwise) of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for any 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 such Indemnitee is entitled.
6. Mutual Acknowledgment. The Company and the Indemnitee acknowledge
---------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, controlling
persons, fiduciaries or other agents or affiliates under this Agreement or
otherwise. The 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 indemnification to a court in
certain circumstances for a determination of the Company's rights under public
policy to indemnify the Indemnitee.
7. Liability Insurance. To the extent the Company maintains
-------------------
liability insurance applicable to directors, officers, employees, control
persons, fiduciaries or other agents and affiliates, each Indemnitee shall be
covered by such policies in such a manner as to provide to the Indemnitee the
same rights and benefits as are accorded to the most favorably insured of the
Company's directors, if such Indemnitee is a director, or of the Company's
officers, if such Indemnitee is not a director of the Company but is an officer;
or of the Company's key employees, controlling persons, fiduciaries or other
agents or affiliates, if such Indemnitee is not an officer or director but is a
key employee, control person, fiduciary, agent or affiliate.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of the
this Agreement:
(a) Excluded Action or Omissions. To indemnify the Indemnitee for
----------------------------
such Indemnitee's acts, omissions or transactions from which the Indemnitee is
prohibited from receiving indemnification under this Agreement or under
applicable law; provided, however, that notwithstanding any limitation set forth
-------- -------
in this section 8(a) regarding the Company's obligation to provide
indemnification, Indemnitee shall be entitled under section 2(a) 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 the
8
<PAGE>
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 advance
------------------------------
expenses to the Indemnitee with respect to Claims initiated or brought
voluntarily by such Indemnitee and not by way of defense, except (i) with
respect to actions or proceedings to establish or enforce a right to indemnify
under this Agreement or any other agreement or insurance policy or under the
Company's Certificate of Incorporation or By-Laws now or hereafter in effect
relating to Claims for Indemnifiable 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 such Indemnitee ultimately is determined to be entitled to
such indemnification, advance expense payment or insurance recovery, as the case
may be;
(c) Lack of Good Faith. To indemnify the Indemnitee for any
------------------
expenses incurred by such Indemnitee with respect to any proceeding instituted
by Indemnitee on the Company to enforce or interpret this Agreement, if a court
of competent jurisdiction determines that each of the material assertions made
by the Indemnitee in such proceeding was not made in good faith or was
frivolous; or
(d) Claims Under Section 16(b). To indemnify the Indemnitee for
--------------------------
expenses and the payment of profits arising from the purchase and sale by such
Indemnitee of securities in violation of section 16(b) of the Securities
Exchange Act of 1934, as amended or any similar successor statute; provided,
--------
however, that notwithstanding any limitation set forth in this section 8(d)
- -------
regarding the Company's obligation to provide indemnification, Indemnitee shall
be entitled under section 2 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 the Indemnitee has liability
arising from the purchase and sale by such Indemnitee of securities in violation
of section 16(b) of the Securities Exchange Act of 1934, as amended or any
similar successor statute.
9. Period of Limitations. No legal action shall be brought and no
---------------------
cause of shall be asserted by or in the right of the Company against the
Indemnitee, such Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of accrual
of such cause of action, and any claim or cause of action of the Company shall
be extinguished and deemed released unless asserted by the timely filing of a
legal action within such two-year period; provided, however, that if any shorter
-----------------
period
9
<PAGE>
of limitations is otherwise applicable to any such cause of action, such shorter
period shall govern.
10. Construction of Certain Phrases.
-------------------------------
(a) For the purposes of this Agreement, an "Affiliated Person" of
an Indemnitee shall include any director, officer, employee, controlling person
(within the meaning of section 15 of the Securities Act of 1933, as amended, or
section 20 of the Securities Exchange Act of 1934, as amended), agent or
fiduciary of the Indemnitee, any stockholder of the Company for whom Indemnitee
serves as a director, officer, employee, controlling person, agent or fiduciary,
and any partnership, corporation, limited liability company, association, joint
stock company, trust or joint venture controlling, controlled by or under common
control with such a stockholder. For these purposes, "control" means the
possession, directly or indirectly, of the power to direct management and
policies of a person or entity, whether through the ownership of voting
securities, contract or otherwise.
(b) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify is directors, officers, employees,
agents, fiduciaries and other Affiliated Persons, so that if Indemnitee is or
was a director, officer, employee, agent, control person, fiduciary or an
Affiliated Person of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee,
control person, agent or fiduciary or another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, such Indemnitee shall
stand in the same position under the provisions of this Agreement with respect
to the resulting or surviving corporation as such Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.
(c) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on the 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, office, employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, employee, agent, fiduciary or other Affiliated Person with respect to
an employee benefit plan, its participants or its beneficiaries; and if the
Indemnitee acted in good faith and in a manner such Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, such
10
<PAGE>
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.
(d) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term in used in sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company 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, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5 % or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% 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 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
transactions) all or substantially all of the Company's assets.
(e) For purposes of this Agreement, "Independent Legal Counsel"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of section l(d) hereof, who shall not have otherwise performed
services for the Company or the Indemnitee within the last three years (other
than with respect to matters concerning the right of the Indemnitee under this
Agreement, or of other Indemnitee under similar indemnity agreements).
11
<PAGE>
(f) For purposes of this Agreement, a "Reviewing Party" shall
mean any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which an Indemnitee
is seeking indemnification, or Independent Legal Counsel.
(g) For purposes of this Agreement, "Voting Securities" shall
mean any securities of the Company that vote generally in the election of
directors.
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, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to the 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 with respect to Claims relating to Indemnifiable Events
regardless of whether the Indemnitee continues to serve as a director, officer,
employee, agent, controlling person, or fiduciary of the Company or of any other
enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by an
---------------
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, the Indemnitee shall be entitled to be paid all Expenses incurred by
such Indemnitee with respect to such action, regardless of whether such
Indemnitee is ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless, as a part of such
action, a court of competent jurisdiction over such action determines that each
of the material assertions made by such Indemnitee as a basis for such action
was not made in good faith or was frivolous. 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, the Indemnitee shall be entitled
to be paid all Expenses incurred by such Indemnitee in defense of such action
(including costs and expenses
12
<PAGE>
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of such Indemnitee's material defenses to such
action was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or
------
permitted hereunder shall be in writing, shall be effective when given, and
shall, in any event be deemed to be given (a) five (5) days after deposit with
the U.S. Postal Service or other applicable postal service, if delivered by
first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c)
one business day after the business day of deposited with Federal Express or
similar overnight courier, freight prepaid, or (d) one day after the business
day of delivery by facsimile transmission, if deliverable by facsimile
transmission, with copy by first class mail, postage prepaid, and shall be
addressed if to an Indemnitee, at the Indemnitee's address as set forth beneath
the Indemnitee's signature to this Agreement, and if to the Company at the
address of its principal corporate offices (attention: Secretary) or at such
other address as such party may designate by ten days' advance written notice to
the other party hereto.
15. Consent to Jurisdiction. The Company and the 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 limitations, 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 shall be governed by and its
-------------
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to
13
<PAGE>
be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
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 the 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 suite to enforce such rights.
19. Amendment and Termination. No amendment, modification,
-------------------------
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by all parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed 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 the Indemnitee any right to be
retained in the employ of the Company or any of its subsidiaries.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
GARDEN.COM, INC., a Delaware corporation
BY_______________________________________
Title:_________________________________
Address: 3301 Steck Avenue
Austin, Texas 78757
INDEMNITEE:
_________________________________________
14
<PAGE>
Exhibit 10.2A
GARDEN.COM, INC.
AMENDED AND RESTATED 1996 STOCK OPTION/STOCK ISSUANCE PLAN
1. Purposes of the Plan. The purposes of this Amended and
--------------------
Restated 1996 Stock Option/Stock Issuance 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 Garden.com, Inc., a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged
----------
by the Company or a Parent or Subsidiary to render services to such entity.
<PAGE>
(i) "Director" means a member of the Board.
--------
(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 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.
2
<PAGE>
(p) "Notice of Grant" means a written or electronic notice
---------------
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(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) "Parent" means a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this Amended and Restated 1996 Stock
----
Option/Stock Issuance Plan.
(y) "Restricted Stock" means shares of Common Stock acquired
----------------
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "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.
(aa) "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.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or
----------------
Consultant.
3
<PAGE>
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common
--------------------
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now
----------
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section
-------------------------
13 of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 2,500,000 Shares, plus an annual increase to be added on
the first day of the Company's fiscal year beginning in 2000 equal to the lessor
of (i) 1,200,000 Shares, (ii) 5% of the outstanding Shares on such date, or
(iii) a lesser 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 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.
4
<PAGE>
(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 the Fair Market Value;
(ii) to select the Service Providers to whom Options and
Stock Purchase Rights may be granted hereunder;
(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 15(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
5
<PAGE>
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; and
(xiii) to make all other determinations deemed necessary
or advisable for administering the Plan.
(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 500,000 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.
6
<PAGE>
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(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 13), 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 19 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 15 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 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.
7
<PAGE>
(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;
(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 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.
8
<PAGE>
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 13 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. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). 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 exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for 12 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 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 within such period of time as is specified in the
Option Agreement (but in no event
9
<PAGE>
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. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. 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.
(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 13
of the Plan.
10
<PAGE>
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. 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, and 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, 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
11
<PAGE>
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 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.
14. 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.
15. 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.
12
<PAGE>
16. 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 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.
17. 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.
18. 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.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within 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.
13
<PAGE>
EXHIBIT 10.2B
GARDEN.COM, INC.
AMENDED AND RESTATED 1996 STOCK OPTION/ STOCK ISSURANCE 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 below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
Termination Period:
------------------
This Option may be exercised for three months after Optionee ceases to be a
Service Provider. Upon the death or Disability of the Optionee, this Option may
be exercised for twelve months after
<PAGE>
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 [Title] 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.
2
<PAGE>
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;
3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
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;
5. with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement; or
6. to the extent permitted by the Administrator, delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale proceeds required to pay
the Exercise Price.
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
3
<PAGE>
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 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.
4
<PAGE>
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
Delaware.
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: Garden.com, Inc.
___________________________ _______________________________
Signature By
___________________________ _______________________________
Print Name Title
___________________________
Residence Address
___________________________
5
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
________________________________
Spouse of Optionee
<PAGE>
EXHIBIT 10.2C
GARDEN.COM, INC.
AMENDED AND RESTATED 1996 STOCK OPTION/STOCK ISSURANCE PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is an
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
-------------
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
-------------------------
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
-----------------
(a) In the event the Purchaser ceases to be a Service Provider for
any or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
canceling an amount of the Purchaser's indebtedness to the Company equal to the
aggregate Repurchase Price, or (iii) by a combination of (i) and (ii) so that
the combined payment and cancellation of indebtedness equals the aggregate
Repurchase Price. Upon delivery of such notice and the payment of the aggregate
Repurchase Price, the Company shall become the legal and beneficial owner of the
Shares being repurchased and all
<PAGE>
rights and interests therein or relating thereto, and the Company shall have the
right to retain and transfer to its own name the number of Shares being
repurchased by the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares
to be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. Release of Shares From Repurchase Option.
----------------------------------------
(a) _______________________ percent (______%) of the Shares shall be
released from the Company's Repurchase Option [one year] after the Date of
--------------
Grant and __________________ percent (______%) of the Shares [at the end of each
------------------
month thereafter], provided that the Purchaser does not cease to be a Service
- ----------------
Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
----------------
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's Repurchase Option
expires. As a further condition to the Company's obligations under this
Agreement, the Company may require the spouse of Purchaser, if any, to execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-4.
2
<PAGE>
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
-------
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares that may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
----------------
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Purchaser understands that the
Purchaser (and not the Company) shall be responsible for the Purchaser's own tax
liability that may arise as a result of the transactions contemplated by this
Agreement. The Purchaser understands that Section 83 of the Internal Revenue
Code of 1986, as amended (the "Code"), taxes as ordinary income the difference
between the purchase price for the Shares and the Fair Market Value of the
Shares as of the date any restrictions on the Shares lapse. In this context,
"restriction" includes the
3
<PAGE>
right of the Company to buy back the Shares pursuant to the Repurchase Option.
The Purchaser understands that the Purchaser may elect to be taxed at the time
the Shares are purchased rather than when and as the Repurchase Option expires
by filing an election under Section 83(b) of the Code with the IRS within 30
days from the date of purchase. The form for making this election is attached as
Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
------------------
(a) This Agreement shall be governed by the internal substantive
laws, but not the choice of law rules of Delaware. This Agreement, subject to
the terms and conditions of the Plan and the Notice of Grant, represents the
entire agreement between the parties with respect to the purchase of the Shares
by the Purchaser. 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 Agreement, the terms and conditions of the Plan shall
prevail. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given
by either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are cumulative and shall not constitute a
waiver of either party's right to assert any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT
4
<PAGE>
THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER). PURCHASER
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 PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: __________________________
PURCHASER: Garden.com, Inc.
__________________________________ ___________________________________
Signature By
__________________________________ ___________________________________
Print Name Title
5
<PAGE>
EXHIBIT 10.3
GARDEN.COM, INC. 1999
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase Plan
of Garden.com, Inc.
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 Garden.com, Inc.
------------
(d) "Company" shall mean Garden.com, Inc. 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.
<PAGE>
(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.
(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 24
----------------
months during which an option granted pursuant to the Plan may be exercised,
commencing on the first Trading Day on or after January 1 and July 1 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 June 30, 2001. 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.
----
2
<PAGE>
(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.
(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 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 $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 January 1 and July 1 each year, or on such other date as the Board
shall determine, and
3
<PAGE>
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 June 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 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.
(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 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.
4
<PAGE>
(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 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 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.
5
<PAGE>
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.
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.
6
<PAGE>
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 400,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in July 1, 2000 equal to the lesser of (i)
400,000 shares, (ii) 1.5% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board
7
<PAGE>
(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.
8
<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, 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
9
<PAGE>
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 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 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
provided 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:
10
<PAGE>
(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.
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 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
11
<PAGE>
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.
12
<PAGE>
EXHIBIT A
---------
GARDEN.COM, INC.
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 Garden.com, Inc.
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 1 to 10%) 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
<PAGE>
the time such shares were purchased by me over the price 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)
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
2
<PAGE>
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)
3
<PAGE>
EXHIBIT B
---------
GARDEN.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Garden.com, Inc. 1999
Employee Stock Purchase Plan which 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 10.4
FOURTH AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
This Fourth Amended and Restated Stockholders Agreement ("Agreement") is
entered into as of April 13, 1999, among Garden.com, Inc., a Delaware
corporation (the "Company"), the persons listed on Exhibit A hereto
(individually, a "Purchaser" and collectively the "Purchasers"), Clifford A.
Sharples, James N. O'Neill and Lisa W. A. Sharples (individually, a "Founder"
and collectively, the "Founders") and the other holders of Common Stock of the
Company listed on the signature pages below and such other parties as may from
time to time and with the consent of the Company and a majority of the then
existing Common Stockholders become parties hereto (the Founders and such other
holders of Common Stock are collectively referred to as the "Common
Stockholders").
Recitals:
--------
The Company, Global Retail Partners, L.P., DLJ Diversified Partners, L.P.,
DLJ Diversified Partners-A, L.P., GRP Partners, L.P., Global Retail Partners
Funding, Inc., DLJ ESC II L.P., Pequot Private Equity Fund, LP, Pequot Offshore
Private Equity Fund, Inc., Nexus Capital Partners I, LP, Van Wagoner Capital
Management, Inc., Hambrecht & Quist California, H&Q Garden Escape Investors, LP,
Austin Ventures IV-A, L.P, Austin Ventures IV-B, L.P., Phillips-Smith Specialty
Retail Group III, L.P., Craig J. Foley, Scripps Ventures, LLC, Oak Investment
Partners, VII, Limited Partnership, Oak VII Affiliates Fund, Limited Partnership
and the Founders are parties to a Third Amended and Restated Stockholders
Agreement dated as of June 11, 1998 (the "Prior Stockholders Agreement").
The Company and certain of the Purchasers have entered into a Stock
Purchase Agreement (the "Purchase Agreement") on this date, providing, among
other things, for the purchase by such Purchasers of shares of the Series E
Preferred Stock. Terms defined in the Purchase Agreement and not otherwise
defined herein are used herein with the same meanings as defined in the Purchase
Agreement.
This is the Stockholders Agreement referred to in the Purchase Agreement.
The parties to the Prior Stockholders Agreement desire to amend and restate the
Prior Stockholders Agreement to read in its entirety as set forth herein. The
execution and delivery of this Agreement is a condition to the Closing of the
issuance and sale of shares of the Series E Preferred Stock under the Purchase
Agreement.
<PAGE>
The parties agree as follows:
1. Voting Provisions.
------------------
1A. Composition of Board of Directors. The shares of Series A Preferred
---------------------------------
Stock issued pursuant to the Series A Purchase Agreement, the shares of Series B
Preferred Stock issued pursuant to the Series B Purchase Agreement, the shares
of Series C Preferred Stock issued pursuant to the Series C Purchase Agreement
and issued or issuable upon exercise of the Series C Warrants, the shares of
Series D Preferred Stock issued pursuant to the Series D Purchase Agreement and
issued or issuable upon exercise of the H&Q Series D Warrants, the shares of
Series E Preferred Stock issued pursuant to the Purchase Agreement, and, unless
the context requires otherwise, the shares of Common Stock issued or issuable
upon the conversion of such shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock are referred to in this Agreement as the "Shares." For so long
as at least 200,000 Shares are outstanding, the Purchasers and the Common
Stockholders agree that in any election of directors of the Company, they shall
vote all shares of capital stock of the Company owned or controlled by them,
including all Shares, to elect a Board of Directors comprising not less than
eight nor more than eleven directors designated as follows:
(i) five directors shall be designated by the holders of a majority
of the Shares (each a "Purchaser Director"); provided, that one Purchaser
--------
Director may be designated by Austin Ventures for so long as it holds at least
100,000 Shares, one Purchaser Director may be designated by Phillips-Smith for
so long as it holds at least 100,000 Shares, one Purchaser Director may be
designated by Scripps for so long as it holds at least 100,000 Shares, one
Purchaser Director may be designated by Oak for so long as it holds at least
100,000 Shares, and one Purchaser Director may be designated by Global for so
long as it holds at least 100,000 Shares; and
(iii) three directors shall be designated by the holders of a majority
of the Common Stock held by the Common Stockholders; provided, that if at any
---------
time the Shares represent less than a majority of the outstanding Common Stock
(assuming the conversion of all outstanding Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock), upon written notice to such effect given by the holders of a
majority of the Common Stock held by the Common Stockholders, such holders of
Common Stock may designate three additional directors, such that the holders of
a
2
<PAGE>
majority of the Common Stock held by the Common Stockholders may designate a
majority of the directors constituting the Board of Directors.
Until notice is given to the contrary, the Purchaser Director designated by
Austin Ventures shall be John D. Thornton, the Purchaser Director designated by
Phillips-Smith shall be Donald J. Phillips, the Purchaser Director designated by
Scripps shall be Douglas R. Stern, the Purchaser Director designated by Oak
shall be Gerald R. Gallagher, the Purchaser Director designated by Global shall
be Steven J. Dietz, and the directors designated by the holders of a majority of
the Common Stock held by the Common Stockholders shall be Clifford A. Sharples,
James N. O'Neill and Lisa W.A. Sharples. The obligation to vote shares in
accordance with this paragraph 1A shall be specifically applicable to and
enforceable against any transferees of the parties hereto.
1B. Compensation Committee. The Board of Directors shall maintain a
----------------------
compensation committee comprised of John D. Thornton, Donald J. Phillips and
such other Purchaser Directors as a majority of the Board of Directors shall
designate. The compensation committee of the Board of Directors will review and
make recommendations to the Board of Directors regarding salaries, bonuses and
other compensation and benefits of officers and key employees of the Company and
its Subsidiaries, and will administer the Approved Plans and any other stock
option, incentive or compensation plans or arrangements.
1C. Vacancies; Removal. In the event of any vacancy in the Board of
------------------
Directors, each of the Purchasers and the Common Stockholders agree to vote all
Shares and shares of Common Stock owned or controlled by them and to otherwise
use their best efforts to fill such vacancy so that the Board of Directors of
the Company will include directors designated as provided in paragraph 1A. Each
of the Purchasers and the Common Stockholders agrees to vote all Shares and
shares of Common Stock owned or controlled by them for the removal of a director
whenever (but only whenever) there shall be presented to the Board of Directors
the written direction that such director be removed, signed by the Purchaser or
holders of Shares entitled to designate such director, in the case of a
Purchaser Director, or by the holders of a majority of the Common Stock held by
the Common Stockholders, in the case of any other director. Each of the parties
agrees to use its best efforts to cause designees to be elected to the Board of
Directors as provided in paragraph 1A.
1D. Meetings; Quorum. The Company agrees to hold quarterly meetings of
----------------
the Board of Directors. A quorum for purposes of a meeting of directors must
consist of at least three of the Purchaser Directors. So long as Pequot holds
not less
3
<PAGE>
than 250,000 Shares, the Company will give a designated representative of Pequot
(the "Pequot Representative") written notice at the same time as the directors
but in any case not less than 24 hours in advance of all meetings of the Board
of Directors and all meetings of committees of the Board of Directors, which
notice shall include a copy of all written materials distributed to directors in
connection with such meeting, and will permit the Pequot Representative to
attend meetings of the Board of Directors. So long as Patricof holds not less
than 250,000 Shares, the Company will give a designated representative of
Patricof (the "Patricof Representative") written notice at the same time as the
directors but in any case not less than 24 hours in advance of all meetings of
the Board of Directors and all meetings of committees of the Board of Directors,
which notice shall include a copy of all written materials distributed to
directors in connection with such meeting, and will permit the Patricof
Representative to attend meetings of the Board of Directors. So long as
Attractor holds not less than 250,000 Shares, the Company will give a designated
representative of Attractor (the "Attractor Representative") written notice at
the same time as the directors but in any case not less than 24 hours in advance
of all meetings of the Board of Directors and all meetings of committees of the
Board of Directors, which notice shall include a copy of all written materials
distributed to directors in connection with such meeting, and will permit the
Attractor Representative to attend meetings of the Board of Directors. If any
Purchaser Director designated by a Purchaser pursuant to paragraph 1A(i) is not
able to attend a Board of Directors meeting or a meeting of a committee on which
he serves, such Purchaser may designate any one person to attend as an observer.
1E. Expenses. The Company shall reimburse all Persons serving as
--------
directors for their actual and reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors and all committees thereof and
otherwise incurred in fulfilling their duties as directors. If a Purchaser
entitled to designate a director pursuant to paragraph 1A(i) has not designated
a Purchaser Director or if the Purchaser Director designated by such Purchaser
is unable to attend a meeting of the Board of Directors or a committee on which
he serves, the Company shall reimburse one representative of such Purchaser for
actual and reasonable out-of-pocket expenses incurred in attending meetings of
the Board of Directors and such committees. Each of Austin Ventures, Oak,
Global, Pequot, Patricof and Attractor shall be considered to be one Purchaser
for purposes of this paragraph.
1F. Indemnification Agreement. On each date that a Purchaser Director or
-------------------------
any other director is first elected or appointed to the Board of Directors, and
on the date that the Pequot Representative, the Patricof Representative and the
Attractor Representative are designated, the Company shall enter into an
4
<PAGE>
indemnification agreement in substantially the form attached as Exhibit A with
---------
each Purchaser Director, each other director of the Company who is elected or
appointed to the Board of Directors on such date and with the Pequot
Representative, the Patricof Representative and the Attractor Representative.
1G. Material Transactions with Scripps. The approval of a majority of the
----------------------------------
disinterested directors (as set forth in Section 144 of the Delaware General
Corporation Law) shall be required for all material transactions between the
Company and The E. W. Scripps Company ("E. W. Scripps"). For purposes of this
paragraph 1G, the term "material transaction" shall mean any of the following:
(a) any transaction, or series of similar transactions, to which the
Company is to be a party, in which the amount involved exceeds five
percent of the consolidated assets of the Company and its Subsidiaries
as of the end of the Company's most recently completed fiscal quarter
and in which E. W. Scripps, any of its subsidiaries, officers or
directors or nominees for director, any beneficial holder of five
percent or more of the outstanding capital stock of E. W. Scripps, or
the Purchaser Director designated by Scripps will have a direct or
indirect material interest, other than an interest arising from the
ownership of Shares by Scripps or an interest arising pursuant to the
Purchase Agreement or any Ancillary Agreement or the purchase by
Scripps of Equity Securities; or
(b) indebtedness owed by the Company to E. W. Scripps, any of its
subsidiaries, officers or directors or nominees for director, any
beneficial holder of five percent or more of the outstanding capital
stock of E. W. Scripps, or the Purchaser Director designated by
Scripps, or indebtedness owed by E. W. Scripps or any such other
Person to the Company, in either case, in an amount in excess of five
percent of the consolidated assets of the Company and its Subsidiaries
as of the end of the Company's most recently completed fiscal quarter.
2. Provisions Relating to Restricted Stock.
----------------------------------------
2A. General Restrictions on Transfer of Capital Stock.
-------------------------------------------------
(i) For purposes of this Agreement, "Restricted Stock" is (a) Common
Stock now owned or subsequently acquired by any Common Stockholder or a
transferee of a Common Stockholder in a Permitted Transfer (as defined in
paragraph 2A(iii)) and (b) Shares now owned or subsequently acquired
5
<PAGE>
by any Purchaser or a transferee of a Purchaser in a Permitted Transfer.
References in this part 2 to "shares of Restricted Stock" shall be deemed to
include warrants representing the right to acquire shares of Restricted Stock,
including, without limitation, the Series C Warrants, the H&Q Series D Warrants
and the H&Q Series E Warrants (collectively, the "H&Q Warrants") representing
the right to acquire Shares. During the term of this Agreement, none of the
shares of Restricted Stock may be sold, assigned, transferred, pledged,
encumbered or otherwise disposed of (a "transfer") except in a Permitted
Transfer or a transfer that complies with the provisions of paragraphs 2B and
2C.
(ii) Any attempted transfer of shares of Restricted Stock other than
in accordance with this Agreement shall be null and void and the Company shall
refuse to recognize any such transfer and shall not reflect on its records any
change in record ownership of shares of Restricted Stock pursuant to any such
transfer.
(iii) The following transfers of Restricted Stock (each a "Permitted
Transfer") may be made free of the restrictions and requirements of paragraphs
2B and 2C hereof: (a) an individual holder of Restricted Stock may transfer any
or all of the shares of Restricted Stock owned by him to his spouse or children,
or to trusts established for the benefit of his spouse or children, provided
that the transferee grants to the transferor an irrevocable proxy coupled with
an interest to vote all of the shares of Restricted Stock so transferred and
agrees to be bound by the provisions of this Agreement, including, without
limitation, paragraphs 2B and 2C; (b) provided that the transferee agrees to be
bound by the provisions of this Agreement, a partnership, limited liability
company, corporation or trust holding Restricted Stock may transfer any shares
of Restricted Stock owned by such holder (1) to its Affiliates, (2) to its
general or limited partners, members, shareholders or beneficiaries, or (3) to
an entity owned by or organized for the benefit of the general or limited
partners, members, shareholders, officers, directors, employees, Affiliates or
beneficiaries of such holder, as applicable, (c) a holder of Restricted Stock
may pledge any shares of Restricted Stock owned by such holder to secure the
repayment of any bona fide indebtedness owing by such holder, the Company or any
Subsidiary to a financial institution, provided that such holder retains the
power to vote the shares of Restricted Stock so pledged until such time as the
pledgee shall have realized upon the pledge and that the provisions of this
Agreement, including, without limitation, parts 1 and 2, shall be applicable to
the shares of Restricted Stock so pledged, (d) a holder of Restricted Stock may
sell any or all shares of Restricted Stock held by such holder pursuant to an
effective registration statement under the Securities Act free of the
restrictions of this Agreement, including without limitation, the provisions of
parts 1 and 2, and (e) a Common Stockholder may sell Restricted Stock to the
Company pursuant to an agreement (including the Restricted
6
<PAGE>
Stock Agreement dated as of December 21, 1995, between the Company and each
Founder) under which the Company has the option to repurchase such Restricted
Stock upon the occurrence of certain events, including the termination of
employment by or service to the Company or any subsidiary of the Company.
2B. Right of First Refusal - Sales by Common Stockholders.
------------------------------------------------------
(i) Subject to paragraph 2B(vi), whenever and as often as any Common
Stockholder or a Permitted Transferee of a Common Stockholder desires to sell
any shares of Restricted Stock pursuant to a bona fide written offer to purchase
such shares, such Common Stockholder (the "Selling Holder" for purposes of this
paragraph 2B) shall give written notice (the "Notice," for purposes of this
paragraph 2B) to the Company, to each other Common Stockholder who on the date
of such Notice is a full-time employee of the Company and each holder of Shares
(each an "Offeree," for the purposes of this paragraph 2B) to such effect,
enclosing a copy of such offer and specifying the number of shares of Restricted
Stock which the Selling Holder desires to sell, the name of the person or
persons to whom the Selling Holder desires to make such sale and the
consideration per share of Common Stock which has been offered in connection
with such offer. Upon receipt of the Notice, the Offerees shall initially have
the first right and option to purchase the shares proposed to be sold for cash
at the same purchase price and on the same terms as specified in the Notice, pro
rata according to their respective holdings of Restricted Stock, exercisable for
15 business days after receipt of the Notice. Failure of any Offeree to respond
to the Notice within the 15 business day period shall be deemed to constitute a
notification to the Selling Holder of such Offeree's decision not to exercise
the first right and option to purchase shares of Restricted Stock under this
paragraph 2B. If any Offeree fails to exercise its first right and option, the
Selling Holder shall give written notice to each of the other Offerees who has
elected to purchase his or her or its pro rata share of the shares of Restricted
Stock proposed to be transferred, and each such Offeree shall have the right,
exercisable for a period of seven business days from the date of receipt of such
Notice, to purchase the remaining shares of Restricted Stock, pro rata according
to the Restricted Stock held by all such electing Offerees or in such other
proportion as they may agree upon. In the event such consideration includes
non-cash consideration, the dollar value of such non-cash consideration shall be
its fair market value, as reasonably determined by the Board of Directors.
(ii) The Offerees may exercise the right and option to purchase such
Restricted Stock by giving written notice of exercise to the Selling Holder
within such 15 business day period, specifying the date (not later than seven
business days from the date of such notice) upon which payment of the purchase
7
<PAGE>
price for the shares purchased pursuant to this paragraph shall be made. The
Selling Holder shall deliver to the Offeree(s) at the Company's principal
office, at least one day prior to the payment date, wire transfer instructions,
and on the payment date specified in such notice, the certificate or
certificates representing such shares, properly endorsed for transfer, against
payment of the purchase price therefor by the Offeree(s) in immediately
available funds.
(iii) In the event that all of the shares of Restricted Stock
proposed to be transferred are not purchased by the Offerees, the Company shall
have the right and option to purchase the balance of the shares proposed to be
sold for cash at the purchase price per share specified in the Notice,
exercisable for 15 business days after expiration of the option period set forth
in paragraph 2B(i). Failure of the Company to respond to such Notice within such
15 business day period shall be deemed to constitute a notification to the
Selling Holder of the Company's decision not to exercise the first right and
option to purchase such shares under this paragraph.
(iv) The Company may exercise its right and option to purchase such
Restricted Stock by giving written notice of exercise to the Selling Holder
within such 15 business day period, specifying the date (not later than seven
business days from the date of such notice) upon which payment of the purchase
price for the shares shall be made. The Selling Holder shall deliver to the
Company's principal office, on or before the payment date specified in such
notice, the certificate or certificates representing the shares being purchased
by the Company, properly endorsed for transfer, against payment of the purchase
price therefor by the Company in immediately available funds.
(v) If all the shares of Restricted Stock proposed to be
transferred are not purchased by the Offerees and the Company in accordance with
this paragraph 2B, the Selling Holder shall not be required to sell any of the
shares of Restricted Stock proposed to be transferred to the Offerees or to the
Company, and during the 60-day period commencing on the expiration of the rights
and options provided for in this paragraph 2B, may sell all (but not less than
all) of such shares to the transferee named in the Notice for a consideration
equal to or greater than the consideration specified in the Notice, free of the
restrictions contained in paragraph 2B (but subject to the other terms and
conditions hereof).
(vi) Whenever and as often as any Common Stockholder shall receive a
bona fide offer to purchase any shares of Restricted Stock from a prospective
purchaser which the Selling Holder wishes to accept, each Offeree shall have the
right, at such Offeree's option, either to exercise its rights of first refusal
8
<PAGE>
under paragraph 2B(i) or to participate in the sale to the prospective purchaser
pursuant to this paragraph 2B(vi). The Selling Holder will use reasonable best
efforts to arrange for the sale to the prospective purchaser of the number of
shares of Restricted Stock owned by such Offeree which bears the same proportion
to the total number of shares of Restricted Stock owned by such Offeree as the
number of shares of Restricted Stock being sold by the Selling Holder bears to
the total number of shares of Restricted Stock owned by the Selling Holder on
the terms and conditions specified in the Notice. For purposes of this paragraph
2B(vi), an Offeree may elect to sell Common Stock at the purchase price per
share specified for the Common Stock in the Notice, and may elect to sell Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock at the purchase price per share of
Common Stock specified for the Common Stock in the Notice multiplied by the
number of shares of Common Stock into which a share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock, as applicable, is then convertible. If the prospective
purchaser will not purchase all the shares of Restricted Stock which the Selling
Holder and the Offerees wish to sell pursuant to this paragraph 2B(vi), the
number of shares of Restricted Stock which the Selling Holder and each Offeree
shall be entitled to sell to such prospective purchaser shall be a number of
shares equal to the number of shares which the prospective purchaser desires to
purchase times a fraction, the numerator of which is the number of shares of
Restricted Stock owned by the Selling Holder or each such selling Offeree, and
the denominator of which is the aggregate number of shares of Restricted Stock
owned by the Selling Holder and all such selling Offerees. An Offeree may
exercise his or its right under this paragraph by written notice given within 15
business days after receipt of the Notice. If any Offeree fails to exercise its
co-sale right, the Selling Holder shall give written notice to each of the other
Offerees who has elected to sell his or her or its pro rata share of the shares
of Restricted Stock proposed to be transferred, and each such Offeree shall in
such event, have the right, exercisable for a period of seven business days from
the date of receipt of such notice, to sell the remaining shares of Restricted
Stock, pro rata according to the Restricted Stock held by all such electing
Offerees or in such other proportion as they may agree upon.
2C. Right of First Refusal - Sales by Purchasers.
--------------------------------------------
(i) Whenever and as often as any Purchaser desires to sell any shares
of Restricted Stock pursuant to a bona fide written offer to purchase such
shares, such holder (the "Selling Holder" for purposes of this paragraph 2C)
shall give written notice (the "Notice," for purposes of this paragraph 2C) to
each other Purchaser (each an "Offeree" for purposes of this paragraph 2C) and
to the
9
<PAGE>
Company to such effect, enclosing a copy of such offer and specifying the number
of shares of Restricted Stock which the Selling Holder desires to sell, the name
of the person or persons to whom the Selling Holder desires to make such sale
and the consideration per share which has been offered in connection with such
offer. Upon receipt of the Notice, the Offerees initially shall have the first
right and option to purchase the shares of Restricted Stock proposed to be sold
for cash at the purchase price per share specified in the Notice, pro rata
according to their respective holdings of shares of Restricted Stock,
exercisable for 15 business days after receipt of the Notice. Failure of an
Offeree to respond to such notice within such 15 business day period shall be
deemed to constitute a notification to the Selling Holder of such Offeree's
decision not to exercise the first right and option to purchase such shares of
Restricted Stock under this paragraph 2C. If any Offeree fails to exercise its
first right and option, the Selling Holder shall give written notice to each of
the other Offerees who has elected to purchase its pro rata share of the shares
of Restricted Stock proposed to be transferred, and each such Offeree shall have
the right, exercisable for a period of seven business days from the date of
receipt of such notice, to purchase the remaining shares of Restricted Stock,
pro rata according to the shares of Restricted Stock held by all such electing
Offerees or in such other proportions as they may agree.
(ii) In the event all of the shares of Restricted Stock proposed to
be transferred are not purchased by the Offerees, the Company shall have the
right and option to purchase the balance of the shares of Restricted Stock on
the same terms as offered to the Offerees, exercisable for 15 business days
after expiration of the option period set forth in paragraph 2C(i). Failure of
the Company to respond to the Notice within such 15 business day period shall be
deemed to constitute a notification by the Company of the Company's decision not
to exercise its first right and option to purchase the shares of Restricted
Stock under this paragraph. The Company may assign its first right and option to
purchase shares of Restricted Stock under this paragraph to any person or
persons.
(iii) The Company may exercise its right and option to purchase Shares
under this paragraph 2C by giving written notice of exercise to the Selling
Holder within the period specified above, specifying the date (not later than
seven business days after the expiration of all applicable first refusal rights
and options under this paragraph 2C) upon which payment of the purchase price
for the shares to be purchased by the Company shall be made. The Selling Holder
shall deliver to the Company's principal office, on or before the payment date
specified in such notice, the certificate or certificates representing the
Shares being purchased by the Company, properly endorsed for transfer, against
payment of the purchase price therefor by the Company in immediately available
funds.
10
<PAGE>
(iv) If all the shares of Restricted Stock proposed to be transferred
are not purchased by the Offerees and the Company in accordance with this
paragraph 2C, the Selling Holder shall not be required to sell any of the shares
of Restricted Stock proposed to be transferred to the Offerees or to the
Company, and during the 60-day period commencing on the expiration of the rights
and options provided for in this paragraph 2C, may sell all (but not less than
all) of such shares to the transferee named in the Notice for a consideration
equal to or greater than the consideration specified in the Notice, free of all
restrictions contained in paragraph 2C (but subject to the other terms and
conditions hereof).
2D. Purchasers or Transferees of Restricted Stock. Except as otherwise
---------------------------------------------
specifically provided herein, any Permitted Transferee or other person who shall
acquire (either voluntarily or involuntarily, by operation of law or otherwise)
any shares of Restricted Stock shall be bound by all the terms and conditions of
this Agreement to the same extent as the parties hereto and, prior to
registration of the transfer of any such securities on the books of the Company,
any purchaser or other transferee shall execute an agreement with the parties
hereto agreeing to be bound hereby.
3. Preemptive Rights.
-----------------
3A. Preemptive Rights of Common Stockholders and Purchasers
(i) If, prior to a Qualified Public Offering (as defined in the
Restated Certificate of Incorporation), the Company shall issue any Equity
Securities (as defined in the Certificate of Designation) consisting of Common
Stock or other Equity Securities, each Common Stockholder and each Purchaser
shall be entitled to purchase the portion of such Common Stock or Equity
Securities to be issued necessary in order that the aggregate shares of Common
Stock held by such holder and issuable upon the conversion of all Shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock held by such holder
constitute the same percentage of the outstanding Common Stock (assuming the
conversion of all outstanding Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock and the conversion, exercise or exchange of all other outstanding Equity
Securities but without giving effect to the exercise of any Series C Warrants or
H&Q Warrants which have not been exercised) after the issuance of such Common
Stock or Equity Securities as before the issuance thereof; provided, however,
that such preemptive right shall not apply to (a) issuances of Common Stock or
Equity Securities pursuant to an Approved
11
<PAGE>
Plan (including the issuance of Common Stock or Equity Securities upon exercise,
conversion or exchange of Equity Securities issued pursuant to an Approved
Plan), (b) issuances of Common Stock or Equity Securities upon the conversion,
exercise or exchange or Equity Securities to which the preemptive right was
applicable, (c) issuances of Common Stock or Equity Securities in connection
with an exercise of the preemptive rights granted hereunder, (d) the issuance of
the H&Q Series E Warrants in connection with the Closing of transactions
contemplated by the Purchase Agreement and issuances of Series D Preferred Stock
upon exercise of the H&Q Series D Warrants and Series E Preferred Stock upon
exercise of the H&Q Series E Warrants, (e) issuances of Shares pursuant to the
Purchase Agreement, (f) issuances of Series C Preferred Stock upon exercise of
the Series C Warrants, (g) issuances of Series C-1 Preferred Stock upon
conversion of Series C-2 Preferred Stock, (h) issuances of Common Stock upon
conversion of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, (i)
issuances of Common Stock or Equity Securities in connection with strategic
relationships and acquisitions approved by a two-thirds majority of the Board of
Directors or (j) issuances of Equity Securities issued to investment banks,
financial institutions, equipment lessors or other commercial lenders in
connection with financing activities approved by a two-thirds majority of the
Board of Directors.
(ii) Holders of Shares electing to purchase Equity Securities
pursuant to this paragraph 3A shall also be entitled to purchase (pro rata
according to their respective holdings of Shares, without giving effect to the
exercise of any Series C Warrants or H&Q Warrants which have not been exercised)
Equity Securities that other holders of Shares or other stockholders decline to
purchase.
3B. Preemptive Rights of Series E Preferred Stock in a Public Offering
------------------------------------------------------------------
(i) If the Company shall issue any Equity Securities (as defined in
the Certificate of Incorporation) consisting of Common Stock or other Equity
Securities pursuant to a Qualified Public Offering, each holder of Shares of
Series E Preferred Stock (including Shares of Common Stock into which the Shares
of Series E Preferred Stock may be converted) shall be entitled to purchase 25%
of that number of the Common Stock or Equity Securities so offered that is equal
to the portion of such Common Stock or Equity Securities to be issued necessary
in order that the aggregate shares of Common Stock held by such holder and
issuable upon the conversion of all Shares of Series E Preferred Stock held by
such holder constitute the same percentage of the outstanding Common Stock
(assuming the conversion of all outstanding Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock and
12
<PAGE>
the conversion, exercise or exchange of all other outstanding Equity Securities
but without giving effect to the exercise of any Series C Warrants or H&Q
Warrants which have not been exercised) after the issuance of such Common Stock
or Equity Securities as before the issuance thereof. The preemptive rights set
forth in this paragraph 3B shall terminate immediately after the completion of
the Company's first Qualified Public Offering.
(ii) Holders of Shares of Series E Preferred Stock electing to
purchase Equity Securities pursuant to this paragraph 3B shall also be entitled
to purchase (pro rata according to their respective holdings of Shares of Series
E Preferred Stock) Equity Securities that other holders of Shares of Series E
Preferred Stock decline to purchase.
3C. General Provisions Relating to Preemptive Rights
(i) The price of securities which each holder shall become entitled
to purchase by reason hereof shall be the same price at which such securities
are offered to others. A holder may exercise its right under this paragraph 3 to
purchase Equity Securities by paying the purchase price therefor at the
principal office of the Company within ten days after receipt of written notice
from the Company (which written notice by the Company shall describe the type of
Equity Securities, the price and the general terms upon which the Company
proposes to issue such Equity Securities and shall be given at least 15 business
days before the issuance of the Equity Securities) stating the number or amount
of Equity Securities it intends to issue and the price and characteristics
thereof. The holder shall pay such purchase price in cash or by check; provided,
however, that if the Company is indebted to such holder, the holder shall be
entitled, at the holder's sole option, to credit against the purchase price all
or any portion of the Company's indebtedness to such holder which is then due
(accrued but unpaid dividends on the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock or
the Series E Preferred Stock shall not be deemed to be indebtedness for purposes
of such credit).
(ii) A holder's contractual preemptive rights hereunder shall be
deemed to be exercised immediately prior to the close of business on the day of
payment of the purchase price in accordance with the foregoing provisions, and
at such time such holder shall be treated for all purposes as the record holder
of the Equity Securities, provided, however, that if the Company does not issue
the Equity Securities which trigger the preemptive rights hereunder, the Company
will not be required to sell, and the holders will not be required to purchase,
the Equity Securities offered pursuant to the preemptive rights hereunder and
the Company
13
<PAGE>
will promptly return the purchase price to each holder hereunder. As promptly as
practicable (and in any event within ten business days) on or after the purchase
date, the Company shall issue and deliver at its principal office a certificate
or certificates for the number of full shares of Common Stock or the number of
full shares or amount, whichever is applicable, of Equity Securities together
with cash for any fraction of a share or portion of an Equity Security at the
purchase price to which the holder is entitled hereunder.
(iii) In the event that a Purchaser fails to exercise in full its
preemptive rights hereunder within the ten business day period specified above,
the Company shall have 60 days thereafter to sell the Equity Securities with
respect to which the preemptive rights were not exercised (or enter into an
agreement pursuant to which the sale of such Equity Securities shall be closed,
if at all, within 30 days from the date of such agreement) at a price and upon
terms no more favorable to the purchasers thereof than specified in the
Company's notice. In the event the Company does not sell and issue the Equity
Securities within such 60 day period (or 30 days after the date of such an
agreement entered into within such 60 day period), the Company shall not
thereafter issue or sell any Equity Securities without first offering such
Equity Securities to the Purchasers in the manner provided by this paragraph 3.
4. General Provisions.
------------------
4A. Legends on Certificate. During the term of this Agreement, each
----------------------
certificate representing shares of Common Stock or Shares will bear a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SALE,
ASSIGNMENT, TRANSFER, PLEDGE OR OVER DISPOSITION AND VOTING THEREOF
ARE SUBJECT TO CERTAIN RESTRICTIONS AND AGREEMENTS CONTAINED IN A
STOCKHOLDERS AGREEMENT DATED AS OF APRIL 13, 1999 AMONG THE COMPANY
AND CERTAIN STOCKHOLDERS. A COPY OF THE STOCKHOLDERS AGREEMENT AND
ALL APPLICABLE AMENDMENTS THEREOF WILL BE FURNISHED BY THE COMPANY TO
THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN
REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE."
14
<PAGE>
The Company shall make a notation on its records and give instructions to any
transfer agent of the Preferred Stock or Common Stock in order to implement the
restrictions on transfer established in this Agreement.
4B. Termination; Amendment.
-----------------------
(i) This Agreement shall terminate upon the earliest to occur of
(a) the completion of a Qualified Public Offering (as defined in the Restated
Certificate of Incorporation), (b) the written agreement of the holders of at
least 66-2/3% of the Shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, voting together as
a single class, the holders of a majority of the Series E Preferred Stock
outstanding and the holders of a majority of the Common Stock held by the Common
Stockholders, or (c) the acquisition by a single person of all of the issued and
outstanding shares of the Common Stock and the Shares.
(ii) This Agreement may be amended by the written agreement of the
holders of at least 66-2/3% of the Shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, voting
together as a single class, the holders of a majority of the Series E Preferred
Stock outstanding and the holders of a majority of the Common Stock held by the
Common Stockholders; provided, however, that no person designated as a Purchaser
Director pursuant to this Agreement may be removed, whether by amendment to this
Agreement or otherwise, without the consent of the holders of a majority of the
Shares entitled to designate that Purchaser Director.
(iii) Any amendment to this Agreement that is detrimental to a holder
of Series E Preferred Stock in a manner different from other holders of Series E
Preferred Stock shall require the written consent of such holder.
(iv) Paragraph 3B of this Agreement may not be amended or terminated
without the written agreement of the holders of at least a majority of the
Shares of Series E Preferred Stock and the Shares of Common Stock into which the
Shares of Series E Preferred Stock have been converted, voting together as a
single class.
4C. Notices. All notices, requests, consents, and other communications
-------
under this Agreement shall be in writing and shall be deemed to be delivered
when delivered personally or by facsimile transmission or by overnight delivery
service or 72 hours after having been mailed by first class certified or
registered mail, return receipt requested, postage prepaid:
15
<PAGE>
If to the Company, at Garden.com, Inc., 710 West 6th Street, Austin, Texas
78701, Attention: President, (512) 494-2100 (fax (512) 472-6645), or at such
other address or addresses as may have been furnished in writing by the Company
to the Purchasers, with a copy to Martin J. McLaughlin, Reinhart, Boerner, Van
Deuren, Norris & Rieselbach, S.C., 1000 North Water Street, Suite 2100,
Milwaukee, Wisconsin 53202 (fax (414) 298-8097).
If to a Purchaser, at its address set forth on Exhibit A to the Purchase
---------
Agreement, or at such other address or addresses as may have been furnished to
the Company in writing by such Purchaser, with a copy to Rick Cohen, Buchalter,
Nemer, Fields & Younger, 601 South Flower Street, 23rd Floor, Los Angeles,
California 90017 (fax (213) 896-0400), and a copy to Morris Orens, Swidler
Berlin Shereff Friedman, L.P., 919 Third Avenue, New York, New York 10022 (fax
(212) 758-9526).
If to a Common Stockholder, at his or her address set forth below his or
her signature to this Agreement.
4D. Governing Law. The construction, validity and interpretation of this
-------------
Agreement will be governed by the internal laws of the State of Delaware without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
4E. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document. Facsimile signatures of this Agreement shall
be deemed of equal validity and as fully enforceable as original signatures
hereof.
4F. Reorganization. The provisions of this Agreement shall apply to any
--------------
shares or other securities resulting from any stock split or reverse split,
stock dividend, reclassification, subdivision, consolidation or reorganization
of any shares or other equity securities of the Company and to any shares or
other securities of the Company or of any successor company which may be
received by any of the parties hereto by virtue of their record ownership of any
shares of Common Stock and Preferred Stock of the Company.
4G. Headings. The headings of this Agreement are for convenience only and
--------
do not constitute a part of this Agreement.
16
<PAGE>
4H. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
4I. Binding Effect. The rights and obligations of each purchaser under
--------------
this Agreement, may be assigned by such Purchaser to any person or entity to
which Shares are transferred by such Purchaser, and such transferee shall be
deemed a "Purchaser" for purposes of this Agreement, provided that the
transferee provides written notice of such assignment to the Company.
4J. Entire Agreement. This Agreement embodies the entire agreement of the
----------------
parties with respect to the subject matter hereof and supersedes all prior
agreements relating to such subject matter. This Agreement amends and restates,
in its entirety, the Prior Stockholders Agreement.
17
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto as of the first written above.
COMPANY:
GARDEN.COM, INC.
By: /s/ Clifford S. Sharples
-------------------------------------
PURCHASERS:
P/A FUND III, L.P.
By APA Pennsylvania Partners III, L.P.,
General Partner
By Patricof & Co. Managers, Inc., General
Partner
By: /s/ David Landau
-------------------------------------
Name: David Landau
Title: Vice President
APA EXCELSIOR V, L.P.
By APA Excelsior V Partners, L.P.,
General Partner
By Patricof & Co. Managers, Inc., General
Partner
By: /s/ David Landau
-------------------------------------
Name: David Landau
Title: Vice President
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
18
<PAGE>
PATRICOF PRIVATE INVESTMENT
CLUB II, L.P.
By APA Excelsior V Partners, L.P.,
General Partner
By Patricof & Co. Managers, Inc.,
General Partner
By: /s/ David Landau
------------------------------------
Name: David Landau
Title: Vice President
ATTRACTOR LP
By Attractor Ventures LLC, General
Partner
By: /s/ Gigi Brisson
------------------------------------
Name: Gigi Brisson
Title: Managing Member
ATTRACTOR INSTITUTIONAL LP
By Attractor Ventures LLC, General
Partner
By: /s/ Gigi Brisson
------------------------------------
Name: Gigi Brisson
Title: Managing Member
COMCAST INTERACTIVE CAPITAL
GROUP, INC.
By: /s/ Samuel H. Schwartz
-------------------------------------
Samuel H. Schwartz, Managing Director
19
<PAGE>
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
GLOBAL RETAIL PARTNERS, L.P.
By Global Retail Partners, Inc., General
Partner
By: /s/ Osamu R. Wantanabe
------------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
DLJ DIVERSIFIED PARTNERS, L.P.
By DLJ Diversified Partners, Inc., General
Partner
By: /s/ Osamu R. Wantanabe
------------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
DLJ DIVERSIFIED PARTNERS-A, L.P.
By DLJ Diversified Partners, Inc., General
Partner
By: /s/ Osamu R. Wantanabe
------------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
GRP PARTNERS, L.P.
By Global Retail Partners, Inc., General
Partner
By: /s/ Osamu R. Wantanabe
------------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
20
<PAGE>
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
GLOBAL RETAIL PARTNERS
FUNDING, INC.
By: /s/ Osamu R. Wantanabe
------------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
DLJ ESC II L.P.
By DLJ LBO Plans Management
Corporation, General Partner
By: /s/ Osamu R. Wantanabe
------------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
PEQUOT PRIVATE EQUITY FUND, LP
By Pequot Capital Management, Inc.,
Investment Advisor
By: /s/ David J. Malat
------------------------------------
Name: David J. Malat
Title: Chief Financial Officer
PEQUOT OFFSHORE PRIVATE
EQUITY FUND, INC.
By Pequot Capital Management, Inc.,
Investment Advisor
By: /s/ David J. Malat
------------------------------------
Name: David J. Malat
Title: Chief Financial Officer
21
<PAGE>
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
NEXUS CAPITAL PARTNERS I, LP
By Nexus Group LLC, General Partner
By: /s/ David Leyrer
------------------------------------
Name: David Leyrer
Title: General Partner
VAN WAGONER CAPITAL
MANAGEMENT, INC.
By: /s/ Garrett Van Wagoner
------------------------------------
Name: Garrett Van Wagoner
Title: President
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Robert N. Savoie
------------------------------------
Its: Tax Director, Attorney-in-Fact
--------------------------------
H & Q GARDEN ESCAPE INVESTORS, LP
By: /s/ Robert N. Savoie
------------------------------------
Its: Tax Director, Attorney-in-Fact
--------------------------------
HAMBRECHT & QUIST EMPLOYEE
VENTURE FUND, L.P. II
By H&Q Venture Management, L.L.C., Its
General Partner
By: /s/ Robert N. Savoie
------------------------------------
Its: Tax Director, Attorney-in-Fact
--------------------------------
22
<PAGE>
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
/s/ Norman D. Colbert
----------------------------------------
Norman D. Colbert
/s/ Robert A. Keller
----------------------------------------
Robert A. Keller
/s/ Paul Noglows
----------------------------------------
Paul Noglows
SCRIPPS VENTURES, LLC
By: /s/ Douglas R. Stern
-------------------------------------
Name: Douglas R. Stern
Title: President and Chief Executive
Officer
PHILLIPS-SMITH SPECIALTY RETAIL
GROUP III, L.P.
By Phillips-Smith Management
Company, L.P., General Partner
By: /s/ Donald J. Phillips
------------------------------------
Name: Donald J. Phillips
Title: General Partner
/s/ Craig J. Foley
----------------------------------------
Craig J. Foley
23
<PAGE>
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
AUSTIN VENTURES IV-A, L.P.
By AV Partners IV, L.P., General Partner
By: /s/ John D. Thornton
-------------------------------------
John D. Thornton, Partner
AUSTIN VENTURES IV-B, L.P.
By AV Partners IV, L.P., General Partner
By: /s/ John D. Thornton
-------------------------------------
John D. Thornton, Partner
OAK INVESTMENT PARTNERS, VII,
LIMITED PARTNERSHIP
By: /s/ Gerald R. Gallagher
-------------------------------------
Gerald R. Gallagher, Managing Member
of Oak Associates, VII, LLC
The General Partner of Oak Investment
Partners VII, Limited Partnership
OAK VII AFFILIATES FUND, LIMITED
PARTNERSHIP
By: /s/ Gerald R. Gallagher
-------------------------------------
Gerald R. Gallagher, Managing Member
of Oak VII Affiliates, LLC
The General Partner of Oak VII
Affiliates Fund, Limited Partnership
24
<PAGE>
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
/s/ Clifford A. Sharples
-------------------------------------
Clifford A. Sharples
/s/ James N. O'Neill
-------------------------------------
James N. O'Neill
/s/ Lisa W.A. Sharples
-------------------------------------
Lisa W.A. Sharples
25
<PAGE>
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
ATTRACTOR VENTURES LP
By Attractor Ventures LLC, General
Partner
By: /s/ Gigi Brisson
------------------------------------
Name: Gigi Brisson
Title: Managing Member
26
<PAGE>
[SIGNATURE PAGE TO STOCKHOLDERS AGREEMENT]
NEXUS PARTNERS LLC
By Nexus Group LLC, Its General Partner
By: /s/ David Leyrer
------------------------------------
Name: David Leyrer
Title: General Partner
/s/ Brian Goffman
-------------------------------------
Brian Goffman
27
<PAGE>
EXHIBIT 10.5
FOURTH AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Fourth Amended and Restated Registration Rights Agreement (the
"Agreement") is entered as of April 13, 1999 among Garden.com, Inc., a Delaware
corporation (the "Company"), and the persons listed on Exhibit A hereto
(collectively the "Purchasers" and individually a "Purchaser").
Recitals:
--------
The Company, Global Retail Partners, L.P., DLJ Diversified Partners, L.P.,
DLJ Diversified Partners-A, L.P., GRP Partners, L.P., Global Retail Partners
Funding, Inc., DLJ ESC II L.P., Pequot Private Equity Fund, LP, Pequot Offshore
Private Equity Fund, Inc., Nexus Capital Partners I, LP, Van Wagoner Capital
Management, Inc., Hambrecht & Quist California, H&Q Garden Escape Investors, LP,
Austin Ventures IV-A, L.P., Austin Ventures IV-B, L.P., Phillips-Smith Specialty
Retail Group III, L.P., Craig J. Foley, Scripps Ventures, LLC, Oak Investment
Partners, VII, Limited Partnership, and Oak VII Affiliates Fund, Limited
Partnership entered into a Third Amended and Restated Registration Rights
Agreement dated as of June 11, 1998 (the "Prior Registration Rights Agreement")
providing for the registration of shares of capital stock of the Company.
The Company and certain of the Purchasers have entered into a Stock
Purchase Agreement (the "Purchase Agreement") on this date, providing, among
other things, for the purchase by the Purchasers of shares of Series E Preferred
Stock. Terms defined in the Purchase Agreement and not otherwise defined herein
are used herein with the same meanings as defined in the Purchase Agreement.
This is the Registration Rights Agreement referred to in the Purchase
Agreement. The parties to the Prior Registration Rights Agreement desire to
amend and restate the Prior Registration Rights Agreement to read in its
entirety as set forth herein. The execution and delivery of this Agreement is a
condition to the closing of the issuance and sale of Shares under the Purchase
Agreement.
The parties agree as follows:
l. Registrable Stock. For purposes of this Agreement "Registrable Stock"
-----------------
means shares of Common Stock (i) issued or issuable pursuant to the conversion
of any Series A Preferred Stock, Series B Preferred Stock, Series C
<PAGE>
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, now or
hereafter owned and held by any Purchaser and Transferee of a Purchaser, and
(ii) issued in respect of securities issued pursuant to the conversion of any
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock now or hereafter owned or
held by any Purchaser and Transferee of a Purchaser upon any stock split, stock
dividend, recapitalization, substitution or similar event, provided, however,
that such shares shall cease to be Registrable Stock upon the first to occur of
the following: (i) they have been sold to the public pursuant to a registration
or pursuant to Rule 144 under the Securities Act (or any similar rule then in
effect), (ii) they have been exchanged, substituted or replaced by securities
which have been registered under the Securities Act or (iii) they have become
eligible for sale pursuant to Rule 144(k) under the Securities Act (or any
similar rule then in effect).
2. Demand Registrations.
--------------------
2A. Requests for Registration.
-------------------------
(i) At any time after the completion of the initial public
offering of the Company's securities, the holders of a majority of the
Registrable Stock issued or issuable with respect to the Series E Preferred
Stock which are then outstanding may request registration under the Securities
Act of all or any part of the Registrable Stock (but only those shares issued or
issuable upon conversion of the Series E Preferred Stock) held by such holders
(the "Series E Demand Registration"), subject to the terms and conditions of
this Agreement. Any request for a Series E Demand Registration shall specify (a)
the approximate number of shares of Registrable Stock requested to be
registered, and (b) the intended method of distribution of such shares. Within
ten days after the date of sending of such request, the Company will give
written notice of such requested registration to all other holders of
Registrable Stock issued or issuable with respect to the Series E Preferred
Stock and will include in such registration all shares of Registrable Stock
which holders of Registrable Stock issued or issuable with respect to the Series
E Preferred Stock request the Company to include in such registration by written
notice given to the Company within 15 days after the date of sending of the
Company's notice.
(ii) At any time and from time to time after January 1, 2001, the
holders of at least 66-2/3% of the Registrable Stock then outstanding may
request registration under the Securities Act of all or any part of the
Registrable Stock (each, a "Demand Registration"), subject to the terms and
conditions of this Agreement. Any request (a "Registration Request") for a
2
<PAGE>
Demand Registration shall specify (a) the approximate number of shares of
Registrable Stock requested to be registered (but not less than 33-l/3% of the
outstanding Registrable Stock), and (b) the intended method of distribution of
such shares. Within ten days after the date of sending of such request, the
Company will give written notice of such requested registration to all other
holders of Registrable Stock and will include in such registration all shares of
Registrable Stock which holders of Registrable Stock request the Company to
include in such registration by written notice given to the Company within 15
days after the date of sending of the Company's notice.
(iii) Subject to paragraph 4, the holders of Registrable Stock
will be entitled to request up to three Demand Registrations at any time and
from time to time after January 1, 2001 and the holders of Registrable Stock
issued or issuable with respect to the Series E Preferred Stock will be entitled
to request one Series E Demand Registration at any time after the initial public
offering of the Company's securities.
(iv) A registration will not count as one of the Demand
Registrations paid for by the Company (as provided in paragraph 4) unless the
holders of Registrable Stock are able to register and sell at least 50% of the
Registrable Stock requested to be included in such registration.
(v) The Company will not include in any Series E Demand
Registration or Demand Registration any securities other than shares of
Registrable Stock and securities to be registered for offering and sale on
behalf of the Company without the prior written consent of the holders of a
majority of the shares of Registrable Stock included in such registration. If
the managing underwriter(s) advise the Company in writing that in their opinion
the number of shares of Registrable Stock and, if permitted hereunder, other
securities in such offering, exceeds the number of shares of Registrable Stock
and other securities, if any, which can be sold in an orderly manner in such
Offering within a price range acceptable to the holders of a majority of the
shares of Registrable Stock initially requesting registration, the Company will
include in such registration, prior to the inclusion of any securities which are
not shares of Registrable Stock, the number of shares of Registrable Stock
requested to be included which in the opinion of such underwriters can be sold
in an orderly manner within the price range of such offering, pro rata among the
respective holders thereof on the basis of the number of shares of Registrable
Stock which each such holder has requested the Company to include in such
registration.
3
<PAGE>
2B. Selection of Underwriter. The holders of a majority of the
------------------------
shares of Registrable Stock to be included in a registration will have the right
to select one or more underwriters to manage the offering, subject to the
Company's approval which will not be unreasonably withheld.
2C. Registrations on Forms S-2, S-3. Following its initial public
-------------------------------
offering of securities under the Securities Act, the Company shall use its
reasonable best efforts to qualify for registration on Forms S-2 or S-3 or any
comparable or successor form or forms. After the Company has qualified for the
use of Forms S-2 or S-3, in addition to the rights contained in paragraph 2A,
the holders of outstanding Registrable Stock with a Fair Market Value (as
defined in the Company's Restated Certificate of Incorporation) of at least
$750,000 shall have the right at any time and from time to time to request up to
two registrations on Form S-2 or an unlimited number on Form S-3. Such requests
shall be in writing and shall state the number of Shares of Registrable Stock
proposed to be disposed of and the intended method of distribution of such
shares by such holder or holders.
2D. Right to Defer Registration. The Company shall not be obligated
---------------------------
to effect any registration within 180 days after the effective date of a
previous registration in which the holders of Registrable Securities
participated. The Company may postpone for up to 180 days the filing or the
effectiveness of a registration statement for a demand registration set forth
above if (i) the Company determines that such registration might have an adverse
effect on any proposal or plan by the Company to engage in any acquisition of
assets (other than in the ordinary course) or any merger, consolidation, tender
offer or similar transaction or (ii) any other material, nonpublic development
or transaction is pending; provided that the Company may not postpone the filing
or effectiveness of a registration statement pursuant to this sentence more
frequently than once during any period of 12 consecutive months.
3. Piggyback Registrations.
-----------------------
3A. Right to Piggyback. If the Company proposes to register any of
------------------
its securities on its behalf or on behalf of any selling securityholder under
the Securities Act (other than pursuant to a Demand Registration or registration
solely in connection with an employee benefit or stock ownership plan) and the
registration form to be used may be used for the registration of Registrable
Stock (a "Piggyback Registration"), the Company will give prompt written notice
to all holders of Registrable Stock of its intention to effect such a
registration (each a "Piggyback Notice"). Subject to subparagraphs 3B and 3C
below, the Company
4
<PAGE>
will include in such registration all shares of Registrable Stock which holders
of Registrable Stock request the Company to include in such registration by
written notice given to be Company within 15 days after the date of sending of
the Company's notice.
3B. Priority on Primary Registrations. If a Piggyback Registration
---------------------------------
relates to an underwritten public offering of equity securities by the Company
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the Company, the Company will include in such
registration (i) first, the securities proposed to be sold by the Company, (ii)
second, the Registrable Stock requested to be included in such registration, pro
rata among the holders of such Registrable Stock on the basis of the number of
shares owned by each such holder and (iii) third, other securities requested to
be included in such registration.
3C. Priority on Secondary Registrations. If a Piggyback Registration
-----------------------------------
relates to an underwritten public offering of equity securities by holders of
the Company's securities and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in an orderly manner
in such offering within a price range acceptable to the holders initially
requesting such registration, the Company will include in such registration (i)
first, the securities requested to be included therein by the holders requesting
such registration, and (ii) second, the Registrable Stock requested to be
included in such registration, pro rata among the holders of such Registrable
Stock on the basis of the number of shares owned by each such holder.
4. Registration Procedures. Whenever the holders of Registrable Stock
-----------------------
have requested that any Registrable Stock be registered pursuant to this
Agreement, the Company will use its best efforts to effect the registration and
the sale of such Registrable Stock in accordance with the intended method of
distribution thereof and will as expeditiously as possible:
(i) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable Stock and
use its best efforts to cause such registration statement to become effective,
provided that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will furnish to the counsel
selected by the holders of a majority of the Registrable Stock covered by such
5
<PAGE>
registration statement copies of all such documents proposed to be filed which
documents will be subject to the review of such counsel;
(ii) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of up to six months, and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of distribution by the sellers thereof set
forth in such registration statement;
(iii) furnish to each seller of Registrable Stock such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Stock owned by
such seller;
(iv) use its best efforts to register or qualify such
Registrable Stock under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such setter
to consummate the disposition in such jurisdictions of the Registrable Stock
owned by such seller, provided that the Company will not be required (i) to
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph, (ii) to subject
itself to taxation in any such jurisdiction or (iii) to consent to general
service of process in any such jurisdiction;
(v) notify each seller of such Registrable Stock, 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 contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Stock, such prospectus will not contain an
untrue statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading;
6
<PAGE>
(vi) cause all such Registrable Stock to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and to be qualified for trading on each system on which similar
securities issued by the Company are from time to time qualified;
(vii) provide a transfer agent and registrar for all such
Registrable Stock not later than the effective date of such registration
statement and thereafter maintain such a transfer agent and registrar;
(viii) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the shares of Registrable Stock being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Stock;
(ix) make available for inspection by any underwriter
participating in any disposition pursuant to such registration statement and any
attorney, accountant or other agent retained by any such underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
underwriter, attorney, accountant or agent in connection with such registration
statement:
(x) otherwise use its best effort to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(xi) permit any holder of Registrable Stock which might be
deemed, in the sole and exclusive judgment of such holder, to be an underwriter
or a controlling person of the Company, to participate in the preparation of
such registration or comparable statement and to require the insertion therein
of material, furnished to the Company in writing, which in the reasonable
judgment of such holder and its counsel should be included; and
(xii) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending
7
<PAGE>
or preventing the use of any related prospectus or suspending the qualification
of any Registrable Stock included in such registration statement for sale in any
jurisdiction, the Company will use its reasonable best efforts promptly to
obtain the withdrawal of such order.
If any such registration or comparable statement refers to any holder by name or
otherwise as the holder of any securities of the Company and if, in its sole and
exclusive judgment, such holder is or might be deemed to be a controlling person
of the Company, such holder shall have the right to require (a) the inclusion in
such registration statement of language, in form and substance reasonably
satisfactory to such holder, to the effect that the holding of such securities
by such holder is not to be construed as a recommendation by such holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such holder will assist in meeting any future
financial requirements of the Company, or (b) in the event that such reference
to such holder by name or otherwise is not required by the Securities Act or any
similar federal statute then in force, the deletion of the reference to such
holder; provided, that with respect to this clause (b) such holder shall furnish
to the Company an opinion of counsel to such effect, which opinion and counsel
shall be reasonably satisfactory to the Company.
5. Registration Expenses.
---------------------
5A Definition. The term "Registration Expenses" means any expenses
----------
incident to the Company's performance of or compliance with this Agreement,
including without limitation all registration and filing fees, fees and expenses
of compliance with securities or blue sky laws, printing expenses, messenger and
delivery expenses, and fees and expenses of counsel for the Company and all
independent certified public accountants, including the expense of any special
audits required by such registration, underwriters (excluding discounts and
commissions, if any, attributable to the sale of Registrable Stock, stock
transfer taxes and fees and disbursements of counsel to the selling
stockholders, other than the one special counsel chosen by the holders of a
majority of the Registrable Stock initially requesting registration, all of
which shall be paid by the selling stockholders pro rata on the basis of the
number of their shares of Registrable Stock so registered) and other Persons
retained by the Company.
5B Payment. The Company shall pay the Registration Expenses in
-------
connection with one Series E Demand Registration, three Demand Registrations, up
to two registrations on Form S-2 and any and all registrations on
8
<PAGE>
Form S-3 pursuant to paragraph 2C, and any and all Piggyback Registrations. In
connection with one Series E Demand Registration, the three Demand Registrations
and each Piggyback Registration, the Company will reimburse the holders of
Registrable Stock covered by such registration for the reasonable fees and
disbursements of one counsel chosen by the holders of a majority of the
Registrable Stock initially requesting such registration.
6. Indemnification.
---------------
6A. Indemnification by the Company. The Company agrees to indemnify,
------------------------------
to the extent permitted by law, each holder of Registrable Stock, its officers
and directors and each Person who controls such holder (within the meaning of
the Securities Act) against any losses, claims, damages, liabilities and
expenses caused by any untrue or alleged untrue statement of material fact
contained in any registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by or
contained in any information furnished in writing to the Company by such holder
expressly for use therein or by such holder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such holder with a sufficient number of copies
of the same. In connection with an underwritten offering, the Company will
indemnify such underwriters, their officers and directors and each Person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Stock.
6B. Indemnification by Holders. In connection with any registration
--------------------------
statement in which a holder of Registrable Stock is participating, each such
holder will furnish to the Company in writing such information and affidavits as
the Company reasonably requests for use in connection with any such registration
statement or prospectus and, to the extent permitted by law, will indemnify the
Company, its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of material fact contained in the registration statement, prospectus or
preliminary prospectus or any amendment thereof or supplement thereto or any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to the extent
that such untrue statement or omission is contained in any information or
affidavit so
9
<PAGE>
furnished in writing by such holder; provided, that the obligation to indemnify
will be individual to each holder and will be limited to the net amount of
proceeds received by such holder from the sale of Registrable Stock pursuant to
such registration statement.
6C. Notice; Defense of Claims. Any Person entitled to indemnification
-------------------------
hereunder will (i) give prompt written notice to the indemnifying party of any
claim with respect to which it seeks indemnification and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
6D. Contribution. If the indemnification provided for in this part 6
------------
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
herein, 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 the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission. The obligation to contribute will be individual to each
holder of Registrable Stock and will be limited to the amount by which the net
amount of proceeds received by such holder from the sale of Registrable Stock
exceeds the amount of losses, liabilities, damages, and expenses
10
<PAGE>
which such holder has otherwise been required to pay by reason of such
statements or omissions.
6E. Survival. The indemnification provided for under this Agreement
--------
will remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and will survive the transfer of securities.
7. Participation in Underwritten Registrations; "Lock-Up" Agreements. No
-----------------------------------------------------------------
Person may participate in any registration hereunder which is underwritten
unless such Person (i) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Person or Persons
entitled hereunder to approve such arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements;
provided, that no holder of Registrable Stock included in any underwritten
registration shall be required to make any representations or warranties to the
Company or the underwriters other than representations and warranties regarding
such holder and such holder's intended method of distribution, and (iii) if
requested by the managing underwriter or underwriters, agrees not to sell,
pledge or otherwise transfer or dispose of Registrable Stock or other securities
of the Company held by such Person (other than securities purchased in the
public markets or from the Company or the underwriters in a registered offering)
in any transaction other than pursuant to such underwriting for such period (not
to exceed 120 days) as determined at the discretion of the Board of Directors of
the Company; provided, that no holder of Registrable Stock shall be required to
enter into such an agreement unless each other holder of Registrable Stock, each
director and executive officer of the Company and each other holder of at least
five percent of the Common Stock then outstanding enters into a substantially
identical agreement relating to such underwriting. Each holder of Registrable
Stock, if requested by the managing underwriter or underwriters for the
Company's initial public offering, also agrees to the lock-up provisions set
forth in clause (iii) of this paragraph 7 with respect to such offering
regardless of whether any of such holder's Registrable Stock is registered
pursuant to such offering.
8. Miscellaneous.
-------------
8A. Limitation on Subsequent Registration Rights. From and after the
--------------------------------------------
date of this Agreement, the Company shall not, without the consent of the
holders of at least a majority of the then outstanding shares of Registrable
Stock,
11
<PAGE>
enter into any agreement granting any holder or prospective holder of any
securities of the Company registration rights with respect to such securities
unless the holders of such new registration rights may only participate in a
registration on a basis that is pari passu with or subordinate to the rights
---- -----
granted to the holders of Registrable Stock hereunder.
8B. Adjustments Affecting Registrable Stock. The Company will not take
---------------------------------------
any action, or permit any change to occur, with respect to its securities for
the purpose of materially and adversely affecting the ability of the holders of
Registrable Stock to include such Registrable Stock in a registration undertaken
pursuant to this Agreement or materially and adversely affecting the
marketability of such Registrable Stock in any such registration (including,
without limitation, effecting a stock split or a combination of shares),
provided that this subparagraph 8B shall not apply to actions or changes with
respect to the Company's business, balance sheet, earnings or revenue where the
effect of such actions or changes on the Registrable Stock is merely incidental.
8C. Notices. All notices, requests, consents, and other communications
-------
under this agreement shall be in writing and shall be deemed to be delivered
when delivered personally or by facsimile transmission or by overnight delivery
service or 72 hours after having been mailed by first class certified or
registered mail, return receipt requested, postage prepaid:
If to the Company, at Garden.com, Inc., 710 West 6th Street, Austin, Texas
78701, Attention: President, (fax (512) 472-6645), or at such other address or
addresses as may have been furnished in writing by the Company to the
Purchasers, with a copy to Martin J. McLaughlin, Reinhart, Boerner, Van Deuren,
Norris & Rieselbach, S.C., 1000 North Water Street, Suite 2100, Milwaukee,
Wisconsin 53202 (fax (414) 298-8097).
If to a Purchaser, at its address set forth on Exhibit A to the Purchase
---------
Agreement, or at such other address or addresses as may have been furnished to
the Company in writing by such Purchaser.
8D. Remedies. Any Person having rights under any provision of this
--------
Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or
12
<PAGE>
other security) for specific performance and for other injunctive relief in
order to enforce or prevent violation of the provisions of this Agreement.
8E. Amendments and Waivers. Except as otherwise provided herein, no
----------------------
amendment, modification, termination or cancellation of this Agreement shall be
effective unless made in writing signed by the Company and the holders of a
majority of the then outstanding shares of Registrable Stock and, with respect
to any matter solely concerning the Series E Demand Registration, a majority of
the then outstanding shares of Registrable Stock issued or issuable with respect
to the Series E Preferred Stock.
8F. Successors and Assigns. This Agreement, and the rights and
----------------------
obligations of each Purchaser hereunder, may be assigned by such Purchaser to
any person or entity to which Shares are transferred by such Purchaser, and such
transferee shall be deemed a "Purchaser" for Purposes of this Agreement;
provided that the transferee provides written notice of such assignment to the
Company.
8G. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
8H. Entire Agreement. This Agreement embodies the entire agreement of the
----------------
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements relating to such subject matter. This Agreement amends and
restates, in its entirety, the Prior Registration Rights Agreement.
8I. Headings. The headings of this Agreement are for convenience only and
--------
do not constitute a part of this Agreement.
8J. Governing Law. The construction, validity and interpretation of this
-------------
Agreement will be governed by the internal laws of the State of Delaware without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
8K. Further Assurances. Each party to this Agreement hereby covenants and
------------------
agrees without the necessity of any further consideration, to execute and
deliver any and all such further documents and take any and all such other
actions as may be necessary or appropriate to carry out the intent and purposes
of this Agreement and to consummate the transactions contemplated hereby.
13
<PAGE>
8L. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document. Facsimile signatures of this Agreement
shall be deemed of equal validity and as fully enforceable as original
signatures hereof.
[Remainder of page intentionally left blank.]
14
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the first written above.
COMPANY:
GARDEN.COM, INC.
By: /s/ Clifford A. Sharples
----------------------------------
PURCHASERS:
P/A FUND III, L.P.
By APA Pennsylvania Partners III, L.P.,
General Partner
By Patricof & Co. Managers, Inc.,
General Partner
By: /s/ David Landau
----------------------------------
Name: David Landau
Title: Vice President
APA EXCELSIOR V, L.P.
By APA Excelsior V Partners, L.P.,
General Partner
By Patricof & Co. Managers, Inc.,
General Partner
By: /s/ David Landau
----------------------------------
Name: David Landau
Title: Vice President
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
15
<PAGE>
PATRICOF PRIVATE INVESTMENT
CLUB II, L.P.
By APA Excelsior V Partners, L.P.,
General Partner
By Patricof & Co. Managers, Inc.,
General Partner
By: /s/ David Landau
----------------------------------
Name: David Landau
Title: Vice President
ATTRACTOR LP
By Attractor Ventures LLC,
General Partner
By: /s/ Gigi Brisson
----------------------------------
Name: Gigi Brisson
Title: Managing Member
ATTRACTOR INSTITUTIONAL LP
By Attractor Ventures LLC,
General Partner
By: /s/ Gigi Brisson
----------------------------------
Name: Gigi Brisson
Title: Managing Member
COMCAST INTERACTIVE CAPITAL
GROUP, INC.
By: /s/ Samuel H. Schwartz
-------------------------------------
Samuel H. Schwartz, Managing Director
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
16
<PAGE>
GLOBAL RETAIL PARTNERS, L.P.
By Global Retail Partners, Inc.,
General Partner
By: /s/ Osamu R. Wantanabe
----------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
DLJ DIVERSIFIED PARTNERS, L.P.
By DLJ Diversified Partners, Inc.,
General Partner
By: /s/ Osamu R. Wantanabe
----------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
DLJ DIVERSIFIED PARTNERS-A, L.P.
By DLJ Diversified Partners, Inc.,
General Partner
By: /s/ Osamu R. Wantanabe
----------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
GRP PARTNERS, L.P.
By Global Retail Partners, Inc.,
General Partner
By: /s/ Osamu R. Wantanabe
----------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
17
<PAGE>
GLOBAL RETAIL PARTNERS FUNDING, INC.
By: /s/ Osamu R. Wantanabe
----------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
DLJ ESC II L.P.
By DLJ LBO Plans Management
Corporation, General Partner
By: /s/ Osamu R. Wantanabe
----------------------------------
Name: Osamu R. Wantanabe
Title: Vice President
PEQUOT PRIVATE EQUITY FUND, LP
By Pequot Capital Management, Inc.,
Investment Advisor
By: /s/ David J. Malat
----------------------------------
Name: David J. Malat
Title: Chief Financial Officer
PEQUOT OFFSHORE PRIVATE EQUITY FUND,
INC.
By Pequot Capital Management, Inc.,
Investment Advisor
By: /s/ David J. Malat
----------------------------------
Name: David J. Malat
Title: Chief Financial Officer
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
18
<PAGE>
NEXUS CAPITAL PARTNERS I, LP
By Nexus Group LLC, General Partner
By: /s/ David Leyrer
------------------------------------
Name: David Leyrer
Title: General Partner
VAN WAGONER CAPITAL MANAGEMENT, INC.
By: /s/ Garrett Van Wagoner
------------------------------------
Name: Garrett Van Wagoner
Title: President
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Robert N. Savoie
------------------------------------
Its: Tax Director, Attorney-in-Fact
--------------------------------
H & Q GARDEN ESCAPE INVESTORS, LP
By: /s/ Robert N. Savoie
------------------------------------
Its: Tax Director, Attorney-in-Fact
--------------------------------
HAMBRECHT & QUIST EMPLOYEE VENTURE
FUND, L.P. II
By: /s/ Robert N. Savoie
------------------------------------
Its: Tax Director, Attorney-in-Fact
--------------------------------
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
19
<PAGE>
/s/ Norman D. Colbert
---------------------------------
Norman D. Colbert
/s/ Robert A. Keller
---------------------------------
Robert A. Keller
/s/ Paul Noglows
---------------------------------
Paul Noglows
SCRIPPS VENTURES, LLC
By: /s/ Douglas R. Stern
------------------------------
Douglas R. Stern
President and Chief Executive
Officer
PHILLIPS-SMITH SPECIALTY RETAIL
GROUP III, L.P.
By Phillips-Smith Management
Company, L.P., General Partner
By: /s/ Donald J. Phillips
------------------------------
Name: Donald J. Phillips
Title: General Partner
/s/ Craig J. Foley
---------------------------------
Craig J. Foley
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
20
<PAGE>
AUSTIN VENTURES IV-A, L.P.
By AV Partners IV, L.P., General Partner
By: /s/ John D. Thornton
------------------------------------------
John D. Thornton, Partner
AUSTIN VENTURES IV-B, L.P.
By AV Partners IV, L.P., General Partner
By: /s/ John D. Thornton,
------------------------------------------
John D. Thornton, Partner
OAK INVESTMENT PARTNERS, VII, LIMITED
PARTNERSHIP
By: /s/ Gerald R. Gallagher
------------------------------------------
Gerald R. Gallagher, Managing Member
of Oak Associates, VII, LLC
The General Partner of Oak Investment
Partners VII, Limited Partnership
OAK VII AFFILIATES FUND, LIMITED PARTNERSHIP
By: /s/ Gerald R. Gallagher
------------------------------------------
Gerald R. Gallagher, Managing Member
of Oak VII Affiliates, LLC
The General Partner of Oak VII Affiliates
Fund, Limited Partnership
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
21
<PAGE>
ATTRACTOR VENTURES LP
By Attractor Ventures LLC, General
Partner
By: /s/ Gigi Brisson
------------------------------
Name: Gigi Brisson
Title: Managing Member
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
22
<PAGE>
NEXUS PARTNERS LLC
By Nexus Group LLC, Its General
Partner
By: /s/ David Leyrer
------------------------------
Name: David Leyrer
Title: General Partner
/s/ Brian Goffman
------------------------------------
Brian Goffman
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
23
<PAGE>
EXHIBIT 10.6
May 24, 1999
Scripps Howard Broadcasting Company
d/b/a Home & Garden Television
9701 Madison Avenue
Knoxville, TN 37932
Ladies and Gentlemen: Re: Relationship with Garden.com, Inc.
This letter sets forth the agreement between Scripps Howard Broadcasting
Company d/b/a Home & Garden Television ("HGTV") and Garden.com, Inc.
("Garden.com") with respect to the issuance of equity in Garden.com to HGTV in
exchange for certain HGTV cable television advertising inventory. This letter
also addresses the parties' expectations regarding the initiation and continuing
development of a strategic alliance between them. The general terms and
conditions of this relationship shall be as follows:
1. Purchase of Advertising. Subject to the terms of that certain
-----------------------
Amendment to Stock Purchase Agreement (the "Amended Stock Purchase Agreement")
dated as of May 21, 1999 and executed between Garden.com and HGTV and certain
stockholders of Garden.com, Garden.com will issue 262,237 shares of its $.01 par
value Series E Convertible Preferred Stock (the "In-kind Stock") to HGTV in
exchange for HGTV issuing an advertising credit to Garden.com in the amount of
$1,499,995.64 (the "Advertising Credit"). HGTV's issuance of the Advertising
Credit represents full payment for the In-kind Stock. HGTV's purchase of the
In-kind Stock shall in no way be affected by the parties' pursuit of the
strategic relationship referenced below.
2. General Terms of Advertising. HGTV shall provide Garden.com with the
----------------------------
use of advertising spots (each, a "Spot") to be telecast on HGTV reasonably
spread over a period commencing on the date hereof and continuing thereafter for
twenty-four (24) months (the "Term"). The parties agree that Garden.com shall
seek to order and HGTV shall telecast Spots having an
<PAGE>
Scripps Howard Broadcasting Company
d/b/a Home & Garden Television
May 24, 1999
Page 2
aggregate value equal to approximately $750,000 during the first twelve (12)
months of the Term and Spots having an aggregate value of the balance of the
Advertising Credit during the second twelve (12) months of the Term, with the
value of each Spot calculated at the rates negotiated by HGTV and Garden.com at
that time; provided, however, that in no event shall such rates be greater than
the rates payable by a third-party advertiser of a similar quantity and quality
of Spots. The Spots shall be telecast on the dates and at times mutually agreed
to by the parties. The parties agree to meet during the six (6) month period
following the date hereof to agree upon a budget and schedule for the use of the
Advertising Credit during the first twelve (12) months of the Term and to meet
on a timely basis to agree upon a budget and schedule for the use of the
Advertising Credit during the second twelve (12) months of the Term. If a
portion of the Advertising Credit remains after expiration of the Term, then
Garden.com may continue to use the balance of such Advertising Credit to
purchase Spots from HGTV.
3. Use of Advertising Credit. The Advertising Credit shall be treated as
-------------------------
a credit balance owned by Garden.com and to be used by Garden.com in its sole
discretion to purchase advertising on the HGTV network. The parties agree that
the delivery of the In-kind Stock pursuant to the Amended Stock Purchase
Agreement and the agreement related thereto as set forth herein constitute full
and complete payment to HGTV for the Spots. Without the prior written consent
of HGTV, Garden.com shall not assign or otherwise transfer the Advertising
Credit; provided, however, that nothing herein shall prevent the continued use
of the Advertising Credit by Garden.com's successor in interest in the event of
a merger, consolidation or sale of substantially all of the assets of Garden.com
or the sale of a majority of the outstanding shares of capital stock of
Garden.com (each, a "Transferring Transaction"), but only in connection with and
in furtherance of the Garden.com website or, with HGTV's prior written approval,
which shall not be unreasonably withheld, a website that replaces the Garden.com
website if the latter is discontinued following such a Transferring Transaction.
4. Strategic Relationship. Garden.com and HGTV agree that their mutual
----------------------
goal is to work together in the utilization/commercialization of each other's
<PAGE>
Scripps Howard Broadcasting Company
d/b/a Home & Garden Television
May 24, 1999
Page 3
content, expertise and consumer base. In furtherance of that goal, the parties
shall use their commercially reasonable efforts to explore and pursue strategic
ventures and relationships with each other, such as, for example, the
integration of their respective media offerings. Without limiting the
generality of the foregoing, the parties shall use their best effort during the
six (6) month period following the date hereof to form and document a plan to
capitalize on their possible synergies. Such activities are presently intended
to include, without limitation, the following:
By Garden.com:
- -------------
. serving as an on
line and electronic commerce partner of HGTV with respect to gardening and
gardening-related products;
. providing content for use by HGTV; and
. selling HGTV-related items through Garden.com's website.
By HGTV:
- -------
. serving as a media partner of Garden.com;
. providing content for use by Garden.com; and
. facilitating the relationship between Garden.com and third parties
interested in selling products through the Internet.
Further, the parties shall use their commercially reasonable efforts to (a) work
together on tying Garden.com's electronic commerce capabilities to HGTV's
programming, (b) provide developmental guidance to each other, (c) discuss and,
as appropriate, initiate co-branding opportunities, (d) cooperate on the joint
development of electronic commerce offerings, (e) share research information,
(f) discuss and, as appropriate, implement exclusive parameters of the
arrangement between the parties, (g) co-develop new operations (e.g., software,
functions, and processes) that enhance the relationship between the parties
and/or their respective businesses, and (h) generally work to pursue mutually
beneficial projects. The terms, pricing, cost and revenue sharing for such
projects shall be as mutually agreed upon by the parties at a later date. Until
the parties agree to the contrary in
<PAGE>
Scripps Howard Broadcasting Company
d/b/a Home & Garden Television
May 24, 1999
Page 4
writing during the Term, the parties are free to continue to pursue ventures
with third parties of the kind and to the extent that they have pursued such
ventures prior to the date hereof.
5. Garden.com Marks. Garden.com hereby grants to HGTV a nonexclusive,
----------------
royalty-free license effective throughout the Term to use, display and publish,
with Garden.com's prior review for approval, the Garden.com marks as set forth
on the attached Exhibit A, but only in furtherance of the activities
contemplated herein. Any use of the Garden.com marks by HGTV must comply with
any reasonable usage guidelines communicated by Garden.com to HGTV from time to
time. Nothing contained in this letter agreement shall give HGTV any right,
title or interest in or to the Garden.com marks or the goodwill associated
therewith, except for the limited usage rights expressly provided above. HGTV
acknowledges and agrees that, as between Garden.com and HGTV, Garden.com is the
sole owner of all rights to the Garden.com marks.
6. HGTV Marks. HGTV hereby grants to Garden.com a nonexclusive, royalty-
----------
free license effective throughout the Term to use, display and publish, with
HGTV's prior review for approval, the HGTV marks as set forth on the attached
Exhibit B, but only in furtherance of the activities contemplated herein. Any
use of the HGTV marks by Garden.com must comply with any reasonable usage
guidelines communicated by HGTV to Garden.com from time to time. Nothing
contained in this letter agreement shall give Garden.com any right, title or
interest in or to the HGTV marks or the goodwill associated therewith, except
for the limited usage rights expressly provided above. Garden.com acknowledges
and agrees that, as between HGTV and Garden.com, HGTV is the sole owner of all
rights to the HGTV marks.
7. Representations and Warranties. HGTV and Garden.com each represent
------------------------------
and warrant that this letter agreement has been duly authorized, executed and
delivered by such party and that this letter agreement constitutes the legal,
valid and binding obligation of such party, enforceable in accordance with these
terms.
<PAGE>
Scripps Howard Broadcasting Company
d/b/a Home & Garden Television
May 24, 1999
Page 5
8. Publicity. Neither party shall issue a press release or make any
---------
statement to the general public concerning this letter agreement, Spots, or the
existence thereof, without the expressed prior written consent of the other;
provided, however, that HGTV agrees that Garden.com may file this letter
agreement with the Securities and Exchange Commission (the "SEC") and or
describe this letter agreement in any registration statement filed with the SEC,
as long as Garden.com consults with HGTV during the process.
9. Miscellaneous. This letter agreement, along with other documents
-------------
executed by the parties related to HGTV's purchase of the In-Kind Stock,
constitutes the entire agreement and understanding of the parties related to the
subject matter hereto and supersedes all prior and contemporaneous agreements,
negotiations, and understandings between the parties both oral or written
relating to the subject matter hereof. No waiver of modification of any
provision of this letter agreement shall be effective unless in writing and
signed by both parties. Any waiver by either party of any provision of this
letter agreement shall not be construed as a waiver of any other provision of
this letter agreement, nor shall such waiver operate at or be construed as a
waiver of such provision respecting a future circumstance. The terms of this
letter agreement shall apply to the parties hereto and any other successors or
assigns. This letter agreement may be executed in counterparts, each of which
when executed shall be deemed to be an original, but all which taken together
shall constitute one and the same agreement. Facsimile signatures of this
letter agreement shall be deemed of equal validity and as fully enforceable as
original signatures thereof.
10. Governing Law. This letter agreement shall be governed and construed
-------------
under the laws of the State of Texas applicable to contracts fully performed in
Texas, without regard to Texas conflicts of law principles.
If you are in agreement with the above terms and conditions, please
indicate your acceptance by signing in the space provided below and returning
one original
<PAGE>
Scripps Howard Broadcasting Company
d/b/a Home & Garden Television
May 24, 1999
Page 6
to me. This letter agreement shall be null and void if not signed within three
days of the date set forth above.
Garden.com looks forward to a mutually beneficial and enduring
relationship.
Yours very truly,
Garden.com, Inc.
BY
James N. O'Neill,
Chief Operating Officer
MW2\76320JNO:PN
Encs.
Accepted and agreed to this
24th day of May, 1999.
SCRIPPS HOWARD BROADCASTING
COMPANY d/b/a HOME & GARDEN
TELEVISION
BY /s/ Kenneth W. Lowe
------------------------------
Its President/CEO
---------------------------
<PAGE>
EXHIBIT 10.8
EXHIBIT B
---------
FORM OF
LICENSE AGREEMENT
-----------------
AGREEMENT made as of April 13, 1998, between TIME LIFE INC.
("Licensor") and GARDEN ESCAPE INC. ("Licensee").
WHEREAS, Time Inc. New Media, an affiliate of Licensor ("TINM"), owns
and operates (a) a site on the World Wide Web of the Internet (the "Internet")
currently known as Pathfinder (the "Pathfinder Site") and (b) a specified area
on the Pathfinder Site currently known as The Virtual Garden (the "VG Area");
WHEREAS, the VG Area includes within it a digitized copy of the Time
Life Plant Encyclopedia database (including the Time Life House Plant Pavilion
database) (the "TL Database");
WHEREAS, Licensee owns and operates a site on the Internet with the
URL of www.garden.com (the "Garden Escape Site");
WHEREAS, pursuant to an asset sale agreement (the "Asset Sale
Agreement") dated as of the date hereof, TINM has agreed to sell, assign, and
transfer to Licensee, and Licensee has agreed to purchase and acquire (the "VG
Transaction") from TINM, the assets defined therein as the "VG Assets"; and
WHEREAS, Licensee intends to continue to operate the VG Assets as part
of the VG Area, and located at the URL of www.vg.com (the "New VG Area");
WHEREAS, in connection with the VG Transaction, Licensor desires to
license to Licensee, and Licensee desires to license from Licensor, certain
rights to use, display, reproduce and publish the TL Database and the trademark
Time Life (the "Trademark"), subject to the terms and conditions set forth
herein.
NOW, THEREFORE, subject to and upon the terms and conditions set forth
herein, the parties hereby agree as follows:
<PAGE>
1. Grant
-----
(a) Subject to the terms and conditions of this Agreement (including
without limitation, the restrictions set forth in Section 5), Licensor hereby
grants to Licensee a worldwide license to display the TL Database as part of the
Garden Escape Site and/or the New VG Area, solely in an Online Context (as
defined below) and solely in the English language. For purposes of this
Agreement "Online Context" shall be defined to mean only that portion of the
Internet now known as the World Wide Web, and shall be deemed to be limited to
distribution in a manner that is freely available and without cost to the end-
user (other than fees charged to access the Internet, or fees charged by
Licensee to subscribe to an area of the Garden Escape Site or New VG Area but
not specifically for access to an area of the Garden Escape Site or New VG Area
containing the TL Database), regardless of the manner or form of transmission
(including, without limitation, by means of telephone wire, cable modem, or
satellite).
(b) Subject to the terms and conditions of this Agreement (including
without limitation, the restrictions set forth in Section 5), Licensor hereby
grants to Licensee a worldwide license to display the Trademark on the Garden
Escape Site and the New VG Area, solely in an Online Context and solely for
purposes of identifying the TL Database as having been created and/or compiled
by Licensor; provided that in no event shall Licensee use the Trademark on the
Garden Escape Site or the New VG Area in an amount or manner that is in any way
more frequent or prominent than the amount or manner by which the Trademark was
used on the TL Database as it existed in the VG Area prior to the date of this
Agreement.
(c) Subject to the terms and conditions of this Agreement, Licensor
hereby grants to Licensee a worldwide license to display, reproduce and publish
limited portions of the TL Database and the Trademark, in promotional materials;
provided that (i) such use of the Trademark is solely for purposes of
identifying the TL Database as having been created and/or compiled by Licensor,
and (ii) those portions of any promotional materials incorporating or referring
to the TL Database and/or the Trademark, are approved by Licensor prior to each
initial distribution of such materials (and if applicable, prior to each initial
distribution of any substantively (e.g., other than color or font changes)
updated or modified versions of such portions) as follows: (x) Licensor will not
unreasonably withhold its consent, (y) Licensor will have ten (10) days from
Licensor's receipt of such materials to approve or reject such materials, and
(z) if Licensor fails to notify Licensee of its approval or rejection of such
materials within such ten (10)
-2-
<PAGE>
day period, such materials shall be deemed to have been approved by Licensor.
Licensee shall in no event change or modify in any way the TL Database and/or
the Trademark when displaying, reproducing and publishing the TL Database and/or
the Trademark, or portions thereof, in Licensee's promotional materials.
(d) Licensee shall have no right whatsoever to use the TL Database or
the Trademark in any way that states or implies that Licensor in any way
endorses or sponsors, or is associated or affiliated with, (i) Licensee, the
Garden Escape Site, the New VG Area, or any third party referred to in or linked
to the Garden Escape Site or the New VG Area; (ii) any products, services or
materials of Licensee or any third party contained on or accessible through
(including without limitation, via hyperlink) the Garden Escape Site or the New
VG Area; or (iii) any products, services or materials promoted or offered for
sale by Licensee or any third party on or through (including without limitation,
via hyperlink) the Garden Escape Site or the New VG Area. Failure by Licensee to
comply with the foregoing in any material respect shall result in immediate
termination of this Agreement and the licenses contained herein. Licensee agrees
to place the following language on the initial screen of the area of the Garden
Escape Site or New VG Area containing the TL Database in a manner reasonably
satisfactory to Licensor: "The Time Life Plant Encyclopedia and the Time Life
House Plant Pavilion are owned by Time Life Inc. and have been licensed to
Garden Escape, Inc. for display on this site. Time Life Inc. does not endorse or
sponsor this site or any products or services offered on this site."
(e) Without the prior consent of Licensor, Licensee is strictly
prohibited from (i) making any insertions in, deletions from, or any other
changes or revisions to, the TL Database, or (ii) translating, adapting,
preparing derivative works, copying or reproducing (other than a back-up copy),
redistributing, using or allowing access to, or taking any other action with
respect to, the TL Database other than as explicitly permitted under this
Agreement. Notwithstanding the foregoing sentence, Licensor hereby expressly
consents to the modification by Licensee of the TL Database solely to include
hyperlinks to area(s) within the Garden Escape Site or the New VG Area from
which the user would be able to purchase items relevant to the TL Database and,
in particular, items relevant to that portion of the TL Database in which each
such hyperlink appears (e.g., from an entry in the TL Database concerning a
particular variety of rose to an area within the Garden Escape Site from which
the user could purchase seeds for such variety); provided that Licensor shall
approve such modifications in writing prior to the initial use or display of the
TL Database by Licensee and prior to any such modifications (or substantive
changes to previously made modifications) being made during the term of this
Agreement as follows: (x) Licensor will not
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unreasonably withhold its consent, (y) Licensor will have ten (10) days to
approve or reject such modifications, and (z) if Licensor fails to notify
Licensee of its approval or rejection of such modifications within such ten (10)
day period, such modifications shall be deemed to have been approved by
Licensor.
(f) The license to the TL Database set forth herein shall be
exclusive to Licensee in respect of the Online Context; provided, however, that
Licensor (and its affiliates) shall have the right to use, display, reproduce
and publish (but not to sublicense any such rights to an unaffiliated third
party) the TL Database and the Trademark in an Online Context. Nothing in this
Agreement shall be construed to prohibit or limit Licensor's (and its
affiliates') right to advertise its products in an Online Context, including
describing the contents of products incorporating material in the TL Database.
(g) Except as expressly set forth in Section 1(f) above, nothing in
this Agreement shall in any way limit or restrict Licensor's right, either by
itself or through a third party or parties, to use, promote, license or
otherwise exploit the TL Database and the Trademark.
(h) Licensee shall have the right during the term of this Agreement
and the licenses contained herein to sell advertising to third parties in space
adjacent to the TL Database, and, as between Licensor and Licensee, to retain
all revenue derived therefrom. Licensee shall not display such advertising in a
manner that makes such advertising appear to be part of the content of the TL
Database. However, Licensee shall have no right to offer for sale to a third
party as a subscription product, or otherwise, all or any part of the TL
Database, except that Licensee may charge subscription fee(s) for users to
access an area of the Garden Escape Site or New VG Area so long as such
subscription fees are not charged specifically for access to an area of the
Garden Escape Site or New VG Area containing the TL Database.
2. Royalty
-------
In consideration of the rights granted by Licensor to Licensee
hereunder, Licensee shall pay Licensor a fee of $100,000, payable upon execution
of this Agreement.
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3. Term
----
The term of this Agreement shall commence on the date first set forth
above and, unless sooner terminated pursuant to the terms hereof, shall expire
on the second anniversary of such date.
4. Quality Control
---------------
(a) Licensee acknowledges that it is familiar with the high
standards, quality, style and image of the TL Database and the Trademark and
shall at all times use the TL Database and Trademark in a manner which is
consistent therewith and with the terms and conditions of this Agreement and the
licenses set forth herein. Without limiting the generality of the foregoing,
neither Licensee nor any of its affiliates shall take any action, or authorize
or permit any condition to exist, which is or might reasonably be expected to be
detrimental to or reflect adversely on the Licensor or any of its affiliates,
the Trademark, the TL Database, or the goodwill associated with any of the
foregoing.
(b) Licensee shall, at Licensor's request, but no more than once
every six (6) months, have an officer of Licensee certify in writing, by signing
the certificate attached hereto as Attachment 1, that Licensee has used, is
using and will continue to use the TL Database and the Trademark in a manner
which is consistent with the high standards, quality, style and image of the TL
Database and the Trademark and with the terms and conditions of this Agreement
and the licenses set forth herein.
(c) Licensee shall, upon reasonable notice by Licensor, during
Licensee's regular business hours and no more than twice per calendar year, give
Licensor, or its internal or third party auditors or accountants, reasonable
access to Licensee's records, files, tools and facilities as necessary for
Licensor to verify that Licensee has been and is using the TL Database and the
Trademark in accordance with the terms and conditions of this Agreement and the
licenses contained herein.
5. TL Database and Trademark Rights
--------------------------------
(a) Licensee hereby acknowledges that Licensor's rights to the TL
Database and to the Trademark are valuable assets belonging to and shall remain
the property of Licensor or its affiliates. Nothing in this Agreement shall
confer any right of ownership in the TL Database or the Trademark in Licensee.
Licensee acknowledges, and shall not at any time contest, the validity of the
Trademark or Licensor's rights in the TL Database or the Trademark. Licensee
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acknowledges that all rights accruing from its use of the TL Database and the
Trademark shall (as between Licensee and Licensor) inure to the benefit of
Licensor, and Licensee shall execute any documents necessary to acknowledge such
rights in Licensor.
(b) Licensor shall supply Licensee with reproduction proofs of the
Trademark, at no cost to Licensee, and Licensee shall use the Trademark only in
the same logotype(s) as depicted in said proofs.
(c) All rights in and to the TL Database and the Trademark not
expressly granted by this License Agreement are reserved (as between Licensee
and Licensor) to Licensor.
(d) At no time shall Licensee make use of the TL Database or the
Trademark or authorize others to use the TL Database or the Trademark, except as
may be specifically permitted by this Agreement or subsequently expressly
approved in writing by Licensor.
(e) Licensee shall not use or display the TL Database or the
Trademark in any manner which, in Licensor's reasonable judgment, might be
confusing, deceptive or misleading or which might reasonably be expected to
bring Licensor into disrepute.
(f) In Licensee's use of the TL Database and the Trademark, Licensee
shall comply with such instructions and directions as Licensor may specify from
time to time, which instructions and directions will not be inconsistent with
the terms and conditions of this Agreement.
(g) The protection of the TL Database and the Trademark is a material
provision of this Agreement
(h) Licensee shall promptly give notice to Licensor of any use of the
TL Database or the Trademark or any confusingly similar trademark, by any third
party of which it becomes aware. Licensor shall decide, in its sole discretion,
if proceedings shall be commenced against said third parties. In the event that
Licensor shall as a result thereof commence a proceeding or any other form of
action, Licensee shall reasonably cooperate with Licensor, provided that all
expenses of such action or proceeding shall be borne by Licensor and all
recoveries (including settlements) resulting from any such action shall (as
between Licensee and Licensor) belong solely to Licensor. Under no circumstances
shall Licensee commence any action to protect the TL Database or the Trademark
-6-
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without first obtaining the express written authorization of Licensor, which
authorization shall not be unreasonably withheld.
(i) Licensee shall reasonably assist Licensor, at Licensor's request
and expense, in the protection of Licensor's rights in the TL Database and the
Trademark. Licensee shall execute and deliver to Licensor in such form as
Licensor may reasonably request all instruments necessary to effectuate
trademark protection or registration therein.
6. Sub-Licenses
------------
It is expressly understood that Licensee shall not sublicense the use
of the TL Database or the Trademark without the prior written consent of
Licensor and Licensor shall have the absolute right in its discretion to approve
any sublicensee of Licensee, except that Licensor will not unreasonably withhold
consent to a sublicense to a wholly owned or wholly controlled affiliate of
Licensee.
7. Trademark and Copyright Notices
-------------------------------
The uses by Licensee as permitted hereunder of the Trademark shall
include the following notice and/or such other legal notices as are requested by
Licensor for the protection of Licensor's or the owner of the Trademark's
respective interests therein: "Time Life is a registered trademark of Time
Warner Inc. Used with permission." Licensee shall include such copyright notices
as Licensor shall reasonably specify with respect to the TL Database.
8. Termination
-----------
(a) If Licensee defaults in the performance of any of its obligations
provided for in this Agreement, and any such default is not cured by Licensee
within ten business days from notice by Licensor of such default and setting
forth the particulars thereof, then Licensor shall have the right to terminate
the license granted hereby and this Agreement upon written notice to Licensee.
Nothing contained in this Section 8(a) shall in any way be construed to limit
Licensor's right to immediately terminate this Agreement pursuant to Section
1(d).
(b) Licensor shall have the right to terminate the license granted
hereunder and this Agreement upon written notice to Licensee upon the occurrence
of any of the following events: (i) Licensee commences a voluntary case or
proceeding; consents to the entry of an order for relief against it in an
involuntary
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case or proceeding; consents to the appointment of a receiver, trustee,
assignee, liquidator, custodian or similar official under any Bankruptcy Law of
it or for all or any substantial portion of its property or assets; makes a
general assignment for the benefit of its creditors; or becomes insolvent or
generally fails to or is unable to or admits in writing its inability to pay its
debts as they become due; or (ii) an involuntary case or proceeding is commenced
against Licensee under any Bankruptcy Law and is not dismissed, bonded or
discharged within sixty (60) days thereafter, or a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that is for
relief against the Licensee in an involuntary case or proceeding, appoints a
custodian of Licensee or for all or substantially all its properties, or orders
the liquidation of Licensee. Licensee shall immediately notify Licensor upon the
occurrence of any of the foregoing events. "Bankruptcy Law" as used herein shall
mean title 11 of the United States Code or any similar Federal, state or foreign
law for the relief of debtors or the arrangement, reorganization, assignment for
the benefit of creditors or any other marshalling of assets or liabilities of
debtors.
9. Effect of Expiration and Termination
------------------------------------
(a) Upon the termination of this Agreement for any reason (including
the immediate termination of this Agreement pursuant to Section 1(d)), Licensee
shall, immediately cease the use of the TL Database and the Trademark in an
Online Context or otherwise and shall promptly delete the TL Database and the
Trademark from Licensee's servers and return all copies to Licensor.
(b) Upon and after the expiration or termination of this Agreement,
all rights granted to Licensee hereunder in the TL Database and the Trademark
shall (as between Licensee and Licensor) revert to Licensor, and Licensee shall
refrain from further use of the TL Database or the Trademark or any further
reference thereto, whether direct or indirect.
10. Representations and Warranties
------------------------------
(a) Licensor represents and warrants that it has the right to enter
into this Agreement, to grant the rights granted herein, and to perform its
obligations hereunder, and to do so will not violate or conflict with any
material term or provision of its charter or by-laws or of any agreement,
instrument, statute, rule, regulation, order to decree to which it is a party or
by which it is bound.
(b) Licensee represents, warrants and covenants that:
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(i) it will not use the TL Database or the Trademark in any
way not authorized by this Agreement;
(ii) its use of the TL Database and the Trademark will comply
in all respects with all applicable laws, ordinances,
rules and regulations; and
(iii) it has the right to enter into this Agreement and to
consummate the transactions contemplated hereby, and to do
so will not violate or conflict with any material term or
provision of its charter or by-laws or of any agreement,
instrument, statute, rule, regulation, order or degree to
which it is a party or by which it is bound.
11. Indemnification
---------------
Licensor and Licensee shall indemnify and hold each other harmless
from and against any and all liability, loss, damage or injury, including
reasonable attorneys fees, arising in connection with claims made by third
parties arising out of a breach, or allegation which if true would constitute a
breach, of any representation and warranty set forth herein, provided that the
party seeking to enforce such indemnity shall provide to the indemnifying party
prompt notice of any claim giving rise to such indemnity and the opportunity to
defend the same with counsel of its own choosing.
12. Notices
-------
(a) All notices, demands, consents or approvals required or permitted
under this Agreement shall be in writing. Notice shall be considered delivered
and effective when (i) personally delivered; (ii) the day following transmission
if sent by facsimile followed by written confirmation by recognized overnight
courier or registered or certified mail, or by recognized overnight courier.
Notices shall be sent to the parties at the following addresses:
If to Licensor:
Time Life Inc.
2000 Duke Street
Alexandria, Virginia 22314
Attention: Senior Vice President - Law and Business Affairs
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With copies to:
Time Inc.
1271 Avenue of the Americas
New York, New York 10020
Attention: General Counsel
Time Inc. New Media
1271 Avenue of the Americas
New York, New York 10020
Attention: President
If to Licensee:
Garden Escape Inc.
710 West 6th Street
Austin, Texas 78701
Attention: President
or at such other address as shall be given by either party to the other in
writing. Notices given personally or by facsimile shall be deemed given the day
sent; notices given by or overnight courier shall be deemed given the first
business day following the date sent; and notices given by certified or
registered mail shall be deemed given three business days after the date of
mailing.
13. Change in Control. Licensor shall have the right to terminate
-----------------
this Agreement following any Change of Control (as defined herein) of Licensee.
If Licensor exercises its right to terminate this Agreement pursuant to this
Section 13, Licensor shall refund to Licensee a Prorated Refund (as defined
herein), except if the Change of Control involves a Competitor (as defined
herein) of Licensor. "Prorated Refund" shall mean the product of X and Y (where
X is the license fee paid by Licensee to Licensor divided by the total number of
months in the term of this Agreement and Y is the number of months remaining for
the term of this Agreement). A "Change of Control" of Licensee shall be deemed
to have occurred when outstanding voting securities of Licensee (or, if
applicable, of its parent company) are sold or transferred in one or a series of
transactions with the effect that the existing stockholders hold less than a
majority of voting power entitled to vote in the election of directors of
Licensee (or, if applicable, its parent company); provided, however, that a
Change of Control shall not be deemed to have occurred solely by reason of (i) a
Change of Control which results from issuance of shares in a public offering
(other than pursuant to a merger or other
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business combination) or issuance of additional voting securities to one or more
nationally recognized venture capital firms, institutional investors or
individual investors whose net worth gives them the ability to invest in amounts
equivalent to that of institutional investors, in each case for the purpose of
raising capital; (ii) Licensee (or, if applicable, its parent company) is merged
or consolidated with another person or entity with the effect that the existing
stockholders hold less than a majority of voting power entitled to vote in the
election of directors of Licensee (or, if applicable, its parent company) or
(iii) except as otherwise provided in Section 14(e), all or substantially all of
the assets of Licensee are sold to any person or entity; and provided further
that the events specified in the foregoing clauses (i) through (iii) shall
nonetheless constitute a Change of Control if the individual or entity acquiring
control is a Competitor (as defined herein) of Licensor, in which event this
Agreement shall immediately terminate. For purposes of this Section 13, a
"Competitor" of Licensor shall mean (x) any person or entity that is at the time
directly or indirectly engaged, or during the term of the license herein
directly or indirectly engages, in the creation, publication, sale or other
distribution of books, magazines or other printed matter on the subject of
gardening, and (y) without limiting the generality of the foregoing clause (x),
the following entities: Rodale Press, IMP, Reader's Digest, Newbridge,
Bertelsmann, August Home Publishing, Taunton, KIII, Meredith, Meigher
Communications and National Gardening Magazine.
14. Miscellaneous
-------------
(a) This Agreement represents the entire understanding between the
parties with respect to the matters dealt with herein. This Agreement cannot be
changed or terminated, and no waiver of compliance with any provision or
condition hereof and no consent provided for herein shall be effective unless
evidenced by an instrument in writing duly executed by the party to be charged.
(b) Neither party shall make any public statements concerning this
Agreement or the license contemplated herein without the prior written consent
of the other party.
(c) This Agreement and the instruments delivered in conjunction
herewith set forth the entire understanding and agreement of the parties
relating to the subject matter hereof and thereof.
(d) Nothing expressed or implied in this Agreement is intended to or
shall confer upon any person, firm or entity other than the parties hereto and
their permitted assignees, any rights, remedies, obligations or liabilities
under or
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by reason of this Agreement. Nothing contained herein shall be construed to
constitute the parties to be partners or joint ventures with or agents for one
another. Neither Licensee nor Licensor shall have any authority to, nor shall
either, obligate or bind the other in any manner whatsoever.
(e) Except as set forth in this sentence or otherwise in this
Agreement, this Agreement may not be assigned by any party without the written
consent of the other party, provided that Licensor may assign this Agreement, in
whole or in part, to any entity which is an affiliate of Licensor. Licensor
agrees that it will not unreasonably withhold its consent if Licensee desires to
assign this Agreement to a wholly-owned or wholly-controlled affiliate of
Licensee, provided that the successor entity assumes all of the obligations of
Licensee under this Agreement, it being understood that Licensor shall have the
right to reasonably determine in its discretion if such proposed assignment
might be detrimental to or reflect adversely on Licensor, the TL Database or the
Trademark, and to withhold consent in such case. Any assignment that is
permitted in accordance with this Section 14(e) shall not be deemed to be a
Change of Control for purposes of clause (iii) of Section 13, provided that the
successor entity assumes all of the obligations of Licensee under this
Agreement. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, legal representatives and permitted
assigns.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to conflict of law
principles.
(g) A waiver of any provision of this Agreement shall not be deemed a
waiver of any other provision or subsequent waiver of such provision. In the
event that any provision of this Agreement shall be held invalid or
unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provision hereof.
(h) The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(i) This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TIME LIFE, INC. GARDEN ESCAPE, INC.
By: /s/ Robert E. McCarthy By: /s/ James N. O'Neill
-------------------------------- --------------------------------
Name: Robert E. McCarthy Name: James N. O'Neill
-------------------------------- -------------------------------
Title: Vice President and Secretary Title: Chief Operating Officer
------------------------------- ------------------------------
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ATTACHMENT
----------
CERTIFICATE OF USAGE
--------------------
I hereby certify that I am an officer of Garden Escape Inc. ("GEI"),
and am familiar with the terms and conditions of the License Agreement
("Agreement") entered into by and between Time Life Inc. ("TLI") and GEI. I
further certify that GEI has at all times since the date of the Agreement used
the trademark Time Life (the "Trademark") and the TL Database (as defined in the
Agreement) in full compliance with Sections 1, 4, 5, 6 and 7 and material
compliance with all of the terms and conditions of the Agreement and the license
granted therein.
/s/ James N. O'Neill
--------------------------------------
Print Name: James N. O'Neill
----------------------------
Title: Chief Operating Officer
---------------------------------
Date: April 15, 1998
----------------------------------
<PAGE>
EXHIBIT 10.9
Administaff.
CLIENT SERVICE AGREEMENT
THIS CLIENT SERVICE AGREEMENT ("the Agreement"), is made by and between
Administaff Companies. Inc ("Administaff"'), a Delaware corporation, with its
principal place of business at 19001 Crescent Springs Drive, Kingwood. Texas
77339-3802, and GARDEN ESCAPE, INC. ("Client").
I. PERSONNEL
1.1 Subject to the terms of this Agreement Administaff agrees to furnish Client
and Client agrees to engage from Administaff, employees (hereinafter sometimes
referred to as "Assigned Employees") for the job functions listed in Exhibit A
("Confidential Census"). Client warrants that information supplied to
Administaff concerning the employee functions is accurate.
1.2 Administaff and Client certify that a shared employment relationship (as
that term is defined in (S)3.364 Staff Leasing Services, Texas Administrative
Code, i.e. that an employment relationship among an assigned employee, client
company, and staff leasing company in which by written contract and in fact the
staff leasing company and client company share employment responsibilities)
exists by virtue of this Agreement between Client and Administaff as to the
Assigned Employees, that this Agreement meets the requirements and conditions
set out in (S)3.364 and that each party will retain a copy of this Agreement in
its files.
1.3 Administaff certifies that none of the Assigned Employees furnished under
this Agreement were employed previously by Administaff other than through a
shared employment relationship.
1.4 in the event that Client has been in existence for more than one year
(including changes in legal entity, merger or corporate reorganization) Client
certifies as follows:
a. that Client has been in existence for at least one year prior to the
effective date of this Agreement (including changes in legal entity,
merger, and corporate reorganization):
b. that at least 75% of the Assigned Employees providing services under
this Agreement were previously employees of Client for a period of
three (3) months prior to commencement of this Agreement; and
c. that none of the Assigned Employees were employed previously by an
entity that previously provided or currently provides taxable services
to the Client.
1.5 In the event that Client has been in existence for less than one year
(excluding changes in legal entity, merger or corporate reorganization) Client
certifies as follows:
a. that Client has been in existence for less than one year (excluding
changes in legal entity, merger, or corporate reorganization); and
b. that none of the Assigned Employees were employed previously by an
entity that previously provided or currently provides taxable services
to the Client.
II. TERM OF AGREEMENT
This Agreement shall commence on the date this Agreement is executed and remain
in force and effect for a term of one (1) year ("Initial Term"). Following the
Initial Term, this Agreement shall remain in full force and effect for
successive monthly terms (the "Extended Terms") until either (1) the Agreement
is renewed; or, (ii) the Agreement is terminated. During the Initial Term and
any Extended Term of this Agreement, either Administaff or Client may terminate
this Agreement by giving thirty (30) days prior written notice.
III. ADMINISTRATION
3.1 There are a number of federal and state statutory, common law and
regulatory provisions which define the employer-employee relationship.
"Employer" status is based upon the function for which the employer-employee
relationship is being considered.
3.2 Administaff is the employer of those persons furnished to Client and listed
on Exhibit A and is liable as such for the following purposes:
a. compliance with rules and regulations governing the reporting and
payment of all federal and state taxes on payroll wages paid under
this Agreement including, but not limited to: (i) federal income tax
withholding provisions of the Internal Revenue Code; (ii) state and/or
local income tax withholding provisions, if applicable; (iii) Federal
Insurance Contributions Act (FICA); (iv) Federal Unemployment Tax Act
(FUTA); and (v) applicable state unemployment provisions;
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b. except as provided in Paragraph 3.4g below, compliance with applicable
workers' compensation laws including, but not limited to: (i)
procuring workers' compensation insurance; (ii) completing and filing
all required reports; and (iii) managing claims;
c. compliance with the Consolidated Omnibus Reconciliation Act (COBRA);
d. compliance with the Immigration Reform and Control Act (IRCA);
e. compliance with the Consumer Credit Protection Act, Title III;
f procuring and providing employee benefits;
g. monitoring and transmitting to Client changes in governmental
regulations relating to policies and practices governing the employer-
employee relationship including, but not limited to, issues such as
recruiting, interviewing, testing, selecting, orientation of,
training, evaluating, replacing, supervision, disciplining and
terminating employees.
3.3 Client is the employer of those persons furnished by Administaff and listed
on Exhibit A and is liable as such for the following purposes:
a. compliance with Occupational Safety and Health Administration (OSHA)
regulations;
b. compliance with Environmental Protection Agency (EPA) regulations and
any state and/or local equivalent;
c. compliance with government contracting provisions including, but not
limited to: (i) Executive Order 11246; (ii) Vocational Rehabilitation
Act of 1973; (iii) Vietnam Era Veteran's Readjustment Assistance Act
of 1974; (iv) Walsh-Healey Public Contracts Art; (v) Davis-Bacon Act;
and (vi) Service Contract Act of 1965;
d. compliance with the Fair Labor Standards Act (FLSA);
e. compliance with the Worker Adjustment and Retraining Notification Act
(WARN);
f compliance with any professional licensing requirements;
g. compliance with any fidelity bonding requirements;
h. professional liability, including but not limited to malpractice or
errors and omissions coverage and compliance with any regulation
mandating such coverage;
i. Section 414(o) of the Internal Revenue Code (avoidance of certain
pension and non-pension employee benefits requirements) (except as
provided in paragraph 3.4c below);
j. assignment to, and ownership of, all intellectual property rights
including, but not limited to, inventions, whether patentable or not,
and patents resulting therefrom, copyrights and trade secrets and all
confidentiality agreements regarding proprietary information.
3.4 Administaff and Client will be considered co-employers ("dual or joint
employers") of those persons furnished to Client by Administaff and listed on
Exhibit A for the following purposes:
a. compliance with Title VII of the 1964 Civil Rights Act;
b. compliance with the Age Discrimination in Employment Act (ADEA).
c. compliance with the Employee Retirement Income Security Act (ERISA)
(except as provided by paragraph 33i above);
d. compliance with the Polygraph Protection Act;
e. compliance with the Federal Drug Free Workplace Act and any state
and/or local equivalent;
f compliance with state employment discrimination laws including, but
not limited to, Article 5221k, Texas Revised Civil Statutes;
g. employer liability under workers' compensation laws;
h. implementation of policies and practices relating to the employer-
employee relationship such as recruiting, interviewing, testing,
selecting, orientation of, training, evaluating, replacing,
supervision, disciplining and terminating employees; and
2
<PAGE>
i. selection of fringe benefits including, but not limited to, holidays,
vacation, sick leave, parental leave, military leave, and leave of
absence.
3.5 Nothing in paragraphs 3.2, 3.3 or 3.4 above shall be construed to require
either Administaff or Client to provide any of the matters referred to therein
except as provided by law or as otherwise specifically provided by this contract
3.6 For the purposes of this Agreement, determination of employer status for
situations not sot forth and not contemplated herein shall be made by mutual
agreement of Administaff and Client.
IV. SUPERVISION
Administaff shall designate one or more on-site supervisors from among its
employees furnished to Client and listed on Exhibit A. On-site supervisors shall
direct operational and administrative matters relating to services provided by
Administaff's employees and shall carry out Administaff's policies and
procedures formulated in accordance with Paragraph 3.4h above.
V. ENROLLMENT FEE
Client agrees to pay Administaff a non-refundable enrollment fee in the sum
specified in Exhibit B (Client Service Application). This enrollment fee is due
and payable at the time that this Agreement is signed by Client.
VI. SERVICE FEE
In exchange for the personnel services provided by Administaff hereunder,
Administaff and Client agree as follows:
6.1 The Administaff fee rate percentage is set forth in Exhibit B (Client
Service Application) and is calculated utilizing the data submitted by Client in
Exhibit A. If such information is inaccurate, Client shall immediately agree to
amend Exhibit A to reflect the current information and shall pay, within ten
(10) days notice from Administaff of the error, any additional costs incurred by
Administaff as a result of the inaccuracy.
6.2 Each pay period, Client shall pay Administaff its fee comprised of (i) the
gross payroll of Administaff employees leased to Client during such pay period;
and, (ii) a service fee equal to the fee rate percentage specified in Exhibit B
multiplied by the actual gross payroll of Administaff employees furnished to
Client during such pay period.
6.3 Administaff shall not adjust the fee rate percentage for Client during any
term of this Agreement except for adjustments made necessary by:
(i) statutory and regulatory changes, including, but not limited to,
adjustments to FICA, federal and/or state unemployment taxes and
workers, compensation; and/or
(ii) changes in the information supplied on Exhibit A (Confidential Census)
initiated by Client to the extent that such change, when applied to
the recalculation of the fee rate percentage, causes an increase or
decrease of at least one fee rate percentage point.
6.4 In addition to the foregoing, during any Extended Term, Administaff may
adjust the fee rate percentage upon thirty (30) days written notice to Client.
6.5 Any increases in the fee rate percentages for statutory or regulatory
changes in employment taxes, insurance costs or job functions shall be effective
on the date of such statutory or regulatory increase or change.
6.6 Any increase in the fee will be billed with the next effective payroll and
be kept current at all times except for retroactive changes or statutory and/or
regulatory changes unknown at the time the payroll is billed.
6.7 Any change in the fee rate percentage shall be reflected in a revised
Exhibit B which shall then be made apart of this Agreement.
6.8 The fee provided for by this Agreement shall be due and payable at least
one (1) working day prior to the date of payroll delivery.
6.9 Client shall use a method of payment approved in advance by Administaff.
6.10 Client or on-site supervisor shall report to Administaff all time worked by
all Administaff employees furnished to Client each pay period and shall provide
Administaff with written verification of same.
6.11 Client shall notify Administaff within two (2) working days of any error in
billing.
6.12 Client shall reimburse Administaff for services not contemplated by this
Agreement which may be required by Client.
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VII. INSURANCE
7.1 Administaff shall furnish, and keep in full force and effect at all times
during the term of this Agreement, worker's compensation insurance covering all
Administaff employees furnished to Client pursuant to the terms of this
Agreement. Upon written request by Client, Administaff shall furnish a
certificate of insurance verifying such coverage.
7.2 Client shall furnish, and keep in force and effect at all times during the
term of this Agreement, comprehensive general liability insurance including
products/completed operations coverage with minimum limits of $1,000,000 per
occurrence and $2,000,000 aggregate. Client shall cause its insurance carrier to
issue a certificate of insurance to Administaff, Inc. confirming this coverage
and to give not less than thirty (30) days advance notice of cancellation or
material change.
7.3 Client shall furnish, and keep in force and effect at all times during the
term of this Agreement, comprehensive automobile liability insurance covering
all owned. hired and non-owned automobiles with a minimum limit of $1,000,000
per occurrence combined single limit bodily injury and property damage
liability. The policy shall also provide uninsured motorists insurance with a
minimum combined single limit of Sixty Thousand Dollars ($60,000.00). In states
where "no fault" laws apply, Personal Injury Protection (P.I.P.) or equivalent
coverage shall be required to meet the requirements of the state. The client
shall cause its insurance carrier to issue a certificate of insurance to
Administaff, Inc. confirming this coverage and to give not less than thirty (30)
days advance notice of cancellation or material change.
7.4 Client shall deliver copies of all insurance certificates required
pursuant to this Article signed by authorized representatives of the insurance
companies to Administaff within fifteen (15) days of the commencement date of
this Agreement.
VII. EMPLOYMENT AGREEMENT
Each employee furnished by Administaff to Client and listed on Exhibit A shall
be required to execute an Employment Agreement as set forth in Exhibit C
(Employment Agreement Form) before such employee shall commence the term of
assignment with Client.
IX. DEFAULT
9.1 Acts of default by Client shall include, but are not limited to:
a. failure of Client to pay a fee when due;
b. failure of Client to comply within thirty (30) days of any directive
of Administaff, when such directive is promulgated or made necessary
by; (i) a federal. state or local governmental body, department or
agency; or (ii) an insurance carrier providing coverage to Administaff
and/or its employees;
c. direct payment of taxable wages by Client to Administaff employees for
services contemplated by this Agreement;
d. commission or omission of any act that usurps any right or obligation
of Administaff as an employer of the employees covered by this
Agreement; and/or,
e. violation by Client of any provision of this Agreement.
9.2 In the event Administaff incurs any expenses, fines and/or liabilities as
a result of an act of default by Client as set forth above, Client shall
reimburse Administaff for all actual expenses, fines and/or liabilities,
including, but not limited to. reasonable attorneys' fees, court costs and any
related expenses.
9.3 In the event that this Agreement is terminated due to a default by Client,
Client shall pay Administaff a sum equal to the fee rate percentage multiplied
by the estimated gross payroll for the remaining contract period as liquidated
damages, but such payment does not release Client from its obligations under
this Agreement, or from liability for future breach of such obligations.
9.4 Upon an act of default by Client other than under Paragraph 9.1c above,
Administaff shall have the option, in its sole and absolute discretion, of
terminating this Agreement, and in the event Administaff exercises such option,
this Agreement shall, terminate on the date written notice of same is delivered
to Client. In the event, however, of an act of default by Client under Paragraph
9.1c. above, Administaff shall have the option in its sole and absolute
discretion of terminating this Agreement effective on the date of such act.
X. INDEMNITY
10.1 Client hereby agrees to indemnify, defend and hold Administaff harmless
from and against any and all liability, expense (including court costs and
attorneys' fees) and claims for damage of any nature whatsoever, whether known
or unknown and whether direct or indirect, as though expressly set forth and
described herein, which Administaff may incur, suffer, become liable for or
which may be asserted or claimed against Administaff as a result of the acts,
errors or omissions, including negligent acts and statutory violations, of
Client.
10.2 Administaff hereby agrees to indemnify, defend and hold Client harmless
from and against any and all liability, expense (including court costs and
attorneys' fees) and claims for damage of any nature whatsoever, whether known
or unknown and whether direct or indirect, as though
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<PAGE>
expressly set forth and described herein, which Client may incur, suffer, become
liable for or which may be asserted or claimed against Client as a result of the
acts, errors or omissions. including negligent acts and statutory violations, of
Administaff.
10.3 Client and Administaff expressly agree that the indemnification provisions
of this Agreement shall not be limited to claims, expenses, or liabilities for
which one of them is solely liable, but shall also apply to claims, expenses and
liabilities for which client and Administaff are jointly and concurrently
liable. In such event, if either of them advances funds in connection with a
claim, expense or liability which is subject to this Article X in excess of its
pro rata share, said party shall be indemnified by the other party hereto for
such excess amounts.
XI. MISCELLANEOUS
11.1 This Agreement may be amended from time to time as agreed by the parties
in writing. Such amendment shall become effective on the date so designated when
signed by both Administaff and Client.
11.2 Client and Administaff warrant and represent to each other that, prior to
the commencement of this Agreement no separate agreements or arrangements exist
that would obligate Client or Administaff except as set forth herein.
11.3 Client and Administaff agree to immediately report to each other all
accidents and injuries involving Administaff employees assigned to Client.
11.4 Client agrees to comply, at its sole cost and expense, with any applicable
specific directives promulgated by: (i) a federal, state or local governmental
body, department or agency, (ii) an insurance carrier providing coverage to
Administaff and/or its employees affecting this Agreement and/or (iii)
Administaff as made necessary by circumstances which currently or specifically
affect Administaff, Client or Administaff's employees.
11.5 This Agreement is between Administaff and Client and creates no individual
rights of Administaff employee as against Client.
11.6 Administaff and Administaff's workers' compensation insurance carrier
shall have the right to inspect Client's premises, including any job site to
which Client assigns Administaff's employees. To the extent possible, such
inspection shall be scheduled at a mutually convenient time.
XII. ARBITRATION
12.1 Administaff and Client agree and stipulate that all claims, disputes and
other matters in question between Administaff and Client arising out of, or
relating to this Agreement or the breach thereof will be decided by arbitration
in accordance with the Federal Arbitration Act (9 U.S.C. (S)(S) 10 and 11) and
the Commercial Arbitration Rules of the American Arbitration Association then
obtaining subject to the limitations of this Article XII. This agreement to so
arbitrate and any other agreement or consent to arbitrate entered into in
accordance herewith as provided in this Article XII will be specifically
enforceable under the prevailing law of any court having jurisdiction.
12.2 Notice of the demand for arbitration will be filed in writing with the
other party to the Agreement and with the American Arbitration Association. The
demand for arbitration shall be made within a reasonable time after the claim,
dispute or other matter in question has arisen, and in no event shall any such
demand be made after the date when institution of legal or equitable proceedings
based on such claim, dispute or other matter in question would be barred by the
applicable statute of limitations.
12.3 No arbitration arising out of or relating to, this Agreement shall include
by consolidation, joinder or in any other manner any other person or entity who
is not a party to this contract unless:
a. the inclusion of such other person or entity is necessary if complete
relief is to be afforded among those who are already parties to the
arbitration, and/or such other person or entity is substantially
involved in a question of law or fact which is common to those who are
already parties to the arbitration and which will wise in such
proceedings, and,
b. the written consent of the other person or entity sought to be
included and Administaff and Client has been obtained for such
inclusion, which consent shag make specific reference to this
paragraph; but no such consent shall constitute consent to arbitration
of any dispute not specifically described in such consent or to
arbitration with any party not specifically identified in such
consent.
12.4 The award rendered by the arbitrators will be final, judgment may be
entered upon it in any court having jurisdiction thereof and will not be subject
to modification or appeal except to the extent permitted by Sections 10 and 11
of the Federal Arbitration Act (9 U.S.C. (S)(S) 10 and II).
XIII. ASSIGNMENT
Neither party shall assign this Agreement or its rights and duties hereunder, or
any interest heroin, without the prior written consent of the other party.
XIV. ATTORNEYS' FEES
The prevailing party in any enforcement action arising in respect to this
Agreement shall be entitled to recover from the other party all costs of such
enforcement action including, without limitation, reasonable attorneys' fees,
court costs and related expenses.
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XV. GOVERNING LAW
EXCEPT FOR ARTICLE XII OF THIS AGREEMENT, WHICH SHALL BE GOVERNED BY THE FEDERAL
ARBITRATION ACT (9 US.C. (S)(S) 10 AND 11), THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS.
XVI. ENTIRE AGREEMENT
This instrument, including the Exhibits attached hereto, contains the entire
Agreement of the parties and supersedes all prior and contemporaneous agreements
or understandings, whether written or oral, with respect to the subject matter
hereof. No amendment or modification hereto shall be valid unless in writing and
signed by both parties hereto.
XVII. SEVERABILITY
If any provision of this Agreement, or any amendment thereof, should be invalid,
the remaining provision shall remain in effect and be so construed as to
effectuate the intent and purposes of this Agreement and any amendments thereto.
XVIII. NOTICES
All notices, requests and communications provided hereunder shall be in writing,
and hand delivered or mailed by United States registered, certified, or express
mail, return receipt requested, and addressed to the party's principal place of
business as set forth in this Agreement adjacent the signature of each party (of
to such other address provided in writing by such party).
XIX. WAIVER
The waiver by either party hereto of a breach of any term or provision of this
Agreement shall not operate or be construed as a waiver of a subsequent breach
of the same provision by any party or of a breach of any other term or provision
of this Agreement.
XX. EXHIBITS
The following exhibits are attached to this Agreement and incorporated herein by
reference for all purposes:
A. Exhibit A ("Confidential Census");
B. Exhibit B ("Client Service Application"); and,
C. Exhibit C ("Employment Agreement Form").
THIS AGREEMENT is duly executed this 1st day of July, 1997.
FOR CLIENT: GARDEN ESCAPE, INC. ADMINISTAFF COMPANIES, INC.
----------------------------
19001 Crescent Springs Drive
Kingwood, Texas 77339-3802
(800)237-3170
By: /S/ James N. O'Neill By: /S/ Jay E. Mincks
---------------------------- ---------------------------
(Signature) Vice President Vice President
James N. O'Neill
----------------------------
(Name-Typed or Printed)
Address: ______________________
_____________________
_____________________
_____________________
Tel. No: _____________________
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ADDENDUM
This Addendum is attached to and made a part of that certain Client Service
Agreement (the Agreement) of even date, between Administaff Companies, Inc.
(Administaff), and Garden Escape, Inc., (Client). In the event of a conflict
between this Addendum and the Agreement, this Addendum shall control.
ARTICLE II. TERM OF AGREEMENT
Article II, Term of Agreement, shall be amended to read as follows:
"This Agreement shall commence on the 7/1/97 and
-------------------------------
shall remain in force and effect until terminated as provided herein.
Either Administaff or Client may terminate this Agreement by giving thirty
(30) days prior written notice."
ARTICLE III. ADMINISTRATION
Article III, Administration, Paragraph 3.2. preamble, shall be amended to
read as follows:
"3.2 Administaff is the employer of those persons furnished to Client and
listed on Exhibit "A" (the "Employees") and is liable as such for the
following purposes."
Article III, Administration, Paragraph 3.2 a., shall be amended to read as
follows:
"a. compliance with rules and regulations governing the reporting and
payment of all federal and state taxes on payroll wages paid under
this Agreement and the co-employment relationships existing between
Client and the Employees (provided that, and only to the extent that,
such relationships have first been fully disclosed to Administaff's
Account Executive so as to permit such compliance) including, but not
limited to: (i) federal income tax withholding provisions of the
Internal Revenue Code; (ii) state and/or local income tax withholding
provisions, if applicable; (iii) Federal Insurance Contributions Act
(FICA); (iv) Federal Unemployment Tax Act (FUTA); and (v) applicable
state unemployment provisions;
Article III, Administration, Paragraph 3.2 f., shall be amended to read as
follows:
"f. procuring and providing employee benefits and compliance with ERISA
with respect to the benefits procured or provided;"
Article III, Administration, Paragraph 3.2 j., shall be amended to read as
follows:
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"j. assignment to, and ownership of all intellectual property rights
including, but not limited to, inventions, whether patentable or not,
and patents resulting therefrom, copyrights, trademarks, and trade
secrets and all confidentiality agreements regarding proprietary
information;"
Article III, Administration, Paragraph 3.3, shall be amended to add
subparagraph K. as follows:
"k. administration and management (including, but not by way of
limitation, ERISA compliance, tax reporting, and fiduciary
requirements) of any Client sponsored stock option, equity based,
deferred or other incentive compensation plan provided by Client."
Article III, Administration, Paragraph 3.4.c., shall be amended to read as
follows:
"c. compliance with the Employee Retirement Income Security Act (ERISA)
(except as provided by 3.2 f., 3.3 i., and 3.3 k above);"
ARTICLE IV. SUPERVISION
Article IV., Supervision, shall be amended to read as follows:
"Administaff shall designate one or more on-site supervisors from among its
employees furnished to Client and listed on Exhibit A as supervisory
employees. On-site supervisors shall direct operational and administrative
matters relating to services provided by Administaff's employees and shall
carry out Administaff's policies and procedures formulated in accordance
with Paragraph 3.4 h., above."
ARTICLE VI. SERVICE FEE
Article VI., Service Fee, Paragraph 6.3 preamble shall be amended to read
as follows:
"6.3 ADMINISTAFF shall not adjust the fee rate percentage for CLIENT more
often than once annually during the term of this Agreement except for
adjustments made necessary by:"
Article VI., Service Fee, Paragraph 6.5 shall be amended to read as
follows:
"6.5 Any increases in the fee rate percentages for statutory or regulatory
changes in employment taxes, insurance costs or job functions shall be
effective on the date of such statutory or regulatory increase or change
provided that Administaff has given Client reasonably timely notice of such
change (except, however, that job function changes made by Client shall
require no such notice)."
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Article VI., Service Fee, Paragraph 6.11 shall be amended to read as
follows:
"6.11 Client shall use its best efforts to notify Administaff within two
(2) days of any error in billing."
Article VI., Service Fee, shall be amended to add Paragraph 6.13 as
follows:
"6.13 Bonuses are compensation paid to leased employees in excess of the
wages that are contemplated as part of the employee's regular pay under
this Client Service Agreement (as set forth in Schedule A). Client and
Administaff agree that a bonus may be paid to each leased employee no more
frequently than twice per employee per calendar quarter. Any compensation
in excess of the compensation that is contemplated as part of the leased
employees regular pay which is paid more frequently than twice per calendar
quarter shall be deemed to be a commission and shall be subject to
application of the fee rate percentage described in paragraph 6.1 and on
Schedule B for the calculation of the service fee due Administaff in
accordance with paragraph 6.2 of this Agreement. When bonuses are paid in
accordance with this paragraph, Administaff's service fees shall be
calculated by adding the direct payroll expenses associated with the
employee's bonus pay, including applicable FICA, federal and state
unemployment taxes and insurance, workers' compensation, and a check
writing fee of fifteen dollars per bonus check.
When a bonus is reported to the Account Executive from the Client, the
Account Executive will verify that wages contemplated by the Client Service
Agreement as set forth in Schedules A and B have, in fact, been paid, and
all service fees have been collected. Once this verification has been made,
the terms of this paragraph shall apply."
ARTICLE IX. DEFAULT
Article IX., Default, Paragraph 9.1 b., shall be amended to read as
follows:
"b. failure of Client to comply within forty-five (45) days of any
directive of Administaff, when such directive is promulgated or
made necessary by: (i) a federal, state or local government body,
department or agency; or (ii) an insurance carrier providing
coverage to Administaff and/or its employees;"
Article IX., Default, Paragraph 9.1 d., shall be amended to read as
follows:
"d. commission or omission of any act that usurps any right or
obligation, as stated in Paragraphs 3.2 and 3.4 above, of
Administaff as an employer of the employees covered by this
Agreement; and/or"
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Article IX., Default, Paragraph 9.1 e., shall be amended to read as
follows:
"a. a material violation by Client of any provision of this
Agreement,"
Article IX, Default, Paragraph 9.3, shall be deleted in its entirety:
Article IX, Default, Paragraph 9.4, shall be amended to read as follows:
"9.4 Upon an act of default by Client other than under Paragraph 9.1 a., or
9.1 c., Administaff shall give Client thirty (30) calendar days notice and
opportunity to cure prior to terminating this Agreement. If Client fails to
cure such default within thirty (30) days following delivery of notice of
the default to the Client's principal place of business as provided in
Article XVIII of this Agreement, Administaff shall have the option, in its
sole and absolute discretion, of terminating this Agreement and in the
event Administaff exercises such option, this Agreement shall terminate on
the date written notice of same is delivered to Client. In the event,
however, or an act of default by Client under Paragraph 9.1 a or 9.1 c
above, Administaff shall have the option in its sole and absolute
discretion of terminating this Agreement effective on the date of such
act."
ARTICLE X. INDEMNITY
Article X., Indemnity, Paragraph 10.3, shall be amended to read as follows:
"10.3 Client and Administaff expressly agree that the indemnification
provisions of the Agreement shall not be limited to claims, expenses, or
liabilities for which one of them is solely liable, but shall also apply to
claims, expenses and liabilities for which Client and Administaff are
jointly or concurrently liable. In such event, if either of them advances
funds in connection with a claim, expense or liability which is subject to
this Article X in excess of its pro rata share, said, party shall be
indemnified by the other party hereto for such excess amounts, provided,
however, that in no event shall a party be liable to the other party for
losses caused by the party seeking indemnification."
ARTICLE XI. MISCELLANEOUS
Article XI., Miscellaneous, Paragraph 11.4 shall be amended to read as
follows:
"11.4 Client agrees to comply, at its sole cost and expense, with any
applicable specific directives promulgated by: (i) federal, state, or local
government body, department, or agency, (ii) an insurance carrier providing
coverage to Administaff and the Employees affected by this Agreement and/or
(iii) Administaff as made reasonably necessary by circumstances which
currently or specifically affect Administaff, Client or Administaff's
employees."
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Article XI., Miscellaneous, shall be amended to add Paragraph 11. 7 as
follows:
"11.7 Client and Administaff agree that client is the owner of the
proprietary interest in all intellectual property rights relating to the
operation of Client's business including, but not limited to, inventions
(whether patentable or not), and patents resulting therefrom, copyrights
and trade secrets and all confidentiality agreements regarding proprietary
information related to or associated with the work performed by the leased
employee that is conceived or developed by the leased employee while
assigned to the Client, and Administaff unconditionally transfers, conveys,
relinquishes, and releases to Client all right, title, interest, and claims
which Administaff has now or which it may acquire in the future with
respect to such proprietary interest or intellectual property right
relating to the operation of Client's business."
This Addendum is executed and effective of even date with the Client
Services Agreement Dated 7/1/97, between the parties hereto, to which it is
------
attached and incorporated by reference.
ADMINISTAFF COMPANIES, INC. GARDEN ESCAPE, INC.
By: /s/ Jay E. Minks By: /s/ James N. O'Neill
--------------------------- ------------------------------------
Jay E. Mincks James N. O'Neill
- ---------------------------- ------------------------------------
Printed Name Printed Name
Title: Vice President, Sales & Title: Vice President, Operations
Marketing
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EXHIBIT 10.10
SUBLEASE AGREEMENT
------------------
This Sublease Agreement ("Sublease Agreement") is dated this ____ day of
February, 1999, between HART GRAPHICS, INC., A TEXAS CORPORATION ("Sublessor")
and GARDEN ESCAPE, INC., a Delaware corporation ("Sublessee").
WHEREAS, Sublessor has leased the property located at 3301 Steck Avenue,
Austin, Texas 78757, including a building containing approximately 48,000 square
feet, more or less, said property being more particularly described in Exhibit
"A" attached hereto and made a part hereof (the "Premises") and Sublessee
desires to sublease a portion of the building from Sublessor, which portion
comprises approximately 26,625 square feet, more or less, and is more
particularly shown on the floor plan attached hereto as Exhibit "B" and made a
part hereof (the "Subpremises");
NOW, THEREFORE, in consideration of the rent reserved herein, the mutual
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged and confessed, Sublessor
has sublet and by these presents, does hereby sublet the Subpremises to
Sublessee, and Sublessee does hereby sublease the Subpremises from Sublessor,
subject to all of the following terms and provisions:
1. Assumption of rights and duties Under Lease Agreement. Sublessee
-----------------------------------------------------
acknowledges and agrees that Sublessee is taking possession of the Subpremises
subject to the Lease agreement dated January 1, 1995, between William L. Hart as
Lessor ("Lessor") and Hart Graphics, Inc. as Lessee, a copy of said lease being
attached hereto marked Exhibit "C" and made a part hereof (the "Lease
Agreement"). Except as may be inconsistent with the terms hereof, Sublessee
shall have all of the rights of Lessee under the Lease Agreement insofar as they
relate to the Subpremises and Sublessee agrees to assume, be bound by and timely
perform all of the covenants, duties and obligations of Lessee contained in the
Lease Agreement as they relate to the Subpremises arising from and after the
commencement date (other than the payment of rent, as this Sublease Agreement
sets forth Sublessee's obligation in that regard or any other provision which is
noted as not applicable to Sublessee herein). Except as may be inconsistent
with the terms hereof, all of the terms, covenants and conditions of the Lease
Agreement shall be applicable to this Sublease Agreement with the same force and
effect as if Sublessor was the lessor under the Lease Agreement and Sublessee
was the lessee thereunder. Lessor must approve this Sublease before it becomes
effective by agreeing to the terms set forth above the signature line for the
Lessor in this Sublease Agreement.
2. Rent. Sublessee agrees to pay Sublessor rent in monthly installments
----
of $11,715.00 (being $.44 monthly per square foot) during the Sublease Term, as
same may be adjusted during any Extended Term (the "Rent"), commencing on the
commencement date, with the Rent to be paid in advance on or before the first
(1st) day of each calendar month during the Sublease Term. The first month's
rent shall be reduced by fifty percent (50%) to $5,857.50 as Sublessor's
concession to Sublessee to assist Sublessee in their relocation to the
Subpremises. If the commencement date is a date other than the first day of a
calendar month, there shall be due and payable on said commencement date a
prorated amount of rent to Sublessor for the balance of the calendar month
during which said commencement date shall fall, with such prorated rent to be
calculated based upon that portion of the rent for a full month as herein
provided which the
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number of days from said commencement date to the end of the calendar month
during which said commencement date shall fall bears to the total number of days
in such calendar month.
3. Security Deposit. Sublessee agrees to deposit with Sublessor on the
----------------
effective date hereof the sum of $11,715.00 (equal to one month's rent) which
sum shall be held by Sublessor, without obligation for interest, as security for
the performance of Sublessee's covenants and obligations under this Sublease
Agreement, it being expressly understood and agreed that such deposit is not an
advance rental deposit or a measure of Sublessor's damages in case of
Sublessee's default. Upon the occurrence of any event of default by Sublessee,
Sublessor may, from time to time, without prejudice to any other remedy provided
herein or provided by law, use such funds to the extent necessary to make good
any arrears of rent and any other damage, injury, clean-up cost, expenses, or
liability caused by such uncured event of default; and Sublessee shall pay to
Sublessor on written demand the amount so applied in order to restore the
security deposit to its original amount. If there is no event of default by
Sublessee in existence, any remaining balance of such deposit shall be returned
by Sublessor to Sublessee no later than thirty (30) days after the termination
or expiration of this Sublease Agreement.
4. Term of Sublease; Occupancy Of Subpremises. The term of this Sublease
------------------------------------------
Agreement shall commence on the earlier of (a) April 10, 1999, or (b) the date
Sublessee occupies the Subpremises, other than the portion of the Subpremises
Sublessor is allowing Sublessee to occupy immediately as set forth herein (the
"commencement date"), and shall end at midnight thirty-eight (38) months after
the commencement date ("Sublease Term"). Sublessor will allow Sublessee to take
possession of the North end ("L") space of the Subpremises (comprising
approximately 2,000 - 3,000 square feet of the Subpremises as shown on Exhibit
"B" attached hereto and made a part hereof) on the effective date of this
Sublease Agreement. Sublessor agrees to vacate the remainder of the Subpremises
no later than March 8, 1999, which is the date the parties contemplate the
Sublessee will commence its finish-out activities on the Subpremises.
5. Utilities. Sublessee will be responsible for securing and placing in
---------
Sublessee's name all utilities to the entire Premises starting on March 8, 1999,
and Sublessee will be responsible for paying for all utilities to the Premises
from such date, including, but not limited to, gas, electric, water and
wastewater. Sublessor and Sublessee acknowledge and agree that Sublessor will
remain in possession of a portion of the Premises, which portion of the Premises
needs only electric lighting to serve Sublessor's needs (no water, heating, air-
conditioning or gas services are needed by Sublessor). As a consequence,
Sublessor and Sublessee shall mutually agree on Sublessor's fair share of the
electric bill that Sublessee receives considering Sublessor's lighting needs and
the portion of the Premises being used by Sublessor, and Sublessor shall timely
pay such fair share of the prorated electric bill to Sublessee. If Sublessor
uses gas, water, wastewater, heating or air conditioning at any time in the
future, the parties shall negotiate in good faith Sublessor's fair and equitable
portion of such bills.
6. Operating Expenses; Proration. Sublessor and Sublessee acknowledge that
-----------------------------
this is a "triple net" sublease, and that in addition to the Rent payments
described herein, Sublessee shall be responsible for timely paying all real
estate taxes due on the Subpremises, the Sublessor's cost of insurance, and
certain amounts being paid for common area maintenance (collectively "Triple Net
Expenses"), provided, however, that Triple Net Expenses shall not include any
items of a capital nature or properly chargeable to a capital account under
generally accepted accounting
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principles, depreciation of the building and related components and debt service
payments. Sublessee shall also pay to Sublessor the sum of $.08 per square foot
per month (being $.0625 for 1999 real estate taxes and $.0175 for the current
insurance costs and common area maintenance costs) in advance on the first day
of each calendar month during the Sublease Term as an estimated payment of
Triple Net Expenses. If the commencement date is a date other than the first day
of a calendar month, there shall be due and payable on said commencement date a
prorated amount of such payment to Sublessor for the balance of the calendar
month during which said commencement date shall fall, with such prorated payment
to be calculated based upon that portion of such payment for a full month as
herein provided which the number of days from said commencenient date to the end
of the calendar month during which said commencement date shall fall bears to
the total number of days in such calendar month. At the end of each calendar
year, upon receipt of the actual amount of Triple Net Expenses from the
Sublessor in writing, Sublessee will pay to Sublessor the additional amounts due
within thirty (30) days if Sublessee's monthly Triple Net Expenses payments have
been insufficient to cover all of the Triple Net Expenses, or, Sublessor will
refund to Sublessee any such amounts overpaid by Sublessee within thirty (30)
days. For purposes of determining prorata portions of all Triple Net Expenses
and other items payable under this Sublease Agreement, Sublessor and Sublessee
agree that the Premises contain a total of 48,000 square feet of space, and the
Subpremises contain a total of 26,625 square feet of space. Based on those
figures, Sublessor's prorata portion is 44.54% and Sublessee's prorata portion
is 55.46%. Sublessee may dispute the claimed amount of Triple Net Expenses by
Sublessor within 30 days after Sublessor's written notice of the claimed Triple
Net Expenses is given to Sublessee. If Sublessee does dispute the amount of
Triple Net Expenses, Sublessee shall nonetheless promptly pay the Sublessor the
Triple Net Expenses in full, until the actual amount of Triple Net Expenses is
finally determined as set forth below. If the dispute in the actual amount of
the Triple Net Expenses is not amicably settled between Sublessor and Sublessee
within 30 days after Sublessee's notice to Sublessor, either party may require
that during the 15 days after the expiration of such 30 day period, the disputed
item or items be referred to a reputable independent certified public
accountant, which certified public accountant must be mutually agreed to by the
parties, and the decision of such certified public accountant shall be
conclusive and binding upon Sublessor and Sublessee. The expenses involved in
such determination shall be borne by the party against whom a decision is
rendered, provided that (a) if more than one item or number of items is
disputed, then the expenses shall be apportioned according to monetary value of
the items decided against each party, and (b) Sublessee shall pay all such
expenses if the monetary value of the items decided is different by an amount of
less than 5% from the original amount claimed by Sublessor. Sublessor shall
reimburse Sublessee any overage paid within five business days after final
determination of the Triple Net Expenses.
7. Sublessee's proposed use of Subpremises. Sublessee understands and
---------------------------------------
acknowledges that the Lease Agreement has restrictions regarding the permitted
use of the Premises. Sublessee represents that the Sublessee's proposed use of
the Subpremises is as follows:
Use as warehouse and/or office space and all uses related or incident to
the foregoing, including distribution.
Sublessee will not operate any other kind of business on the Subpremises or use
the Subpremises for any other kind of purpose, except as may otherwise be
expressly permitted in this Sublease Agreement.
3
<PAGE>
8. Sublessor's obligations and representations. Sublessor shall continue
-------------------------------------------
to pay Rent and all other amounts due under the Lease Agreement and perform all
the other obligations of lessee with respect to the Lease Agreement as they
become due and/or performable, which payments and obligations shall be paid and
performed in full not later than the time at which they are respectively due.
Sublessor shall immediately forward each and every payment received from
Sublessee, dollar for dollar, whether for rent or other obligation hereunder,
directly to the Landlord as a payment under the Lease Agreement but only to the
extent of required payments under the Lease Agreement. Sublessor shall
immediately notify Sublessee of any default or event of default or notice of
default or event of default (or event, which with the passage of time could
become a default or event of default) under the Lease Agreement. In the event
there is a default in any payment or performance by Sublessor under the Lease
Agreement which is not timely cured by Sublessor, then Sublessee may correct
said default or defaults by payment or performance thereof, and the amount of
any funds expended by Sublessee as are reasonably necessary to correct any such
uncured default shall be considered a payment under this Sublease Agreement and
any payment so made and reasonable expenses incurred and paid in connection
therewith (including reasonable attorney's fees) shall be credited and applied
to the payments and amounts due hereunder as if directly paid thereunder, and
from that date on, any and all amounts due under the Lease Agreement may, at
Sublessee's discretion, be paid directly to the Landlord, with all other amounts
due under this Sublease Agreement to still be paid by Sublessee directly to
Sublessor. Sublessor represents that the Lease Agreement is in full force and
effect, that no event of default exists thereunder, and that no other event
exists, which with the passage of time or giving of notice, could become an
event of default.
9. Parking. Sublessee shall be entitled to use 150 parking spaces on the
-------
Premises on a non-exclusive basis without any further payment. The primary lot
that Sublessee will be entitled to use for such parking is located directly east
of the southeast comer of the building (on the north side of the access drive to
Shoal Creek Boulevard from the south side of the building), and secondary lots
for such parking are located on the paved area on the north side of the
warehouse and in the area directly south of the primary lot on the south side of
the access drive to Shoal Creek Boulevard.
10. Sublessor's construction of new dock area on Premises and Sublessor's
---------------------------------------------------------------------
continued use of Subpremises. Sublessor and Sublessee acknowledge and agree
- ----------------------------
that Sublessor's subleasing of the Subpremises to Sublessee will not leave
Sublessor with a dock, overhead door and truck apron necessary to provide access
to the remaining portion of the Premises that Sublessor will continue to occupy.
Sublessor intends to commence to construct such dock, overhead door and truck
apron promptly after this Sublease Agreement is fully executed by the parties.
Sublessee agrees to allow Sublessor to use the dock, overhead door and truck
apron located on the north end of the Subpremises and reasonable access across
the Subpremises to the remaining part of the Premises until Sublessor completes
the construction of Sublessor's dock, overhead door and truck apron so long as
Sublessor does not unreasonably interfere with Sublessee's use of the
Subpremises. Sublessor and Sublessee agree to abide by each other's reasonable
rules and regulations regarding security, safety and confidentiality, and
Sublessee agrees to provide Sublessor with reasonable access, including keys and
access codes, to the spaces described in this paragraph. Sublessor discloses to
Sublessee that Sublessor's intended location for its new dock, overhead door and
truck is set forth on Exhibit "B" attached hereto and made a part hereof.
4
<PAGE>
11. Sublessor's removal of personal property; Sublessee's use of
------------------------------------------------------------
Sublessor's scale. Sublessor agrees to remove from the Subpremises the box
- -----------------
crusher, pallet wrapper and any rolling stock currently located on the
Subpremises no later than March 8, 1999. Sublessor and Sublessee agree that the
scale built into the floor of the Subpremises shall remain on the Subpremises
and Sublessee, shall be allowed to use the scale; provided, however, Sublessee
agrees to maintain the scale in the same working condition as of the effective
date hereof during the Sublease Term and Sublessee agrees to leave the scale in
same working condition as of the effective date hereof at the expiration or
termination of this Sublease Agreement.
12. Finish-out construction; Alterations and Improvements; Condition of
-------------------------------------------------------------------
Subpremises; Limited warranty as to HVAC; Planting of Garden; Signage.
- ---------------------------------------------------------------------
Sublessor and Sublessee agree and acknowledge that Sublessor shall not be
required to do any renovation, remodeling, alteration, improvement or
refurbishing of the Subpremises in connection with this Sublease Agreement,
except that Sublessor shall be responsible for securely partitioning the
Subpremises from the remaining portion of the Premises which will continue to be
occupied by Sublessor promptly after Sublessor's completion of the new dock
area, overhead door and truck apron as contemplated in paragraph 10 above.
However, Sublessee, at Sublessee's sole cost and expense, intends to construct
improvements and/or remodel the Subpremises (the "finish-out"). As to the
finish-out and any other renovation, remodeling alteration, improvement or
refurbishing of the Subpremises, Sublessee, must first secure the prior written
consent of Sublessor and Lessor as to the finish-out and any other proposed
renovation, remodeling, alteration, improvement or refurbishing including the
design, location and plans and specifications relating to same. Sublessee
agrees to accept possession of the Subpremises, including any security system,
in its "AS-IS CONDITION" and "WITH ALL DEFECTS", with the exception that
Sublessor will give Sublessee a limited warranty that the heating, air-
conditioning and ventilation systems used in connection with the Subpremises
will remain in good working order for a period of ninety (90) days from the
commencement date. Sublessor acknowledges that Sublessee desires to plant an
outdoor garden on the Premises for the use and enjoyment of Sublessee and
Sublessee's employees, and in connection with such garden, Sublessee must secure
the prior written consent of Sublessor as to the design and location of the
garden to be planted. Sublessee acknowledges and agrees that Sublessee will not
be allowed to construct or operate a dog run on the Subpremises. Sublessor
acknowledges and agrees that Sublessee shall be allowed to construct one large
lighted sign on the west side of the building to be visible from North MoPac
Expressway; provided, however, Sublessee must secure the prior written consent
of Sublessor as to the design, location and size of such sign, which consent
shall not be unreasonably withheld. Sublessor acknowledges that Sublessee and
its employees shall be entitled to have dogs in the Subpremises as long as such
dogs do not create a nuisance to Sublessor and adjacent property owners and
their respective employees, agents, guests and invitees.
13. Renewal Options. Provided Sublessee is not in default under this
---------------
Sublease Agreement, Sublessee shall have the right to extend the Sublease Term
for two (2) additional two (2) year terms (collectively, the "Extended Terms")
under the following terms and conditions (the First Renewal Option and the
Second Renewal Option described below are collectively referred to as the
"Renewal Options"):
5
<PAGE>
a. First Renewal Option: Sublessee shall have the option to extend the
--------------------
Sublease Term for an additional two (2) year period by giving Sublessor written
notice as provided herein (the "First Extended Term"). If Sublessee is in
default under this Sublease Agreement on the expiration date of the Sublease
Term, this Sublease Agreement and the First Renewal Option shall be deemed to be
terminated and of no further force and effect and any remaining options shall be
null and void. In the event this Sublease Agreement has not been terminated and
Sublessee exercises this First Renewal Option, the First Extended Term shall
commence on the day following the expiration date of the Sublease Term.
b. Second Renewal Option: Sublessee shall have the option to extend the
---------------------
First Extended Term for an additional two (2) year period by giving Sublessor
written notice as provided herein (the "Second Extended Term") under the
following additional terms and provisions: (i) Sublessee shall have no right to
exercise the Second Renewal Option if the First Renewal Option has not been
exercised by Sublessee, (ii) Sublessee shall have no right to exercise the
Second Renewal Option in the event Sublessor determines in writing that
Sublessor will need the Subleased Premises for its own purposes (Sublessor shall
notify Sublessee no later than 150 days prior to the expiration of the First
Extended Term if Sublessor will need the Subleased Premises), (iii) if Sublessee
is in default under this Sublease Agreement on the expiration date of the First
Extended Term or if Sublessee receives the notice from Sublessor described in
(ii) above, this Sublease Agreement and the Second Renewal Option shall be
deemed to be terminated and of no further force and effect. In the event this
Sublease Agreement has not been terminated and Sublessee exercises this Second
Renewal Option, the Second Extended Term shall begin on the day following the
expiration date of the First Extended Term.
c. Exercise of Renewal Options: Sublessee must exercise the Renewal
---------------------------
Options by giving written notice to Sublessor of the exercise of the Renewal
Options not later than 180 days prior to the expiration of the Sublease Term, in
the case of the First Renewal Option, and not later than 180 days prior to the
expiration of the First Extended Term, in the case of the Second Renewal Option.
The Renewal Options will be effective only if exercised in accordance with these
provisions, and the failure of Sublessee to give written notice of the exercise
of a Renewal Option as provided herein shall be deemed conclusively to be an
election by Sublessee to waive such Renewal Options whereupon the Renewal
Options shall expire, terminate and be of no further force and effect.
Sublessee shall have no other right to renew this Sublease Agreement unless
subsequently agreed to in writing by Sublessor. If Sublessee timely exercises
the Second Renewal Option, Sublessor shall take all actions necessary to timely
and effectively exercise the Option to Extend Lease as described in Section 1.02
of the Lease Agreement.
d. Rent Escalation during Extended Terms: Sublessor and Sublessee
-------------------------------------
acknowledge and agree that Rent will be increased in the event any one or more
of the Renewal Options is exercised by Sublessee. Sublessee shall pay Rent
during the Extended Terms as follows:
<TABLE>
<CAPTION>
First Extended Term: $ 12er Square Foot Monthly Rent Annual Rent
<S> <C> <C> <C>
Year 1 $.49 $13,046.25 $156,555.00
Year 2 $.49 $13,046.25 $156,555.00
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Second Extended Term: $ per Square Foot Monthly Rent Annual Rent
<S> <C> <C> <C>
Year 1 $.53 $14,111.25 $169,335.00
Year 2 $.53 $14,111.25 $169,335.00
</TABLE>
e. Alterations or improvements in connection with Renewal Options.
--------------------------------------------------------------
Sublessor shall not be obligated to make any alterations or improvements to the
Subpremesises in connection with any Renewal Options that may be exercised by
Sublessee.
14. Sublessor's rights and privileges. Sublessor shall have the same
---------------------------------
rights and privileges reserved by the Lessor in the Lease Agreement, including
but not limited to, the following:
a. The right to approve all matters in the Lease Agreement that require
the consent of the Lessor, including, but not limited to, uses of the
Subpremises, insurance companies, subletting, assignments, encumbrances,
transfers, any additions, alterations or improvements to the Subpremises and
signage (which matters also require the prior written consent of the Lessor);
b. The right to receive the same notices the Lessor is entitled to
receive as set forth in the Lease Agreement;
c. The right to enter the Subpremises for repairs, replacement,
maintenance, inspection and other purposes as set forth in the Lease Agreement;
d. Rights of the Lessor upon a default as set forth in the Lease
Agreement; and
e. A landlords lien and security interest in all personal property of
Sublessee presently, or which may hereafter be situated, on the Subpremises, to
secure (1) payment of all rent or other sums of money coming due hereunder from
Sublessee, (2) all obligations that Sublessee is assuming or undertaking as set
forth in this Sublease Agreement, including those obligations Sublessee will
have as a lessee under the Lease Agreement. Sublessor acknowledges that this
lien and security interest is subordinate to all existing security interests in
such personal property and further that it shall be subordinate to all purchase
Money security interests granted by Sublessee hereafter. Sublessor agrees to
execute such documents as are necessary to evidence this subordination upon
commercially reasonably terms.
15. Indemnification. Sublessee shall indemnify and hold Sublessor and
---------------
Lessor, and their respective agents, employees, contractors, guests and
invitees, harmless from and against any and all damages, losses, costs, fees,
expenses, demands, claims, debts, liabilities, suits and actions, including all
court costs and attorney's fees incurred by Sublessor and/or Lessor, arising out
of the use or occupancy of the Subpremises by the Sublessee or caused by the
actions or omissions to act of Sublessee and/or Sublessee's agents, employees,
contractors, guests and invitees or arising out of a violation of applicable law
by Sublessee with respect to the Subpremises. Sublessor shall indemnify and hold
Sublessee and Sublessee's agents, employees, contractors, guests and invitees,
harmless from and against any and all damages, losses, costs, fees, expenses,
demands, claims, debts, liabilities, suits and actions, including all court
costs and attorney's fees incurred by Sublessee and/or Lessor, arising out of
the use or occupancy of the Subpremises prior to the date Sublessee occupies all
or part of the Subpremises or caused by the actions or omissions to act of
7
<PAGE>
Sublessor and/or Sublessor's agents employees, contractors, guests and invitees
or arising out of a violation of applicable law by Sublessor with respect to the
Subpremises.
16. Removal of Sublessee's property at expiration or termination of Lease
---------------------------------------------------------------------
Agreement. At the expiration or termination of this Sublease Agreement,
- ---------
Sublessee agrees to promptly remove all of its signage (including any outdoor
signs), equipment, office items, furnishings, and other personal property (other
than the equipment and items that will remain the property of Sublessor pursuant
to the terms of this Sublease Agreement) and leave the Subpremises in good and
"broom-clean" condition, and in the original condition the Subpremises were in
on the date Sublessee occupies all or part of the Subpremises, except for the
improvements to the Subpremises Sublessee is allowed by Sublessor to make as
provided herein and except for normal wear and tear.
17. Moving into and out of the Subpremises. Sublessee shall use extreme
--------------------------------------
care in moving its personal property into and out of the Subpremises, and shall
use padding and other prudent precautions to avoid damage to the Subpremises.
18. Assignments; encumbrances, etc. Sublessee shall not assign, transfer,
------------------------------
mortgage, pledge, hypothecate or encumber this Sublease or any interest herein
or sublet the Subpremises or any part thereof or permit the use of the
Subpremises by any party other than Sublessee, without the prior written consent
of Sublessor and Lessor which consent shall not be unreasonably withheld.
Sublessee shall not allow any liens to attach to the Subpremises or Premises,
and shall immediately secure the release of any and all such Hens.
19. Lessor's consent to sublease agreement. Lessor is executing this
--------------------------------------
document in the spaces provided below to reflect Lessors consent and approval to
the sublease of the Subpremises from Sublessor to Sublessee.
20. Broker Commissions. The Don Cox Company ("Cox") has served as broker
------------------
for and represented only Sublessee in connection with this Sublease Agreement.
NAI/Commercial Industrial Properties Company ("CIP") has served as broker for
and represented only Sublessor in connection with this Sublease Agreement. Upon
execution of this Sublease Agreement and the occurrence of the commencement date
(as defined in Section 4), Sublessor will pay Cox a commission equal to 4% of
the triple net rents (approximately $17,572.50) and CIP a commission equal to 2%
of the triple net rents (approximately $8,786.25) in full satisfaction of all
commissions due with respect to this Sublease Agreement. It is specifically
provided, however, that as to any Renewal Options that are exercised as provided
herein, Sublessor will pay Cox a commission equal to 2% of the triple net rents
and CIP a commission equal to 2% of the triple net rents, with such payment
being due on the first day of the applicable Extended Term. In addition, in the
event Sublessor leases additional space in the building ("Expansion Space"') to
Sublessee during the Sublease Term or any Extended Term, Sublessor will pay Cox
a commission equal to 4% of the triple net rents and CIP a commission equal to
2% of the triple net rents, with such payment being due on the first day
Sublessee moves into the Expansion Space. It is specifically provided, however,
that commissions due as to Renewal Options or Expansion Space will not be owed
by Sublessor to any entity which does not represent their respective party at
the time the commission is due and payable. Sublessor indemnifies and holds
Sublessee harmless from and against any and all liability and cost which
Sublessee may suffer in connection with any real estate
8
<PAGE>
broker seeking any commission, fee or payment in connection with the Sublease
Agreement. Sublessor and Sublessee represent that they have not used any other
real estate agents, real estate brokers or other third party in connection with
this transaction nor have they entered into any agreement, verbal or written,
with any other real estate agent, real estate broker or other third party for
the payment of any commission, fee or payment in connection with this
transaction. Sublessor and Sublessee agree to indemnify and hold each other
harmless from the payment of any commission, fee or payment of any such other
agent, broker or other third party claiming by, through or under the
indemnifying party for a fee, commission or payment by reason of this
transaction.
21. Miscellaneous Provisions.
------------------------
a. Attorney's Fees. In the event that either party brings suit for the
---------------
breach of this Sublease Agreement or of any condition, representation, covenant
or agreement contained herein, the prevailing party shall be entitled to recover
all reasonable attorney's fees, costs and expenses incurred by the prevailing
party in connection therewith from the non-prevailing party.
b. Notices. All notices, demands and requests required or permitted to
-------
be made or given hereunder shall be in writing and addressed to the party to
whom the notice is to be delivered and shall be deemed to have been properly
delivered and received (1) as of the date of actual delivery to the addresses
set forth below if personally delivered, or (2) upon deposit in a regularly
maintained receptacle for the United States mail, certified mail, return receipt
requested and postage prepaid, or upon deposit with an overnight delivery system
with all costs prepaid. All such notices, demands and requests shall be
addressed as follows:
SUBLESSOR: SUBLESSEE
--------- ---------
Hart Graphics, Inc. Garden Escape, Inc.
8008 Shoal Creek Blvd. 3301 Steck Avenue
Austin, Texas 78757 Austin, Texas 78757
Attn: William L. Hart Attn: James O'Neill
with a copy to: with a copy to:
-------------- --------------
Kenyon & Sproull, P.C. Reinhart, Boerner, Van Deuren,
711 San Antonio Street Norris & Rieselbach
Austin, Texas 78701 1000 N. Water Street
Attn: Steven H. Sproull Milwaukee, Wisconsin 53202
Attn: Martin McLaughlin
Either party may change the address to which notices are to be sent by giving
five (5) days prior written notice to the other party.
c. Authority. Each party represents and warrants to the other party that
---------
such party and the individual executing this Sublease Agreement on such party's
behalf have been granted the full legal right, power and authority to execute
this Sublease Agreement through all necessary corporate or other action and that
all formal requirements necessary or required by any law, rule or regulation
regarding its corporate existence (as applicable) have been fulfilled. The
parties shall present to each other all reasonable evidence of such authority
which may be reasonably
9
<PAGE>
requested in connection with this Sublease Agreement, including (if applicable)
a certified corporate resolution authorizing the applicable party to enter into
this Sublease Agreement and authorizing the officer signing this Sublease
Agreement on behalf of said party to execute same and bind the applicable party
to this Sublease Agreement.
d. Date of Deadlines. In the event that any of the deadlines set forth
-----------------
herein end on a Saturday, Sunday or legal holiday, such deadline shall
automatically be extended to the next day which is not a Saturday, Sunday or
legal holiday.
e. Texas Law to Apply. This Sublease Agreement and the rights and
------------------
obligations of the parties hereunder are performable in Travis County, Texas,
and shall be governed by and interpreted, construed and enforced in accordance
with the laws of the State of Texas. Venue shall lie in Travis County, Texas.
f. Parties Bound. This Sublease Agreement shall be binding upon and inure
-------------
to the benefit of the parties of this Sublease Agreement and their respective
heirs, executors, administrators, legal representatives, successors and assigns
(only as permitted herein).
g. Paragraph Headings. The paragraph headings or other headings contained
------------------
in this Sublease Agreement are for convenience only and shall not enlarge or
limit the scope or meaning of the substance of this Sublease Agreement.
h. Time of the Essence. Time is of the essence of this Sublease
-------------------
Agreement.
i. Gender. Words of any gender used in this Sublease Agreement shall be
------
held and construed to include any other gender, and words in the singular shall
be held to include the plural and vice versa unless the context requires
otherwise.
j. Legal Construction. Every provision in this Sublease Agreement is
------------------
intended to be severable. In the event any one or more of the provisions
contained in this Sublease 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 provision of this Sublease
Agreement, and this Sublease Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained in this Sublease
Agreement.
k. No Waiver. The failure of any party to insist upon strict performance
---------
of a covenant, duty or obligation hereunder, irrespective of the length of time
for which such failure continues, shall not be a waiver of such party's right to
demand strict compliance in the future. No consent or waiver, express or
implied, to or of any breach or default in the performance of any covenant, duty
or obligation hereunder shall constitute a consent or waiver to or of any other
breach or default in the performance of the same or any other covenant, duty or
obligation hereunder.
l. Capitalized Terms. All capitalized terms used but not defined herein
-----------------
shall have the meanings assigned to such terms in the Lease Agreement.
10
<PAGE>
m. Counterparts. This Sublease Agreement may be executed in one or more
------------
counterparts, each of which counterparts shall be deemed to be an original and
all of which shall constitute one and the same document.
n. Entire Agreement. This Sublease Agreement and the exhibits hereto set
----------------
forth the entire agreement between the parties, and no other statement,
agreement or understanding, oral or written, or amendment or modification to
this Sublease Agreement, will be recognized or enforced unless the same shall be
in writing and signed by all parties subsequent to the effective date hereof
This Sublease Agreement constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof. THIS SUBLEASE
AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
o. NOTICE AS TO DISCLAIMER OF WARRANTIES. SUBLESSOR HAS NOT MADE AND DOES
-------------------------------------
NOT MAKE ANY REPRESENTATIONS AS TO THE PHYSICAL CONDITION OF THE SUBPREMISES, OR
ANY OTHER MATTER AFFECTING OR RELATED TO THE SUBPREMISES. SUBLESSEE EXPRESSLY
AGREES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW AND EXCEPT AS TO THE LIMITED
WARRANTY GIVEN BY SUBLESSOR TO SUBLESSEE WITH REGARD TO HVAC AND THE
REPRESENTATIONS AND WARRANTIES MADE AT PARAGRAPH 21 (P) BELOW, THE SUBPREMISES
AND ANY PERSONAL PROPERTY LOCATED THEREON ARE ACCEPTED BY SUBLESSEE "AS-IS" AND
"WITH ALL FAULTS", AND SUBLESSOR EXPRESSLY DISCLAIMS, AND SUBLESSEE ACKNOWLEDGES
AND ACCEPTS THAT SUBLESSOR HAS DISCLAIMED, ANY AND ALL REPRESENTATIONS,
WARRANTIES OR GUARANTIES OF ANY KIND, ORAL OR WRITTEN, EXPRESS OR IMPLIED,
CONCERNING THE SUBPREMISES AND ANY PERSONAL PROPERTY, INCLUDING, WITHOUT
LIMITATION, THE VALUE, CONDITION, MERCHANTABILITY, HABITABILITY, MARKETABILITY,
PROFITABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, OF THE
SUBPREMISES AND THE PERSONAL PROPERTY. SUBLESSEE REPRESENTS THAT SUBLESSEE HAS
MADE ALL INSPECTIONS OF THE SUBPREMISES AND PERSONAL PROPERTY TO DETERMINE ITS
VALUE AND CONDITION DEEMED NECESSARY OR APPROPRIATE BY SUBLESSEE, INCLUDING,
WITHOUT LIMITATION, THE PHYSICAL AND OPERATING CONDITION OF THE SUBPREMISES AND
PERSONAL PROPERTY.
p. Environmental representations, warranties and indemnities.
---------------------------------------------------------
(i) Sublessor Representations and Warranties. Sublessor represents to
----------------------------------------
Sublessee that to the best of Sublessor's actual knowledge and belief, Sublessor
has no reports, studies or other information in its possession relating to the
presence or suspected presence of any Hazardous Material (as hereinafter
defined) on the Premises, but that Sublessor will promptly following its receipt
thereof, furnish to Sublessee full, accurate and complete copies of any such
reports, studies and other information hereafter obtained by Sublessor.
Sublessor represents and
11
<PAGE>
warrants to Sublessee that to the best of Sublessor's actual knowledge and
belief that (i) during Sublessor's possession of the Premises, any handling,
transportation, storage, treatment or usage of Hazardous Material that has
occurred on the Premises has been in compliance with all applicable federal,
state and local laws, regulations and ordinances, (ii) during Sublessor's
possession of the Subpremises, no leak, spill, release, discharge, emission or
disposal of any Hazardous Material has occurred on the Premises, (iii) the
Premises is free of any Hazardous Material as of the effective date of this
Sublease Agreement and (iv) there are no underground storage tanks located on
the Premises. "Hazardous Material" means any substance, material or waste which
is reasonably considered to pose an actual or potential threat to the health or
safety of persons entering the Premises and which is regulated as "hazardous",
"toxic" or which is under any similar designation by any local, state or federal
authority.
(ii) Indemnity by Sublessor. Sublessor hereby agrees to indemnify,
----------------------
defend and hold Sublessee harmless from any and all loss, cost, damage and
expense that arises before, during or after the Sublease Term as a result of (a)
the presence or suspected presence at any time after Sublessor took possession
of the Premises of any Hazardous Material in or on the Premises, regardless
(except as set forth below) of the source of such Hazardous Material, (b) the
installation at any time after Sublessor took possession of the Premises of any
underground storage tank on the Premises, or (c) the inaccuracy of any of the
representations and warranties made by Sublessor. The costs covered by the
Sublessor's indemnification include, without limitation, costs incurred in the
investigation of site conditions, reasonable fees of attorneys, engineers and
other consultants, costs and expenses incurred by Sublessee in exercising any of
its rights hereunder and any damages suffered as a result of any termination of
this Sublease Agreement in accordance with this Section. Excluded from the
Sublessor's indemnification shall be any loss, cost, damage or expense resulting
from the presence of any Hazardous Material or underground storage tank
introduced onto the Premises by a person or entity who is being indemnified
hereunder or their employees, agents, contractors, guests or invitees. This
indemnity shall survive the expiration or earlier termination of this Sublease
Agreement.
(iii) Sublessee Representations and Warranties. Sublessee represents
----------------------------------------
to Sublessor that (a) Sublessee will promptly notify Sublessor of the presence
or suspected presence at any time of any Hazardous Material in or on the
Subpremises or Premises of which Sublessee becomes aware, including any leak,
spill, release, discharge, emission or disposal of any Hazardous Material, and
(b) during Sublessee's possession of the Subpremises, any handling,
transportation, storage, treatment or usage of Hazardous Material will be in
compliance with all applicable federal, state and local laws, regulations and
ordinances.
(iv) Indemnity by Sublessee. Sublessee hereby agrees to indemnify,
----------------------
defend and hold Sublessor harmless from any and all loss, cost, damage and
expense that arises during or after the Sublease Term as a result of (a) the
presence or suspected presence at any time of any Hazardous Material in or on
the Premises or Subpremises introduced onto the Premises by Sublessee or
Sublessee's employees, agents, contractors, guests or invitees, (b) the presence
at any time of any underground storage tank on the Premises or Subpremises
introduced onto the Premises by Sublessee or Sublessee's employees, agents,
contractors, guests or invitees, or (c) the inaccuracy of any of the
representations and warranties made by Sublessee. The costs covered by the
Sublessee's indemnification include, without limitation, costs incurred in the
investigation of site conditions, reasonable fees of attorneys, engineers and
other consultants, costs and expenses
12
<PAGE>
incurred by Sublessor in exercising any of its rights hereunder and any damages
suffered as a result of any termination of this Sublease Agreement in accordance
with this Section. Excluded from the Sublessee's indemnification shall be any
loss, cost, damage or expense resulting from the presence of any Hazardous
Material or underground storage tank introduced onto the Premises by a person or
entity who is being indemnified hereunder or their employees, agents,
contractors, guests or invitees. This indemnity shall survive the expiration or
earlier termination of this Sublease Agreement.
q. Modifications to Lease Agreement. Notwithstanding the general
--------------------------------
applicability of the Lease Agreement to this Sublease Agreement in that all of
the terms, covenants and conditions of the Lease Agreement are applicable to
this Sublease Agreement with the same force and effect as if the Sublessor were
the Lessor under the Lease Agreement and Sublessee was the Lessee thereunder, it
is agreed and acknowledged by Sublessor and Sublessee that the following
provisions of the Lease Agreement have no force and effect herein and are
modified as more particularly set forth as follows:
(i) Increase in Rent. Sublessor and Sublessee agree that the rent and
----------------
operating expenses agreed to herein are not subject to change, modification or
revision except as set forth in paragraphs 2, 6 and 13 herein and that Section
2.01(b) of the Lease Agreement providing for a possible increase in monthly
rental to be determined by a possible third-party lender shall have no force and
effect.
(ii) Maintenance and Repair Obligations. Sublessor and Sublessee agree
----------------------------------
that Sections 4.01 and 4.02 of the Lease Agreement with respect to the
Subpremises are deleted and modified as follows:
(a) Sublessor's Repair and Maintenance Obligations. Sublessor shall,
----------------------------------------------
at its expense, maintain in good condition and repair, ordinary wear
and tear excepted, the building structure (other than doors and
windows), the foundation, load bearing walls, the roof, the parking
lot and the landscaped areas (other than the garden to be built and
maintained by Sublessee) surrounding the building and the parking lot
(Sublessee acknowledges that maintenance of the landscaped areas is
an expense that will be passed through to Sublessee on a prorata
basis as part of the Triple Net Expenses).
(b) Sublessee's Repair and Maintenance Obligations. Sublessee shall,
----------------------------------------------
as its expense, at all times during the Sublease Term keep and
maintain in good and sanitary order, condition and repair, ordinary
wear and tear excepted, the mechanical systems (including the
heating, ventilating, air conditioning, plumbing and electrical
systems) serving the Subpremises, as well as the garden described in
q(ii) (b) above and the interior of the Subpremises and all equipment
and fixtures therein, including windows, doors, interior walls,
floors and floor coverings, interior painting and wall coverings.
(iii) Insurance. Notwithstanding Section 9.01 of the Lease Agreement
---------
Sublessor and Sublessee acknowledge and agree that insofar as Sublessee is
paying for insurance costs relative to the Subpremises as a portion of Triple
Net Expenses, Sublessee shall not have any obligation to
13
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directly maintain insurance on the building or improvements on the Premises
(Sublessee shall not be relieved of its obligation to maintain liability
insurance as provided in Section 9.02 of the Lease Agreement).
r. Exhibits and Other Provisions. The following Exhibits and/or other
-----------------------------
provisions of this Sublease Agreement are attached hereto and incorporated
herein by reference for all intents and purposes:
Exhibit A: Description of Premises
Exhibit B: Description of Subpremises
Exhibit C: Lease Agreement
EXECUTED on the dates set forth below but to be effective as of the date
set forth above (the "effective date").
"SUBLESSOR"
HART GRAPHICS, INC., A TEXAS CORPORATION
By: /s/ William L. Hart Date: February 24, 1999
-----------------------------
Print Name: William L. Hart
---------------------
Title: Chairman
--------------------------
"SUBLESSEE"
GARDEN ESCAPE, INC., a Delaware corporation
By: /s/ James N. O'Neill Date: February 24, 1999
-----------------------------
Print Name: James N. O'Neill
-------------------
Title: Chief Operating Officer
--------------------------
14
<PAGE>
APPROVED AND AGREED BY LESSOR:
Lessor represents that the Lease Agreement is in full force and effect, that no
event of default exists thereunder, and that no other event exists, which with
the passage of time or giving of notice, could become an event of default.
Lessor hereby approves the foregoing Sublease Agreement, agrees to the
Sublessee's proposed use of the Subpremises as set forth in this Sublease
Agreement, and agrees to afford Sublessee all of the rights of Lessee under the
Lease Agreement insofar as they relate to the Subpremises. Lessor agrees to
provide Sublessee with a copy of all notices of default under the Lease
Agreement and the same opportunity to cure such defaults as given to the Lessee
under the Lease Agreement Notwithstanding the terms and provisions of the Lease
Agreement, Lessor hereby agrees that the Sublease Agreement shall govern and
control the relationship of Lessor and Sublessee, and Sublessee shall in no
event be deemed to have assumed the terms of the Lease Agreement except to the
extent that Sublessee has agreed under the Sublease Agreement to perform the
Sublessor's obligations as the Lessee under the Lease Agreement, as more
specifically set forth in the Sublease Agreement, it being understood and agreed
that so long as there is not a direct lease relationship between Sublessee and
Lessor, Sublessee's obligations under the Sublease shall inure only to the
benefit of Sublessor and not Lessor. Should (i) Lessor terminate Sublessor's
right to possession of the Premises in connection with a default by Sublessor
under the Lease Agreement, without terminating the Lease Agreement (ii) Lessor
terminate the Lease Agreement for any reason other than a condemnation or
casualty, or (iii) Sublessor, in bankruptcy, or its trustee in bankruptcy,
rejects the Lease Agreement, then so long as the Sublease Term has not expired
and Sublessee is not in default under the Sublease Agreement the Sublease
---
Agreement shall continue in full force and effect as a direct lease between
Lessor and Sublessee upon the same terms and conditions contained in the
Sublease Agreement, for the balance of the Sublease Term, including, but not
limited to, the extension rights of Sublessee thereunder (the "Direct Lease").
In such event, Sublessee agrees to attorn to Lessor and Lessor hereby agrees
that it will accept such attornment, not disturb Sublessee's possession of the
Subpremises so long as Sublessee is not in default under the Sublease Agreement
and Sublessee performs all obligations required of it under the Direct Lease.
"LESSOR"
/s/ William L. Hart Date: February 24, 1999
- -----------------------------
WILLIAM L. HART
15
<PAGE>
EXHIBIT "A"
Description of the Premises
2.8635 acres or 124,738 square feet of land, more or less, out of the James
Mitchell Survey Number 17, being all of the STECK VAUGHN SECOND SUBDIVISION, a
subdivision in Travis County, Texas, according to the map or plat thereof
recorded in Volume 87, Page 193C of the Plat Records of Travis County, Texas,
commonly known as 3301 Steck Avenue, Austin, Texas 78757.
<PAGE>
EXHIBIT "C"
WAREHOUSE LEASE
WILLIAM L. HART, LESSOR
Hart Graphics, Inc., LESSEE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1. TERM
(S)1.01 Term of Lease........................... 1
(S)1.02 Option to Extend Term................... 1
(S)1.03 Holdover................................ 2
ARTICLE 2. RENT
(S)2.01 Rent.................................... 2
(S)2.02 Place of Payment........................ 3
(S)2.03 Taxes and Assessments as Additional Rent 3
ARTICLE 3. USE OF PREMISES
(S)3.01 Permitted Use........................... 4
(S)3.02 Waste, Nuisance, or Illegal Uses........ 4
ARTICLE 4. REPAIRS AND MAINTENANCE
(S)4.01 Repairs and Maintenance by Lessee....... 4
(S)4.02 Lessee's Failure to Repair or Maintain.. 4
ARTICLE 5. UTILITIES AND GARBAGE REMOVAL
(S)5.01 Utility Charges......................... 5
(S)5.02 Garbage Removal......................... 5
ARTICLE 6. ALTERATIONS, ADDITIONS AND IMPROVEMENTS
(S)6.01 Consent of Lessor....................... 5
(S)6.02 Property of Lessor...................... 5
ARTICLE 7. TRADE FIXTURES AND SIGNS
(S)7.01 Trade Fixtures.......................... 6
(S)7.02 Signs................................... 6
ARTICLE 8. MECHANICS LIEN............................... 6
ARTICLE 9. INSURANCE AND INDEMNITY
(S)9.01 Property Insurance...................... 7
(S)9.02 Liability Insurance..................... 7
(S)9.03 Remedy for Failure to Provide Insurance. 7
(S)9.04 Hold-Harmless Clause.................... 8
(S)9.05 Waiver of Insured Loss.................. 8
(S)9.06 Subrogation of Insurance................ 9
ARTICLE 10. DAMAGE OR DESTRUCTION OF PREMISES
(S)10.01 Notice to Lessor........................ 9
(S)10.02 Total Destruction....................... 9
(S)10.03 Partial Destruction..................... 10
ARTICLE 11. CONDEMNATION
(S)11.01 Total Condemnation...................... 11
(S)11.02 Partial Condemnation.................... 11
(S)11.03 Condemnation Award...................... 11
ARTICLE 12. DEFAULT
(S)12.01 Default by Lessee....................... 12
(S)12.02 Default by Lessor....................... 12
(S)12.03 Cumulative Remedies..................... 13
(S)12.04 Waiver of Breach........................ 13
ARTICLE 13. INSPECTION BY LESSOR........................ 13
ARTICLE 14. ASSIGNMENT AND SUBLEASE
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(S)14.01 Assignment and Subletting by Lessee..... 13
(S)14.02 Assignment by Lessor.................... 14
ARTICLE 15. MISCELLANEOUS
(S)15.01 Notices and Addresses................... 14
(S)15.02 Parties Bound........................... 14
(S)15.03 Texas Law to Apply...................... 15
(S)15.04 Legal Construction...................... 15
(S)15.05 Prior Agreements Superseded............. 15
(S)15.06 Amendment............................... 15
(S)15.07 Rights and Remedies Cumulative.......... 15
(S)16.08 Attorney's Fees and Costs............... 15
(S)15.09 Force Majeure........................... 16
(S)15.10 Time of Essence......................... 16
Execution ........................................ 16
Exhibit "A" ........................................ 17
</TABLE>
<PAGE>
LEASE
This Lease is made and entered into by and between William L. Hart referred
to in this lease as Lessor, and Hart Graphics Inc. referred to in this lease as
Lessee.
In consideration of the mutual covenants and agreements set forth In this
lease, and other good and valuable considerations, Lessor does hereby demise and
lease to Lessee, and Lessee does hereby lease from Lessor, the premises situated
at 3301 Steck Avenue consisting of 48,000 square feet of rentable space located
in Austin, Travis County, Texas, and described in the attached field notes
designated "Exhibit A". These premises are referred to in this lease as "the
premises" or "the leased premises."
ARTICLE 1. TERM
Term of Lease
(S)1.01. The term of this lease shall be one hundred and twenty (120)
months, commencing on January 1, 1995, and ending on December 31, 2004, unless
sooner terminated as provided in this lease.
Option to Extend Lease
(S)1.02. Lessee has the right to extend this lease beyond the expiration
date provided in (S)1.01 on the following terms and conditions:
a. Provided Lessee is not in default of this Lease, Lessee may extend the
term of this lease for a three (3) year period, with the extended term to
begin on the day following the expiration date of the lease term specified
in (S)1.01. Provided, however, that if at the date of expiration of the
original term or any extended term, Lessee is in default beyond any grace
period provided in this lease in the performance of any of the terms or
provisions of this lease, the remaining option or options shall be null and
void. All of the terms, covenants, and provisions of this lease shall
apply to all extended lease terms,
1
<PAGE>
b. Lessee may exercise each option to extend this lease for each month-to-
month period by giving to Lessor notice of its intention to do so not later
than sixty (60) days prior to the expiration of the lease term, in the case
of the initial option to extend, or the extended lease term, in the case of
Successive options to extend. To constitute effective notice of an
intention to exercise an option under this lease, the notice must be sent
by certified or registered mail or personally delivered to Lessor at the
address provided in (S)15.01 of this lease and must be postmarked no later
than the latest date provided in this section for Lessee's exercise of the
option.
Holdover
(S)1.03. If Lessee holds over and continues in possession of the leased
premises after expiration of the term of this lease or any extension of
that term, Lessee will be deemed to be occupying the premises on the basis
of a month-to-month tenancy, subject to all of the terms and conditions of
this lease.
ARTICLE 2. RENT
Rent
(S)2.01a. Lessee agrees to pay to Lessor the sum of $.27 per square foot
per month ($12,996.00/Mo) on or before the first day of each month as the fixed
rent for the succeeding month. The first month's rent is due on or before
January 1, 1995. If the lease term begins on a day other than the first day of
a month or ends on a day other than the last of the month, then Lessee agrees to
pay a pro-rata portion of the minimum fixed monthly rent described above for the
partial initial and/or final months, prorated on a per diem basis, with payment
for any partial month at the beginning of the term to be paid no later than the
commencement date of the term.
(S)2.01b. Should the Lessor refinance the property during the term of this
lease and its option period, the Lessor may increase the monthly rental rate
charged to Lessee in an
2
<PAGE>
amount equal to the difference in the monthly mortgage payment in effect at the
time of execution of this lease and the amount required to be paid monthly by
Lessor under any new mortgage executed by Lessor. The Lessor shall provide
documentation to Lessee of the amount of the increase.
Place of Payment
(S)2.02. Lessee agrees to pay rent as provided in (S)2.01 to Lessor at
8008 Shoal Creek Boulevard, Austin, Texas, or at such other location or
locations as Lessor and Lessee shall from time to time agree.
Taxes and Assessments as Additional Rent
(S)2.03a. In addition to the fixed rent specified in (S)2.01, Lessee shall
pay the full amount of all real property taxes, special assessments, and
governmental charges of every character imposed on the leased premises during
the term of this lease, including any special assessments imposed on, or
against, the premises for the construction or improvement of public works.
This additional rent shall be payable directly to the entity imposing the
tax, assessment, or charge on the later of (i) that date which the payment is
due or (ii) thirty (30) days following Lessor delivery of the tax bill to
Lessee. Lessee shall provide Lessor with a receipt or other evidence of payment
for each such tax, assessment, or charge paid as soon as a receipt or other
evidence is available to Lessee.
(S)2.03b. Lessee may, at its own expense, contest any tax or assessment
for which Lessee is responsible under (S)2.03a. Except as provided in (S)2.03c,
Lessee need not pay the tax, assessment, or charge during the pendency of the
contest.
(S)2.03c. The provisions of (S)2.03b notwithstanding, Lessor may pay or
require Lessee to pay, any tax, assessment, or charge for which Lessee is
responsible under (S)2.03a, pending resolution of Lessee's contest of the tax,
assessment, or charge, if payment is demanded by a
3
<PAGE>
holder of a mortgage on the leased premises or if failure to pay will
immediately subject all or part of the leased premises to forfeiture or loss.
ARTICLE 3. USE OF PREMISES
Permitted Use
(S)3.01. Lessee shall operate the leased premises as a
warehouse/office/manufacturing facility continuously during the term of this
agreement and shall use the premises for that purpose and any related
activities, but for no other purpose. Any use must be in compliance with the
City of Austin zoning regulations.
Waste, Nuisance, or Illegal Uses
(S)3.02. Lessee shall not use, or permit the use of, the premises in any
manner that results In waste of the premises or constitutes a nuisance. Nor
shall Lessee use, or permit the use of, the premises for any illegal purpose.
Lessee, at its expense, will comply, and will cause its officers, employees,
agents, and invitees to comply, with all applicable laws and ordinances and with
all applicable rules and regulations of governmental agencies, concerning the
use of the premises.
4
<PAGE>
ARTICLE 4. REPAIRS AND MAINTENANCE
Repairs and Maintenance by Lessee
(S)4.01. Lessee shall, throughout the term of this lease and any
extensions of that term, at its own expense and risk, maintain the leased
premises and all improvements on the leased premises in good order and
condition, reasonable wear and tear excepted, including but not limited to
making all repairs and replacements necessary to keep the premises and
improvements in such condition. All maintenance, repairs, and replacements
required by this section must be performed promptly when required and in a
manner that will not cause depreciation in the value of the premises, reasonable
wear and tear excepted.
Lessee's Failure to Repair or Maintain
(S)4.02. In the event Lessee fails to perform its obligation to repair,
replace, or maintain, as set forth in (S)4.01 above, after notice from Lessor of
the need for such repair, replacement, or maintenance and the passage of a
reasonable amount of time for performance after such notice, Lessor may enter
the premises and make such repairs or replacements, or perform such maintenance
or cause such repair or replacements to be made or maintenance to be performed,
at its own expense. Upon Lessor's notice to Lessee of the performance and cost
of any maintenance, repairs, or replacements pursuant to this section, Lessee
must immediately reimburse Lessor for any reasonable costs incurred by Lessor
pursuant to this section, together with interest on any such sum at ten percent
(10%) per annum rate from the date of the notice until the date paid by Lessee
to Lessor.
5
<PAGE>
ARTICLE 5. UTILITIES AND GARBAGE REMOVAL
Utility Charges
(S)5.01. Lessee shall pay all utility charges for water, electricity,
heat, gas, and telephone service used in and about the leased premises during
the term of the lease, all such charges to be paid by Lessee directly to the
utility company or municipality furnishing the same, before the same shall
become delinquent.
Garbage Removal
(S)5.02. Lessee shall pay for the removal of all garbage and rubbish from
the leased premises during the term of the lease.
ARTICLE 6. ALTERATIONS, ADDITIONS AND IMPROVEMENTS
Consent of Lessor
(S)6.01. Lessee shall not make any alterations, additions, or
improvements to the leased premises without the prior written consent of Lessor.
Consent for nonstructural alterations, additions, or improvements shall not be
unreasonably withheld by Lessor.
Property of Lessor
(S)6.02. All alterations additions, or improvements made by Lessee shall
become the property of Lessor at the termination of this lease. Lessor may,
however, require that Lessee remove any or all alterations, additions, and
improvements installed or made by Lessee, and any other property placed in the
premises by Lessee, upon termination of the lease. In the event that Lessor
requires Lessee to remove such alterations, additions, or improvements, Lessee
shall repair any damage to the premises caused by such removal.
6
<PAGE>
ARTICLE 7. TRADE FIXTURES AND SIGNS
Trade Fixtures
(S)7.01. Lessee shall have the right at all times to erect or install
shelves, bins, machinery, or other trade fixtures in, on, or about the leased
premises, provided that Lessee complies with all applicable governmental laws,
ordinances, and regulations regarding such fixtures. Lessee shall have the
right to remove all trade fixtures at the termination of this lease, provided
Lessee is not in default under the lease and that the fixtures will be removable
without structural damage to the premises. Lessee must repair any damage to the
leased premises caused by removal of trade fixtures, and all such repairs must
be completed prior to the termination of the lease. Any trade fixtures that
have not been removed by Lessee at the termination of this lease shall be deemed
abandoned by Lessee and shall automatically become the property of Lessor.
Signs
(S)7.02. Lessee may put appropriate signs on the property provided that
all signage meets the building and sign codes and ordinances of the City of
Austin and Travis County. All costs for permits, licenses or variances thereto
is to be paid by Lessee. Any sign in excess of 10' x 15' or any lighted sign
must be approved by the Lessor. All costs for the preparation, erection,
maintenance and dismantling of the signs is the responsibility of the Lessee.
At the expiration of the lease and any options, any signs erected by Lessee
shall be removed at the expense of the Lessee.
ARTICLE 8. MECHANIC'S LIEN
(S)8.01. Lessee will not permit any mechanic's lien or liens to be placed
upon the leased premises or upon improvements on the premises. If a mechanic's
lien is filed on the leased premises or on improvements on the leased premises,
Lessee will promptly pay the lien. If default in payment of the lien continues
for thirty (30) days after written notice from Lessor to
7
<PAGE>
Lessee, Lessor may, at its option, pay the lien or any portion of it without
inquiry as to its validity. Any amounts paid by Lessor to remove a mechanic's
lien caused to be filed against the premises or against improvements on the
premises by Lessee, including expenses and interest, shall be due from Lessee to
Lessor and shall be repaid to Lessor immediately on rendition of written notice.
ARTICLE 9. INSURANCE AND INDEMNITY
Property Insurance
(S)9.01. Lessee shall, at its own expense, during the term of this lease,
keep all building and improvements on the leased premises insured against loss
or damage by fire or theft, with extended coverage it obtainable at a price not
to exceed eighty percent (80%) of the fair market value of the property to be
insured per year, to include direct loss by windstorm, hall, explosion, riot, or
riot attending a strike, civil commotion, aircraft, vehicles, and smoke, in the
aggregate amounts of not less than the full fair insurable value of the
buildings and improvements. The deductible on such insurance shall be in such
amounts as the Lessee may provide for other properties, provided Lessee self
insures for the deductibles. The insurance is to be carried by one or more
insurance companies licensed to do business in Texas and approved by Lessor,
such approval not to be unreasonably withheld. Such policy or policies of
insurance shall name both Lessor and Lessee as named insured. The policies
shall provide that any proceeds for loss or damage to buildings or to
improvements shall be payable solely to Lessor.
Liability Insurance
(S)9.02. Lessee, at its own expense, shall provide and maintain in force
during the term of this lease, liability insurance in the amount of $5,000,000,
covering Lessor as well as Lessee, for any liability for property damage or
personal injury arising as a result of Lessee's occupation or Lessor's ownership
of the leased premises. This insurance is to be carried by
8
<PAGE>
one or more insurance companies authorized to transact business in Texas and
approved by Lessor.
Remedy for Failure to Provide Insurance
(S)9.03. Lessee shall furnish Lessor with certificates of all insurance
required by this article. If Lessee does not provide such certificates within
thirty (30) days of obtaining possession, or if Lessee allows any insurance
required under this article to lapse, Lessor may, at its option, take out and
pay the premiums on the necessary insurance to comply with Lessee's obligations
under the provisions of this article. Lessor is entitled to reimbursement from
Lessee for all amounts spent by it to procure and maintain such insurance.
Hold-Harmless Clause
(S)9.04a. Lessee agrees to indemnity and Hold Lessor harmless against any
and all claims, demands, damages costs and expenses, including reasonable
attorney's fees for the defense of such claims and demands, arising from the
conduct or management of Lessee's business on the leased premises, or its use of
the leased premises or from any breach on the part of Lessee of any conditions
of this lease, or from any act or negligence of Lessee, its agents, contractors,
employees, subtenants, concessionaires, or licensees in or about the leased
premises except to the extent attributable to the acts of negligence, gross
negligence or willful misconduct of Lessor. In case of any action or proceeding
brought against Lessor by reason of any such claim, Lessee, upon notice from
Lessor, agrees to defend the action or proceeding by counsel acceptable to
Lessor.
(S)9.04b. Lessor agrees to indemnity and hold Lessee harmless against any
and all claims, demands, damages, costs, and expenses, including reasonable
attorney's fees for the defense of such claims and demands, arising from the
conduct or management of Lessor's business on the leased premises, or its use of
the leased premises or from any breach on the part of Lessor of any conditions
of this lease, or from any act or negligence of Lessor, its
9
<PAGE>
agents, contractors, employees, subtenants, concessionaires, or licensees in or
about the leased premises except to the extent attributable to the acts of
negligence, gross negligence or willful misconduct of Lessee. In case of any
action or proceeding brought against Lessor by reason of any such claim, Lessor,
upon notice from Lessee, agrees to defend the action or proceeding by counsel
acceptable to Lessee.
Waiver of Insurance Loss
(S)9.05. Lessor and Lessee release each other from any claims for loss or
damage to any person or property on the Premises which is caused by or which
results from risks insured against under insurance policies carried by Lessor or
Lessee and in force at the time at any such loss or damage. Provided, however,
the foregoing release shall not apply to losses or property damage in excess of
policy limits or to property losses or damages not covered by insurance due to a
deductible in policy.
Subrogation of Insurance
(S)9.06. Lessor and Lessee shall cause their respective insurance policies
to provide that the insurance company waive all right to recovery by way of
subrogation against either party in connection with any damage covered by the
policy. Neither Lessor nor Lessee shall be liable to the other for any damage
caused by fire or any of the risks insured against under any insurance policy
required by this lease. Provided, however, the foregoing waiver or subrogation
shall not apply to property losses or damages in excess of policy limits or to
losses or damages not covered by insurance due to a deductible in policy.
ARTICLE 10. DAMAGE OR DESTRUCTION OF PREMISES
Notice to Lessor
(S)10.01. If the leased premises or any structures or improvements on the
leased premises should be damaged or destroyed by fire, tornado, or other
casualty, Lessee shall
10
<PAGE>
give immediate written notice of the damage or destruction to Lessor, including
a description of the damage and, as far as known to Lessee, the cause of the
damage.
Total Destruction
10.02. If the leased premises should be totally destroyed by fire,
tornado, or other casualty not the fault of Lessee or any person in or about the
leased premises with the express or implied consent of Lessee, or if it should
be so damaged by such a cause that rebuilding or repairs cannot be reasonably
completed within sixty (60) working days, this lease shall terminate, and rent
shall be abated for the unexpired portion of this lease, effective as of the
date of written notification as provided in (S)10.01.
Partial Destruction
(S)10.03. If the building or other improvements on the leased premises
should be damaged by fire, tornado, or other casualty not the fault of Lessee or
any person in or about the leased premises with the express or implied consent
of Lessee but not to such an extent that rebuilding or repair cannot reasonably
be completed within sixty (60) working days, this lease shall not terminate
except as provided in subsections (a) and (b) of this section.
a. If the partial destruction of the leased premises occurs prior to the
final nine months of the lease term, Lessor shall, at its sole cost and
risk, proceed immediately to rebuild or repair the damaged buildings and
improvements to substantially the condition in which they existed prior to
such damage. If the leased premises are untenantable in whole or in part
following such damage, the rent payable during the period in which they are
untenantable shall be adjusted on a per square toot of roofed building area
based with an equitable adjustment for any additional loss of non-building
area. In the event that Lessor should fail to complete such rebuilding or
repairs within sixty (60) working days from the date of written
notification by Lessee to Lessor of the occurrence
11
<PAGE>
of the damage, Lessee may terminate this lease by written notification to
Lessor. Upon such notification, all rights and obligations under this lease
shall cease.
b. If partial destruction of the leased premises occurs in the final nine
(9) months of the lease term, Lessor may terminate this lease. If neither
Lessor nor Lessee elect to terminate the lease, Lessor may rebuild or
repair the premises and if the leased premises are untenantable in whole or
in part following such damage, Lessee may elect to terminate the lease or
to continue the lease with the rent for the remainder of the lease period
adjusted equitably.
ARTICLE 11. CONDEMNATION
Total Condemnation
(S)11.01. If during the term of this lease, any part of the leased premise
should be taken for any public or quasi-public use under any governmental law,
ordinance, or regulation, or by right of eminent domain, or should be sold to
the condemning authority under threat of condemnation, this lease shall
terminate, and the rent shall be abated during the unexpired portion of this
lease, effective as of the date of the taking of the premises by the condemning
authority.
Partial Condemnation
(S)11.02. If less than all, but more than twenty percent (20%), of the
leased premises is taken for any public or quasi-public use under any
governmental law, ordinance, or regulation, or by right of eminent domain, or
should be sold to the condemning authority under threat of condemnation, Lessee
may terminate the lease thereafter by giving written notice to Lessor after
possession of the condemned portion is taken by the entity exercising the power
of condemnation.
If the leased premises are partially condemned and Lessee fails to exercise
the option to terminate the lease under this section, or if less than twenty
percent (20%) of the leased
12
<PAGE>
premises are condemned, this lease shall not terminate, but Lessee may, at its
sole expense, restore and reconstruct the building and other improvements
situated on the leased premises to make them reasonably tenantable and suitable
for the uses for which the premises are leased. The fixed rent payable under
(S)2.01 of this lease shall be adjusted equitably during the unexpired portion
of this lease.
Condemnation Award
(S)11.03. Lessor and Lessee shall each be entitled to receive and retain
such separate awards, and portions of lump sum awards, as may be allocated to
their respective interests in any condemnation proceedings. The termination of
this lease shall not affect the rights of the respective parties to such awards.
ARTICLE 12. DEFAULT
Default By Lessee
(S)12.01. If Lessee shall allow the rent to be in arrears more than five
(5) days after written notice of such delinquency, or shall remain in default
under any other condition of this lease for a period of ten (10) days after
written notice from Lessor, Lessor may, without notice to Lessee, terminate this
lease, or in the alternative, Lessor may reenter and take possession of the
premises and remove all persons and property without being deemed guilty of any
manner of trespass and relet the premises, or any part of the premises, for all
or any part of the remainder of the lease term to a party satisfactory to
Lessor, and at such monthly rental as Lessor may with reasonable diligence be
able to secure. Should Lessor be unable to relet after reasonable efforts to do
so or, should such monthly rental be less than the rental Lessee was obligated
to pay under this lease, Lessee shall pay the expense of reletting plus the
amount of any deficiency in the rent to Lessor.
Default By Lessor
13
<PAGE>
(S)12.02. If Lessor defaults in the performance of any term, covenant or
condition required to be performed by it under this agreement, Lessee may elect
to do either one of the following:
a. After not less than ten (10) days' written notice to Lessor, Lessee may
remedy such default by any necessary action and, in connection with such
remedy, may pay expenses and employ counsel; all sums expended or
obligations incurred by Lessee in connection with remedying Lessor's
default shall be paid by Lessor to Lessee on demand and, on failure of such
reimbursement, Lessee may, in addition to any other right or remedy that
Lessee may have, deduct these costs and expenses from rent subsequently
becoming due under this lease.
b. Lessee may terminate this lease on giving at least ten (10) days'
written notice to Lessor of such intention. In the event Lessee elects
this option, the lease shall be terminated on the date designated in
Lessee's notice, unless Lessor has cured the default prior to expiration of
the ten day period.
Cumulative Remedies
(S)12.03. All rights and remedies of Lessor and Lessee under this Article
shall be cumulative, and none shall exclude any other right or remedy provided
by law, or by any other provision of this lease. All such rights and remedies
may be exercised and enforced concurrently and whenever, and as often, as
occasion for their exercise arises.
Waiver Of Breach
(S)12.04 A waiver by either Lessor or Lessee of a breach of this lease by
the other party does not constitute a continuing waiver or a waiver of any
subsequent breach of the lease.
ARTICLE 13. INSPECTION BY LESSOR
(S)13.01. Lessee shall permit Lessor and Lessor's agents, representatives,
and employees to enter into and on the leased premises at all reasonable times
for the purpose of
14
<PAGE>
inspection, maintenance, making repairs or alterations to the premises, or any
other purposes necessary to protect Lessor's interest in the leased premises or
to perform Lessor's duties under this lease.
ARTICLE 14. ASSIGNMENT AND SUBLEASE
Assignment and Subletting by Lessee
(S)14.01. Lessee may not sublet, assign, encumber, or otherwise transfer
this lease, or any right or interest in this lease, or in the leased premises or
the improvements on the leased premises, without the written consent of Lessor.
If Lessee sublets, assigns, encumbers, or otherwise transfers its rights or
interests in this lease or in the leased premises or the improvements on the
leased premises without the written consent of Lessor, Lessor may, at its
option, declare this lease terminated. In the event Lessor consents in writing
to an assignment, sublease, or other transfer of all or any of Lessee's rights
under this lease, the assignee or Sublessee must assume all of Lessee's
obligations under this lease, and Lessee shall remain liable for every
obligation under the lease. Lessor's consent under this section will not be
arbitrarily or unreasonably withheld.
(S)14.02. Lessor may assign or transfer any or all of its interests under
the terms of this lease.
ARTICLE 15. MISCELLANEOUS
Notices and Addresses
(S)15.01. All notices required under this lease must be given by certified
mail or registered mail, addressed to the proper party at the following
addresses:
LESSEE:
Hart Graphics, Inc.
P. 0. Box 968
Austin, Texas 78767
LESSOR:
15
<PAGE>
William L. Hart
P.O. Box 9802-#501
Austin, TX 78766
(512) 467-4465
Either party may change the address to which notices are to be sent it by giving
the other party notice of the new address in the manner provided in this
section.
Parties Bound
(S)15.02. This agreement shall be binding upon and inure to the benefit
of, the parties to this lease and their respective heirs, executors,
administrators, legal representatives, successors, and assigns when permitted by
this agreement.
Texas Law To Apply
(S)15.03. This agreement shall be construed under, and in accordance with,
the laws of the State of Texas, and all obligations of the parties created by
this lease are performable in Travis County, Texas.
Legal Construction
(S)15.04. In case any one or more of the provisions contained in this
agreement shall for any reason be held by a court of competent jurisdiction to
be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision of the
agreement, and this agreement shall be construed as if the invalid, illegal, or
unenforceable provision had never been included in the agreement.
Prior Agreements Superseded
(S)15.06 This agreement constitutes the solo and only agreement of the
parties to the agreement and supersedes any prior understandings or written or
oral agreements between the parties respecting the subject matter of this
agreement.
Amendment
16
<PAGE>
(S)15.06. No amendment, modification or alteration of the terms of this
agreement shall be binding unless it is in writing, dated subsequent to the date
of this agreement, and duly executed by the parties to this agreement.
Rights and Remedies Cumulative
(S)15.07. The rights and remedies provided by this lease agreement are
cumulative, and the use of any one right or remedy by either party shall not
preclude or waive its rights to use any or all other remedies. These rights and
remedies are given in addition to any other rights the parties may have by law,
statute, ordinance, or otherwise.
Attorney's Fees And Costs
(S)15.08. If, as a result of a breach of this agreement by either party,
the other party employs an attorney or attorneys to enforce its rights under
this lease, then the breaching party agrees to pay the other party the
reasonable attorney's fees and costs incurred to enforce the lease.
Force Majeure
(S)16.09. Neither Lessor nor Lessee shall be required to perform any term,
condition, or covenant in this lease so long as performance is delayed or
prevented by force majeure, which shall mean acts of God, strikes, lockouts,
material or labor restrictions by any governmental authority, civil riots,
floods, and any other cause not reasonably within the control of Lessor or
Lessee and which by the exercise of due diligence Lessor or Lessee is unable,
wholly or in part, to prevent or overcome.
Time Of Essence
(S)16.10. Time is of the essence in this agreement.
The undersigned Lessor and Lessee execute this agreement on January 1,
1995, at Austin, Travis County, Texas.
LESSEE: LESSOR:
17
<PAGE>
Hart Graphics, Inc. William L. Hart
By /s/ J. Brit Kaufmann By /s/ William L. Hart
------------------------------- ------------------------------
Its Treasurer and CFO
18
<PAGE>
Exhibit 10.11A
515 congress avenue suite 1350 garden
austin, texas 78701 escape
p. 512.494.2100 f. 512.472.6645
http://www.garden.com
January 12, 1997
Mr. Kevin D. Milaeger
Milaeger's Gardens
4838 Douglas Avenue
Racine, WI 53402
RE: GARDENESCAPE LETTER OF AGREEMENT
Dear Kevin:
GardenEscape is excited that Milaeger's Gardens has chosen to renew its contract
and remain a member of the Garden Escape Strategic partner network. We look
forward to maintaining a mutually beneficial long-term relationship between our
two companies. Though our relationship is built primarily through each of our
commitments, there are several elements detailed below which are fundamental to
our agreement and will continue to provide a foundation for the relationship.
1. Mutual Exclusivity - GardenEscape agrees to retain Milaeger's Gardens as the
exclusive source on the Garden Escape network for the products detailed in
the product Line section below. Milaeger's Gardens authorizes Garden Escape
to be its exclusive reseller of its products via the Internet and World Wide
Web. This two-way exclusivity will be from the date that this Letter is
executed through the duration of this agreement. Extensions to the agreement
may be negotiated if mutually agreeable by both parties.
2. Product Line - Milaeger's Gardens agrees to supply the following products on
the Garden Escape network: Perennial plants, as detailed in Milaeger's
Gardens 1997 Perennial Wishbook, excluding lilies, daylilies, and peonies.
3. Product Supply - Customer demand for Milaeger's Gardens products over the
GardenEscape network will be variable, therefore Milaeger's Gardens can offer
no guarantee of minimum sales volume to Milaeger's Gardens. In the case that
customer demand for a Milaeger's Gardens product exceeds available supply,
Garden Escape reserves the right to find secondary sources of supply for that
product.
4. Trademark, Logo and Company Name - As part of Garden Escape's marketing
activities, it will develop marketing materials and order documentation which
will co-market Garden Escape and Milaeger's Gardens. Milaeger's Gardens
grants Garden Escape an international royalty-free license to use its company
name, logo and any trademarks, if applicable, to develop and distribute these
materials and acknowledges that it has the right to grant such license. The
use of Milaeger's Gardens name and trademark may include printed, CD-ROM, and
electronic marketing materials, shipping and labeling documents, and
packaging. Garden Escape agrees not to modify Milaeger's logo when using it
without approval of Milaeger's Gardens.
Garden Escape and Milaeger's Gardens acknowledge that co-marketing is an
important component of a successful partnership. Milaeger's Gardens agrees to
cooperate with Garden Escape in the development, implementation and
maintenance of a co-marketing strategy, to include over time print
advertising, shipping and labeling documents and packaging.
<PAGE>
5. Proprietary Information - Garden Escape will give its customer name and
address for each order to Milaeger's Gardens for direct drop shipment. These
customer names and addresses are proprietary to Garden Escape and Milaeger's
Gardens agrees: 1) not to use these names other than in the advancement of
the goals of this Agreement; 2) not to use the names or other Garden Escape
information for any direct marketing by Milaeger's Gardens; or 3) not to
license or sell these names to a third party, without the written consent of
Garden Escape. Additionally, to the extent either party receives any other
confidential information from the other, the receiving party will keep the
information confidential and will only use the information in the
advancement of this Agreement.
6. Pricing - Milaeger's Gardens agrees to give Garden Escape a [*] their
standard retail prices for products offered by Garden Escape on its network,
F.O.B. Milaeger's Gardens shipping point. Garden Escape agrees to pay
Milaeger's Gardens a [*] shipping and handling charge. This [*] structure
may be modified if mutually agreeable by both parties.
7. Payment Terms - Milaeger's Gardens agrees to bill Garden Escape once a month
for all Garden Escape orders. Garden Escape agrees to pay these invoices on
Net 7 day terms.
8. Customer Feedback - Garden Escape agrees to forward any customer feedback
relating to Milaeger's Gardens to them on a timely basis, at no charge.
9. Product Returns - Milaeger's Gardens agrees to process returns/replacement
orders for Garden Escape customers. Milaeger's Gardens agrees to process [*]
of total sales dollars to Garden Escape customers at no charge. This
percentage will be reviewed after June 30, 1997 and renegotiated if
necessary on a mutually agreeable basis.
10. Term Of Agreement - This Agreement will begin on the date it is executed and
continue for a period of one year. This Agreement shall automatically renew
for successive one year periods unless either party delivers written notice
to the other at least 60 days prior to the expiration of the initial term or
any renewed terms.
11. Termination Of Agreement - If either party fails to uphold any fundamental
term of this Agreement the other may issue notice in writing, specifying the
reason for doing so, that they will terminate the Agreement. In such
circumstance both parties agree to work together in good faith to
expeditiously resolve the problem(s). If, at the end of a 21 day period
from the original notice, the problem(s) is/are not solved to the reasonable
satisfaction of the party giving notice they may terminate the Agreement
with confirming written notice on the date of such notice.
By signing below, Garden Escape and Milaeger's Gardens accept to the terms of
this Letter.
GARDEN ESCAPE, INC. MILAEGER'S GARDENS
By: /s/ Lisa A. Sharples By: /s/ Keven D. Milaeger
----------------------------- -----------------------------
Lisa A. Sharples Kevin D. Milaeger
Vice President President/Owner
Date: 4/18/97 Date: 4/18/97
---------------------------- ---------------------------
* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 10.11B
January 29, 1998
Mr. Richard Zondag
McClure & Zimmerman
335 S. High Street
Randolph, WI 53957-0001
RE: GARDEN ESCAPE LETTER OF AGREEMENT
Dear Dick:
Garden Escape is excited that McClure & Zimmerman has chosen to renew its
contract and remain a member of the Garden Escape Strategic Partner network. We
look forward to maintaining a mutually beneficial long-term relationship between
our two companies. Though our relationship is built primarily through each of
our commitments, there are several elements detailed below which are fundamental
to our agreement and will continue to provide a foundation for the relationship.
1. Mutual Exclusivity - Garden Escape agrees to retain the Supplier as the
------------------
exclusive source on the Garden Escape network for the products detailed in
the Product Line section below. The Supplier authorizes Garden Escape to be
its exclusive vendor of its products via the Internet and World Wide Web.
Subject to the limitations set forth below, the mutual exclusivity will be
from the date that this letter is executed through the duration of this
agreement. Extensions to the agreement may be negotiated if mutually
agreeable by both parties.
2. Product Line - The Supplier agrees to supply the following products on the
------------
Garden Escape network: fall-blooming bulbs, not including lily and daylily
varieties. Notwithstanding the foregoing, the exclusivity requirement
provided by section 1 above, applies to the specific products set forth in
this section 2 but not to product combinations, packages or the like unless
the Supplier also offers such product combinations or packages.
3. Product Supply - Customer demand for the Supplier's products over the Garden
--------------
Escape network will be variable, therefore Garden Escape can offer no
guarantee of minimum sales volume for the Supplier. In the case that customer
demand for a Supplier's product exceeds available supply, Garden Escape
reserves the right to find secondary sources of supply for that product.
4. The Supplier's Trademark, Logo and Company Name - As part of Garden Escape's
-----------------------------------------------
marketing activities, it will develop marketing materials which will co-
market Garden Escape and the Supplier. The Supplier gives Garden Escape the
international royalty-free license to use its company name, logo and any
trademarks, if applicable, to develop and distribute these marketing
materials and acknowledges that it has the right to grant
1
<PAGE>
such license. The use of the Supplier's name and trademark may include
printed, CD-ROM, and electronic marketing materials, shipping and labeling
documents, and packaging.
5. Proprietary Information - Garden Escape will give its customer name and
-----------------------
address for each order to the Supplier for direct drop shipment. These
customer names and addresses are proprietary to Garden Escape and the
Supplier agrees not to use these names other than in the advancement of this
Agreement and agrees not to use the names or other Garden Escape information
for any direct marketing or sell these names to a third party without the
written consent of Garden Escape. Additionally, to the extent either party
receives any other confidential information from the other, the receiving
party will keep the information confidential and will only use the
information in the advancement of this Agreement.
6. Pricing - The Supplier agrees to give Garden Escape a [*] their standard
-------
retail prices for products offered by Garden Escape on its network, which is
a price inclusive of any order processing, product photography and packaging
costs, F.O.B. McClure & Zimmerman shipping point. This [*] structure may be
modified if agreed to in writing by both parties.
7. Payment Terms - The Supplier agrees to bill Garden Escape once a month for
-------------
all Garden Escape orders. Garden Escape agrees to promptly pay these
invoices when due.
8. Customer Feedback - Garden Escape agrees to forward any customer feedback
-----------------
relating to the Supplier to them on a timely bass, at no charge.
9. Product Returns - The Supplier agrees to process returns/replacement orders
---------------
for Garden Escape customers. The Supplier agrees to process [*] of total
sales to Garden Escape customers at no charge. This percentage will be
reviewed after June 1998 and re-negotiated if necessary on a mutually
agreeable basis.
10. Product Quality - The Supplier agrees that all products shipped to a
---------------
customer pursuant to the terms of this Agreement will be of first-rate
quality and free of all disease and defect.
11. Term of Agreement - The term of this Agreement shall commence on the date
-----------------
set forth below and continue for a period of one year. This Agreement shall
not renew unless agreed to in writing by each of the parties; provided,
however, that if the parties continue the relationship established hereby
after expiration of the initial term but without agreeing in writing to a
new term, then this Agreement shall continue on a month-to-month basis.
12. Termination of Agreement - Notwithstanding anything in this Agreement to the
------------------------
contrary, either party may terminate this Agreement at any time upon
providing the other party with 60 days' prior written notice of such
termination.
By signing below, Garden Escape and the Supplier accept the terms of this letter
of Agreement.
GARDEN ESCAPE, INC. MCCLURE & ZIMMERMAN
By: /s/ Lisa Sharples By: /s/ Richard Zondag
----------------------- -----------------------------
Lisa Sharples Richard Zondag
Vice President President
Date: 4/18/97 Date: 4/18/97
----------------------- --------------------------
* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
Exhibit 10.11C
July 16, 1997
Mr. Jim Feinson
Director of Marketing
Gardener's Supply Company
128 Intervale Road
Burlington, VT 05401
RE: GARDEN ESCAPE LETTER OF AGREEMENT
Dear Jim:
Garden Escape is excited that Gardener's Supply Company has chosen to renew its
contract and remain a member of the Garden Escape Strategic Partner network. We
look forward to maintaining a mutually beneficial long-term relationship between
our two companies. Though our relationship is built primarily through each of
our commitments, there are several elements detailed below which are fundamental
to our agreement and will continue to provide a foundation for the relationship.
1. Exclusivity - Garden Escape agrees to retain Home & Garden Innovations as
-----------
the exclusive source on the Garden Escape network for the products detailed
in Section 2 below. Due to its existing distribution relationships and its
own Web site, Gardener's Supply Company cannot authorize Garden Escape to be
its exclusive reseller of products specified in Section 2 via the Internet
and World Wide Web. However, Gardener's Supply Company agrees not to
actively distribute the products in Section 2 via the World Wide Web, other
than on the Garden Escape network, except through its own Web site and
existing distribution agreements. This exclusivity will be from the date
that this Letter is executed through the duration of this agreement.
Extensions to the agreement may be negotiated if mutually agreeable by both
parties.
2. Product Line - Home & Garden Innovations agrees to supply the following
------------
products on the Garden Escape network: Gardener's Supply's lines of
hardgoods for seed starting and composting.
3. Product Supply - Customer demand for Home & Garden Innovations' products
--------------
over the Garden Escape network will be variable, therefore Garden Escape can
offer no guarantee of minimum sales volume to Home & Garden Innovations. In
the case that customer demand for Home & Garden Innovations' product exceeds
available supply, Garden Escape reserves the right to find secondary sources
of supply for that product.
4. Trademark, Logo and Company Name - As part of Garden Escape's marketing
--------------------------------
activities, it will develop marketing materials and order documentation
which will co-market Garden Escape and Gardener's Supply Company. Subject to
the conditions listed below, Gardener's Supply Company grants Garden Escape
an international royalty-free license to use its company name, logo and any
trademarks, if applicable, to develop and distribute these materials and
acknowledges that Gardener's Supply Company has the right to grant such
license. The use of Gardener's Supply Company name and trademark may include
printed, CD-ROM, and electronic marketing materials, shipping and labeling
documents, and packaging. Garden Escape agrees to obtain approval from
1
<PAGE>
Gardener's Supply Company prior to each specific use of its company name,
logo, or trademark in conjunction with Garden Escape marketing efforts.
Garden Escape and Gardener's Supply Company acknowledge that co-marketing
is an important component of a successful partnership. Gardener's Supply
Company agrees to assist Garden Escape in the development, implementation
and maintenance of a co-marketing strategy, to include over time print
advertising, shipping and labeling documents and packaging.
5. Proprietary Information - Garden Escape will give its customer name and
-----------------------
address for each order to Home & Garden Innovations for direct drop
shipment. These customer names and addresses are proprietary to Garden
Escape and Gardener's Supply Company agrees; 1) not to use these names
other than in the advancement of the goals of this Agreement; 2) not to use
the names or other Garden Escape information for any direct marketing by
Gardener's Supply Company, or 3) not to license or sell these names to a
third party, without the written consent of Garden Escape. Additionally, to
the extent either party receives any other confidential information from
the other, the receiving party will keep the information confidential and
will only use the information in the advancement of this Agreement.
6. Pricing - Home & Garden Innovations agrees to give Garden Escape a [*]
-------
Gardener's Supply's retail prices based on the attached Garden Escape
Wholesale Price List, Exhibit A, dated July 22, 1997, for products offered
by Garden Escape on its network. This price is a price F.O.B. Home & Garden
Innovations shipping point. Home & Garden Innovations will charge Garden
Escape a per order packaging and handling charge not to exceed [*] per
order. This [*] structure may be modified if mutually agreeable by both
parties.
7. Payment Terms - Home & Garden Innovations agrees to bill Garden Escape once
-------------
a month for all Garden Escape orders. Garden Escape agrees to pay these
invoices on Net 7 day terms.
8. Customer Feedback - Garden Escape agrees to forward any customer feedback
-----------------
relating to Home & Garden Innovations to them on a timely basis, at no
charge.
9. Product Returns - Home & Garden Innovations agrees to process
---------------
returns/replacement orders for Garden Escape customers. If, at the
determination of Home & Garden Innovations, the return is due to
manufacturers defect or a quality problem, Home & Garden Innovations agrees
to replace the product and to pay for the return and/or replacement freight
costs. If, at the determination of Home & Garden Innovations, the return is
due to customer preference, Home & Garden Innovations agrees to take back
the product with no restocking charge and Garden Escape will be responsible
for any return and/or replacement freight costs, subject to Home & Garden
Innovations standard returns procedures. This policy will be reviewed after
December 30, 1997 and renegotiated if necessary on a mutually agreeable
basis.
10. Term Of Agreement - This Agreement will begin on the date it is executed
-----------------
and continue for a period of one year. This Agreement shall automatically
renew for successive one year periods unless either party delivers written
notice to the other at least 60 days prior to the expiration of the initial
term or any renewed terms.
11. Termination Of Agreement - If either party fails to uphold any fundamental
------------------------
term of this Agreement the other may issue notice in writing, specifying
the reason for doing so, that they will terminate the Agreement. In such
circumstance both parties agree to work together in good faith to
expeditiously resolve the problem(s). If, at the end of a 21 day period
from the original notice, the problem(s) is/are not solved to the
reasonable satisfaction of the party giving notice they may terminate the
Agreement with confirming written notice on the date of such notice.
By signing below, Garden Escape and Gardener's Supply Company accept to the
terms of this Letter.
* Certain confidential information on this page has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
GARDEN ESCAPE, INC. GARDEN ESCAPE, INC.
By: /s/ LISA A. SHARPLES By: /s/ JAMIE O'NEILL
-------------------- -----------------------
Lisa A. Sharples Jamie O'Neill
Vice President Vice President
Date: Date:
------------------- ----------------------
GARDENER'S SUPPLY COMPANY GARDENER'S SUPPLY COMPANY
By: /s/ JIM FEINSON By: /s/ JOHN SCOTT
-------------------- -----------------------
Jim Feinson John Scott
Director of Marketing Marketing Manager
Programs
Date: Date:
------------------- ----------------------
<PAGE>
EXHIBIT A
[*]
The confidential information on this exhibit has been omitted and filed
separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of this 1st day of March,
1996, by and between GARDENESCAPE, INC., a Delaware corporation
("GardenEscape"), and ANDY R. MARTIN ("Martin").
RECITALS
GardenEscape and Martin acknowledge the following:
A. Martin has valuable expertise and experience in the software and
information development field which will enable him to provide valuable business
and management services to GardenEscape.
B. GardenEscape desires to employ Martin and Martin desires to accept such
employment on the terms and conditions set forth in this Agreement.
AGREEMENTS
In consideration of the mutual covenants and agreements set forth in this
Agreement, the parties agree as follows:
1. Employment; Term. GardenEscape employs Martin and Martin accepts
----------------
employment with GardenEscape on the terms and conditions set forth in this
Agreement. The term of Martin's employment shall commence as of March 1, 1996
and continue on a month to month basis unless sooner terminated in accordance
with the terms hereof (the "Employment Period").
2. Duties. Martin shall serve as the Vice President of Development of
------
GardenEscape and will, under the direction of the Board of Directors of
GardenEscape (the "Board"), faithfully and to the best of his ability perform
the duties of Vice President of Development as assigned by the Board from time
to time. As Vice President of Development, Martin will be responsible for all
development efforts for GardenEscape, including general technology,
architecture, software development, data-base design and implementation,
integration with GardenEscape's entire supply chain and research and
development. Martin will develop and maintain a source code control strategy and
a backup and disaster recovery system that will safeguard against the loss,
destruction and unauthorized use or modification of the database, architecture
and related software. At reasonable intervals, Martin shall provide GardenEscape
with
<PAGE>
backup master copies of all code, software and other products created by him or
under his supervision. As a key executive of GardenEscape, Martin's duties and
responsibilities are subject to reasonable review and modification by the Board.
Martin agrees to devote his entire business time, effort, skill and attention to
the discharge of such duties while employed by GardenEscape.
3. Compensation.
------------
(a) Base Salary. Martin shall receive a base salary of $100,000 per
-----------
year, payable in regular and equal semi-monthly installments ("Base Salary").
Martin's Base Salary shall be subject to annual review by the Board. Except as
otherwise provided, GardenEscape's obligation to pay Base Salary shall terminate
upon termination of this Agreement.
(b) Incentive Compensation. Martin shall be eligible to participate
----------------------
in the Incentive Compensation Plan of GardenEscape which is attached hereto as
Exhibit A (the "Incentive Compensation").
(c) Stock Option Plan. GardenEscape shall grant to Martin options to
-----------------
purchase an aggregate of 100,000 shares of GardenEscape's common stock, $.01 par
value in accordance with the terms of the GardenEscape, Inc. 1996 Stock Option
Issuance Plan and the GardenEscape Stock Option Agreement which agreement is
attached as Exhibit B.
4. Fringe Benefits. During the Employment Period, GardenEscape will
---------------
provide Martin with the following fringe benefits:
(a) Generally. Martin shall receive such fringe benefits as are
---------
generally made available to executive-level employees of GardenEscape in
comparable positions, which benefits shall be at least as favorable as those
provided to all salaried employees of GardenEscape and such other benefits as
the Board of Directors of GardenEscape may from time to time, in its discretion,
grant to Martin.
(b) Employee Benefit Plans. Martin shall be eligible to participate,
----------------------
to the extent he may be eligible, in any profit sharing, retirement, insurance
or other employee benefit plan maintained by GardenEscape.
(c) Group Life and Health Coverage. Martin shall be eligible to
------------------------------
participate in any group life and health policy in effect for employees of
GardenEscape.
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(d) Vacation. Martin shall be entitled to receive three weeks' paid
--------
vacation annually. Such vacation shall be taken at such time and in such
intervals as are mutually acceptable to Martin and GardenEscape.
5. Termination of Employment. Either GardenEscape or Martin may terminate
-------------------------
this Agreement at any time with or without cause upon 30 days prior written
notice to the other party. If this Agreement is terminated, whether by Martin or
by GardenEscape, GardenEscape's sole obligation shall be to pay any outstanding
accrued Base Salary to Martin.
6. Representations and Warranties of Martin. Martin represents and
----------------------------------------
warrants to the Company that his execution, delivery and performance of this
Agreement will not (a) violate the provisions of, or constitute a default under,
any other contract or agreement to which Martin is a party or by which he is
bound, and (b) infringe upon any patent, trademark, copyright or other
proprietary right of any third party.
7. Ownership of Work Product. All right, title and interest in and to all
-------------------------
of Martin's work product relating to the subject matter hereof or otherwise
related to the services performed under this Agreement, including, but not
limited to, all ideas, techniques, inventions, processes, systems, computer
programs, software, operating instructions, design concepts, documentation,
source documents, stored data, reports and notes (the "Work Product"), shall
rest exclusively with GardenEscape. Martin acknowledges and agrees that the Work
Product includes works made for hire. Martin may not use the Work Product for
any purpose other than for the benefit of GardenEscape without GardenEscape's
prior written consent. GardenEscape may, in its sole discretion, use, transfer
and dispose of the Work Product. Martin unconditionally transfers, conveys,
relinquishes and releases to GardenEscape all right, title, interest and claim
which Martin now has, has had, or may in the future have with respect to the
Work Product, including all derivative works, copyrights, patents, trade secrets
or other intellectual property rights associated with the Work Product. Martin
agrees to execute assignments of all intellectual property rights relating to
the Work Product upon GardenEscape's request and will perform such other acts
and execute such other documents and instruments as GardenEscape may now or
hereafter deem reasonably necessary or desirable to evidence the transfer of
absolute ownership of all Work Product to GardenEscape. Notwithstanding the
foregoing, the parties agree that Martin may, in his free time, continue to
develop and own the rights to object oriented programming tools and other
processes or systems which are unrelated to GardenEscape's business and areas of
interest provided, however that
3
<PAGE>
Martin obtain the prior written consent of GardenEscape to these specific
activities, which consent will not be unreasonably withheld.
8. Noncompetition. The parties agree that GardenEscape's customer
--------------
contacts and relations are established and maintained at great expense and by
virtue of Martin's employment with GardenEscape, Martin will have unique and
extensive exposure to and personal contact with GardenEscape's customers, and
that he will be able to establish a unique relationship with those individuals
and entities that will enable him, both during and after employment, to unfairly
compete with GardenEscape. Further, the parties agree that the terms and
conditions of the following restrictive covenants are reasonable and necessary
for the protection of GardenEscape's business, trade secrets and confidential
information and to prevent great damage or loss to GardenEscape as a result of
action taken by Martin. Martin acknowledges that the noncompete restrictions and
nondisclosure of confidential information restrictions contained in this
Agreement are reasonable and the consideration provided for herein is sufficient
to fully and adequately compensate Martin for agreeing to such restrictions.
Martin acknowledges that he could continue to actively pursue his career and
earn sufficient compensation in the same or similar business without breaching
any of the restrictions contained in this Agreement.
(a) During Term of Employment. Martin hereby covenants and agrees
-------------------------
that, during his employment with GardenEscape, he shall not, directly or
indirectly, either individually or as an employee, officer, principal, agent,
partner, member, manager, shareholder, owner, trustee, beneficiary, co-venturer,
distributor or consultant or in any other capacity, participate in, become
associated with, provide assistance to, engage in or have a financial or other
interest in any business, activity or enterprise which is competitive with
GardenEscape or any successor or assign of GardenEscape. The ownership of less
than a 2% interest in a corporation whose shares are traded in a recognized
stock exchange or traded in the over-the-counter market, even though that
corporation may be a competitor of GardenEscape, shall not be deemed financial
participation in a competitor.
(b) Upon Termination of Employment. Martin agrees that for a period
------------------------------
of two years after termination of his employment with GardenEscape he will not,
directly or indirectly, either individually or as an employee, officer, agent,
partner, member, manager, shareholder, owner, trustee, beneficiary, co-venturer,
distributor, consultant or in any other capacity:
4
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(i) Canvass, solicit or accept from any person or entity
who is an "Active Customer" of GardenEscape any business in competition with the
business of GardenEscape or the successors or assigns of GardenEscape. "Active
Customer" shall mean any account which received within the twelve months prior
to Martin's termination of employment (or the duration of his employment if less
than twelve months), any products or services supplied by or on behalf of
GardenEscape.
(ii) Request or advise any of the Active Customers,
suppliers or other business contracts of GardenEscape who currently have or have
had business relationships with GardenEscape within twelve months preceding the
date of Martin's termination of employment (or the duration of his employment if
less than twelve months), to withdraw, curtail or cancel any of their business
or relations with GardenEscape.
(iii) Induce or attempt to induce any employee, officer,
director, sales representative, consultant or other personnel of GardenEscape to
terminate his or her relationship or breach his or her agreements with
GardenEscape.
(iv) Participate in, become associated with, provide
assistance to, consult with, engage in or have a financial or other interest in
any business, activity or enterprise within the "Restricted Territory" which is
competitive with the business of GardenEscape or any successor or assign of
GardenEscape; provided, however, that the ownership of less than 2% of the stock
of a corporation whose shares are traded in a recognized stock exchange or
traded in the over-the-counter market, even though that corporation may be a
competitor of GardenEscape, shall not be deemed financial participation in a
competitor. For purposes of this Agreement, the "Restricted Territory" shall
mean the United States of America and in such other geographic areas as
GardenEscape has Active Customers.
9. Confidentiality.
---------------
(a) In performing the Services, Martin shall maintain in confidence,
and safeguard as GardenEscape's property, all written and oral information
relating to GardenEscape and its actual and proposed business which, at any
time, becomes known to Martin, including, but not limited to, the existence of
and terms of this Agreement and any and all information concerning
GardenEscape's business, strategic plans, formulas, processes, techniques, know-
how, trade secrets, technology, designs, products, customer lists, the Work
Product
5
<PAGE>
and other proprietary information of GardenEscape and information of customers
or suppliers of GardenEscape not generally known in the public domain
(collectively, "Confidential Information"). For purposes of this Agreement,
Confidential Information shall include, without limitation, any information
delivered prior to the execution of this Agreement, any oral, written or
computer-based information, any knowledge gained through observation of the
records, products or facilities of GardenEscape, any information of which Martin
participated in the development or discovery of and any information or other
material derived from any of the foregoing. Martin shall not, except as
otherwise expressly authorized in advance and in writing by GardenEscape:
(i) disclose or authorize anyone to disclose to any third party
any Confidential Information; or
(ii) use any Confidential Information for any reason other than
for performing his duties hereunder.
(b) Martin agrees to promptly return or transfer to GardenEscape,
upon GardenEscape's request, all physical embodiments of the Confidential
Information. Martin further agrees to promptly erase all embodiments of the
Confidential Information from all storage devices including, but not limited to,
random access memory ("RAM") devices, read-only memory (ROM) devices, disks and
disk drives.
(c) Martin's obligations under this section 6 shall not apply to any
Confidential Information shall not include information which was known to
Martin, as evidenced by Martin's contemporaneous written records, prior to the
time of disclosure by GardenEscape; which Martin can prove is or becomes
publicly known or available to the public through no fault of Martin; which
Martin can prove is disclosed in writing to Martin by a third party who had the
legal right to make such disclosure; or the disclosure of which GardenEscape
expressly consents to in advance and in writing.
10. Relationship with Suppliers. The parties agree that the profitability
---------------------------
and goodwill of GardenEscape depends on continued, amicable relations with its
suppliers and Martin agrees, during his employment with GardenEscape and for two
years thereafter, he will not cause, request or advise any suppliers of
GardenEscape to curtail or cancel their business with GardenEscape.
11. Common Law of Torts and Trade Secrets. The parties agree that nothing
-------------------------------------
in this Agreement shall be construed to limit or negate the common
6
<PAGE>
law of torts or trade secrets where it provides GardenEscape with broader
protection than that provided herein.
12. Inventions and Improvements. Martin agrees that every improvement,
---------------------------
invention, process, technique, apparatus, method, manufacturing system, computer
program, design or other creation (collectively, the "Inventions") that Martin
may invent, discover, conceive or originate by himself or in conjunction with
any other person that relates in any respect to the business of GardenEscape now
or hereafter carried on by it shall be the exclusive property of GardenEscape.
Martin understands and agrees that in partial consideration of his employment
for the compensation herein stated, all such Inventions shall be the exclusive
property of GardenEscape. If Martin fails to make or refuses to make an
assignment to GardenEscape of any Invention, GardenEscape shall have the
authority, and this Agreement shall operate to give GardenEscape authority to
execute, seal and deliver, as the act of Martin, any license, any license
agreement, contract, assignment or other instrument in writing that may be
necessary or proper to convey to GardenEscape the entire right, title and
interest in and to such Invention. Martin hereby agrees to hold GardenEscape and
its assigns harmless by reason of GardenEscape's acts pursuant to this
paragraph. Martin further agrees that, during the term of this Agreement and at
any time thereafter whenever reasonably necessary for the protection of
GardenEscape, he shall cooperate with and be compensated by GardenEscape and its
counsel in the prosecution and/or defense of any litigation at the cost of
GardenEscape which may arise in connection with the Inventions, without any
liability or cost to Martin.
13. Specific Performance. Martin acknowledges and agrees that irreparable
--------------------
injury to GardenEscape may result in the event Martin breaches any covenant and
agreement in this Agreement, including those contained in sections 8, 9 and 12
hereof and that the remedy at law for the breach of any such covenant will be
inadequate. Therefore, if Martin engages in any act in violation of the
provisions of sections 8, 9 and 12, Martin agrees that GardenEscape shall be
entitled, in addition to such other remedies and damages as may be available to
it by law or under this Agreement, to injunctive relief to enforce the
provisions of sections 8, 9 and 12.
14. Sale, Consolidation or Merger. In the event of a sale of the stock of
-----------------------------
GardenEscape, or consolidation or merger of GardenEscape with or into another
corporation or entity, or the sale of substantially all of the operating assets
of GardenEscape to another corporation, entity or individual, the successor-in-
interest shall be deemed to have assumed all liabilities of GardenEscape under
this Agreement.
7
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15. Waiver. The failure of either party to insist, in any one or more
------
instances, upon performance of the terms or conditions of this Agreement shall
not be construed as a waiver or a relinquishment of any right granted hereunder
or of the future performance of any such term, covenant or condition.
16. Notices. Any notice to be given hereunder shall be deemed sufficient
-------
if addressed in writing and delivered by registered or certified mail or
delivered personally, in the case of GardenEscape, to its principal business
office and, in the case of Martin, to his address appearing on the records of
GardenEscape, or to such other address as he may designate in writing to
GardenEscape.
17. Severability. In the event that any provision shall be held to be
------------
invalid or unenforceable for any reason whatsoever, it is agreed such invalidity
or unenforceability shall not affect any other provision of this Agreement and
the remaining covenants, restrictions and provisions hereof shall remain in full
force and effect and any court of competent jurisdiction may, and is hereby
directed to, so modify the objectionable provision as to make it valid,
reasonable and enforceable. Furthermore, the parties specifically acknowledge
the covenants and agreements contained in sections 9 and 10 hereof.
18. Amendment. This Agreement may only be amended by an agreement in
---------
writing signed by all of the parties hereto.
19. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Texas.
20. Benefit. This Agreement shall be binding upon and inure to the
-------
benefit of and shall be enforceable by and against GardenEscape, its successors
and assigns, and Martin, his heirs, beneficiaries and legal representatives. It
is agreed that the rights and obligations of Martin may not be delegated or
assigned except as specifically set forth in this Agreement.
GARDENESCAPE, INC.
BY /s/ CLIFFORD A. SHARPLES
-----------------------------------
Clifford A. Sharples, President
/s/ ANDY R. MARTIN
-----------------------------------
Andy R. Martin
8
<PAGE>
EXHIBIT A
INCENTIVE COMPENSATION PLAN
Martin shall be eligible to receive an annual bonus in an amount of up
to $20,000, which bonus shall be based on the performance of the Corporation and
Martin's performance of his duties hereunder. The Board shall, in its sole
discretion, determine the timing, amount and criteria for awarding such bonus.
9
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EXHIBIT 10.13
BUY-SELL AGREEMENT
This Buy-Sell Agreement ("Agreement") is entered into as of February 27,
1997 by and among Garden Escape, Inc., a Delaware corporation (the "Company"),
Clifford A. Sharples, Lisa W. A. Sharples and James N. O'Neill (singly a
"Founder" and collectively, the "Founders") and Andy R. Martin ("Martin").
Recitals:
--------
A. The Founders and Martin are parties to a certain Stock Transfer
Agreement dated February 27, 1997 (the "Stock Transfer Agreement"), pursuant to
which each of the Founders transferred to Martin 55,000 shares of the Company's
.01 par value common stock ("Common Stock").
B. The parties deem it in the best interests of the Company to provide for
continuity in the control and operation of the Company and to restrict the
transfer of Restricted Stock (as defined in paragraph 1A). Furthermore, the
execution and delivery of this Agreement is a condition to the Closing of the
Stock Transfer Agreement.
The parties agree as follows:
1. Provisions Relating to Restricted Stock.
---------------------------------------
1A. General Restrictions on Transfer of Capital Stock; Dividends.
------------------------------------------------------------
(i) For purposes of this Agreement, "Restricted Stock" is all of the
165,000 shares of Common Stock transferred from the Founders to Martin in
accordance with the terms of the Stock Transfer Agreement. During the term of
this Agreement, none of the shares of Restricted Stock or any interest therein
may be sold, given, assigned, bequeathed, transferred, pledged, encumbered or
otherwise disposed of in any manner, whether voluntarily, by operation of law or
otherwise (collectively referred to herein as a "Transfer") except in a
"Permitted Transfer" (as defined below) or a Transfer that complies with the
provisions of paragraphs 1B and 1C below.
(ii) Any attempted Transfer of shares of Restricted Stock other than
in accordance with this Agreement shall be null and void and the Company shall
refuse to recognize any such Transfer and shall not reflect on its records any
<PAGE>
change in record ownership of shares of Restricted Stock pursuant to any such
Transfer.
(iii) The following transfers of Restricted Stock (each a
"Permitted Transfer") may be made free of the restrictions and requirements of
paragraphs 1B and 1C hereof: (a) Martin may Transfer any or all of the shares of
Restricted Stock owned by Martin to his or her spouse or children, or to trusts
established for the benefit of his spouse or children, provided that the
transferee grants to the transferor an irrevocable proxy coupled with an
interest to vote all of the shares of Restricted Stock so Transferred and agrees
to be bound by the provisions of this Agreement, including, without limitation,
paragraphs 1B and 1C; (b) provided that the transferee agrees to be bound by the
provisions of this Agreement, a trust holding Restricted Stock may Transfer any
shares of Restricted Stock owned by such holder (1) to its beneficiaries, or (2)
to an entity owned by or organized for the benefit of the beneficiaries of such
holder, as applicable, and (c) Martin may sell Restricted Stock to the Founders
or the Company pursuant to an agreement (including the Stock Transfer Agreement)
under which the Founders or the Company have the option to repurchase such
Restricted Stock upon the occurrence of certain events, including the
termination of Martin's employment by or service to the Company. For purposes of
determining whether a Transfer constitutes a Permitted Transfer, adopted
children shall be given the same status as natural born children.
1B. Right of First Refusal - Sales by Martin.
----------------------------------------
(i) Subject to paragraph 1B(vi), whenever and as often as Martin
or a permitted transferee of Martin under paragraph 1A(iii) above (a "Permitted
Transferee") desires to sell any shares of Restricted Stock pursuant to a bona
fide written offer to purchase such shares, Martin (the "Selling Holder" for
purposes of this paragraph 1B) shall give written notice (the "Notice," for
purposes of this paragraph 1B) to each Founder who on the date of such Notice is
a full-time employee of the Company (each an "Offeree," for the purposes of this
paragraph 1B) and to the Company to such effect, enclosing a copy of such offer
and specifying the number of shares of Restricted Stock which the Selling Holder
desires to sell, the name of the person or persons to whom the Selling Holder
desires to make such sale and the consideration per share of Restricted Stock
which has been offered in connection with such offer. Upon receipt of the
Notice, the Offerees shall initially have the first right and option to purchase
the shares proposed to be sold for cash at the same purchase price and on the
same terms as specified in the Notice, pro rata according to their respective
holdings of Common Stock, exerciseable for twenty-one days after receipt of the
Notice. Failure of any Offeree to respond to the Notice within the twenty-one
day period shall be deemed
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to constitute a notification to the Selling Holder of such Offeree's decision
not to exercise the first right and option to purchase shares of Restricted
Stock under this paragraph 1B. If any Offeree fails to exercise his or her first
right and option, the Selling Holder shall give written notice to each of the
other Offerees who has elected to purchase his or her pro rata share of the
shares of Restricted Stock proposed to be transferred, and each such Offeree
shall have the right, exerciseable for a period of seven days from the date of
receipt of such Notice, to purchase the remaining shares of Restricted Stock,
pro rata according to the Common Stock held by all such electing Offerees or in
such other proportion as they may agree upon. In the event such consideration
includes non-cash consideration, the dollar value of such non-cash consideration
shall be its fair market value, as reasonably determined by the Offerees.
(ii) The Offerees may exercise the right and option to purchase
such Restricted Stock by giving written notice of exercise to the Selling Holder
within such twenty-one-day period, specifying the date (not later than ten days
from the date of such notice) upon which payment of the purchase price for the
shares purchased pursuant to this paragraph shall be made. The Selling Holder
shall deliver to the Offeree(s) at the Company's principal office, at least one
day prior to the payment date, wire transfer instructions, and on the payment
date specified in such notice, the certificate or certificates representing such
shares, properly endorsed for transfer, against payment of the purchase price
therefor by the Offeree(s) in immediately available funds.
(iii) In the event that all of the shares of Restricted Stock
proposed to be transferred are not purchased by the Offerees, the Company shall
have the right and option to purchase the balance of the shares proposed to be
sold for cash at the purchase price per share specified in the Notice,
exerciseable for seven days after expiration of the last option period, set
forth in paragraph 1B(i). Failure of the Company to respond to such Notice
within such seven-day period shall be deemed to constitute a notification to the
Selling Holder of the Company's decision not to exercise the first right and
option to purchase such shares under this paragraph.
(iv) The Company may exercise its right and option to purchase
such Restricted Stock by giving written notice of exercise to the Selling Holder
within such seven-day period specifying the date (not later than ten days from
the date of such notice) upon which payment of the purchase price for the shares
shall be made. The Selling Holder shall deliver to the Company's principal
office, on or before the payment date specified in such notice, the certificate
or certificates representing the shares being purchased by the Company, properly
endorsed for
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transfer, against payment of the purchase price therefor by the Company in
immediately available funds.
(v) If all the shares of Restricted Stock proposed to be transferred
are not purchased by the Offerees and the Company in accordance with this
paragraph 1B, the Selling Holder shall not be required to sell any of the shares
of Restricted Stock proposed to be Transferred to the Offerees or to the
Company, and during the 60-day period commencing on the expiration of the rights
and options provided for the paragraph, may sell all (but not less than all) of
the shares to the transferee named in the Notice for a consideration equal to or
greater than the consideration specified in the Notice, free of the restrictions
contained in paragraph 1B (but subject to the other terms and conditions
hereof).
(vi) Whenever and as often as Martin or his Permitted Transferee(s)
shall receive a bona fide offer to purchase any shares of Restricted Stock from
a prospective purchaser which the Selling Holder wishes to accept, each Offeree
shall have the right, at such Offeree's option, either to exercise its rights
under paragraph 1B(ii) or to participate in the sale to the prospective
purchaser pursuant to this paragraph 1B(vi). The Selling Holder will use
reasonable best efforts to arrange for the sale to the prospective purchaser of
the number of shares of Common Stock owned by such Offeree which bears the same
proportion to the total number of shares of Common Stock owned by such Offeree
as the number of shares of Restricted Stock being sold by the Selling Holder
bears to the total number of shares of Restricted Stock owned by the Selling
Holder on the terms and to the conditions specified in the Notice. For purposes
of this paragraph 1B(vi), an Offeree may elect to sell Common Stock at the
purchase price per share specified for the Restricted Stock in the Notice. If
the prospective purchaser will not purchase all the shares of Restricted Stock
and Common Stock which the Selling Holder and the Offerees wish to sell pursuant
to this paragraph 1B(vi), the number of shares of Restricted Stock and Common
Stock which the Selling Holder and each Offeree shall be entitled to sell to
such prospective purchaser shall be a number of shares equal to the number of
shares which the prospective purchaser desires to purchase times a fraction, the
numerator which is the number of shares of Restricted Stock and Common Stock
owned by the Selling Holder or each such selling Offeree, and the denominator of
which is the aggregate number of shares of Restricted Stock and Common Stock
owned by the Selling Holder and all such selling Offerees. An Offeree may
exercise his or its right under this paragraph by written notice given within
seven days after receipt of the Notice.
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2. Call Rights of the Founders.
---------------------------
2A. The Founders' Call Option. If Martin is "Inactive" (as defined
-------------------------
below) each Founder shall have an assignable call option to purchase from Martin
and, upon exercise of such option, Martin shall have the obligation to sell all
of his Restricted Stock sold to him from such Founder pursuant to the Stock
Transfer Agreement (including any shares held by his Permitted Transferees) (the
"Option Stock") at the price and on the terms set forth below. For purposes of
this Agreement, Martin shall be considered "Inactive" if he is no longer an
employee of the Company or if he devotes on a regular basis less than an average
of 20 hours per week to the business and affairs of the Company. If Martin is
Inactive, any Founder may exercise his or her right and option to purchase
Martin's Option Stock at any time by giving written notice of exercise to
Martin, specifying the proposed date for such purchase and the Founder's belief
of the fair market value for such Option Stock.
2B. Purchase Price Determination. The purchase price (the "Purchase
----------------------------
Price") for all shares of the Option Stock purchased by a Founder(s) or his or
her assignee(s) pursuant to this section 2 shall be the fair market value of
such shares as of the last day of the Company's most recently completed fiscal
quarter which ends prior to the exercise of such option (the "Valuation Date").
The fair market value of the shares of the Option Stock to be sold shall mean
the value mutually agreed upon by the Founder(s) or its assignee(s), as the case
may be, and Martin or, if no agreed value is reached, the fair market value
shall mean the aggregate "Per Share Value" of the Option Stock as of the
Valuation Date. The "Per Share Value" of the Option Stock shall be determined by
an appraisal of the value of a single share of Option Stock, which appraisal
shall consider all appropriate factors, including, without limitation, any
appropriate discounts for lack of marketability, minority interests, etc. For
purposes hereof, a single appraiser shall be selected by mutual agreement of the
Founder(s) and Martin. In the absence of a mutual agreement, the parties shall
each select an appraiser who shall in turn select a third appraiser to prepare
the actual appraisal. The determination of the "Per Share Value" by the
appraiser shall be conclusive and binding on the parties. Martin and the
Founder(s) shall each be responsible for one-half of all costs of such
appraisal. The closing of the purchase and sale of the Option Stock shall be on
a date mutually agreed upon by the Founders and Martin but which date shall, in
the absence of such agreement, be on the 30th day after delivery of the
appraisal (the "Closing").
2C. Payment of Purchase Price. The Purchase Price for all Option Stock
-------------------------
purchases pursuant to this section 2 shall be paid in three equal installments,
with
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the first installment paid at Closing and the remaining installments paid on the
first and second anniversaries of Closing.
2D. Price Adjustment. If, within one year of a Closing of a purchase
----------------
of Option Stock as the result of the Founders' exercise of their call rights
under this section 2 (the "First Sale"), (i) there is a sale of a majority of
the Common Stock or of all or substantially all of the Company's assets or there
is a Qualified Public Offering (as defined in paragraph 3B below) (the "Second
Sale") and (ii) the fair market value of the proceeds of the Second Sale to the
disposing Common Stockholders or, in the case of a sale of assets, to the Common
Stockholders entitled to a distribution of the proceeds, on a per share basis
adjusted to reverse the effect of any stock dividend, stock split,
recapitalization or issuance of additional shares, exceeds the amount paid
Martin on a per share basis, then the Company shall pay to Martin (or his
Permitted Transferee who sold his or her Option Stock in the First Sale, as
applicable) an amount equal to such excess multiplied by the number of shares of
Option Stock sold in the First Sale by Martin (and his Permitted Transferees).
3. General Provisions.
------------------
3A. Legends on Certificates. During the term of this Agreement, each
-----------------------
certificate representing shares of Restricted Stock will bear a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SALE,
ASSIGNMENT, TRANSFER, PLEDGE OR OTHER DISPOSITION THEREOF ARE
SUBJECT TO CERTAIN RESTRICTIONS AND AGREEMENTS CONTAINED IN A BUY-
SELL AGREEMENT ORIGINALLY DATED AS OF ___________, 1997 AMONG THE
COMPANY AND CERTAIN STOCKHOLDERS. A COPY OF THE BUY-SELL
AGREEMENT AND ALL APPLICABLE AMENDMENTS THERETO WILL BE FURNISHED
BY THE COMPANY TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT
CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE
OF BUSINESS OR REGISTERED OFFICE. "
The Company shall make a notation on its records and give instructions to any
transfer agent of the Common Stock in order to implement the restrictions on
transfer established in this Agreement.
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3B. Termination; Amendment.
----------------------
(i) This Agreement shall terminate upon the earlier to occur of (a)
a Qualified Public Offering (as defined below), or (b) the written agreement of
the Company and each Founder who continues to own Common Stock.
(ii) This Agreement may be amended by the written agreement of the
Company and each Founder who continues to own Common Stock and the holders of
50% or more of the shares of Restricted Stock then outstanding.
(iii) For purposes hereof, a "Qualified Public Offering" means any
underwritten offering by the Company of shares of Common Stock to the public
pursuant to an effective registration statement under the Securities Act of
1933, then in effect, or any comparable statement under any similar federal
statute then in force, in which [a] the aggregate cash proceeds to be received
by the Company and selling shareholders from such offering (without deducting
underwriting discounts, expenses and commissions) are at least $10 million and
[b] the price per share paid by the public for such shares is at least $3.00.
3C. Notices. All notices, requests, consents, and other communications
-------
under this Agreement shall be in writing and shall be delivered personally or by
facsimile transmission or by overnight delivery service or 72 hours after having
been mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at Garden Escape, Inc., 515 Congress Avenue, Suite 1350,
Austin, TX 78701, Attention: President, (fax (512) 472-6645), or at such other
address or addresses as may have been furnished in writing by the Company, with
a copy to Martin J. McLaughlin, Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, s.c., 1000 North Water Street, Suite 2100, Milwaukee, Wisconsin
53202 (fax (414) 298-8097).
If to Martin, at his address set forth on the books of the Company, or at
such other address or addresses as may have been furnished to the Company in
writing by Martin.
If to a Founder, at his or her address set forth on the books of the
Company, or at such other address or addresses as may have been furnished to the
Company in writing by such Founder.
Notices provided in accordance with this paragraph 4C shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
7
<PAGE>
3D. Governing Law. The construction, validity and interpretation of
-------------
this Agreement will be governed by the internal laws of the State of Texas
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Texas or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Texas.
3E. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
3F. Reorganization. The provisions of this Agreement shall apply to
--------------
any shares or other securities resulting from any stock split or reverse split,
stock dividend, reclassification, subdivision, consolidation or reorganization
of any shares or other equity securities of the Company and to any shares or
other securities of the Company or of any successor company which may be
received by any of the parties hereto by virtue of their respective ownership of
any shares of Common Stock of the Company. For purposes hereof, such securities
shall be considered "Restricted Stock."
3G. Headings. The headings of this Agreement are for convenience only and
--------
do not constitute a part of this Agreement.
3H. Severability. The invalidity or unenforceability of any provision of
------------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
3I. Binding Effect. The rights and obligations of each Common Stockholder
--------------
under this Agreement, may not be assigned by such Common Stockholder except as
provided herein.
* * *
8
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date first written above.
FOUNDERS COMPANY:
/s/ Clifford A. Sharples
- ---------------------------- GARDEN ESCAPE, INC.
Clifford A. Sharples
/s/ Lisa W. A. Sharples By: /s/ Clifford A. Sharples, President
- ---------------------------- ------------------------------------
Lisa W. A. Sharples Clifford A. Sharples, President
/s/ James N. O'Neill /s/ Andy R. Martin
____________________________ -----------------------------------
James N. O'Neill Andy R. Martin
9
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
in "Selected Financial Data" and to the use of our report dated May 25, 1999 in
the Registration Statement (Form S-1) and related Prospectus of Garden.com, Inc.
for the registration of shares of its common stock.
/s/ Ernst & Young LLP
Austin, Texas
May 27, 1999
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<FISCAL-YEAR-END> JUN-30-1999 MAR-31-1999
<PERIOD-START> JUL-01-1997 JUL-01-1998
<PERIOD-END> JUN-30-1998 MAR-31-1999
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26,975,496 26,938,227
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<INCOME-PRETAX> (4,610,812) (10,568,452)
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<INCOME-CONTINUING> (4,610,812) (10,568,452)
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