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As filed with the Securities and Exchange Commission on May 25, 1999
Registration No. 333-78885
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GREATFOOD.COM, INC.
(Exact name of Registrant as specified in its charter)
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WASHINGTON 5961 91-1694451
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification No.) Identification
No.)
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2731 EASTLAKE AVENUE EAST
SEATTLE, WA 98102
(206) 322-7539
(Address and telephone number of principal executive offices)
BENJAMIN NOURSE
CHIEF EXECUTIVE OFFICER
GREATFOOD.COM, INC.
2731 EASTLAKE AVENUE EAST
SEATTLE, WA 98102
(206) 322-7539
(Name, address and telephone number of agent for service)
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COPIES TO:
THOMAS S. HODGE, ESQ. BRUCE ALAN MANN, ESQ.
NOELLE E. COOPER, ESQ. Morrison & Foerster LLP
CHARLES P. CARTER, ESQ. 425 Market Street
Heller Ehrman White and McAuliffe San Francisco, CA 94105-2482
6100 Columbia Center (415) 268-7000
701 Fifth Avenue
Seattle, WA 98104-7098
(206) 447-0900
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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 the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act, please
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 of 1933, as amended (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 number of the earlier effective registration statement for the same
offering. / /
If this Form is a post effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
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Common Stock (no par value)..................................... $38,812,500 $10,790(2)
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(1) Estimated solely for the purposes of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
(2) Previously paid.
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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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
INITIAL PUBLIC OFFERING
PROSPECTUS
SUBJECT TO COMPLETION, MAY
20, 1999
2,500,000 SHARES OF COMMON STOCK
$ PER SHARE
[LOGO]
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GreatFood.com, Inc.
2731 Eastlake Avenue East
Seattle, Washington 98102
THE OFFERING
PER SHARE TOTAL
----------- ---------
Public price............... $ $
Underwriting discounts
and commissions.......... $ $
Proceeds to
GreatFood.com.............. $ $
GreatFood.com is an electronic commerce company
focused on the sale of gourmet and specialty food
over the Internet to the retail, corporate gift and
wholesale markets.
This is our initial public offering and no public
market currently exists for our shares. We expect
that the public offering price in the offering will
be between $10.50 and $13.50 per share. This price
may not reflect the market price of our shares
after this offering.
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PROPOSED TRADING SYMBOL:
THE NASDAQ NATIONAL MARKET - GTFD
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THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF
YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
We have entered into a firm commitment underwriting agreement with the
underwriters for the sale of shares in this offering. We have granted the
underwriters a 30 day option to purchase up to an additional 375,000 shares of
our common stock to cover over-allotments. The underwriters expect to deliver
shares of common stock to purchasers on , 1999.
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[LOGO] [LOGO]
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, 1999
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You should rely only on the 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 our 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.
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TABLE OF CONTENTS
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Prospectus Summary......................................................................................... 1
The Offering............................................................................................... 2
Summary Financial Data..................................................................................... 3
Risk Factors............................................................................................... 4
Special Note Regarding Forward Looking Statements.......................................................... 16
Use of Proceeds............................................................................................ 17
Dividend Policy............................................................................................ 17
Capitalization............................................................................................. 18
Dilution................................................................................................... 19
Selected Financial Data.................................................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 21
Business................................................................................................... 30
Management................................................................................................. 45
Certain Relationships and Related Transactions............................................................. 52
Principal Shareholders..................................................................................... 54
Description of Capital Stock............................................................................... 56
Shares Eligible For Future Sale............................................................................ 59
Plan of Distribution....................................................................................... 60
Legal Matters.............................................................................................. 63
Experts.................................................................................................... 63
Where to Find Additional Information About GreatFood.com................................................... 63
Index to Financial Statements.............................................................................. F-1
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"GreatFood.com" and the GreatFood.com logo are trademarks of GreatFood.com,
Inc. All other trademarks or tradenames referred to in this prospectus are the
property of their respective owners.
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION DESCRIBED MORE FULLY ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY. THIS PROSPECTUS CONTAINS FORWARD
LOOKING STATEMENTS BASED ON OUR CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND
PROJECTIONS ABOUT OUR BUSINESS AND OUR INDUSTRY. THESE FORWARD LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, WHICH ARE MORE FULLY DESCRIBED IN THE "RISK FACTORS"
SECTION BEGINNING ON PAGE 4 AND ELSEWHERE IN THIS PROSPECTUS. WE UNDERTAKE NO
OBLIGATION TO UPDATE PUBLICLY ANY FORWARD LOOKING STATEMENTS FOR ANY REASON,
EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
GREATFOOD.COM
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Our Business:.............. GreatFood.com is an electronic commerce company focused on the
sale of gourmet and specialty food over the Internet to the
retail, corporate gift and wholesale markets. We offer a broad
selection of high quality branded specialty food products which
appeal to a wide range of customers for special occasions,
parties and gifts. Our product offerings include specialty and
gourmet food such as chocolates, caviar, prime beef, fancy
fruit, and lobster dinners. Our merchandise mix is focused on a
carefully selected assortment of high quality products, and our
Web site combines a unique blend of merchandise and related
content. We do not operate a warehouse and our customers'
orders are fulfilled directly by our suppliers.
Our Opportunity:........... There is no dominant retailer within the gourmet and specialty
food market--a market which we believe exceeded $30 billion at
the retail level in 1998. Furthermore, this market is
characterized by a fragmented supplier and distribution
network. This limits the product choices and shopping
convenience available to customers. The retail market involves
the sale of products to consumers at retail prices while the
wholesale market involves the sale of bulk quantities of
products to retailers at wholesale prices. In both the retail
and wholesale markets, we believe electronic commerce provides
opportunities to improve the specialty food shopping experience
and selection.
Our Strategy:.............. We plan to utilize the following strategies to be the leading
online provider of specialty food:
- expand brand recognition;
- utilize our suppliers as our "virtual warehouses";
- expand the breadth and depth of our product offerings;
- capitalize on the relationship between retail and wholesale
distribution channels;
- acquire leading market share to leverage economies of scale;
and
- expand internationally.
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Our Distribution:.......... We have established strategic supplier relationships with
specialty food manufacturers, distributors and importers who
ship products directly to customers on our behalf. As a result,
each of our suppliers serves as a GreatFood.com "virtual
warehouse." This direct supplier to customer fulfillment model
enables us to:
- minimize inventory related risks and holding costs;
- limit overhead costs;
- offer a broad range of perishable and non-perishable
products; and
- provide prompt delivery.
Our Marketing:............. We target potential online customers, both retail and
wholesale, in a proactive manner. We have established a
co-branded program with Peapod and entered into an affiliate
program with GeoCities and merchant tenancy agreements with
America Online and Excite. We utilize a mix of traditional and
online marketing techniques, including online and print
advertising, direct mail, public relations and trade shows.
Our Web Site:.............. Our online store is accessed on the Internet at
WWW.GREATFOOD.COM. It provides pictures and detailed
information relating to specialty food products, and is
conveniently organized by category, brand, or meal occasion.
Shoppers can search for, browse and select products throughout
the store and place their selection in a virtual shopping cart
for purchase. Traffic on our Web site reached 1.2 million
unique visits in 1998 and 813,593 unique visits in the first
quarter of 1999.
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THE OFFERING
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Type of security............................. Common stock
Common stock offered......................... 2,500,000 shares
Common stock to be outstanding
after this offering........................ 6,527,532 shares(1)
Use of proceeds.............................. For expansion of advertising and promotion,
implementation of a new order processing
system, increases of our management team and
personnel, expansion of our business
operations and general corporate purposes.
See "Use of Proceeds" at page 17 for more
information.
Proposed Nasdaq National Market Symbol....... GTFD
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(1) Does not include 1,530,388 shares reserved for future issuance as follows:
(a) 863,500 shares of common stock reserved for issuance pursuant to
outstanding options granted under our 1997 Stock Incentive Plan; (b) 343,811
shares of common stock reserved for issuance pursuant to outstanding
warrants, and (c) 323,077 shares of common stock reserved for issuance upon
conversion of Series C preferred stock issuable upon the exercise of
warrants which will only become exercisable if the per share price in this
offering is less than $10.00. This also does not include 1,136,500 shares
reserved for issuance pursuant to future grants under our 1997 Stock
Incentive Plan and our 1999 Employee Stock Purchase Plan.
THE METHOD OF DISTRIBUTION BEING USED BY THE UNDERWRITERS IN THIS OFFERING
DIFFERS SOMEWHAT FROM THAT TRADITIONALLY EMPLOYED IN FIRM COMMITMENT
UNDERWRITTEN PUBLIC OFFERINGS. IN PARTICULAR, THE PUBLIC OFFERING PRICE AND
ALLOCATION OF SHARES WILL BE DETERMINED PRIMARILY BY AN AUCTION PROCESS
CONDUCTED BY THE UNDERWRITERS AND OTHER SECURITIES DEALERS PARTICIPATING IN THIS
OFFERING. A MORE DETAILED DESCRIPTION OF THIS PROCESS IS INCLUDED IN "PLAN OF
DISTRIBUTION."
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SUMMARY FINANCIAL DATA
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS)
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THREE
FISCAL YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
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1996 1997 1998 1998 1999
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STATEMENT OF OPERATIONS DATA:
Net revenues............................ $ 18 $ 120 $ 748 $ 28 $ 168
Gross profit............................ 4 28 143 6 21
Loss from operations.................... (61) (83) (1,401) (38) (831)
Net loss................................ (40) (82) (1,371) (38) (826)
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AS OF MARCH 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents......................... $1,932 $ 4,902 $ 32,662
Total assets...................................... 2,258 5,228 32,988
Total shareholders' equity........................ 2,004 4,974 32,734
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The pro forma information above reflects the net proceeds from the sale of
600,000 shares of Series C preferred stock on May 17, 1999.
The pro forma as adjusted information above also gives effect to our receipt
of the estimated net proceeds from the sale of 2,500,000 shares of common stock
in this offering at an assumed public offering price of $12.00 per share.
We were incorporated in Washington in August 1995. Our headquarters are
located at 2731 Eastlake Avenue East, Seattle, Washington 98102 and our
telephone number is (206) 322-7539. Our Web site is located at
WWW.GREATFOOD.COM. Information contained on our Web site does not constitute a
part of this prospectus.
UNLESS OTHERWISE INDICATED, ANY INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES THAT:
- THE UNDERWRITERS WILL NOT EXERCISE THEIR OVER-ALLOTMENT OPTION; AND
- ALL OUTSTANDING CONVERTIBLE PREFERRED STOCK WILL BE CONVERTED TO COMMON
STOCK BEFORE THIS OFFERING IS COMPLETED.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE YOU DECIDE TO BUY
OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY
ONES FACING OUR COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES MAY ALSO ADVERSELY
AFFECT OUR BUSINESS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS
COULD BE HARMED. IF OUR BUSINESS IS HARMED, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY
OUR COMMON STOCK.
RISKS RELATED TO GREATFOOD.COM'S OPERATIONS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS.
We were incorporated in August 1995, began operations in March 1996 and have
had limited sales. Accordingly, we have a limited operating history upon which
you may evaluate us. You must consider our prospects in light of the risks,
uncertainties, expenses and difficulties frequently encountered by early stage
companies like us in new and rapidly evolving markets, including the market for
the sale of goods and services on the Internet. To address these risks we must:
- attract and retain a larger number of retail and business customers to our
online store;
- increase our profit margin;
- increase awareness of the GreatFood.com brand;
- attract a significant number of high quality suppliers and expand our
product offerings;
- work with our suppliers to develop and expand order fulfillment processes
and systems to ensure prompt delivery of customer orders;
- respond effectively to competitive pressures;
- upgrade and develop our systems and infrastructure to effectively manage
rapidly expanding operations and traffic on our Web site;
- attract, retain and motivate qualified personnel; and
- anticipate and adapt to a developing market.
We may not be able to successfully accomplish all of these objectives, and
if we fail to do so, our business, financial condition, and operating results
will be harmed. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" beginning on page 21 for more information on our
limited operating history.
WE ARE NOT PROFITABLE AND EXPECT TO CONTINUE TO INCUR LOSSES FOR THE FORESEEABLE
FUTURE.
We have not achieved profitability and expect to incur significant operating
losses for the foreseeable future. As of March 31, 1999, we had an accumulated
deficit of $2.3 million. We incurred net losses of $826,470 in the first quarter
of 1999, $1.4 million in 1998, $81,937 in 1997, and $39,833 in 1996. We expect
our operating losses will increase in future periods because we expect to incur
additional costs and expenses related to:
- marketing and promotional activities to enhance the GreatFood.com brand;
- implementation of a new order processing system to link us to our
suppliers, improve order processing and expand the capacity of order
fulfillment;
- improvements and enhancements to our Web site;
- expansion of our retail product offerings and Web site content;
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- expansion of our wholesale program and implementation of our international
program; and
- attracting and retaining talented personnel.
We will need to generate significant revenues to achieve profitability and
we may not be able to do so. Even if we do achieve profitability, we may not be
able to sustain it. If our revenues grow more slowly than we anticipate or if
our operating expenses exceed our expectations, our financial results would be
harmed. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" beginning on page 21 for more information on our
operating history.
OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT. WE MAY FAIL TO MEET
THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS WHICH COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECREASE SIGNIFICANTLY.
Our operating results have fluctuated on a quarterly basis in the past and
may fluctuate significantly in the future due to a variety of factors, many of
which are outside of our control. It is likely that in some future quarter our
operating results may fall below the expectations of securities analysts and
investors which may cause our stock price to significantly decline. Factors that
may harm our business or cause our operating results to fluctuate include those
discussed in greater detail in this section and the following:
- our ability to obtain new customers or encourage repeat purchases;
- the ability of our competitors to offer new or enhanced Web sites,
services or products;
- fluctuations in the amount of consumer spending on specialty food and
gifts;
- our ability to manage order fulfillment and maintain or increase gross
margins;
- our ability to obtain a breadth of desirable products for sale on our Web
site;
- the termination of existing, or failure to develop new, strategic
marketing relationships under which we receive exposure to traffic on
third party Web sites; and
- the amount and timing of operating costs and capital expenditures relating
to expansion of our operations.
BECAUSE THE DEMAND FOR OUR PRODUCTS IS SEASONAL, OUR QUARTERLY SALES WILL
CONTINUE TO FLUCTUATE AND WE MAY HAVE INSUFFICIENT CASH FLOW TO MAINTAIN OUR
OPERATIONS.
We have experienced, and expect to continue to experience, substantial
seasonality in our sales. Approximately 86% of our 1998 net sales were realized
in the fourth quarter. Since most of our operating costs are not directly
related to our sales volume, these seasonal sales patterns may result in
insufficient cash flow to support our operations during certain times of the
year. This seasonality reflects a combination of seasonal fluctuations in
Internet usage as well as traditional retail seasonality for the gift and
"special occasion" oriented products we offer. We plan to increase our
advertising and promotional spending even more significantly in the third
quarter of 1999 and hire additional employees to handle the increased order
activity which we expect to occur in the fourth quarter of 1999. If sales fall
below expectations in the fourth quarter, our quarterly or annual results could
be below the expectation of securities analysts and investors which could cause
our stock price to decline.
WE MAY NOT BE ABLE TO ACHIEVE THE BROAD RECOGNITION OF THE GREATFOOD.COM BRAND
NECESSARY FOR SUCCESS.
We believe that broader recognition and a favorable consumer perception of
the GreatFood.com brand are essential to our future success. Accordingly, we
intend to continue to pursue a substantial advertising and marketing campaign to
establish the GreatFood.com brand. This campaign will involve
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significant expense. If we are unable to achieve broader brand recognition, we
may be unable to increase future revenues and we may never recover these
expenses. In addition, even if brand recognition increases, the number of new
customers or the number of transactions in our online store, and consequently,
our revenues may not increase.
THE LOSS OF THE SERVICES OF ONE OR MORE OF OUR KEY PERSONNEL OR OUR FAILURE TO
HIRE, INTEGRATE OR RETAIN OTHER QUALIFIED PERSONNEL COULD DISRUPT OUR BUSINESS.
We depend upon the continued services and expertise of our Chairman and
Chief Executive Officer, Benjamin Nourse, and our President, William Cuff. The
loss of the services of Mr. Nourse or Mr. Cuff may make us unable to continue
our operations. Mr. Nourse and Mr. Cuff are not bound by employment agreements
for any specific term. Our future success also depends on our ability to attract
and retain additional qualified technical, operating, marketing and customer
service personnel. Competition for qualified personnel in the Internet industry
is intense and we may not be able to retain or hire necessary personnel.
OUR EFFORTS TO DEVELOP OUR WHOLESALE BUSINESS MAY NOT BE SUCCESSFUL.
Prior to December 1998, we focused our operations exclusively on sales to
retail consumers. In December 1998, we launched our wholesale program through
which we sell products to retailers in bulk quantities at wholesale prices. Our
expansion into this area will require significant additional expenses and
management resources to develop, market and promote this program. As a result,
this expansion may strain our management, financial and operational resources.
To date, we have had limited experience in the wholesale market and our
wholesale sales have generated limited revenues. Certain aspects of our business
model may limit the growth of our wholesale business. These include:
- unfamiliarity with Internet commerce among retailers;
- limitations of our current order processing system which require us to
base our shipping charges on estimated rather than actual costs;
- our current inability to extend credit to wholesale purchasers; and
- potentially higher shipping costs due to our inability to consolidate
orders because we do not operate a warehouse.
As a result, we may not be able to successfully expand into the wholesale
market and may not be able to recover our expenses in developing this program.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" on page 21.
OUR INTERNATIONAL EXPANSION EFFORTS MAY NOT BE SUCCESSFUL.
We are in the process of developing a Canadian GreatFood.com site and
establishing a network of suppliers in Canada which will offer products to
customers in Canada. In addition, we currently contemplate replicating our
online store in other international markets. To date, we have no experience in
distributing products on an international basis and in developing localized
versions of our business model. We cannot assure you that our international
efforts will be successful. We expect to incur significant costs in:
- establishing international distribution networks;
- promoting our brand name internationally;
- developing localized versions of our Web site;
- complying with local regulations;
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- overseeing the distribution of products in foreign markets; and
- modifying our order processing system for each international market we
enter.
If our international revenues are inadequate to offset the expense of
establishing and maintaining foreign operations, our business could be harmed.
In addition, there are several risks inherent in doing business on an
international level. These risks include:
- potentially complex regulatory requirements;
- export and import restrictions;
- tariffs and other trade barriers;
- difficulties in staffing and managing foreign operations;
- fluctuations in currency exchange rates;
- seasonal fluctuations in business activity in other parts of the world;
and
- potentially adverse tax consequences.
Any of these risks could adversely impact the success of our international
operations.
IF WE ENTER NEW BUSINESS CATEGORIES THAT DO NOT ACHIEVE MARKET ACCEPTANCE, OUR
BUSINESS COULD BE SERIOUSLY HARMED.
We may choose to expand our operations by developing new Web sites, offering
products or services not currently offered, or expanding our market presence
through relationships with third parties. Although we have no present
understandings, commitments or agreements with respect to any material
acquisitions or investments, we may pursue the acquisition of new or
complementary businesses, products or technologies. Any new Web site or product
category that is launched by us but not favorably received by consumers could
damage our brand or reputation and harm our net sales and results of operations.
In addition, any expansion of our business in any of these manners would require
significant additional expenses, and strain our management, financial and
operational resources.
BECAUSE WE DO NOT HAVE LONG TERM OR EXCLUSIVE CONTRACTS WITH OUR SUPPLIERS, WE
MAY BE UNABLE TO OFFER A SUFFICIENT SELECTION OF HIGH QUALITY SPECIALTY FOOD
PRODUCTS AND MAY LOSE CUSTOMERS.
We depend on many specialty food suppliers for products and order
fulfillment. However, sales of products from our five largest suppliers
accounted for approximately 42% of our net revenues in 1998. As a result, we are
substantially dependent on the continued participation of these key suppliers.
We do not have exclusive arrangements with any of our suppliers, and in some
cases, do not have a formal contractual relationship. Our suppliers may
terminate their relationship with us, elect to supply our competitors or decide
to compete with us by offering products on their own Web sites. If we are unable
to maintain a large supplier base and offer an attractive selection of specialty
food products, or if we lose the participation of key suppliers, we may be
unable to attract new customers, or may lose current customers, which would
reduce our ability to generate revenue.
OUR SUPPLIERS MAY NOT BE ABLE TO FULFILL CUSTOMER ORDERS IN A TIMELY MANNER
WHICH COULD CAUSE US TO LOSE SALES AND HARM OUR BUSINESS.
We currently rely on our suppliers to fulfill our customers' orders directly
and therefore do not maintain inventory or operate distribution centers. Failure
of our suppliers to deliver products to our customers in a timely manner could
cause us to lose sales or damage our reputation which would be harmful to our
business. Many of our suppliers are small businesses with limited production and
delivery capabilities. As a result, during the 1998 holiday season, several of
our suppliers were not able
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to fulfill orders in a timely manner, which caused us to experience customer
complaints and, in some cases, lost sales.
WE MAY CHOOSE TO ESTABLISH DISTRIBUTION CENTERS AND STOCK CERTAIN PRODUCTS WHICH
WOULD INCREASE OUR EXPENSES AND EXPOSE US TO INVENTORY RELATED RISKS.
The inventory practices of many online retailers have evolved from largely
non-inventory models to limited or expanded inventory and direct distribution
models. We will evaluate on an ongoing basis whether we should maintain
inventories or distribution centers. We may choose to do so, for example:
- if our suppliers are not able to deliver products to our customers in a
timely manner;
- to be able to consolidate orders, particularly from wholesale customers,
to reduce shipping costs or achieve other economies; or
- to obtain distributor margins on a higher portion of our sales.
If we decide to maintain our own distribution centers:
- our operating and capital costs would significantly increase;
- we would be exposed to additional inventory holding risks; and
- our product offering could be limited.
IF THE CARRIERS WHICH DISTRIBUTE OUR PRODUCTS EXPERIENCE BUSINESS INTERRUPTIONS,
OUR BUSINESS WOULD BE SERIOUSLY HARMED.
We rely upon third party carriers for delivery of products from our
suppliers to our customers. As a result, we are subject to certain risks
associated with these carriers' ability to promptly deliver products to our
customers, including the risk of employee strikes or inclement weather. Since a
disproportionate amount of our sales are made in the fourth quarter, any
inability to deliver our products during this time would substantially reduce
our annual revenues and severely harm our business. In addition, failure to
deliver products to our customers in a timely manner would harm our reputation
and brand name.
WE MAY BE SUBJECT TO LIABILITY FOR THE PRODUCTS SOLD ON OUR WEB SITE.
Food products are subject to spoilage and can convey a variety of food
related human illnesses, including allergies and bacterial contamination.
Customers may sue us if they are harmed by any products purchased in our online
store. Liability claims could require us to spend significant time and money in
litigation or to pay significant damages which could harm our business. Although
our supplier contracts generally require suppliers to maintain product liability
insurance, and we carry insurance for product liability claims, our insurance
carrier may deny coverage in any particular case or the amount of damages could
exceed our policy limits.
OUR CONVERSION TO A NEW ORDER PROCESSING SYSTEM MAY NOT BE SUCCESSFUL AND WE MAY
BE UNABLE TO PROCESS ORDERS AND MAY LOSE CUSTOMERS.
We are in the process of converting to a new customer order processing
system which eventually will include electronic links between our order
processing system and many of our suppliers. If this system does not work
effectively, or if we cannot deploy it without system downtime, particularly
during the fourth quarter, we may be unable to process orders, may lose
customers and our business could be severely harmed. The implementation of this
system will be a complex undertaking. The conversion to new technologies and
systems is often accompanied by unexpected technical problems, operational
disruptions and delays. This may happen to us, and we may lose sales, customers,
or suppliers as a
8
<PAGE>
result. Also, if we do not successfully implement this system, we may experience
difficulties fulfilling orders through our remote supplier network as our sales
increase. These difficulties may cause customer complaints, damage to our
reputation, or lost sales which would be harmful to our business. See "Business
- -- Technology and Intellectual Property" on page 41 for more information.
OUR BUSINESS MAY BE AFFECTED BY YEAR 2000 READINESS ISSUES.
We have been advised that our existing order processing system is not fully
year 2000 compliant and our credit card processing company has indicated it will
not support this system after June 30, 1999 unless we upgrade to a version which
is year 2000 compliant. We are currently in the process of replacing this system
with a new order processing system. We have received assurances from the third
party supplier of this new system that it is year 2000 compliant and that the
transfer of our order processing functions to the new system can be completed by
June 30, 1999. As a backup, we are also considering the purchase of a more
recent version of our existing order processing system which is year 2000
compliant and which our credit card processing company will continue to support.
In addition, we are assessing the year 2000 readiness of other third party
supplied software, computer technology, and embedded systems used in our
business. Following this review, we may need to replace or modify various other
systems. If we are not able to properly complete the replacement or upgrade of
our order processing system or the assessment and remediation of our other
software, technology and systems in a timely manner, we may be unable to operate
our Web site, process customer orders, and perform other necessary operations
which would harm our business.
Additionally, our business could be harmed if the systems used by third
parties material to our operations, including Internet service providers,
financial institutions which process credit card orders, telecommunications
vendors, our suppliers, and third party carriers, or the Internet in general,
are not year 2000 compliant. We are still evaluating and have not yet developed
a contingency plan to address situations that may result if we, our suppliers,
other third parties, or the Internet are unable to achieve year 2000 compliance.
The cost of developing and implementing such a plan, if necessary, could be
significant. Any failure of our material systems, our suppliers' or other third
parties' material systems, or the Internet, to be year 2000 compliant could
prevent us from operating our Web site effectively, taking product orders,
making product deliveries or conducting other fundamental aspects of our
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Readiness" on page 27 for more detailed
information.
WE ARE GROWING RAPIDLY AND MAY HAVE DIFFICULTY MANAGING OUR GROWTH EFFECTIVELY.
We have grown and expect to continue to grow rapidly both by adding new
products and hiring new employees. This growth is likely to place a significant
strain on our management, resources and systems. If we cannot effectively manage
our growth, our business could be harmed. To manage our growth, we must improve
our existing systems or implement new systems for operational and financial
management and effectively train and manage our growing employee base. If we
acquire new businesses, we will also need to integrate new operations,
technologies and personnel.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS.
We believe that our current cash resources, combined with the net proceeds
from this offering, will meet our anticipated working capital and capital
expenditure requirements for at least the 18 months following the date of this
prospectus. After that time, we may need to raise additional capital.
Alternatively, we may need to raise additional funds sooner to:
- fund more rapid expansion;
- respond to competitive pressures;
9
<PAGE>
- acquire complementary businesses; or
- finance our operations if our revenues are lower than expected or our
expenses are greater than expected.
We may not be able to obtain the additional financing we may require on
favorable terms, or at all. If adequate capital is not available on acceptable
terms, we may not be able to fund expansion, take advantage of opportunities,
respond to competitive pressures or acquire complementary businesses.
WE MAY ISSUE ADDITIONAL SECURITIES TO FUND OUR CAPITAL REQUIREMENTS WHICH WOULD
DILUTE OUR SHAREHOLDERS' INTEREST.
We may need to issue equity or convertible debt securities to fund future
capital requirements. If we do so, the percentage ownership of our then current
shareholders will be reduced. In addition, these securities may have rights,
preferences or privileges senior to those of our current shareholders.
WE MAY ENGAGE IN FUTURE ACQUISITIONS WHICH MAY HARM OUR FINANCIAL RESULTS, CAUSE
OUR STOCK PRICE TO DECLINE, OR DILUTE OUR SHAREHOLDERS' INTEREST IN
GREATFOOD.COM.
As part of our business strategy, we expect to review acquisition prospects
that would complement our current content offerings, increase our market share
or otherwise offer growth opportunities. However, to date we have not had any
experience in these types of transactions and have no current agreements or
commitments with respect to any acquisitions. These acquisitions may harm our
operating results or cause our stock price to decline because we may:
- issue equity or equity related securities that dilute our current
shareholders' percentage ownership of GreatFood.com;
- incur substantial debt or assume contingent liabilities of an acquired
business;
- be required to amortize a significant amount of intangible assets acquired
in an acquisition;
- have difficulty assimilating acquired operations, technologies or
products;
- experience diversion of our management's attention from our other business
operations; or
- lose key employees of acquired businesses or of GreatFood.com.
ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER DOCUMENTS AND WASHINGTON LAW
MAY DELAY OR PREVENT A CHANGE OF CONTROL.
Provisions of our articles of incorporation, our bylaws and Washington law
could:
- delay or prevent a change in control of our company;
- discourage bids for our common stock at a premium over the market price;
or
- prevent changes in management.
See "Description of Capital Stock" on page 56 for more detailed information.
RISKS RELATED TO GREATFOOD.COM'S INTERNET BUSINESS AND PROSPECTS
THE SUCCESS OF OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF INTERNET COMMERCE.
Our success is highly dependent upon continued growth in the use of the
Internet generally and in particular as a medium for electronic commerce. If
Internet usage does not grow or grows slower than expected, our business will
suffer. Internet use by consumers is still in an early stage of development
10
<PAGE>
and a sufficiently broad base of consumers may not adopt, or continue to use,
the Internet as a medium for commerce. A number of factors may inhibit the
growth of Internet usage, including:
- failure to develop an adequate network infrastructure to support
substantial growth in usage;
- increased governmental regulation and taxation;
- consumer concerns about security of electronic commerce transactions; and
- inconsistent quality of service and limited availability of cost
effective, high speed access.
OUR SUCCESS DEPENDS ON THE RELIABILITY OF THE INTERNET INFRASTRUCTURE.
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and amount of traffic. Our success
will depend on the development and maintenance of the Internet infrastructure to
support these increased demands and perform reliably. If the Internet
infrastructure is not adequately developed or maintained, use of our Web site
may be reduced and we may not be able to generate revenues. Even if the Internet
infrastructure is adequately developed and maintained, we may incur substantial
expenditures in order to adapt our services and products to changing Internet
technologies. The Internet has experienced a variety of outages and other delays
as a result of damage to portions of its infrastructure, and could face such
outages and delays in the future. These outages and delays could reduce the
level of Internet usage and traffic on our Web site. In addition, the Internet
could lose its viability if the development or adoption of new standards and
protocols to handle increased levels of activity is delayed or governmental
regulation is increased.
ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS.
We rely on encryption and authentication technology licensed from third
parties to provide secure transmission of confidential information such as
customer credit card numbers. However, the security procedures we use to protect
customer transaction data may be compromised or breached as a result of
developments in computer capabilities or in the field of cryptography. A party
who is able to circumvent our security measures could misappropriate proprietary
information, including customer credit card information, or cause interruptions
in the operation of our Web site. A security breach could result in litigation
against us, potential liability, and damage to our reputation, any of which
could severely harm our business.
We may be required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate problems caused
by these breaches. However, protection may not be available at a reasonable
price or at all. In addition, publicized security breaches could increase
consumer concerns over the security of electronic commerce and may inhibit the
growth of the Internet as a means of conducting commercial transactions.
OUR OPERATING RESULTS WOULD BE HARMED IF WE EXPERIENCE SIGNIFICANT CREDIT CARD
FRAUD.
Under current practices, we are liable for fraudulent credit card
transactions because we do not require a customer's signature to authorize a
transaction. A failure to adequately control fraudulent credit card transactions
would harm our results of operations because we do not carry insurance against
this risk. Although we have developed internal controls to safeguard ourselves
from this problem, we have suffered losses in the past as a result of orders
placed with fraudulent credit card data and it is possible we will continue to
suffer such losses in the future.
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<PAGE>
WE MAY NOT BE ABLE TO RESPOND EFFECTIVELY TO RAPID TECHNOLOGICAL CHANGES.
The Internet and the online commerce industry are rapidly changing. To
remain competitive, we must:
- adapt to rapidly changing technologies;
- adapt our business to evolving industry standards; and
- continually improve the performance, features and reliability of our Web
site.
If we face material delays in introducing new products, services or
enhancements, our customers may cease to shop in our online store and use those
of our competitors. To develop our Web site and other proprietary technology
entails significant technical and business risks. We may use new technologies
ineffectively or we may fail to adapt our Web site, order processing systems,
and computer network to customer requirements or emerging industry standards.
OUR SYSTEMS MAY FAIL OR LIMIT USER TRAFFIC.
Substantially all of our computer and communications hardware operations for
our Web site is located in a single facility in Seattle, Washington. Our systems
and operations are vulnerable to damage or interruption from fire, floods,
earthquakes, power loss, telecommunications failure, break-ins and similar
events. Computer viruses, electronic break-ins or other similar disruptive
problems could cause users to stop visiting our Web site. If any of these
circumstances occurred, we would incur substantial replacement costs, would be
unable to generate revenue during the downtime and could lose customers. As a
result, our business would be harmed. Our insurance policies may not adequately
compensate us for any losses that may occur due to any failures of or
interruptions in our systems. We do not presently have any backup systems or a
formal disaster recovery plan.
Our Web site has experienced in the past and may in the future experience
slower response times or decreased traffic for a variety of reasons. In
addition, many of the Internet service providers and operators that our
customers use for access to our Web site have experienced significant outages in
the past, and could experience outages, delays and other difficulties in the
future due to system failures unrelated to our systems. Any of these system
failures could cause us to lose sales or customers and harm our business.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.
The market for Internet commerce is relatively new, rapidly changing and
intensely competitive. We expect future competition to intensify because:
- barriers to entry are minimal;
- current and new competitors can launch new Web sites at a relatively low
cost; and
- we do not have an exclusive relationship with any of our suppliers.
In addition, the specialty food retailing business is highly competitive and
a large number of companies in the industry are attempting to market their
products over the Internet. If we do not compete effectively or if we experience
any pricing pressures, reduced margins or loss of market share resulting from
increased competition, our business could be harmed.
Many of our present and potential competitors are likely to enjoy
substantial competitive advantages, including the following:
- larger customer bases;
- greater brand recognition;
12
<PAGE>
- better access to content;
- longer operating histories; and
- substantially greater financial, marketing, technical and other resources.
As a result, it is possible we may not be able to compete effectively in our
market. See "Business -- Competition" on page 43.
MARKETING AND STRATEGIC ALLIANCES MAY NOT GENERATE THE EXPECTED NUMBER OF NEW
CUSTOMERS OR MAY BE TERMINATED WHICH COULD CAUSE OUR SALES TO BE LOWER THAN
EXPECTED.
We use marketing and strategic alliances with other Internet companies to
create traffic on our Web site. The success of these relationships depends on
the amount of increased traffic we receive from the alliance partners' Web
sites. These arrangements may not generate the expected number of new customers.
Our current agreements with America Online, Excite and Yahoo! expire within the
current year and we may not be able to renew these agreements on terms we find
acceptable. If we are unable to renew any of these agreements or find additional
alliance partners, the traffic on our Web site could decrease.
IF THE PROTECTION OF OUR TRADEMARKS AND PROPRIETARY RIGHTS IS INADEQUATE, OUR
BRAND AND REPUTATION COULD BE IMPAIRED AND WE COULD LOSE CUSTOMERS.
The steps we take to protect our proprietary rights may be inadequate. We
regard our service marks, trademarks, trade dress, trade secrets and similar
intellectual property as integral to our success. We rely on trademark and
copyright law, and trade secret protection to protect our proprietary rights. We
have filed a trademark application for GreatFood.com for online ordering
services featuring specialty food items. However, we cannot assure you that this
trademark will be granted. If this trademark is not granted, we might be unable
to prevent other companies from using this or a similar name. 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. As a result, potential traffic to our Web site may be
diverted to other sites and we may lose potential customers.
WE MAY BE SUBJECT TO LIABILITY FOR THE INTERNET CONTENT THAT WE PUBLISH.
While we currently provide a limited amount of content on our Web site, we
anticipate increasing the amount of content in the future. We could be subject
to legal liability for defamation, negligence, copyright, patent or trademark
infringement, or other claims based on the nature and content of materials that
we publish or distribute on our Web site. If we face liability, then our
reputation and our business may suffer.
GOVERNMENTAL REGULATION OF THE INTERNET MAY RESTRICT OUR BUSINESS OR INCREASE
THE COSTS OF OUR OPERATIONS.
Government regulation of communications and commerce on the Internet varies
greatly from country to country. In the United States and Canada, the federal
governments have not adopted many laws and regulations to specifically regulate
online communications and commerce. However, the U.S. Congress has recently
enacted legislation addressing such issues as the transmission of certain
materials to children, intellectual property protection, taxation and the
transmission of sexually explicit material. The European Union recently enacted
its own privacy regulations. The governments of some other countries have been
much more active in regulating these areas than has the United States. There is
some risk that the United States and other countries will increase their
regulation of the Internet in the
13
<PAGE>
future. An increase in regulation or the application of existing laws to the
Internet may require us to modify the manner in which we conduct our business
and could significantly increase our costs of operations or harm our business.
The law of the Internet remains largely unsettled and it may take years to
determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet. Several
telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online service providers
in a manner similar to long distance telephone carriers and to impose access
fees on these companies. Imposition of access fees could increase the cost of
transmitting data over the Internet which would reduce Internet usage and
possibly reduce our profit margins.
POSSIBLE STATE SALES AND OTHER TAXES COULD AFFECT OUR RESULTS OF OPERATIONS.
We do not currently collect sales or other similar taxes on sales of food
products in any state. However, one or more states may seek to impose sales tax
collection obligations on out-of-state companies, including GreatFood.com, which
engage in or facilitate electronic commerce. A number of proposals have been
made at the state and local level that would impose additional taxes on the sale
of goods and services through the Internet. These proposals, if adopted, could
substantially impair the growth of electronic commerce and could reduce our
revenues.
RISKS RELATED TO THIS OFFERING
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR SHAREHOLDERS WILL RETAIN SIGNIFICANT
CONTROL OVER GREATFOOD.COM AFTER THIS OFFERING.
After this offering, executive officers, directors and current holders of 5%
or more of our outstanding common stock will, in the aggregate, own
approximately 45.8% of our outstanding common stock. As a result, these
shareholders will be able to influence significantly all matters requiring
approval by our shareholders, including the election of directors and the
approval of significant corporate transactions. This concentration of ownership
may also delay, deter or prevent a change in control of GreatFood.com and may
make some transactions more difficult or impossible without the support of these
shareholders.
OUR STOCK PRICE MAY BE HIGHLY VOLATILE.
The market price for our common stock is likely to be highly volatile as the
market prices of securities of technology companies, particularly Internet
related companies, have been highly volatile. You may not be able to resell your
shares of our common stock following periods of volatility because of the stock
market's adverse reaction to volatility. In addition, you may not be able to
resell your shares at or above the initial offering price.
The volatility in our stock price will be affected by the following factors,
many of which are outside of our control:
- actual or anticipated variations in quarterly operating results;
- seasonal patterns of our business;
- announcements of technological innovations or new products or services by
us or our competitors;
- changes in financial estimates by securities analysts;
- conditions or trends in the Internet or online commerce industries;
14
<PAGE>
- changes in the economic performance or market valuations of other Internet
or electronic commerce companies;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures, or capital commitments;
- additions or departures of key personnel; and
- sales of our common stock.
In the past, securities class action litigation has often been instituted
against a company following periods of volatility in the company's stock price.
If we were sued in this type of litigation we could incur substantial costs and
our management's attention and resources would be diverted from our operations.
OUR MANAGEMENT WILL RETAIN BROAD DISCRETION IN THE USE OF PROCEEDS FROM THIS
OFFERING.
We intend to use the net proceeds from the sale of the common stock for
implementation of a new order processing system, the development and marketing
of our wholesale and international programs, advertising and promotion of the
GreatFood.com brand, expansion of our management team and staffing, and general
corporate purposes, including possible acquisitions. Accordingly, our management
will have significant flexibility in applying the net proceeds of this offering.
See "Use of Proceeds" on page 17.
SALES OF ADDITIONAL SHARES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO
DECLINE AND COULD HARM OUR ABILITY TO RAISE FUNDS FROM STOCK OFFERINGS IN THE
FUTURE.
Sales of a large number of shares of our common stock in the market after
the offering, or the belief that such sales could occur, could cause a drop in
the market price of our common stock and could impair our ability to raise
capital through offerings of our equity securities. Upon completion of this
offering, there will be 6,527,532 shares of our common stock outstanding and an
additional 1,530,388 shares of common stock reserved for issuance under
outstanding stock options and warrants. All of the 2,500,000 shares sold in this
offering will be freely tradable without restrictions or further registration
under the Securities Act, unless such shares are purchased by our "affiliates,"
as that term is defined in Rule 144 under the Securities Act. The remaining
4,027,532 shares of common stock held by existing shareholders will be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act.
All of our existing shareholders have agreed that to the extent we request,
that they will not sell or otherwise dispose of any of the 4,027,532 shares held
by them for a period of 180 days from the date of this prospectus. Upon
expiration of this 180 day period, 2,722,011 shares will be eligible for
immediate resale under Rule 144. The remaining 1,305,521 restricted shares will
be eligible for sale pursuant to Rule 144 on the expiration of various one year
holding periods.
After the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act to register 1,600,000 shares
reserved for issuance under our 1997 Stock Incentive Plan, and 400,000 shares
reserved for our issuance under our 1999 Employee Stock Purchase Plan. Upon
registration, all of these shares will be freely tradable when issued.
THERE MAY NOT BE A PUBLIC MARKET FOR OUR COMMON STOCK.
While we have applied to list our common stock on the Nasdaq National
Market, a trading market for our common stock may not develop or, if a market
does develop, the common stock may still be difficult to trade. In addition, to
enable our common stock to continue to be listed on the Nasdaq National Market,
we must continue to meet Nasdaq's requirements for continued listing. These
15
<PAGE>
requirements include thresholds with respect to our net tangible assets, public
float, and share price. If we fail to meet these requirements, our common stock
may be delisted from the Nasdaq National Market. As a result of these risks, you
may not be able to resell your shares at or above the initial public offering
price.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is expected to be substantially higher
than the pro forma net tangible book value per share of the outstanding common
stock immediately after the offering. Accordingly, purchasers of common stock in
this offering will experience immediate and substantial dilution of
approximately $6.99 in net tangible book value per share, or approximately 58.3%
of the assumed offering price of $12.00 per share. In contrast, existing
shareholders paid an average price of $1.80 per share. If outstanding stock
options and warrants are exercised, your interest would be further diluted.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains "forward looking statements," as defined in Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934. These statements may include statements regarding:
- our business strategy;
- timing of and plans for the introduction or phase-out of products and
services;
- plans for hiring additional personnel;
- entering into strategic alliances;
- adequacy of anticipated sources of funds, including the proceeds from this
offering, to fund our operations for at least the 18 months following the
date of this prospectus; and
- other statements about our plans, objectives, expectations and intentions
contained in this prospectus that are not historical facts.
When used in this prospectus, the words "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions are generally
intended to identify forward looking statements. Because these forward looking
statements involve risks and uncertainties, actual results could differ
materially from those expressed or implied by these forward looking statements
for a number of reasons, including those discussed under "Risk Factors" and
elsewhere in this prospectus. We assume no obligation to update any forward
looking statements.
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<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of $27,760,000 from the sale
of the 2,500,000 shares of common stock offered hereby, assuming an initial
public offering price of $12.00 per share and after deducting estimated
underwriting discounts and offering expenses. If the underwriters exercise their
over-allotment option in full, the net proceeds are estimated to be $32,035,000.
We currently intend to use the proceeds of this offering to:
- expand our advertising and promotion of the GreatFood.com brand;
- implement a new order processing system linking us with our suppliers;
- increase our management team and personnel; and
- continue the development of our wholesale and international programs.
In addition, although we do not have any current agreements or commitments
with respect to any acquisition, we may use some of the proceeds for
acquisitions of complementary businesses.
Pending these uses, the net proceeds of the offering will be invested in
short-term, interest bearing investments or accounts.
The cost, timing and amount of funds we need cannot be precisely determined
at this time and will be based on numerous factors. Our management has broad
discretion in determining how the proceeds of this offering will be applied.
DIVIDEND POLICY
We have never paid cash dividends on our common stock and do not anticipate
paying such dividends in the foreseeable future. We currently intend to retain
any future earnings to develop and expand our business.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. Our
capitalization is presented:
- on an actual basis;
- on a pro forma basis to reflect:
- the sale of 600,000 shares of Series C preferred stock on May 17, 1999;
- the automatic conversion of all outstanding shares of preferred stock
into common stock; and
- the increase of our authorized capital stock to 60,000,000 shares of
common stock and 20,000,000 shares of preferred stock prior to
consummation of this offering; and
- on a pro forma as adjusted basis to also reflect our receipt of the
estimated net proceeds from the sale of 2,500,000 shares of common stock
in this offering at an assumed initial public offering price of $12.00 per
share, after deducting underwriting discounts and commission and estimated
offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- -------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Long term debt--including current portion............................. $ 51 $ 51 $ 51
----------- -------------- -----------
Shareholders' equity
Preferred stock, no par value; 5,000,000 shares authorized and
1,848,368 shares issued and outstanding (actual); 20,000,000
shares authorized and none outstanding (pro forma and pro forma as
adjusted)......................................................... 4,069 -- --
Common stock, no par value; 20,000,000 shares authorized and
1,579,164 shares issued and outstanding (actual); 60,000,000
shares authorized (pro forma and pro forma as adjusted); 4,027,532
shares issued and outstanding (pro forma); and 6,527,532 shares
issued and outstanding (pro forma as adjusted).................... 281 7,320 35,080
Deferred compensation............................................... (25) (25) (25)
Accumulated deficit................................................. (2,321) (2,321) (2,321)
----------- -------------- -----------
Total shareholders' equity.......................................... 2,004 4,974 32,734
----------- -------------- -----------
Total capitalization.................................................. $ 2,055 $ 5,025 $ 32,785
----------- -------------- -----------
----------- -------------- -----------
</TABLE>
The common stock outstanding as shown above is based on shares outstanding
as of March 31, 1999 and excludes: (a) 863,500 shares of common stock reserved
for issuance pursuant to outstanding options granted under our 1997 Stock
Incentive Plan; (b) 736,500 shares of common stock reserved for issuance
pursuant to future grants under our 1997 Stock Incentive Plan; (c) 343,811
shares of common stock reserved for issuance pursuant to outstanding warrants;
and (d) 400,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan. The above table also excludes 323,077 shares of
common stock issuable upon the conversion of shares of Series C preferred stock
issuable upon the exercise, at a nominal exercise price, of warrants which will
only become exercisable if the per share price in this offering is less than
$10.00.
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DILUTION
Our net tangible book value as of March 31, 1999 was approximately
$2,004,000, or $1.27 per share of outstanding common stock. Net tangible book
value per share is equal to our total tangible assets less our total
liabilities, divided by the number of outstanding shares of common stock.
Dilution per share represents the difference between the price per share paid by
investors in this offering and the pro forma as adjusted net tangible book value
per share immediately after this offering.
After giving effect to (a) the sale of 600,000 shares of Series C preferred
stock on May 17, 1999 and (b) the automatic conversion of all 2,448,368
outstanding shares of preferred stock into common stock upon consummation of
this offering, our pro forma net tangible book value at March 31, 1999 would
have been approximately $4,974,000, or $1.23 per share. After giving effect to
the sale of the 2,500,000 shares of common stock in this offering at an assumed
initial public offering price of $12.00 per share (after deducting the estimated
fee payable to the underwriter and offering expenses payable by us), our pro
forma as adjusted net tangible book value at March 31, 1999 would have been
approximately $32,734,000, or $5.01 per share. This represents an immediate
dilution of $6.99 per share to new investors purchasing shares in this offering.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 12.00
Pro forma tangible book value per share as of March 31, 1999.............. $ 1.23
Increase per share attributable to new investors.......................... $ 3.78
---------
Pro forma as adjusted net tangible book value after this offering........... $ 5.01
---------
Dilution per share to new investors in this offering........................ $ 6.99
---------
</TABLE>
The following table summarizes, on a pro forma basis assuming conversion
into common stock of all outstanding shares of preferred stock, including
600,000 shares of Series C preferred stock issued on May 17, 1999, and after
giving effect to this offering, the number of shares purchased from us, the
total consideration paid and the average price per share paid by existing
shareholders and by the new investors purchasing the shares offered hereby
assuming an initial public offering price of $12.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................... 4,027,532 62% $ 7,239,986 19% $ 1.80
New public investors................................ 2,500,000 38 30,000,000 81 12.00
---------- --- ------------- -----
Total............................................. 6,527,532 100% $ 37,239,986 100%
---------- --- ------------- -----
---------- --- ------------- -----
</TABLE>
This information is based on pro forma shares outstanding as of March 31,
1999 and excludes (a) 863,500 shares of common stock reserved for issuance
pursuant to outstanding options granted under our 1997 Stock Incentive Plan; (b)
736,500 shares of common stock reserved for issuance pursuant to future grants
under our 1997 Stock Incentive Plan; (c) 343,811 shares of common stock reserved
for issuance pursuant to outstanding warrants; and (d) 400,000 shares of common
stock reserved for issuance under our 1999 Employee Stock Purchase Plan. The
above table also excludes 323,077 shares of common stock issuable upon the
conversion of shares of Series C preferred stock issuable upon the exercise, at
a nominal exercise price, of warrants which will only become exercisable if the
per share price in this offering is less than $10.00.
19
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth our selected financial data as of and for
each of the fiscal years in the period from August 31, 1995 (inception) to
December 31, 1998 and as of March 31, 1999 and for the three month periods ended
March 31, 1998 and 1999. The statements of operations data for each of the
fiscal years in the period from January 1, 1996 to December 31, 1998 and the
balance sheet data as of December 31 1996, 1997 and 1998 have been derived from
our financial statements, audited by PricewaterhouseCoopers LLP, independent
accountants. The statements of operations data for the period from August 31,
1995 (inception) to December 31, 1995 and for the three month periods ended
March 31, 1998 and 1999 and the balance sheet data as of December 31, 1995 and
March 31, 1999 have been derived from our unaudited financial statements that
include, in the opinion of management, all normal and recurring adjustments that
management considers necessary for a fair statement of the results. The
operating results for the three months ended March 31, 1999 are not necessarily
indicative of results that may be expected for the year ending December 31,
1999. The following information is qualified by reference to, and should be read
in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and related
notes. The audited financial statements and related notes as of December 31,
1997 and 1998 and for the three years in the period ended December 31, 1998 and
the unaudited financial statements as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE
AUGUST 31, 1995 MONTHS
(INCEPTION) TO FISCAL YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, MARCH 31,
----------------- ------------------------------- ---------
1995 1996 1997 1998 1998
----------------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................... $ 0 $ 18 $ 120 $ 748 $ 28
Cost of goods sold............................................. 0 14 92 605 22
----- --------- --------- --------- ---------
Gross profit................................................... 0 4 28 143 6
Operating expenses:
Sales and marketing.......................................... 0 11 36 1,102 23
Product and site development................................. 0 1 9 84 1
General and administrative................................... 8 53 66 358 20
----- --------- --------- --------- ---------
Total operating expenses....................................... 8 65 111 1,544 44
----- --------- --------- --------- ---------
Loss from operations........................................... (8) (61) (83) (1,401) (38)
Other income, net.............................................. 6 21 1 30 0
----- --------- --------- --------- ---------
Net loss....................................................... $ (2) $ (40) $ (82) $ (1,371) $ (38)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Basic and diluted net loss per share........................... $ (.01) $ (.04) $ (.06) $ (.87) $ (.02)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share................. 304 1,007 1,274 1,579 1,579
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Pro forma basic and diluted net loss per share................. $ (.66)
---------
---------
Shares of common stock used in computing pro forma basic and
diluted net loss per share..................................... 2,090
---------
---------
<CAPTION>
1999
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................... $ 168
Cost of goods sold............................................. 147
---------
Gross profit................................................... 21
Operating expenses:
Sales and marketing.......................................... 565
Product and site development................................. 44
General and administrative................................... 243
---------
Total operating expenses....................................... 852
---------
Loss from operations........................................... (831)
Other income, net.............................................. 5
---------
Net loss....................................................... $ (826)
---------
---------
Basic and diluted net loss per share........................... $ (.52)
---------
---------
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share................. 1,579
---------
---------
Pro forma basic and diluted net loss per share................. $ (.29)
---------
---------
Shares of common stock used in computing pro forma basic and
diluted net loss per share..................................... 2,824
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
AS OF DECEMBER 31, ------------------------
----------------------------------------------
1995 1996 1997 1998 ACTUAL PRO FORMA
----- ----- --------- --------- ----------- -----------
BALANCE SHEET DATA (IN THOUSANDS):
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........................... $ 5 $ 14 $ 124 $ 678 $ 1,932 $ 4,902
Working capital..................................... 0 (1) 51 633 1,846 4,816
Total assets........................................ 33 55 161 1,428 2,258 5,228
Total long term liabilities (including current
portion).......................................... 0 15 13 47 51 51
Total shareholders' equity.......................... 28 25 74 716 2,004 4,974
<CAPTION>
PRO FORMA AS
ADJUSTED
-------------
BALANCE SHEET DATA (IN THOUSANDS):
<S> <C>
Cash and cash equivalents........................... $ 32,662
Working capital..................................... 32,576
Total assets........................................ 32,988
Total long term liabilities (including current
portion).......................................... 51
Total shareholders' equity.......................... 32,734
</TABLE>
The pro forma information above reflects the net proceeds from the sale of
600,000 shares of Series C preferred stock on May 17, 1999.
The pro forma as adjusted information above also gives effect to our receipt
of the estimated net proceeds from the sale of 2,500,000 shares of common stock
in this offering at an assumed public offering price of $12.00 per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS
PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS
"EXPECTS," "ANTICIPATES," "INTENDS," "PLANS" AND SIMILAR EXPRESSIONS. OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, THE RISKS DISCUSSED IN THE SECTION TITLED "RISK
FACTORS."
OVERVIEW
GreatFood.com is an electronic commerce company focused on the sale of
gourmet and specialty food over the Internet to the retail, corporate gift and
wholesale markets. We offer a broad selection of high quality branded specialty
food products which appeal to a wide range of customers for special occasions,
parties and gifts. Our product offering includes specialty and gourmet food such
as chocolates, caviar, prime beef, fancy fruit, and lobster dinners. Our
merchandise mix is focused on a carefully selected assortment of high quality
products, and our Web site combines a unique blend of merchandise and related
content. We do not operate a warehouse and our customers' orders are fulfilled
directly by our suppliers.
We were incorporated in August 1995 and launched our online retail store in
March 1996. Since March 1996, we have focused on expanding our product
offerings, building our brand name through advertising and promotional
campaigns, pursuing online shopping initiatives, recruiting personnel,
developing business to business services and exploring strategic electronic
commerce opportunities. In November 1998 we launched our corporate gift program
which targets businesses and professionals purchasing gifts for customers and
clients. In December 1998 we launched a wholesale program enabling retailers to
purchase in bulk at wholesale prices. Our expenses have increased significantly
since inception as we have increased our advertising and promotional expenses to
raise our brand recognition and added personnel.
We generate all of our revenues from sales of specialty food products. From
inception until December 1998, we generated revenues exclusively from retail
sales. We derive income from our retail sales from the excess of the retail
prices we charge our customers over the product costs we pay our suppliers. We
are proceeding with the roll-out of our wholesale program in which we will sell
bulk quantities of specialty food products to registered retailers at wholesale
prices. In this program, we purchase products from suppliers at a distributor's
discounted price and derive income from the difference between this discounted
price and the wholesale price we charge. Currently our retail and wholesale
customers pay for orders by credit card while we pay our suppliers on trade
terms. As a result, we are able to increase our working capital between the time
we receive payment for orders and the time we are required to pay suppliers.
Our business model differs from many other electronic commerce businesses
since we do not currently hold inventory in our own facility. Our orders are
fulfilled directly by our suppliers, subject to our specifications and
procedures. This reduces procurement and carrying costs, as well as costs of
shipping to a distribution center, and certain risks associated with holding
inventory. This model also allows us to offer a greater selection and higher
volume of products, including perishable products and products with a limited
shelf life, than we could if constrained by warehouse space, timing pressures,
or inventory holding costs.
Since 1996, we have expanded our management team to help implement our
growth strategy. We hired William Cuff as our President in April 1998, a Vice
President of Merchandising in August 1998 and a Vice President of Finance and
Administration in April 1999. We plan to add a Vice President of
21
<PAGE>
Development, a Vice President of Wholesale Programs and a Vice President of
Consumer Marketing in 1999.
Our net revenues have grown since inception, from $17,530 in 1996 to
$747,860 in 1998. Specialty food sales are inherently seasonal, with highest
volumes during the fourth quarter holiday season. Additionally, our business has
a large gift-giving component. As a result of these two factors, approximately
86% of our 1998 sales were realized in the fourth quarter. We have taken steps
intended to reduce the magnitude of this trend such as introducing our wholesale
program, expanding our product selection, and emphasizing non-holiday occasions
and personal consumption. However, we expect fourth quarter sales to continue to
represent a disproportionate amount of annual sales in the future.
As of March 31, 1999, we had generated a limited amount of revenues from our
wholesale program. We believe several aspects of our business model have limited
the growth of this program to date. Our current order processing system does not
enable us to offer trade terms and requires credit card payment from our
wholesale purchasers, which is not typical in the wholesale market. Our current
system also requires us to charge wholesale customers estimated, rather than
actual, shipping costs. In addition, our wholesale business is affected by the
unfamiliarity of certain retailers with the Internet in general and, more
specifically, as a means for conducting commerce. We are in the process of
implementing a new order processing system which should enable us to offer trade
terms and improve our shipping cost structure. We are also working to increase
Internet familiarity among specialty food retailers.
We incurred net losses of $826,470 in the quarter ended March 31, 1999, $1.4
million in 1998, $81,937 in 1997, and $39,833 in 1996. At March 31, 1999 we had
an accumulated deficit of $2.3 million. We expect operating losses and negative
cash flow to continue for the foreseeable future. In addition, we anticipate our
losses will increase as we increase advertising and promotional expenditures to
build our brand name and attract customers, continue the development of our Web
site, expand product offerings, develop relationships with strategic business
partners, add personnel, and make capital expenditures to develop an "extranet"
system to electronically link us to our suppliers to improve order processing.
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 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 maintain and expand our
customer base, continue to increase our product offerings, successfully
implement our business, marketing and promotional strategies, continue to
develop our order processing technology, respond to competitive developments in
the specialty food market, and attract, retain and motivate qualified personnel.
We cannot assure you that we will be successful in addressing these risks and
our failure could be harmful to our business, prospects, financial condition and
results of operations.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of net revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................. 76.9 76.5 80.9 77.5 87.5
--------- --------- --------- --------- ---------
Gross profit....................... 23.1 23.5 19.1 22.5 12.5
Operating expenses:
Sales and marketing.............. 62.9 30.3 147.4 81.6 335.2
Product and site development..... 4.0 7.4 11.2 2.8 26.6
General and administrative....... 301.3 54.9 47.8 73.5 144.0
--------- --------- --------- --------- ---------
Total operating expenses........... 368.2 92.6 206.4 157.9 505.8
--------- --------- --------- --------- ---------
Loss from operations............... (345.1) (69.1) (187.3) (135.4) (493.3)
Other income (loss), net........... 117.9 0.6 4.0 (1.0) 2.9
--------- --------- --------- --------- ---------
Net loss........................... (227.2)% (68.5)% (183.3)% (136.4)% (490.4)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
QUARTERS ENDED MARCH 31, 1998 AND 1999
NET REVENUES. Net revenues consist of product sales to customers and
charges to customers for outbound shipping and handling costs and are net of
product returns and promotional discounts. Revenues are recognized upon the
shipment of products from our suppliers. Net revenues increased to $168,525 for
the quarter ended March 31, 1999 from $28,036 for the quarter ended March 31,
1998. This increase reflects an increased number of transactions due to expanded
advertising and promotional efforts, broader product offerings, and improvements
to our Web site made over the second half of 1998.
COST OF GOODS SOLD. Cost of goods sold consists primarily of the costs of
products sold to customers and actual outbound shipping and handling costs. Cost
of goods sold increased to $147,458 for the quarter ended March 31,1999 from
$21,729 for the quarter ended March 31, 1998. This $125,729 increase was
primarily attributable to our increased sales volume. Our gross profit margin
decreased to 12.5% of net revenues for the quarter ended March 31, 1999 from
22.5% of net revenues for the quarter ended March 31, 1998. This decrease in
gross profit margin was due to a number of factors. During the quarter ended
March 31, 1999, we offered a number of products at promotional prices to
increase sales after the holiday season. Additionally, we experienced an
increase in actual shipping cost due to an increase in the number of customers
ordering goods from multiple suppliers during a single visit to our Web site.
Since we base our shipping charges to retail customers on the size of their
order, rather than the number of suppliers from whom goods are to be shipped, we
do not always recoup our actual shipping costs on multiple supplier orders. Also
during this period we experienced substantial demand for products for which our
prices did not allow us to recoup our shipping costs. We have since increased
our prices for these products. However, while we attempt to price products in a
manner to absorb product costs adequately, promotional pricing and changes in
product mix may lead to fluctuating margins in the future.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of advertising and promotional expenditures and payroll and related
expenses for personnel engaged in sales and marketing activities. Sales and
marketing expenses increased to $564,921, or 335.2% of net revenues, for the
quarter ended March 31, 1999, from $22,886, or 81.6% of net revenues, for the
quarter ended March 31, 1998. This increase in actual dollars expended and as a
percentage of net revenues is
23
<PAGE>
attributable to the expansion of our online, print and direct mail advertising
campaigns and primarily reflects payments under marketing agreements with
America Online, Excite and Yahoo! entered into in the second half of 1998. These
agreements call for fixed monthly payments without regard to the seasonal nature
of our sales. Since most of our sales occur in the fourth quarter, these
agreements contributed to the significant increase in sales and marketing
expenses as a percentage of net revenues in the quarter ended March 31, 1999. In
addition, this increase reflects the hiring of additional personnel and
promotional consultants and related expenses required to execute our marketing
strategy which we substantially began to implement in the second half of 1998.
We intend to continue to aggressively pursue advertising and marketing campaigns
and, therefore, expect sales and marketing expenses to increase significantly in
dollar terms in future periods.
PRODUCT AND SITE DEVELOPMENT EXPENSES. Product and site development
expenses consist primarily of payroll and related expenses incurred in
connection with the expansion of our product offerings, Web site development,
and information technology personnel. Product and site development expenses
increased to $44,782, or 26.6% of net revenues, for the quarter ended March 31,
1999, from $783, or 2.8% of net revenues, for the quarter ended March 31, 1998.
This increase was primarily attributable to increased staffing and associated
costs related to expanding our product offerings, improving the design of our
Web site, enhancing the content of our online store and increasing the capacity
of our systems that we use to process customers' orders and payments. We expect
product and site development expenses to continue to increase in dollar terms in
future periods as we continue to enhance the functions of our site.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of payroll and related expenses for executive and administrative
personnel, facilities expenses, professional services expenses, travel and other
general corporate expenses. General and administrative expenses increased to
$242,739, or 144.0% of net revenues, for the quarter ended March 31, 1999, from
$20,610, or 73.5% of net revenues, for the quarter ended March 31, 1998. This
increase was primarily attributable to increased headcount and related expenses,
as well as increased professional services expenses. We expect general and
administrative expenses to increase in dollar terms as we expand our staff and
incur additional costs related to the growth of our business and being a public
company.
OTHER INCOME, NET. Other income consists of earnings on our cash and cash
equivalents, net of interest expense attributable to short-term loans payable
and obligations under capital leases. Other income increased to $4,905 for the
quarter ended March 31, 1999 from other expense of $272 for the quarter ended
March 31, 1998. This increase was primarily attributable to earnings on higher
average cash and cash equivalent balances in 1999 following our sale of $2.1
million of Series B preferred stock in March 1999.
FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NET REVENUES. Net revenues increased to $747,860 in 1998 from $119,633 in
1997 and $17,530 in 1996. These increases primarily were attributable to an
increased number of transactions as a result of the significant growth of our
customer base. Our customer base increased in 1997 as we made improvements to
our Web site and expanded our product offerings. In 1998, we believe the growth
of our customer base was primarily attributable to increased advertising and
promotional activities we began in the second half of 1998, with funds made
available by our sale of $2.0 million of Series A preferred stock in July 1998.
COST OF GOODS SOLD. Cost of goods sold increased to $605,140 in 1998 from
$91,550 in 1997 and $13,484 in 1996. These increases were primarily due to
increases in our sales volume during each period. Our gross profit margin was
19.1% of net revenues in 1998, 23.5% of net revenues in 1997, and 23.1% of net
revenues in 1996. The decrease in gross margin between 1997 and 1998 was
primarily due to changes in product mix and a reduction made in the second half
of 1998 in the amounts charged to customers for outbound shipping.
24
<PAGE>
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased to
$1.1 million, or 147.4% of net revenues, in 1998 from $36,264, or 30.3% of net
revenues, in 1997 and $11,028, or 62.9% of net revenues, in 1996. The increase
in sales and marketing expense in actual dollars and as a percentage of net
revenue in 1998 was primarily attributable to expansions of our online and print
advertising, direct mail, and publicity campaigns, as well as to increased
personnel and related expenses required to implement our marketing strategy. Our
ability to finance advertising and publicity efforts was restricted in 1996 and
1997 by our limited working capital. The substantial increase in advertising and
publicity spending in 1998 reflects the increased availability of funds
following our sale of $2.0 million of Series A preferred stock in July 1998.
PRODUCT AND SITE DEVELOPMENT EXPENSES. Product and site development
expenses increased to $84,000, or 11.2% of net revenues, in 1998, from $8,801,
or 7.4% of net revenues, in 1997 and $706, or 4.0% of net revenues, in 1996.
These increases were primarily attributable to increased staffing and associated
costs related to developing our online store and increasing our product
offerings.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased in dollar terms to $357,709, or 47.8% of net revenues, in 1998, from
$65,707, or 54.9% of net revenues, in 1997, and $52,815, or 301.3% of net
revenues, in 1996. These increases in dollar terms are primarily attributable to
increased headcount and related expenses associated with the hiring of
additional personnel, and increased professional services expenses. The increase
in 1998 also reflects the hiring of our president in April 1998, and the
transition of our chairman and chief executive officer from a part-time employee
drawing no salary to a full-time salaried employee in June 1998.
OTHER INCOME, NET. Other income increased to $30,299 in 1998 from $752 in
1997. Other income decreased in 1997 from $20,670 in 1996. Other income in 1996
consisted of income from consulting services while our online store was being
developed. The decrease in other income in 1997 reflects the termination of
these consulting services as we focused our resources on our online store. The
increase in other income between 1997 and 1998 was primarily attributable to
earnings on higher average cash and cash equivalent balances during 1998,
following our receipt of proceeds of $2.0 million from our sale of Series A
preferred stock in July 1998.
INCOME TAXES. As of December 31, 1998, we had $1.3 million of net operating
loss carryforwards for federal income tax purposes, which expire beginning in
2018. We have provided a full valuation allowance on the deferred tax asset,
consisting primarily of net operating loss carryforwards, because of uncertainty
regarding its realizability. Changes in the ownership of our common stock, as
defined in the Internal Revenue Code of 1986, as amended, may restrict the
utilization of such carryforwards. See Note 6 of Notes to Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth quarterly statements of operations data for
the six quarters ended March 31, 1999. This quarterly information has been
derived from our unaudited financial statements and, in the opinion of our
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information for the
periods covered. The quarterly data should be read in conjunction with our
financial statements and related notes. The operating results for any quarter
are not necessarily indicative of the operating results for any future period.
25
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------
DECEMBER
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 31, MARCH 31,
1997 1998 1998 1998 1998 1999
------------- ----------- ----------- ------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net revenues........................... $ 97 $ 28 $ 37 $ 43 $ 640 $ 168
Cost of goods sold..................... 76 22 31 34 518 147
----- ----- ----- ------ ----------- -----------
Gross profit........................... 21 6 6 9 122 21
Operating expenses:
Sales and marketing.................. 31 23 25 241 813 565
Product and site development......... 4 1 7 26 50 44
General and administrative........... 15 20 62 106 170 243
----- ----- ----- ------ ----------- -----------
Total operating expenses............... 50 44 94 373 1,033 852
----- ----- ----- ------ ----------- -----------
Loss from operations................... (29) (38) (88) (364) (911) (831)
Other income, net...................... 1 0 0 16 14 5
----- ----- ----- ------ ----------- -----------
Net loss............................... $ (28) $ (38) $ (88) $ (348) $ (897) $ (826)
----- ----- ----- ------ ----------- -----------
----- ----- ----- ------ ----------- -----------
Basic and diluted net loss per share... $ (.02) $ (.02) $ (.06) $ (.22) $ (.57) $ (.52)
----- ----- ----- ------ ----------- -----------
----- ----- ----- ------ ----------- -----------
Weighted average shares of common stock
outstanding used in computing basic
and diluted net loss per share....... 1,274 1,579 1,579 1,579 1,579 1,579
----- ----- ----- ------ ----------- -----------
----- ----- ----- ------ ----------- -----------
</TABLE>
Our operating expenses have increased significantly in the three most recent
quarters as we have increased our spending on marketing, advertising and
promotional efforts and product and site development following our sale of
Series A preferred stock in July 1998. We expect operating expenses will
continue to increase in the future as we expand our advertising and marketing
campaigns and pursue new business opportunities. To the extent that these
expenses are not accompanied by an increase in net revenue, our business,
results of operations and financial condition could be harmed.
We have experienced significant seasonality in our business, reflecting a
combination of seasonal fluctuations in Internet usage and traditional retail
seasonality patterns. Our business has a large gift giving and special occasion
component and therefore, sales are significantly higher in the fourth calendar
quarter of each year than in the preceding three quarters. In addition, Internet
usage and the rate of Internet growth may be expected to decline during the
summer. We have made efforts to increase our revenues in other quarters by
implementing our wholesale program and increasing our product selection, but we
expect seasonal trends to continue in the future. We are subject to a number of
agreements which require fixed monthly payments, regardless of the seasonal
nature of our sales. As a result, we expect our expenses as a percentage of
revenues to continue to be higher during the first three quarters of each year.
Due to the factors mentioned above, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance. It is likely that in some future quarter our operating results may
fall below the expectations of securities analysts and investors. In this event,
the trading price of our common stock may fall significantly.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operation primarily through short term
borrowings and private sales of common and preferred stock which totaled
approximately $7.2 million, net of stock issuance costs, through May 17, 1999.
We raised $2.0 million in July 1998, $2.1 million in March 1999 and $3.0
million in May 1999 through sales of preferred stock. Each share of preferred
stock will convert into common stock upon the closing of this offering.
Net cash used in operating activities was $1.4 million in 1998, $5,009 in
1997 and $15,280 in 1996. Net cash used in operating activities for each of
these periods primarily consisted of marketing, product and site development and
general and administrative expenses. The significant increase in 1998 reflects
increased availability of funds following our receipt of $2.0 million from the
sale of Series A preferred stock in July 1998.
Net cash used in investing activities was $34,022 in 1998, $8,510 in 1997,
and $25,923 in 1996. Net cash used in investing activities for each of these
periods primarily consisted of purchases of computer software and hardware.
Net cash provided by financing activities of $123,610 in 1997 and $50,670 in
1996 consisted primarily of proceeds from sales of common stock. Net cash
provided by financing activities of $2.0 million in 1998 consisted primarily of
net proceeds from the sale of Series A preferred stock. Net cash provided by
financing activities of $2.1 million in the first quarter of 1999 consisted
primarily of net proceeds from the sale of Series B preferred stock.
As of May 17, 1999 we had approximately $4.4 million of cash and cash
equivalents. As of that date, our principal commitments consisted of obligations
under operating and capital leases, contracts for online advertising and
promotion, and payments required in connection with implementation of our new
order processing system. In addition, we anticipate a substantial increase in
our capital expenditures and lease commitments in the future as our operations,
infrastructure and personnel grow.
As of May 17, 1999 we had entered into a number of commitments for online
advertising and promotion, including agreements with America Online, Excite,
Yahoo! and other online sites. As of May 17, 1999, our remaining commitments
under these agreements were approximately $1.3 million during 1999 and
approximately $114,000 during the first half of 2000.
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated needs for
working capital and capital expenditures through at least the next 18 months. We
may need to raise additional funds prior to the expiration of such period if,
for example, we pursue business or technology acquisitions or experience
operating losses that exceed our current expectations. If we raise additional
funds through the issuance of equity, equity related or debt securities, such
securities may have rights, preferences or privileges senior to those of the
rights of our common stock and our shareholders may experience additional
dilution. We cannot be certain that such additional financing will be available
to us on favorable terms, or at all. If such financing is not available when
required or is not available on acceptable terms, we may be unable to develop or
enhance our products or services. In addition, we may be unable to take
advantage of business opportunities or to respond to competitive pressures. Any
of these events could harm our business, financial condition or results of
operations.
YEAR 2000 READINESS
Many existing computer programs use only two digits to identify a year and
cannot reliably distinguish dates beginning on January 1, 2000 from dates prior
to the year 2000. If not corrected, many computer software applications could
fail or create erroneous results by, on or after the year
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2000. We use software, computer technology and other services provided by third
parties that may fail due to the year 2000 phenomenon.
We are currently in the process of replacing our current order processing
system for reasons unrelated to the year 2000 problem. However, we have been
advised that our existing order processing system is not fully year 2000
compliant. Also, the company which processes our credit card orders indicated
that it will not support our current order processing system after June 30, 1999
unless we upgrade this system. The third party supplier of the new order
processing system has assured us that the new order processing system is year
2000 compliant and that the transfer of our operations to the new system can be
completed prior to June 30, 1999. As a backup, we are considering the purchase
of a more recent version of our existing order processing system which is year
2000 compliant and which our credit card processing company will support.
However, if installation of the new order processing system or the upgrade of
our existing system is not completed by June 30, 1999, we may be unable to
operate our Web site or process customer orders until such installation or
upgrade is complete.
We are currently assessing the year 2000 readiness of other third party
supplied software, computer technology, and embedded systems used in our
business, as well as that of the third party which hosts our servers. As part of
our assessment of the year 2000 compliance of these systems, we plan to seek
assurances from these vendors that their software, computer technology and other
services are year 2000 compliant. We expect this assessment process to be
completed during the third and fourth quarters of 1999. Following this
assessment, we will develop, if necessary, a remediation plan with respect to
third party software, third party vendors and computer technology and services
that may fail to be year 2000 compliant. We expect to complete any required
remediation during the fourth quarter of 1999. As of May 17, 1999, we have not
expended any material amount to address potential year 2000 issues, exclusive of
costs associated with previously planned upgrades and replacements unrelated to
year 2000 issues. At this time, we cannot determine the expenses that we may
incur in connection with this assessment and potential remediation plan. If our
assessment and remediation is not properly made or completed in a timely manner,
the reasonable worst case scenario is that we would be unable to operate our Web
site, process customer orders, and perform other necessary operations, which
would have a material adverse effect on our business.
Our business could also be materially harmed if the systems used by other
third parties failed to be year 2000 compliant. If year 2000 issues prevented
our suppliers from being able to fulfill customers' orders, we would lose sales
and our business and reputation may be harmed. We do not plan to seek assurances
from our suppliers that their systems are year 2000 compliant. However, we
believe that the nature and size of their operations makes it reasonably
unlikely that year 2000 issues associated with their systems will prevent or
significantly delay order fulfillment.
In addition to our suppliers, our business depends on a network of third
parties, including Internet service providers, the financial institutions which
process our customers' credit card payments, telecommunications vendors, third
party carriers which deliver orders to customers, as well as the integrity of
the Internet in general. In addition, our business could be harmed by the year
2000 problems faced by our customers if they were unable to access our online
store. We only have a limited ability to assess the year 2000 issues associated
with the network of third parties who are material to our operations.
At this time, we have not yet developed a contingency plan to address
situations that may result if we, our suppliers, other third parties, or the
Internet are unable to achieve year 2000 compliance. The cost of developing and
implementing such a plan, if necessary, could be material. Any failure of our
material systems, our suppliers' or other third parties' material systems or the
Internet to be year 2000 compliant could prevent us from operating our Web site
effectively, taking product orders, making product deliveries or conducting
other fundamental parts of our business.
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NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement will
be effective in 1999 and establishes accounting standards for costs incurred in
the acquisition or development and implementation of computer software. These
new standards will require the capitalization of certain software implementation
costs relating to software acquired or developed and implemented for the
Company's use. This statement is not expected to have a significant effect on
GreatFood.com's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start
Up Activities." This statement will be effective in 1999 and will require costs
of start up activities and organization costs to be expensed as incurred. This
statement is not expected to have a significant effect on GreatFood.com's
financial position or results of operations.
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," replacing the "industry segment" approach with the
"management approach." The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of GreatFood.com's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas
and major customers. GreatFood.com adopted SFAS No. 131 on January 1, 1998.
GreatFood.com has determined that it does not have any separately reportable
business or geographic segments.
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BUSINESS
GreatFood.com is an electronic commerce company focused on the sale of
gourmet and specialty food over the Internet to the retail, corporate gift and
wholesale markets. We offer a broad selection of high quality branded specialty
food products which appeal to a wide range of customers for special occasions,
parties and gifts. Our product offering includes specialty and gourmet food such
as chocolates, caviar, prime beef, fancy fruit, and lobster dinners. Our
merchandise mix is focused on a carefully selected assortment of high quality
products, and our Web site combines a unique blend of merchandise and related
content.
We have established strategic supplier relationships with specialty food
manufacturers, distributors and importers who ship products directly to our
customers on our behalf. As a result, each of our suppliers serves as a
GreatFood.com "virtual warehouse." This direct supplier to customer fulfillment
model enables us to minimize inventory related risks and holding costs, limit
overhead costs, offer a broad range of perishable and non-perishable products,
and provide prompt delivery. This model allows us to offer products from a
supplier's entire product line rather than just the fastest selling products.
There is no dominant retailer within the gourmet and specialty food
market--a market which we believe exceeded $30 billion at the retail level in
1998. Furthermore, this market is characterized by a fragmented supplier and
distribution network. This limits the product choices and shopping convenience
available to customers. The retail market involves the sale of products to
consumers at retail prices while the wholesale market involves the sale of bulk
quantities of products to retailers at wholesale prices. In both the retail and
wholesale markets, we believe electronic commerce provides opportunities to
improve the specialty food shopping experience and selection.
Our online store is accessed on the Internet at WWW.GREATFOOD.COM. It
provides pictures and detailed information relating to specialty food products
that are conveniently organized by category, brand, or meal occasion. Shoppers
can search for, browse and select products throughout the store and place their
selection in a virtual shopping cart for purchase. Traffic on our Web site
reached 1.2 million unique visits in 1998 and 813,593 unique visits in the first
quarter of 1999.
INDUSTRY OVERVIEW
GROWTH IN ELECTRONIC COMMERCE
The growing popularity of the Internet represents an opportunity for
companies to take advantage of the potential for commercial transactions
conducted online, referred to as electronic commerce. International Data
Corporation, a market research firm, estimates that business to consumer
commerce over the Internet will increase from over $12 billion worldwide at the
end of 1997 to approximately $425 billion worldwide by the end of 2002. Market
research firm Forrester Research estimates that business to business electronic
commerce is expected to grow from $17 billion in 1998 to approximately $327
billion in 2002. Further, Jupiter Communications, another market research firm,
predicts that by 2002, 44% of Internet users will make purchases online, as
compared to an estimated 22% that did so in 1997. Several factors are driving
the growth in both business to consumer and business to business electronic
commerce. These factors include:
- increasing familiarity with the Internet;
- broadening consumer acceptance of online shopping;
- increasing acceptance of online distribution relationships by businesses;
- improved online network security and infrastructure;
- the growing base of personal computers and improved Internet access; and
- expanding network bandwidth and access speeds.
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We believe the Internet is particularly well suited for promoting,
marketing, selling and distributing merchandise both on a retail and a wholesale
level. The Internet permits customers throughout the world to have direct access
to suppliers. Online stores can provide direct customer service and product
information to a large number of customers at the same time with a substantially
smaller sales staff than traditional stores. Online stores also have the ability
to rapidly and continually update such information. Internet merchandisers,
unlike traditional stores, do not have the same expenses associated with
operation of physical stores and warehouse facilities, and can change store
design without substantial cost. In contrast to catalog merchandisers, Internet
retailers can react quickly to change product descriptions, pricing or product
mix and are not subject to the costs of catalog publication and distribution.
Additionally, online merchandisers have the ability to track directly customer
responses and preferences which enables the merchandisers to customize their
online stores to target specific customer groups and individuals.
THE SPECIALTY FOOD MARKET TODAY
The products we sell are known as "gourmet and specialty food," defined as
distinctive food of high quality. This includes traditional gourmet food and
confections, as well as such products as prime beef, extra fancy fruit and
seafood. This category also includes branded specialty products which are
available in specialty restaurants or retail shops. Our criteria for determining
whether to classify a food product as gourmet or specialty include:
- cost of ingredients;
- cost of processing;
- freshness/perishability;
- uniqueness;
- newness/cutting edge;
- cost of packaging; and
- cost of importation/distribution.
THE RETAIL MARKET. The retail food market involves the sale of food
products to individual consumers and households. The gourmet and specialty food
industry is a sizable segment of the United States retail food market. According
to a 1995 market report published by Find/SVP, a market research firm, retail
sales of gourmet and specialty food are projected to reach approximately $48
billion in 2000. Currently, specialty food is principally sold through the
following retail channels:
- supermarkets;
- gourmet and specialty food stores;
- mail order catalogs;
- department stores;
- television shopping channels; and
- off price retailers.
The combination of the size of the specialty food market and the growth of
online shopping has created what we believe to be a sizable market opportunity.
While we are not aware of any statistical estimates of the amount of online
sales of gourmet and specialty food products as we define them, Forrester
Research estimates that total online food sales for 1998 were approximately $234
million. Forrester Research further estimates that total online food sales are
expected to reach $1.1 billion in 2000 and $10.8 billion by 2003, representing a
compounded annual growth rate of 115%.
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THE WHOLESALE MARKET. The wholesale market involves sales to specialty food
retailers, gift shops, caterers, restaurants and other resellers of specialty
food products. Traditionally, suppliers of specialty food have distributed their
products either by using a food broker to sell to retailers at wholesale prices,
or by selling their products to specialty food distributors who in turn sell to
retailers. In these arrangements, food brokers generally receive a 10%
commission on the wholesale price and distributors generally purchase the
product at a 20% to 25% discount from the supplier's wholesale price. The
assortment of specialized food brokers and distributors that currently supports
the industry is highly fragmented. As a result, many retail outlets for
specialty food products are underserved or have limited access to these food
brokers and distributors.
THE ONLINE OPPORTUNITY IN SPECIALTY FOOD
In both the retail and wholesale markets, we believe electronic commerce
offers opportunities to improve the specialty food shopping experience and
selection. We believe traditional specialty food businesses face a number of
challenges in providing a satisfying experience:
- the specialty food market is highly fragmented with no single dominant
retailer or wholesaler, and we estimate there are at least 5,000 suppliers
throughout the United States;
- this fragmentation leaves both retail and wholesale customers without
access to a broad base of specialty food products;
- distributors who carry specialty food products are limited in the products
they can offer by inventory holding costs, inventory spoilage and
warehouse size, which restricts the supply and selection available for
customers;
- mail order catalogs are not published in real time and are expensive to
produce and mail; and
- traditional retail stores have costs associated with occupying and
operating a physical store and selection is limited by the size of the
store and inventory considerations.
We believe that sales of gourmet and specialty food over the Internet
provides a means to address many of these challenges.
THE GREATFOOD.COM SOLUTION
GreatFood.com provides online retail and wholesale customers a broad
selection of high quality specialty food which can be ordered at any time and
promptly delivered. We aim to generate repeat business by providing a positive
ordering experience for our customers.
Our online sales model offers several advantages over traditional specialty
food retail sales channels. These advantages include:
- our ability to offer a large selection of products organized for customers
to easily access;
- our ability to change, update, or delete our product offerings quickly;
- low incremental costs of increasing our product offerings;
- a business model that reduces many of the costs associated with physical
retail locations and catalog distribution;
- the convenience of ordering from home or office 24 hours a day, seven days
a week;
- our ability to sell unique, hard to find items not easily obtainable at a
local supermarket; and
- access to Web technology that can be used to directly yet inexpensively
target specific customer groups for special offers and promotions based on
their preferences or ordering history.
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In addition, GreatFood.com utilizes a supplier direct fulfillment model, in
which individual suppliers promptly drop ship goods to customers. By using this
model, we do not have to operate a warehouse and can limit our overhead costs,
but still offer a wide selection of products from numerous suppliers. As of May
17, 1999, we offered products from 67 specialty food suppliers.
BUSINESS STRATEGY
Our objective is to be the leading online provider of gourmet and specialty
food. Key elements of our strategy include:
EXPAND BRAND RECOGNITION. As a pioneer online specialty food retailer, we
have established GreatFood.com as a leading online brand in our industry. We
believe that expanding our brand recognition is critical to growing our customer
base. Our strategy is to promote, advertise and increase GreatFood.com's brand
equity and visibility. We intend to do this through:
- offering an extensive selection of high quality gourmet and specialty food
products;
- providing excellent customer service;
- advertising on leading Web sites and in other media;
- conducting an ongoing public relations campaign; and
- developing business alliances and partnerships.
Additionally, we plan to expand our food oriented content which includes
product reviews, recipes, visiting chefs, and helpful hints, in order to make
our customers' experience more enjoyable and to more tightly integrate content
with our product offerings. We believe that GreatFood.com is well positioned as
not only an online specialty food store, but as an online specialty food
community, with high quality product offerings and related content as well as
excellent customer service.
UTILIZE OUR SUPPLIERS AS "VIRTUAL WAREHOUSES." Our suppliers ship products
directly to our customers on our behalf. As a result, we do not operate our own
warehouse. Instead, each of our suppliers serves as a GreatFood.com "virtual
warehouse." This direct supplier to customer fulfillment model enables us to
minimize inventory related risks and holding costs, limit overhead costs, offer
a broad range of perishable and non-perishable products, and provide prompt
delivery. We are in the process of converting to a new electronic commerce
transaction processing and order fulfillment platform. This system is being
designed to, among other things, directly link our suppliers' warehouses with
our order processing system and provide our customers with online order
tracking. See "-- Technology and Intellectual Property" at page 41 for more
information concerning implementation of this new system.
EXPAND THE BREADTH AND DEPTH OF OUR PRODUCT OFFERINGS. We continually
strive to expand our product offerings by working with suppliers of high quality
goods who respond on a timely basis to orders and ship products directly to our
customers. Our objective is to aggressively, yet selectively, add additional
specialty food products to our Web site in 1999. Additionally, we are
considering expansion into complementary product offerings which would enhance
the specialty food "occasion," such as wine, tableware and music.
CAPITALIZE ON THE RELATIONSHIP BETWEEN RETAIL AND WHOLESALE DISTRIBUTION
CHANNELS. We have established supplier relationships with 67 leading
manufacturers, distributors and importers of specialty food products. We believe
the retail and wholesale aspects of our business complement one another. The
wide recognition of our consumer brand has helped us gain credibility among our
targeted wholesale customer base. Just as our online retail store offers hard to
find, high quality specialty food products to consumers, our wholesale site
provides a convenient channel for retailers of specialty food to access such
unique products for purchases in bulk quantities. Additionally, by building our
overall
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sales volume through our wholesale program, we believe we will be able to obtain
preferential pricing from suppliers and enjoy more favorable margins from our
retail business.
ACQUIRE LEADING MARKET SHARE TO LEVERAGE ECONOMIES OF SCALE. By moving
quickly to capitalize on our brand recognition, we believe we can become the
online high volume market share leader in the specialty food industry. In order
to increase sales volume on our site, we have entered into a co-branded
arrangement with Peapod, an affiliate arrangement with GeoCities and have been
selected as a tenant merchant on both the America Online and Excite networks.
Additionally, we have targeted marketing arrangements with Yahoo!, Lycos and
other leading Internet sites. We believe that our business model will allow us
to take advantage of economies of scale as our sales volume increases.
EXPAND INTERNATIONALLY. Although we have historically focused on specialty
food customers and suppliers in the United States, we believe that growth in the
use of the Internet outside of the United States will represent additional
specialty food market opportunities for us. To take advantage of this, we intend
to replicate our business model and build our brand name in selected
international markets with appropriate demographics and market characteristics.
As our first expansion into this area, we are currently developing a Canadian
GreatFood.com site and establishing a network of suppliers in Canada who will
sell and deliver specialty food products to customers in Canada.
THE GREATFOOD.COM SITE
Our Web site is divided into the following areas: THE RETAIL SHOP, THE
WHOLESALE SITE, CORPORATE GIFTS, and ABOUT GREATFOOD.COM. The following is a
summary of some of these areas:
THE RETAIL SHOP. GreatFood.com has established a leading consumer brand in
specialty food on the Internet through our retail shop, which is the most
popular destination within the GreatFood.com site. In addition to offering
products for sale, the retail shop has several areas that provide information,
allow visitors to exchange ideas and stimulate buying. The front page of the
retail shop usually has a featured brand, special offers and seasonal
suggestions. Information is provided in categories such as:
<TABLE>
<S> <C>
PRODUCT REVIEWS..... PRODUCT REVIEWS are written by our in-house food expert for every
product line offered in our store. These reviews highlight the reasons
for selecting each product line, and provide interesting commentary
and colorful facts about the products and companies that produce them.
SEASONAL IDEAS...... SEASONAL IDEAS present certain products or groups of products around
seasonal themes. In the past we have featured barbecue items during
the summer months and gourmet snacks during the fall football season.
VISITING CHEF....... VISITING CHEF features biographical information and recipes from a
number of celebrity chefs. In cases where the chefs' products are
featured in our store, links are provided to the product offerings.
RECIPES............. RECIPES feature and highlight different product lines. These recipes,
many of which are provided by our suppliers, are linked to areas in
our store where the products can be purchased.
CUSTOMER FORUMS..... CUSTOMER FORUMS allow visitors to the site to share their own product
reviews and comments.
</TABLE>
THE WHOLESALE SITE. In December 1998, we launched our wholesale site which
offers products from suppliers, typically in case quantities, to retail stores,
specialty food shops, gift shops, caterers, restaurants and other traditional
merchants. Initial access to the GreatFood.com wholesale home page is available
to anyone, but information on products and pricing is password protected and
limited to retailers who register with us. Once a password is issued, these
customers can view products and pricing
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and can buy bulk quantities at wholesale prices. Our wholesale shop uses a
different search methodology than our retail shop. In the wholesale shop,
wholesale customers principally search by product categories and the brand names
of our suppliers.
CORPORATE GIFTS. Our corporate gifts site is designed for use by businesses
and professionals who are procuring gifts for their customers or clients. We
offer these customers the assistance of our gift consultants, available online
or by phone, to facilitate the purchasing decision. The corporate gifts site
features a number of products which are particularly appropriate for corporate
gifts. Customers can shop online for a variety of specialty food gift baskets
and have them sent directly to their customers and clients. We believe that the
convenience of ordering gifts for customers and clients from the workplace is an
attractive solution for businesses and professionals.
SHOPPING AT OUR SITE
We believe that the sale of specialty food at our Web site offers several
benefits to our customers. These benefits include enhanced selection,
convenience, ease of use, depth of content and information, and competitive
pricing. Key features of our online store include:
BROWSING. Our Web site offers visitors a variety of highlighted subject
areas and special features arranged in a simple, easy to use format intended to
enhance product search, selection and discovery. Our visitor starts by selecting
a shop among retail, wholesale or corporate gifts. By clicking on these
permanently displayed shop names, the visitor moves directly to the home page of
the desired shop and can quickly view promotions and featured products. Visitors
can use a quick keyword search in order to locate a specific product. They can
also execute more sophisticated searches based on pre-selected criteria
depending upon the shop that they are in. For example, at our retail shop,
visitors can search on the following sample criteria:
<TABLE>
<CAPTION>
Sample Categories Meal Occasion Gift Finder
- ----------------- -------------- ----------------
<S> <C> <C>
Appetizers Backpacking $15 and under
Candy Barbecue $20 range
Cheese Beach party $30 range
Chocolates Cocktail party $40 range
Fruits Dessert $50-$75
Gift baskets Dinner party $75-$100
Meats Fireside $100 and up
Pastas Picnic Gift basket
Sauces Pre-game Gift certificate
Seafood Romantic meal Gift of the
month
</TABLE>
In addition, visitors can browse our online retail store by clicking on
links which bring them to specially designed pages dedicated to products from
key national and specialty brands. Customers can also click through to "featured
brand" pages and browse through the Express Shoppe, designed to facilitate
holiday shopping for the harried customer who needs a quick gift.
GETTING INFORMATION. One of the unique advantages of an Internet retail
store is the ability to combine product information and editorial content. Our
site includes destinations where visitors can read food reviews, featured
recipes and about selected chefs. In addition, visitors can enter a forum where
they can read or offer customer reviews, suggestions and comments.
FINDING A GIFT. We have designed parts of our site to encourage and
facilitate gift giving. Visitors can draw down the Gift Finder menu to help them
find a gift in a particular price range. Our site also has an area called "Gift
Giving Reasons" which offers guidance on gift giving etiquette.
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SELECTING A PRODUCT AND CHECKING OUT. To purchase products, customers
simply click on either the "add to cart" or "buy it now" buttons to add products
to their virtual shopping cart. Customers can add and subtract products from
their shopping cart as they browse around our online store, prior to making a
final purchase decision, just as in a physical store. To execute orders,
customers click on the "checkout" button and, depending upon whether the
customer has previously shopped with us, are prompted to supply shipping details
online. America Online members can access the AOL Quick Checkout feature which
already has the customer's billing and shipping information online. Prior to
finalizing an order by clicking the "submit order" button, customers are shown
their total charges along with the various products and shipping options chosen.
The customer then has the ability to change their order or cancel it entirely.
As an additional service, we offer customers the option to place orders directly
over the telephone by calling our toll free number.
PAYING. Customers must use a credit card to pay for their orders. They
authorize charges to their credit card during the checkout process, but we do
not process the charge until our suppliers ship the customer's items from their
distribution facilities.
ORDER PROCESSING AND FULFILLMENT. Upon receipt of a customer order, we
transmit fulfillment instructions to the appropriate supplier via e-mail or
facsimile, depending upon their systems. The supplier, in turn, ships the
products directly to the customer and supplies to us confirmation of shipment.
Over time, we anticipate that a majority of our suppliers' warehouses will be
electronically linked to our order processing system. Because we do not
currently utilize a warehouse, the risks and costs associated with carrying
inventory are reduced. Suppliers fulfill orders placed through our Web site
through a variety of third party shippers, including UPS and Federal Express.
See "-- Technology and Intellectual Property" beginning on page 41 for more
information on order processing and fulfillment.
CUSTOMER SERVICE. GreatFood.com places significant emphasis on customer
service and offers a 100% satisfaction guarantee on all of our products and
services. In this area of our site, we assist customers in searching for,
shopping for, ordering and returning products. We also provide information on
shipping charges and other policies. In addition, we provide customers with
answers to the most frequently asked questions and encourage our visitors to
send us feedback and suggestions via e-mail. Furthermore, customer service
agents are available via telephone or e-mail to answer questions about products
and the shopping process as well as assist in the corporate gift giving process.
One of the key features of the GreatFood.com site is our Safe Shopping
Guarantee, which ensures that all of our customers' personal information is
encrypted, and covers each shopper's personal liability for unauthorized credit
card usage.
THE GREATFOOD.COM RETAIL CUSTOMER
We believe that in general, customers are visiting our site in anticipation
of a food related event: special occasions, birthdays, holidays or parties,
where convenience and ease of use are essential. The average customer spent
approximately $47 per visit in the first quarter of 1999, including shipping
charges. According to surveys conducted among a limited number of our customers
in November and December of 1998 by BizRate.com, a market research firm:
- 64% of our customers were female;
- 78.2% of our customers were 35 years of age or older, with an average age
of 45 years; and
- average annual income of our customers was approximately $95,000.
We are highly committed to excellent customer service with the goal of
providing a highly positive ordering experience that will capture the customer
for repeat visits. The BizRate.com survey indicated that 87% of the customers
responding were highly or very highly satisfied with their shopping
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experience and 80% of the customers responding were likely or very likely to
shop in our online store again.
SUPPLIER RELATIONSHIPS
GreatFood.com currently features approximately 3,400 products from 67 of the
country's leading specialty food companies. Our five most popular product lines
during 1998 were those offered by Port Chatham Smoked Salmon, Lobster Gram, Ham
I Am!, Chukar Cherry Company, and Pacific Cookie Company. We evaluate all of our
products for quality and freshness and inclusion in our Web site is by
invitation only. We bear the cost of setting up and operating a Web presence for
our suppliers within our site so that they have no setup fees or site operating
costs.
In our GreatFood.com retail business, we pay our suppliers at wholesale
prices and generally sell our products to customers at standard retail prices.
GreatFood.com wholesale orders are sold at wholesale pricing to retailers while
we pay our suppliers at a discount from wholesale. Terms with our suppliers
typically require payment within 30 days.
As of May 17, 1999, we offered products from the following suppliers and
brands:
Ackerman & Cooke -- PRIME BEEF STEAKS AND ROASTS
Advantage Int'l Foods Corp. -- IMPORTED CHEESES
Barrows Tea -- GOURMET TEA
Bella Cucina Artful Food -- PASTA, SAUCES AND OLIVE OIL
Blue Crab Bay Company -- SOUPS, CRACKERS AND BLOODY MARY MIX FROM THE
CHESAPEAKE BAY AREA
Brown & Haley -- ALMOND ROCA AND OTHER FINE CHOCOLATES
Caffe Appassionato -- SPECIALTY COFFEE
California Harvest (Grapevine Trading) -- TAPENADES, FRUIT VINEGARS AND
OLIVE OIL FROM
CALIFORNIA
Calio Groves -- OLIVE OILS FROM CALIFORNIA
Carson's Ribs -- BARBECUE RIBS FROM CHICAGO
Celebration Specialty Foods -- BIRTHDAY AND SPECIAL OCCASION CAKES, TARTS
AND PASTRIES
Charlie Palmer Foods -- COOKING SAUCE FOR MEAT, POULTRY AND FISH
Chewy's Rugulach -- FLAVORED RUGULACH PASTRIES
Chukar Cherry Company -- DRIED FRUITS, CANDIES AND GIFT BASKETS
Cibo Fresh Specialties -- FRESH HERB BUTTERS, CHEESES AND PESTOS
Cinnabar Specialty Foods, Inc. -- CHUTNEYS AND SAUCES
Cinnabon -- CINNAMON ROLLS
Cornfields -- GOURMET POPCORN
Crinklaw Farms -- WREATHS, DRIED FLOWERS AND GARLIC BRAIDS
D'Artagnan -- PATES, SAUSAGES AND SPECIALTY MEATS
Da Vinci Gourmet -- FLAVORED SYRUPS
Delacre (Liberty Richter) -- EUROPEAN STYLE COOKIES AND BISCUITS
Desserts on Us -- BAKLAVA
Downey's Cakes (Liberty Richter) -- LIQUEUR CAKES FOR SPECIAL OCCASIONS
AND GIFTS
Edible Eats -- GOURMET CHEESECAKES
Elena's -- PASTA AND PASTA SAUCES
The Famous Pacific Dessert Company -- CHOCOLATE DECADENCE, TORTES AND
BROWNIES
Formula 9 -- GOURMET KETCHUP
Fox's Fine Foods -- RELISHES AND PESTOS
Golden Malted -- WAFFLES AND PANCAKES
Goldwater's Foods of Arizona -- ALL NATURAL HOT AND FRUIT SALSAS
Grafton Village Cheese -- VERMONT CHEDDAR CHEESES
Graysmarsh Farms -- JAMS AND PRESERVES
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Greenwich Bay Clams -- RHODE ISLAND LITTLENECK CLAMS
Grimaud Farms -- MUSCOVY DUCK, RABBIT AND GOOSE
Hagerty Foods -- SAUCES AND PICKLED VEGETABLES
Ham I Am! -- HICKORY SMOKED HAMS, TURKEYS, QUAIL AND BEEF BRISKET
Harbor Sweets -- HANDMADE GIFT CHOCOLATES
Highland Sugarworks -- VERMONT MAPLE SYRUP AND BREAKFAST GIFT PACKS
Hogue Cellars (Hogue Farms) -- PICKLED VEGETABLES FOR APPETIZERS AND
SNACKS
John Wm. Macy Cheesesticks -- GOURMET CHEESESTICKS
Kids Cooking Kits -- BAKING KITS FOR KIDS
Killer Pecans (People Gotta Eat) -- TWICE-COOKED JUNIOR MAMMOTH PECAN
HALVES
Kim & Scotts's Gourmet Pretzels -- PRETZELS
Lobster Gram -- LIVE MAINE LOBSTER DINNERS
Loewy Foods Inc. (Chef's Pride) -- FRESH TURKEYS AND KOSHER TURKEYS
Melissa's -- EXOTIC FRUIT AND GIFT BASKETS
Mo Hotta Mo Betta -- HOT SAUCES
Moonshine Trading -- HONEYS AND NUT BUTTERS
Oregon Orchard (Hazelnut Growers of Oregon) -- SEASONED AND CHOCOLATE
COATED HAZELNUTS
Pacific Cookie Company -- OATMEAL, CHOCOLATE CHIP AND OTHER COOKIES
Parmacotto Ham -- PARMA HAM FROM ITALY
Partners Crackers -- CRACKERS
Patti's Plum Puddings -- PLUM PUDDING
Paul Proudhomme's Magic Seasoning Blends -- SPICE MIXES
Perona Farms -- ATLANTIC SMOKED SALMON
Perugina (Peters Imports) -- CHOCOLATES IMPORTED FROM ITALY
Petrossian Paris -- IMPORTED CAVIAR
Port Chatham Smoked Salmon (Icicle Seafoods) -- SMOKED SALMON AND GIFT
PACKS
Quality Citrus Packs -- EXTRA FANCY FRUIT
Reward Specialty Food Company -- GOURMET GRANOLA
The Rainforest Company -- BRAZIL NUTS AND CASHEWS WITH A BUTTER CRUNCH
COATING
Torn Ranch -- DRIED FRUITS, NUTS AND GIFT PACKS
Tortuga -- RUM CAKES
Two Buddies BBQ -- BBQ SAUCES AND MARINADES
Ultimate Baking Company -- GOURMET BISCOTTI
The Ultimate Basket -- GIFT BASKETS
Walker's Shortbreads (Peters Imports) -- IMPORTED SHORTBREAD FROM
SCOTLAND
Wild Thymes -- FRUIT SPREADS, CHUTNEYS, SAUCES AND MUSTARDS
We currently rely on our suppliers to fulfill our customers' orders directly
and therefore do not maintain inventory or operate distribution centers. Many of
our suppliers are small businesses with limited production and delivery
capabilities. Supplier order fulfillment difficulties may limit the growth or
our sales. We will evaluate on a continuous basis whether we should maintain
inventories or one or more distribution centers. We may choose to do so, for
example:
- if our suppliers are not able to deliver to our customers in a timely
manner;
- to be able to consolidate orders, particularly from wholesale customers,
to reduce shipping costs or achieve other economies; and
- to obtain distributor margins on a higher portion of our sales.
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MARKETING AND PROMOTION
GreatFood.com targets potential online customers, both retail and wholesale,
in a proactive manner, using a mix of traditional and online marketing
techniques. These techniques include online and print advertising, direct mail,
public relations and trade shows.
OUR RETAIL CUSTOMER MARKETING STRATEGY
ONLINE ADVERTISING AND PROMOTION. Online advertising to date has been the
most successful method in directing traffic to our Web site. We use commercially
available tracking software to track and monitor our incoming traffic. We
believe that our promotional relationships are a critical component of achieving
brand recognition. We have entered into promotional arrangements with major
portal sites which bring together a large variety of content. Through these
agreements, we believe we can reach a significant portion of the online consumer
audience and obtain visibility on new and innovative programs within the portal
sites. We intend to continue to pursue distribution arrangements with additional
portals and other leading Internet destination sites in order to further broaden
awareness of the GreatFood.com brand and drive more users to our Web site. Our
current aggregate obligations under these agreements are approximately $1.3
million through the end of 1999 and approximately $114,000 through the first
half of 2000. We anticipate spending a portion of the proceeds of this offering
to increase our online advertising and promotional spending.
In August 1998, we entered into a shopping channel promotional agreement
with America Online. Under this agreement, we became a tenant in America
Online's Shopping Channel. The Shopping Channel can be accessed through the
America Online and CompuServe online services and the AOL Web site. A link to
our Web site is located in the Gourmet and Grocery area of the Shopping Channel.
America Online has also selected us to participate in the AOL Quick Checkout
program which enables America Online members to enter their credit card and
shipping information once and subsequently make purchases from selected
merchants without having to reenter their credit card and shipping information.
Our contract with America Online extends through December 1999. America Online
is a leading Internet shopping site. According to a January 1999 press release
issued by America Online, its members spent over $1 billion with online
retailers available through their network during the six weeks of the 1998
holiday shopping season.
In September 1998, we entered into two sponsorship agreements with Excite.
Under these agreements, links to our Web site and promotional materials have
been placed on several areas of the Excite Web site and the Excite programmed
portion of the Netscape Netcenter Web site. These areas include the Gourmet and
Groceries department of the Excite site and, through June 1999, a similar
channel on the Netscape site. In addition, we participate in Excite's one click
shopping program, where shoppers can choose from a wide array of seasonal gift
items and are able to re-order without having to re-enter their credit card
number. Our agreements with Excite extend through December 1999.
GreatFood.com also participated in targeted online programs with
approximately 15 other sites during 1998. We have contracted for approximately
100 food related keywords under our agreement with Yahoo! where we expect to
realize approximately 110 million advertising banner impressions. Our agreement
with Yahoo! extends until December 31, 1999. Other Web sites with which we have
had promotional arrangements include: Lycos, Epicurious, StarChefs, Women.com,
Flycast Network, FoodWine.com, Christmas 98, GoTo.com, Culinary Cafe, HotBot and
others.
AFFILIATE PROGRAM. Our retail shop also has an affiliate program which
encourages users to set up links to our Web site, and, in turn, allows us to
work collaboratively with owners of other Web sites. In this program, qualified
Web sites operated by third parties can sign up to become GreatFood.com
affiliates and will share in the profits on every transaction directly referred
by their Web sites. In addition to the affiliate program we run directly, we
have entered into a contract with GeoCities to participate in their "Pages That
Pay" affiliate network. GeoCities is an online community with
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<PAGE>
approximately four million members all of whom create their own Web sites. We
expect to significantly increase our customer base through these programs.
THE PRIVATE LABEL, CO-BRANDED PROGRAM. We team with marketing partners that
provide online access to customers outside GreatFood.com's primary customer
base. GreatFood.com products are offered to these customers and we fulfill the
orders through our supplier channel, in return for sharing profits on the sale
with our marketing partner. We have established such co-branded relationships
with Peapod, Wells Fargo and YourSchoolShop.com, among others.
PRINT ADVERTISING. We have conducted a print advertising campaign aimed at
gourmet and mail order consumers. During 1998 and the first quarter of 1999, we
have placed ads in the following publications:
<TABLE>
<S> <C>
Better Homes and Gardens The New Yorker
Bon Appetit The Puget Sound Business Journal
Country Living Saveur
Eating Well Southern Living
Fine Cooking Sunset
Gourmet Town and Country
House Beautiful The Wall Street Journal
The New York Times Magazine
</TABLE>
CATALOGS. GreatFood.com has implemented a limited distribution of catalogs
to heighten brand awareness and stimulate traffic from our existing customer
base.
SPECIAL DRAWINGS AND PROMOTIONS. From time to time we hold special drawings
to encourage visitors to register on our site. For example, we conducted a
drawing for visitors considering specialty food for corporate gifts and selected
five winners who received a Varietal Sampler of Caffe Appasionato coffee. We
believe special promotions increase return visits by our customers and we plan
to continue similar promotions in the future.
GIFT CERTIFICATES. We offer gift certificates to both retail and corporate
clients. We believe this is particularly effective during the holiday season as
it provides an opportunity for additional customers to visit our Web site and
purchase products of their choice.
DIRECT MAIL. During 1998 we initiated two fourth quarter direct mail
campaigns aimed at specialty food consumers and the corporate gift market. We
plan on continuing our direct mail campaigns and instituting systems for
tracking the effectiveness of our direct mail programs.
OUR WHOLESALE CUSTOMER MARKETING STRATEGY
TRADE SHOWS. Industry trade shows, in particular the National Association
of the Specialty Food Trade (NASFT) Fancy Food & Confection Shows held annually
in San Francisco, Chicago, and New York, are an important part of the marketing
activity between specialty food suppliers and their retailer customers. As part
of our activities to grow our wholesale program, we plan to participate as an
exhibitor at such industry trade shows during 1999.
PRINT ADVERTISING. As part of our wholesale business, we have advertised in
such specialty food industry publications as GOURMET NEWS, FANCY FOOD, GOURMET
RETAILER, GIFT BASKET REVIEW and the NASFT SHOWCASE.
TELEMARKETING. We believe another way to reach specialty food retailers is
through telemarketing. We plan to use this method to attract and recruit these
customers.
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<PAGE>
GOVERNMENT REGULATION
Government regulation of communications and commerce on the Internet varies
greatly from country to country. In the United States and Canada, the federal
governments have not adopted many laws and regulations to specifically regulate
online communications and commerce. However, the U.S. Congress has recently
enacted legislation addressing such issues as the transmission of certain
materials to children, intellectual property protection, taxation and the
transmission of sexually explicit material. The European Union recently enacted
its own privacy regulations. The governments of some other countries have been
much more active in regulating in these areas than has the United States. The
United States and other countries may increase their regulation of the Internet
in the future. The law of the Internet, however, remains largely unsettled and
it may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet. An increase in regulation or the application of existing laws to the
Internet may require us to modify the manner in which we conduct our business
and could significantly increase our costs of operations or harm our business.
CUSTOMER SERVICE
We believe that excellent customer service and support is critical to
retaining and expanding our customer base. Customers can access our customer
service representatives either through our toll free number or e-mail. Our
customer service team is responsible for handling general customer inquiries and
investigating the status of orders, shipments and payments. In addition, we
process orders for customers who prefer live interaction or are uncomfortable
transmitting their credit card information over the Internet. Our customer
service representatives are a valuable source of feedback regarding customer
satisfaction. Our Web site also contains customer service pages that outline
store policies, provide answers to frequently asked questions, and provide an
opportunity for customers to easily send us inquiries by e-mail.
TECHNOLOGY AND INTELLECTUAL PROPERTY
TECHNOLOGY. We have implemented a variety of site management, search,
customer interaction and order processing systems that we use to process
customers' orders and payments. These systems use a combination of commercially
available, licensed technologies and, to a lesser extent, our own proprietary
modules. We focus our internal development efforts on:
- enhancement of the appearance and functionality of our Web site;
- systems to support order processing, fulfillment and accounting; and
- databases to track customer activities, preferences and contacts.
We currently use the Netscape Merchant System provided by Netscape
Communications Corporation to provide an electronic "shopping cart" interface
and an Oracle database to store product and order information. This system
includes a built-in credit card approval and processing facility which
interfaces directly to First Data Corporation, a credit card processing company.
Our Web site currently is maintained on two servers connected to the Internet
with a high bandwidth data link. The servers are capable of supporting thousands
of Web visitors and hundreds of transactions per day. For information concerning
the year 2000 compliance status of our systems, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000
Readiness" on page 27.
We have recently completed an evaluation of our electronic commerce systems
for customer interaction, transaction processing, order fulfillment and customer
service. As a result, we have commenced a major upgrade of our systems to:
- provide capacity for added order volume;
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<PAGE>
- enable us to offer state of the art online shopping technology; and
- provide integration with back end order processing systems to more fully
automate the back end of our online sales.
To effect this upgrade, we have chosen a commercially available system
provided by Pandesic, a joint venture of Intel and SAP, for this implementation.
This system provides business automation features based on SAP R/3 software and
will be configured by Pandesic specifically for our electronic commerce
requirements. Additionally, the Pandesic system will provide server hardware and
hosting services as part of the system, that is intended to replace the two
servers described earlier. Hardware will be hosted at a third party facility
operated by Digex, Inc. in Sunnyvale, CA, which will provide redundant servers
and communications lines, load balancing and emergency power backup.
The Pandesic system is intended to provide both front and back end
advantages for our electronic commerce activities. On the front end, the
Pandesic system is expected to facilitate online order tracking, cross selling
and processing of gift certificates and coupons. In support of GreatFood.com's
business to business strategy, the Pandesic system also will be used to automate
account management functions: setting up accounts, providing credit terms and
credit limits. On the back end, the Pandesic system is expected to provide an
Internet based means for transferring orders to suppliers (described in greater
detail below), generating packing lists and shipping labels, tracking shipments,
invoicing and payment. Additionally, we expect the Pandesic system to provide
overall financial reporting with respect to vendor payments.
We will be running our existing system in parallel with the Pandesic system
during its implementation. The schedule for implementation of the Pandesic
system calls for installation and testing of the system as well as introduction
of the front end functionality during the second and third quarters of 1999.
Subsequently, we expect to introduce the back end portion of the system with
certain key suppliers during the fourth quarter of 1999 and to complete
installation with the majority of our suppliers in mid to late 2000. In return
for software licenses, support, use of hardware and Internet hosting, we have
agreed to pay Pandesic a monthly fee.
REMOTE ORDER PROCESSING AND TRACKING NETWORK. Currently, our suppliers ship
orders directly to our customers on our behalf. To date, we have transmitted
orders to our suppliers through traditional means, including facsimile, or, in
some cases, e-mail. By contrast, in connection with our implementation of the
Pandesic system, we expect to be able to provide greater automation of the
process of submitting orders to our suppliers and tracking their status by
creating an "extranet" to link us with our suppliers. This will be accomplished
by the creation of electronic links between our order processing system and our
suppliers over the Internet. Many of our suppliers have limited technical
capabilities. We believe that the successful implementation of this system is
essential to our business to mitigate the order fulfillment problems we have
experienced during high volume periods. Implementing this system will require us
to provide a number of suppliers with personal computers, software, internet
access and training. For this and other reasons, implementation of our supplier
extranet will be a complex undertaking. We may not be able to implement this
system successfully or implementation may interfere with the successful
operation of our business due to:
- the substantial capital expenditures required to purchase the hardware and
software;
- difficulties in training our suppliers to use the new system;
- the availability of technical support for these new systems;
- the demands the maintenance of the new system and training will place on
our financial, personnel and other resources; and
- difficulties we may encounter in achieving acceptance of this system by
our suppliers.
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To succeed in the market in which we compete, we must:
- adapt to rapidly changing technologies;
- adapt our business to evolving industry standards; and
- 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 material adverse effect on
our business, results of operations 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. This could
harm our business, results of operations and financial condition.
INTELLECTUAL PROPERTY. We regard our service marks, trademarks, trade
dress, trade secrets and similar intellectual property as integral to our
success. We rely on trademark and copyright law, and trade secret protection to
protect our proprietary rights. We have filed a trademark application for
GreatFood.com for online ordering services featuring specialty food items.
However, we cannot assure you that this trademark will be granted. If this
trademark is not granted, we might be unable to prevent other companies from
using this or a similar name. In addition, effective trademark, service mark,
copyright and trade secret protection may not be available in every country in
which we plan to sell our products online.
COMPETITION
The specialty food market is extremely competitive but there is no single
dominant competitor. We believe that the principal competitive factors in our
market are:
- brand recognition;
- selection;
- personalized services;
- convenience;
- price;
- accessibility;
- customer service;
- quality of search tools;
- quality of site content; and
- reliability and speed of fulfillment.
On the retail side of our business, we compete with supermarkets, warehouse
clubs, and other specialty food retailers who have physical stores but do not
offer the convenience of shopping from home or work 24 hours a day, 7 days a
week. We also compete with specialty food catalogs and mail order companies such
as Omaha Steaks, Harry & David, Dean & DeLuca, Balducci's and Hickory Farms.
Many of these catalog and mail order companies have established their own Web
sites and offer their products for sale online.
Certain other online specialty food retailers compete with certain aspects
of our business including Virtual Vineyards, Digital Chef and Cooking.com.
However, we are not aware of any online specialty food stores dedicated to
selling a broad line of specialty food products. To a lesser extent, we also
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compete with Internet grocery stores such as Peapod and HomeGrocer.com and
Internet "mall" retailers such as Shopping.com and CyberShop.
On the wholesale side of our business, we compete with the food brokers and
distributors that currently serve the specialty food distribution market.
We expect many more online competitors in the future, as barriers to entry
are minimal, and new competitors can launch sites at a relatively low cost.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we do. In addition, online
retailers may be acquired by, receive investments from or enter into other
commercial relationships with larger, well-established and well-financed
companies as use of the Internet and other online services increases. Some of
our competitors may be able to secure merchandise from manufacturers on more
favorable terms, devote greater resources to marketing and promotional
campaigns, adopt more aggressive pricing or inventory availability policies and
devote substantially more resources to Web site and systems development than we
can. Increased competition may result in reduced operating margins, loss of
market share and a diminished brand franchise. New technologies and the
expansion of existing technologies may increase the competitive pressures on us.
EMPLOYEES
As of May 17, 1999, we had 15 full-time and two part-time employees,
including five in product and site development, six in sales and marketing and
six in general and administration. None of our employees are represented by a
union. We believe that our relationship with our employees is good.
FACILITIES
We lease approximately 3,000 square feet of space in Seattle, Washington for
our corporate headquarters. The rent for this space is currently $4,313 per
month. Our lease expires in February 2002, although we may terminate it, at our
option, in September 2000. We have an option to renew our lease for this space
for an additional three year term at a then current market rate of rent.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
GreatFood.com's executive officers, key employees and directors and their
ages as of May 17, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- ----------- ----------------------------------------------------
<S> <C> <C>
Benjamin Nourse..................................... 41 Chief Executive Officer, Chairman of the Board of
Directors and Secretary
William Cuff........................................ 57 President and Director
Gayle Stetson....................................... 37 Vice President of Finance and Administration and
Chief Financial Officer
Donna Nourse........................................ 47 Vice President of Merchandising
Scott Ellis......................................... 36 Director of Operations
R. Stockton Rush III................................ 37 Director
Geoffrey Barker..................................... 36 Director
David E. Wyman...................................... 54 Director
Mark Koulogeorge.................................... 35 Director
</TABLE>
BENJAMIN NOURSE founded GreatFood.com and has served as the Chairman of our
board of directors since September 1995. Mr. Nourse served as our President from
September 1995 until April 1998 and became our Chief Executive Officer in May
1999. From 1996 to 1998, Mr. Nourse was the Vice President of Development for
The Cobalt Group, Inc., a provider of Internet marketing solutions to automotive
dealerships. From 1993 to 1995, Mr. Nourse was an Executive Vice President of
Scifor Corporation, a start up company which developed a large area video and
multimedia graphic display system. From 1991 to 1992, he was the Vice President
of Finance and Corporate Development of Tera Computer Company, a supercomputer
manufacturer. From 1987 to 1991, he was an investment banker with U.S. Bancorp
Piper Jaffray, Inc. Mr. Nourse holds a bachelor's degree in Engineering Sciences
from Dartmouth College and a Masters in Business Administration from the Wharton
School of the University of Pennsylvania.
WILLIAM CUFF has been our President since April 1998, a director since May
1998, and was our Chief Executive Officer from April 1998 until May 1999. From
1990 to 1997, Mr. Cuff was President and Chief Executive Officer of Diamond
Walnut Growers, Inc., a nut marketing and processing company. From 1986 to 1990,
Mr. Cuff served as President of The Bachman Company, a major regional snack food
company. From 1982 to 1986, he was the Vice President of Specialty Foods for
Nestle Corporation, and from 1979 to 1982 he was the Vice President of Business
Development for the Libby subsidiary of Nestle. Prior to joining Nestle, Mr.
Cuff spent 11 years in various marketing management positions with General
Foods. Mr. Cuff holds a bachelor's degree in Economics from Yale University and
a Masters in Business Administration from Columbia University.
GAYLE STETSON was appointed our Vice President of Finance and Administration
in April 1999, and our Chief Financial Officer in May 1999. From 1993 until
joining us, Ms. Stetson was a partner of Stetson Guske & Koenes, PLLC, an
accounting firm. From 1985 to 1991, Ms. Stetson worked as an audit manager with
KPMG Peat Marwick. Ms. Stetson holds a bachelor's degree in Accounting from
Western Washington University and is a Certified Public Accountant.
DONNA NOURSE joined GreatFood.com as our Vice President of Merchandising in
August 1998. Prior to that time, Mrs. Nourse acted as an advisor to
GreatFood.com since its inception. From 1988 to 1998, she was the corporate home
economist for Quality Food Centers (QFC), an upscale Pacific Northwest
supermarket chain. From 1982 to 1987, she served as the Senior Manager for the
Creative Food Center of Campbell Soup Company. From 1978 to 1982, Mrs. Nourse
was Food Editor for
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Seventeen Magazine. She holds a bachelor's degree in Home Economics from
Plattsburgh State University. Mr. and Mrs. Nourse are husband and wife.
SCOTT ELLIS has been our Director of Operations since December 1998. Prior
to joining us, from 1990 to 1998, Mr. Ellis held various positions at Unisea,
Inc., a processor of seafood for wholesale and retail distribution, including
most recently, production director. He holds a bachelor's degree in
International Studies from the Jackson School of International Studies at the
University of Washington.
R. STOCKTON RUSH III has served as a director of GreatFood.com since May
1998 and is a private investor. Since 1990, Mr. Rush has been the President and
Chairman of the Board of Directors of Remote Control Technology, Inc., a
manufacturer of industrial wireless remote control products. Mr. Rush holds a
bachelor's degree in Aerospace Engineering from Princeton University and a
Masters in Business Administration from the Haas Business School at the
University of California at Berkeley.
GEOFFREY BARKER has been a director of GreatFood.com since May 1998. Mr.
Barker co-founded The Cobalt Group, Inc., a provider of Internet marketing
solutions to automotive dealerships, in 1995, and has been its Co-Chief
Executive Officer since that time. From 1994 to 1995, he was the Vice President
for New Business at IVI Publishing, Inc., a multimedia developer and publisher.
From 1989 to 1994, Mr. Barker was an investment banker with U.S. Bancorp Piper
Jaffray, Inc. Mr. Barker holds a bachelor's degree in Economics from Tufts
University and a Masters in Business Administration from Columbia University.
DAVID E. WYMAN has served as a director of GreatFood.com since November 1998
and is a private investor. From 1990 to 1998, Mr. Wyman served as the Chairman
of the Board of Directors of Prime Advisors, a fixed income investment advisory
firm. From 1973 to 1994, he was a director and Vice President of Kinzua
Corporation, a privately held forest products manufacturing company. He is also
a director of P.C. Fixx, Inc., a closely held computer networking and repair
business.
MARK KOULOGEORGE became a director of GreatFood.com in May 1999. Mr.
Koulogeorge is a managing director of First Analysis Corporation, a venture
capital investment firm. Prior to joining First Analysis in 1994, he was the
Vice President of Corporate Development of Eagle Industries, Inc., a diversified
manufacturer, from 1991 to 1994. Mr. Koulogeorge holds a bachelor's degree in
Economics from Dartmouth College and a Masters in Business Administration from
Stanford University.
BOARD OF DIRECTORS
Our board of directors currently consists of six members. Prior to the date
of this offering, each director was elected to serve until the next annual
meeting of shareholders or until the election and qualification of his successor
or his earlier resignation or removal. In connection with the closing of this
offering, the board of directors will be divided into three classes (Class 1,
Class 2 and Class 3), each class containing two directors. Messrs. Wyman and
Koulogeorge will be the Class 1 directors, with terms expiring at the annual
shareholders' meeting in 2000; Messrs. Cuff and Barker will be the Class 2
directors, with terms expiring at the annual shareholders' meeting in 2001; and
Messrs. Nourse and Rush will be the Class 3 directors, with terms expiring at
the annual shareholders' meeting in 2002. Commencing with the annual
shareholders' meeting in 2000 and thereafter, each newly elected director will
be elected to serve for a period of three years. The classification of the board
may make it more difficult for a third party to acquire, or discourage a third
party from acquiring control of, GreatFood.com.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors established a compensation committee in March 1999
and an audit committee in May 1999. Messrs. Rush, Barker and Wyman are the sole
members of both committees. The compensation committee makes recommendations to
the board concerning salaries and incentive
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compensation for our officers and employees and administers our employee benefit
plans. The audit committee reviews GreatFood.com's financial statements and
accounting practices, makes recommendations to the board regarding the selection
of our independent auditors and reviews the results and scope of the audit and
other services provided by the independent auditors.
DIRECTOR COMPENSATION
Our directors currently do not receive any cash compensation from us for
their service as members of the board of directors, although they are reimbursed
for reasonable travel and lodging expenses in connection with attendance at
board or committee meetings. Under our stock incentive plan, non-employee
directors are entitled to receive stock option grants and stock purchase rights
at the discretion of the board of directors or other administrator of the plan.
In addition, Messrs. Rush, Barker and Wyman each hold an option to purchase
10,000 shares of common stock which becomes exercisable in full one year after
the date of grant. Messrs. Rush and Barker's options are exercisable at $0.30
per share and Mr. Wyman's option is exercisable at $1.75 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the compensation committee in March 1999, the
entire board participated in all executive compensation decisions. None of our
executive officers presently serves, or in the past fiscal year has served, as a
member of the compensation committee or board of directors of any other company
whose executive officers served in the past fiscal year on our compensation
committee. Certain of our directors have purchased our securities. See "Certain
Relationships and Related Transactions" on page 52 and "Principal Shareholders"
on page 54.
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SUMMARY COMPENSATION
The following table sets forth information concerning the compensation paid
for services rendered to GreatFood.com in all capacities during 1996, 1997 and
1998 to our Chief Executive Officer and all other persons who earned
compensation in excess of $100,000 in any of those years.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL -----------------
COMPENSATION SECURITIES
----------------- UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) OPTIONS(#)
- ---------------------------------------------- ----------- ----------------- -----------------
<S> <C> <C> <C>
William Cuff(1)............................... 1998 $ 57,282 514,286
President
Benjamin Nourse............................... 1998 40,000
Chief Executive Officer 1997 1,820
1996 8,000
</TABLE>
- ------------------------
(1) Mr. Cuff has served as President since April 1998 and served as Chief
Executive Officer from April 1998 to May 1999. On an annual basis, Mr.
Cuff's salary in 1998 would have been approximately $80,000.
OPTIONS GRANTED IN 1998
We did not grant Mr. Nourse any stock options during 1998. However, on May
6, 1999, we granted Mr. Nourse an option to purchase 60,000 shares at an
exercise price of $5.50, which option becomes exercisable in four equal annual
amounts on each anniversary of the grant date. The following table sets forth
certain information regarding stock options we granted Mr. Cuff during 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(3)
OPTIONS FISCAL PRICE($/ EXPIRATION --------------------
GRANTED(1) YEAR(2) SHARE) DATE 5% 10%
--------- ------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
William Cuff.................... 100,000(4) 18.4% $ 0.30 4/13/08 $ 18,867 $ 47,812
President 100,000(5) 18.4 0.30 4/13/08 18,867 47,812
300,000(6) 55.2 1.75 4/13/08 110,057 278,905
14,286(7) 2.6 1.75 7/20/08 15,723 39,844
</TABLE>
- ------------------------
(1) 500,000 options were granted to Mr. Cuff under the 1997 Stock Incentive
Plan. In addition, Mr. Cuff was granted a warrant for 14,286 shares outside
of the 1997 Stock Incentive Plan.
(2) Based on an aggregate of 529,500 option shares and 14,286 warrant shares
granted to employees in 1998.
(3) The potential realizable value is calculated based on the term of the option
at its time of grant (ten years). It is calculated assuming that the fair
market value of the common stock on the date of grant appreciates at the
indicated annual rate compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for
the appreciated stock price.
(4) This option became exercisable in full on April 13, 1999.
(5) This option becomes exercisable in equal amounts on a monthly basis from the
vesting commencement date of April 13, 1998 until fully vested on April 13,
2001.
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<PAGE>
(6) This option becomes exercisable in equal amounts on a monthly basis from the
vesting commencement date of April 13, 1998 until fully vested on April 13,
2003.
(7) This warrant was fully vested upon issuance on July 20, 1998.
1997 STOCK INCENTIVE PLAN
GreatFood.com's 1997 Stock Incentive Plan was adopted by GreatFood.com's
board of directors and approved by our shareholders in September 1997.
Initially, 250,000 shares of common stock were reserved for issuance under the
plan. In May 1998, this total was increased to 1,000,000, and in May 1999, this
total was increased to 1,600,000.
As of May 17, 1999, no shares had been issued upon the exercise of options
granted under the plan, options to purchase 863,500 shares of common stock were
outstanding with a weighted average exercise price of $1.79 and 736,500 shares
remained available for future grant. No awards may be granted under the plan
after September 27, 2007, but the vesting and effectiveness of awards previously
granted may extend beyond that date.
The plan provides for the grant of incentive stock options, as defined under
the Internal Revenue Code of 1986, to employees (including officers and employee
directors) of GreatFood.com and its affiliates. The plan also provides for the
grant of nonqualified options to such employees as well as to non-employee
directors, consultants, agents and other key contributors to GreatFood.com.
The board of directors has appointed its compensation committee to
administer the plan. The compensation committee determines both the recipients
of options and the type of options to be granted, including the exercise price,
number of shares subject to the option and the exercisability of the option. The
compensation committee also has the authority to adopt, amend and repeal the
administrative rules, guidelines and practices relating to the plan and to
interpret its provisions. The board of directors also granted the chairman of
GreatFood.com the authority to grant options under the plan (in an amount not to
exceed 25,000 shares in the aggregate to any individual) to eligible
participants under the plan other than our officers at an exercise price which
is not less than the fair market value of GreatFood.com's common stock on the
date of grant.
While the compensation committee determines the exercise price of the
options, the exercise price of an incentive stock option may not be less than
100% of the fair market value of the common stock on the date of the option
grant.
The compensation committee may not grant an incentive stock option to a
person who, at the time of the grant, owns (or is deemed to own) stock
representing more than 10% of the total combined voting power of GreatFood.com
or any affiliate of GreatFood.com, unless the option exercise price is at least
110% of the fair market value of the common stock from the date of grant. In
addition, the aggregate fair value, determined at the time of grant, of the
shares of common stock with respect to which incentive stock options are
exercisable for the first time by the optionee during any calendar year may not
exceed $100,000.
The plan also provides for the grant of restricted shares, which are shares
of common stock that are subject to transfer restrictions determined by the
compensation committee and subject to substantial risk of forfeiture. The plan
also authorizes the compensation committee to award or offer bonuses of shares
of common stock, either restricted or non-restricted, as current or deferred
compensation, instead of all or any portion of the cash compensation to which
the employee is entitled. In addition, the compensation committee may grant cash
bonus rights under the plan in connection with options, stock bonuses or shares
granted under to the plan.
In the event of certain corporate transactions, such as a merger or sale of
GreatFood.com, each outstanding option and restricted stock award will
automatically accelerate and become 100% vested
49
<PAGE>
immediately before the corporate transaction and the holder of an option will be
able to purchase the full number of shares of our stock under such option,
unless the option or restricted stock award is, in connection with the corporate
transaction, assumed by GreatFood.com's successor corporation or parent or
subsidiary thereof.
1999 EMPLOYEE STOCK PURCHASE PLAN
In May 1999, the board of directors adopted an employee stock purchase plan,
and we have reserved a total of 400,000 shares of our common stock for issuance
under the 1999 Employee Stock Purchase Plan. We have not issued any shares under
the employee stock purchase plan. The employee stock purchase plan permits
eligible employees to purchase our common stock at a discount through payroll
deductions during offering periods of up to 24 months. An offering period
generally will be six months in duration and begin on the first trading day of
each January and July. The initial offering period will begin no earlier than
July 1999. The price at which stock is purchased under the employee stock
purchase plan will be equal to 85% of the fair market value of our common stock
on the first or last day of the offering period, whichever is lower.
EMPLOYMENT ARRANGEMENTS
In April 1998, we entered into a letter agreement with Mr. Cuff, our
President. The agreement entitles Mr. Cuff to an annual salary of $80,000 per
year. Under the agreement, we granted Mr. Cuff options to purchase (a) 100,000
shares of common stock at an exercise price of $0.30 per share which became
exercisable in equal amounts over the first twelve months of his employment; (b)
100,000 shares of common stock at an exercise price of $0.30 a share which vest
monthly in equal amounts over a 36 month period and (c) 300,000 shares of common
stock at an exercise price of $1.75 which vest monthly in equal amounts over a
sixty month period. The vesting of these options will accelerate upon a change
of control of GreatFood.com. We also granted Mr. Cuff a warrant to purchase
14,286 shares of our common stock at an exercise price of $1.75 per share under
the terms of the agreement.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
Our articles of incorporation limit the liability of directors and officers
to the fullest extent permitted by the Washington Business Corporation Act as it
currently exists or as it may be amended in the future. Consequently, subject to
the Washington Business Corporation Act, no director or officer shall be
personally liable to GreatFood.com or its shareholders for monetary damages
resulting from his or her conduct as a director or officer of GreatFood.com,
except liability for:
- acts or omissions involving intentional misconduct or knowing violations
of law;
- unlawful distributions; or
- transactions from which the director or officer personally receives a
benefit in money, property or services to which the director or officer is
not legally entitled.
Our articles of incorporation also require us to indemnify any individual
made a party to a proceeding because that individual is or was a director or
officer of GreatFood.com and to advance or reimburse reasonable expenses
incurred by such individual in advance of the final disposition of the
proceeding to the full extent permitted by applicable law. Any repeal or
modification to our articles of incorporation may not adversely affect any right
of a director or officer of GreatFood.com who is a director or officer at the
time of such repeal or modification. To the extent provisions of our articles of
incorporation provide for indemnification of directors for liabilities arising
under the Securities Act of 1933, as amended, those provisions are, in the
opinion of the SEC, against public policy as expressed in the Securities Act and
are therefore unenforceable. In addition, we have entered into separate
indemnification agreements with our directors and officers that may require us,
among other things, to
50
<PAGE>
indemnify them against certain liabilities that arise because of their status or
service as directors or officers and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified. We
also intend to purchase and maintain a liability insurance policy, under which
our directors and officers may be indemnified against liability they may incur
for serving in their capacities as directors and officers of GreatFood.com.
We believe that the limitation of liability provisions in our articles of
incorporation, the indemnification agreements and the liability insurance policy
will facilitate our ability to continue to attract and retain qualified
individuals to serve as directors and officers of GreatFood.com.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Upon our inception in August 1995, we issued 1,000,000 shares of common
stock to Benjamin Nourse, our Chairman of the Board, and Chief Executive
Officer, in exchange for $48,590, which was paid in several installments over a
period commencing in September 1995 and ending in November 1996. On March 23,
1997, Mr. Nourse purchased 50,000 shares of common stock for $10,000, and on
October 12, 1997, Mr. Nourse purchased 33,333 shares of common stock for
$10,000. On July 17 1998, Mr. Nourse purchased 7,142 shares of Series A
preferred stock for $12,499 and on March 18, 1999, he purchased 5,000 shares of
Series B preferred stock for $15,000. Donna Nourse, our Vice President of
Merchandising, owns these shares jointly with Mr. Nourse, her husband.
In April 1998, we entered into a letter agreement with Mr. Cuff, our
President, which is described at page 50 above in "Management -- Employment
Arrangements." In July 1998, Mr. Cuff purchased 28,571 shares of Series A
preferred stock for $49,999 and in March 1999 he purchased 5,000 shares of
Series B preferred stock for $15,000. Mr. Cuff also received a warrant to
purchase 14,286 shares of common stock at a price of $1.75 per share under his
employment agreement.
In December 1996, March 1997, and September 1997, R. Stockton Rush, III, one
of our directors, purchased 50,000 shares, 75,000 shares, and 83,333 shares of
common stock for $10,000, $15,000, and $25,000, respectively. In July 1998, the
Ralph K. Davies Trust FBO R.S. Rush III, a trust of which Mr. Rush III is the
sole trustee and an income beneficiary, purchased 60,000 shares of Series A
preferred stock for $105,000 and in March 1999 the trust purchased 66,666 shares
of Series B Preferred stock for $199,998. In July 1998, Catherine W. Rush, Mr.
Rush III's sister, purchased 28,571 shares of Series A preferred stock for
$49,999. In October 1997, R. Stockton Rush, Mr. Rush III's father, purchased
33,333 shares of common stock for $10,000. In July 1998, Mr. Rush purchased
17,142 shares of Series A preferred stock for $29,999 and in March 1999 he
purchased 16,666 shares of Series B Preferred stock for $49,998. In July 1998,
Richard M. Weil, Mr. Rush III's brother-in-law, purchased 14,285 shares of
Series A preferred stock for $24,999.
In October 1997, David E. Wyman, a director of GreatFood.com, purchased
83,333 shares of common stock for $25,000. In July 1998, Mr. Wyman purchased
42,857 shares of Series A preferred stock for $75,000. In the same private
placement, WYNOT Investments, of which Mr. Wyman and his sister, Ann McCall
Wyman, are each fifty percent beneficial owners, purchased 56,571 shares of
Series A preferred stock for $98,999 and in March 1999, WYNOT Investments
purchased 33,333 shares of Series B Preferred stock for $99,999.
In connection with the issuances of preferred stock, we entered into an
Investors' Rights Agreement with the holders of our common stock, Series A
preferred stock, and Series B preferred stock, including Messrs. Nourse, Cuff
and Wyman, WYNOT Investments, and Mr. Rush III, his trust, his sister, his
father and his brother-in-law. Under the terms of this agreement, we are
obligated, under certain circumstances, to effect a registration under the
Securities Act of 1933 of shares of common stock. See "Description of Capital
Stock -- Registration Rights" on page 57 for more information.
In exchange for a warrant (which vests ratably over a period of 36 months
provided certain conditions are met) to purchase 36,000 shares of our common
stock at an exercise price of $0.20 per share. The Cobalt Group hosted our
servers from March 1997 through May 1999 and provided us with high speed
Internet access. The vesting of this warrant terminated on May 14, 1999 with
25,000 shares vested. Mr. Barker, one of our directors, is the co-Chief
Executive Officer, a director, and a significant shareholder of The Cobalt
Group; Mr. Koulogeorge, another of our directors, is a director of The Cobalt
Group.
On May 17, 1999, we sold 600,000 shares of Series C preferred stock at $5.00
per share of which 588,000 shares were purchased by partnerships controlled by
First Analysis Corporation: 528,000 by Riverside Partnership and 60,000 by The
Productivity Fund IV, L.P. First Analysis owns a majority
52
<PAGE>
ownership interest in two limited liability companies: one of which is the
direct general partner of The Productivity Fund IV, L.P. and the other of which
is the indirect general partner of Riverside Partnership. In addition, 10,000
shares were purchased by Mr. Koulogeorge, one of our directors. Mr. Koulogeorge
is also a member of the limited liability company which is the direct general
partner of The Productivity Fund IV, L.P. and the limited liability company
which is indirect general partner of Riverside Partnership. The purchasers of
the Series C preferred stock also agreed to purchase, at our option, up to
300,000 additional shares of Series C preferred stock at $5.00 per share. We
have until May 17, 2000 to exercise this option. The purchasers of the Series C
preferred stock also received warrants to purchase up to a total of 323,077
additional shares of Series C preferred stock at $0.01 per share (up to 484,615
shares if we exercise our option to sell the additional 300,000 shares of Series
C preferred stock). The warrants issued to Riverside Partnership, The
Productivity Fund IV, L.P., and Mr. Koulogeorge entitle them to purchase up to
284,307, 32,308, and 5,385 shares, respectively (which amounts would be
proportionately increased if we exercise our option to sell 300,000 additional
shares of Series C preferred stock). These warrants will be exercisable only if
we fail to complete a public offering of at least $10,000,000 of our common
stock at a price of at least $10.00 per share by January 31, 2000. If we
complete a public offering of that size and value at any time in the future, all
shares of Series C preferred stock will automatically convert into shares of our
common stock. We also granted to these purchasers the right to require us to
register their shares of common stock for resale under the Securities Act. See
"Description of Capital Stock -- Registration Rights" on page 57 for more
information.
We are a party to a Merchant Agreement, dated December 20, 1995, which
obligates us, under certain conditions, to honor all Visa and Mastercard credit
cards when properly presented as payment by our customers. Mr. Nourse has
personally guaranteed our obligations under this agreement.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of GreatFood.com's
common stock as of May 17, 1999 and as adjusted to reflect the sale of the
shares of common stock offered hereby by:
- each person or group that we know beneficially owns more than 5% of our
outstanding common stock;
- each of our directors;
- our chief executive officer; and
- all of our executive officers and directors as a group.
Unless otherwise indicated, the address for each of the named individuals is
c/o GreatFood.com, 2731 Eastlake Avenue East, Seattle, Washington 98102. Except
as otherwise indicated, and subject to applicable community property laws, the
persons named in the table have sole voting and investment power with respect to
all shares of common stock held by them. The number of shares in the table
assumes no exercise of the underwriters' over-allotment option.
Applicable percentage ownership in the table is based on 4,027,532 shares of
common stock outstanding as of May 17, 1999 (assuming the conversion of all
outstanding shares of preferred stock), and 6,527,532 shares outstanding
immediately following the completion of this offering. Beneficial ownership is
determined in accordance with the rules of the SEC. Shares of common stock
subject to options or warrants that are presently exercisable or exercisable
within 60 days of the date of this prospectus are deemed outstanding for the
purpose of computing the percentage ownership of the person or entity holding
such options or warrants, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person or entity. To the extent
that any shares are issued upon exercise of options, warrants or other rights to
acquire GreatFood.com's capital stock that are presently outstanding or granted
in the future or reserved for future issuance under GreatFood.com's stock plans,
there will be further dilution to new public investors.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF SHARES OUTSTANDING
BENEFICIALLY ------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PRIOR TO OFFERING AFTER OFFERING
- ----------------------------------------------- -------------- ----------------- -----------------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Benjamin Nourse................................ 1,095,475 27.2% 16.8%
William Cuff................................... 264,523 6.2 3.9
R. Stockton Rush, III.......................... 344,999 8.5 5.3
Geoffrey Barker................................ 43,333 1.1 *
David E. Wyman................................. 216,094 5.4 3.3
Mark Koulogeorge............................... 598,000 14.8 9.2
All directors and executive officers as a group
(8 persons).................................. 2,562,424 59.5 37.7
5% SHAREHOLDERS
Furman C. and Susan R. Moseley................. 700,000 17.4 10.7
411 University Street, Suite 1200
Seattle, Washington 98101
First Analysis Corporation..................... 588,000 14.6 9.0
9500 Sears Tower
Chicago, IL 60606
</TABLE>
- ------------------------
* Less than one percent.
54
<PAGE>
Shares listed as held by Mr Cuff include 14,286 shares of common stock
issuable upon exercise of a warrant currently exercisable and 216,666 shares
subject to options exercisable within 60 days of May 17, 1999.
Shares listed as held by Mr. Rush III include 10,000 shares subject to an
option currently exercisable and 126,666 shares held by the Ralph K. Davies
Trust FBO R.S. Rush III of which Mr. Rush III is the sole trustee and an income
beneficiary.
Shares listed as held by Mr. Barker include 25,000 shares of common stock
issuable upon exercise of a warrant currently exercisable held by The Cobalt
Group of which Mr. Barker is the Co-Chief Executive Officer, a director and a
significant shareholder and 10,000 shares subject to an option currently
exercisable.
Shares listed as held by Mr. Wyman include 89,904 shares held by WYNOT
Investments. Mr. Wyman and his sister, Ann McCall Wyman, are each fifty percent
equity owners of WYNOT Investments.
Shares listed as held by Mr. Koulogeorge include 528,000 shares of common
stock held by Riverside Partnership and 60,000 shares of common stock held by
The Productivity Fund IV, L.P. Mr. Koulogeorge is a member of a limited
liability company which is the direct general partner of The Productivity Fund
IV, L.P. and a limited liability company which is the indirect general partner
of Riverside Partnership. Mr. Koulogeorge is also an executive officer of First
Analysis Corporation which holds a majority ownership interest in these limited
liability companies.
Shares listed as held by First Analysis Corporation include 528,000 shares
of common stock held by Riverside Partnership and 60,000 shares of common stock
held by The Productivity Fund IV, L.P. First Analysis Corporation holds a
majority ownership interest in a limited liability company which is the direct
general partner of The Productivity Fund IV, L.P. and a limited liability
company which is the indirect general partner of Riverside Partnership.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, we will be authorized to issue up to
60,000,000 shares of common stock, and 20,000,000 shares of preferred stock. The
following summary of certain provisions of the common stock and preferred stock
is not complete and may not contain all the information you should consider
before investing in the common stock. You should read carefully our articles of
incorporation, which are included as an exhibit to the Registration Statement,
of which this prospectus is a part.
COMMON STOCK
As of May 17, 1999, assuming conversion of all outstanding shares of
preferred stock, there were 4,027,532 shares of common stock outstanding held of
record by 46 shareholders. Following this offering, there will be 6,527,532
shares of common stock outstanding (assuming no exercise of the underwriters'
overallotment option and no exercise of outstanding options or warrants). The
holders of common stock are entitled to one vote per share on all matters to be
voted on by the shareholders. Cumulative voting for the election of directors is
not authorized by our articles of incorporation, which means that the holders of
a majority of the shares voted can elect all of the directors then standing for
election. Subject to preferences of any outstanding shares of preferred stock,
the holders of common stock are entitled to receive ratably any dividends the
board of directors declares out of funds legally available for the payment of
dividends. If GreatFood.com is liquidated, dissolved or wound up, the holders of
common stock are entitled to share pro rata all assets remaining after payment
of liabilities and liquidation preferences of any outstanding shares of
preferred stock. Holders of common stock have no preemptive rights or rights to
convert their common stock into any other securities. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common stock
to be issued following this offering will be fully paid and nonassessable.
PREFERRED STOCK
As of May 17, 1999, there were 2,448,368 shares of preferred stock
outstanding, all of which will be converted into common stock on a one for one
basis at the time of the closing of this offering. Thereafter, under our
articles of incorporation, our board of directors is authorized to issue up to
20,000,000 shares of preferred stock in one or more series without shareholder
approval. The board has discretion to determine the rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences of each
series of preferred stock.
The purpose of authorizing the board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a shareholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions,
financings and other corporate purposes, could make it more difficult for a
third party to acquire, or could discourage a third party from acquiring, a
majority of the outstanding voting stock of GreatFood.com. GreatFood.com has no
present plans to issue any shares of preferred stock.
STOCK PLANS
As of May 17, 1999, (1) options to purchase a total of 863,500 shares of
common stock were outstanding; and (2) up to 736,500 additional shares of common
stock may be subject to options granted in the future under the 1997 Stock
Incentive Plan. See "Management -- 1997 Stock Incentive Plan" on page 49. In
addition, 400,000 shares are reserved for issuance under the 1999 Employee Stock
Purchase Plan. See "Management -- 1999 Employee Stock Purchase Plan" on page 50.
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<PAGE>
WARRANTS
As of May 17, 1999, GreatFood.com had the following outstanding warrants to
purchase shares of common stock: (1) a warrant to purchase up to 300,000 shares
of common stock at an exercise price of $3.00 per share; (2) a warrant to
purchase up to 25,000 shares of common stock at an exercise price of $0.20 per
share that is held by The Cobalt Group; (3) a warrant to purchase up to 14,286
shares of common stock at an exercise price of $1.75 per share that is held by
William Cuff, our President; (4) warrants to purchase up to 2,858 and 1,667
shares of common stock at exercise prices of $1.75 and $3.00, respectively; and
(5) warrants to purchase up to a total of 323,077 shares of Series C preferred
stock at $0.01 per share which will be exercisable only if we fail to complete a
public offering of at least $10,000,000 of our common stock at a price of at
least $10.00 per share by January 31, 2000. For additional information
concerning the warrants described in items (2), (3) and (5) above, see "Certain
Relationships and Related Transactions" at page 52.
REGISTRATION RIGHTS
After this offering, the holders of 4,027,532 shares of common stock will be
entitled to certain rights with respect to the registration of such shares under
the Securities Act. If we propose to register our common stock under the
Securities Act, either for our own account or for the account of other security
holders exercising registration rights, in connection with the public offering
of common stock solely for cash, then these holders are entitled to notice of
the registration and to include shares of common stock in the registration at
our expense. Additionally, holders of 3,427,532 of these shares may require us
to file up to four additional registration statements on Form S-3 at our
expense. Holders of up to 600,000 of these shares have the right to demand on
one occasion that we register their shares for resale at our expense on any form
available for use by us. All of these registration rights are subject to certain
conditions and limitations, including the right of the underwriters of an
offering to limit the number of shares included in such registration and our
right to decline to effect such a registration before six months after the
closing of the initial public offering.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF ARTICLES OF INCORPORATION, BYLAWS
AND WASHINGTON LAW
As noted above, our board of directors, without shareholder approval, has
the authority under our articles of incorporation to issue preferred stock with
rights superior to the rights of the holders of common stock. As a result,
preferred stock could be issued quickly and easily, could adversely affect the
rights of holders of common stock and could be issued with terms calculated to
delay or prevent a change in control of GreatFood.com or make removal of
management more difficult.
ELECTION AND REMOVAL OF DIRECTORS. Following this offering, our board of
directors will be divided into three staggered classes, each of whose members
will serve a three year term. See "Management -- Board of Directors" on page 46.
Also following this offering, directors may be removed only for cause. Because
this system of electing and removing directors generally makes it more difficult
for shareholders to replace a majority of the board of directors, it may tend to
discourage a third party from making a tender offer or otherwise attempting to
gain control of GreatFood.com and may maintain the incumbency of the board of
directors.
APPROVAL OF CERTAIN BUSINESS COMBINATIONS. Upon completion of this
offering, our articles of incorporation will require that certain business
combinations (including a merger, share exchange and the sale, lease, exchange,
mortgage, pledge, transfer or other disposition or encumbrance of a substantial
part of our assets other than in the usual and regular course of business) be
approved by the holders of not less than two-thirds of the outstanding shares,
unless such business combination has been approved by a majority of the board of
directors, in which case the affirmative vote required shall be a majority of
the outstanding shares.
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<PAGE>
REQUIREMENTS FOR ADVANCE NOTIFICATION OF SHAREHOLDER NOMINATIONS AND
PROPOSALS. Upon completion of this offering, our bylaws will establish advance
notice procedures with respect to shareholder proposals and the nomination of
candidates for election as directors, other than nominations made by or at the
direction of the board of directors or a committee thereof.
AMENDMENT OF BYLAWS AND ARTICLES. Upon completion of this offering, our
articles of incorporation will provide that amendments to our bylaws which are
proposed by our shareholders and amendments to our articles of incorporation
must be approved by a two-thirds vote of all shares eligible to vote.
TRANSACTIONS WITH CERTAIN SIGNIFICANT SHAREHOLDERS. Washington law imposes
restrictions on certain transactions between a public corporation and certain
significant shareholders. Chapter 23B.19 of the Washington Business Corporation
Act prohibits a "target corporation," with certain exceptions, from engaging in
certain significant business transactions with an "acquiring person," which is
defined as a person or group of persons that beneficially owns 10% or more of
the voting securities of the target corporation, for a period of five years
after such acquisition, unless the transaction or acquisition of shares is
approved by a majority of the members of the target corporation's board of
directors prior to the time of acquisition. Such prohibited transactions
include, among other things:
- a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;
- termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the shares;
or
- allowing the acquiring person to receive any disproportionate benefit as a
shareholder.
After the five year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute or is
approved by the target corporation's shareholders. A public corporation may not
"opt out" of this statute. This provision may have the effect of delaying,
deterring or preventing a change in control of GreatFood.com.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Chase Mellon
Shareholder Services, 400 S. Hope St., 4th Floor, Los Angeles, CA 90071.
LISTING
We have applied to have the common stock listed for quotation on the Nasdaq
National Market under the symbol "GTFD."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot guarantee that a significant public market for the common stock
will develop or be sustained after this offering. Future sales of substantial
amounts of common stock in the public market, including shares issued upon
exercise of outstanding options and warrants, could adversely affect prevailing
market prices for the common stock or our future ability to raise capital
through the sale of our equity securities.
After this offering, we will have outstanding 6,527,532 shares of common
stock, assuming no exercise of outstanding warrants and options, which as of May
17, 1999 were vested for an aggregate of 322,547 shares of common stock and will
vest for up to an additional 1,207,841 shares of common stock in the future. Of
these shares, the 2,500,000 shares that we expect to sell in this offering will
be freely tradable in the public market without restriction under the Securities
Act, unless such shares are held by "affiliates" of GreatFood.com, as that term
is defined in Rule 144 under the Securities Act.
The remaining 4,027,532 shares of common stock that will be outstanding
after this offering will be restricted shares. We issued and sold the restricted
shares in private transactions in reliance on exemptions from registration under
the Securities Act. Restricted shares may be sold in the public market only if
they are registered or if they qualify for an exemption from registration under
Rule 144 or Rule 701 under the Securities Act, as summarized below.
All of our existing shareholders have agreed that to the extent we request,
that they will not sell or otherwise dispose of any of the 4,027,532 shares held
by them for a period of 180 days from the date of this prospectus. We also have
entered into an agreement with the underwriters that we will not offer, sell or
otherwise dispose of common stock for a period of 180 days from the date of this
prospectus.
On the date of the expiration of the 180 day period described above,
2,517,846 shares will be eligible under Rule 144 subject to volume restrictions
and 204,165 shares will be eligible under Rule 144(k). The remaining 1,305,521
restricted shares will be eligible for sale pursuant to Rule 144 on the
expiration of various one year holding periods over the six months following the
expiration of the lock up period.
Under Rule 144, a person who has beneficially owned restricted shares for at
least one year would be entitled to sell in any three month period up to the
greater of:
- one percent of the then outstanding shares of common stock (approximately
6,527,532 shares immediately after this offering); and
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about
GreatFood.com. Under Rule 144(k), a person who has not been an affiliate of
GreatFood.com during the preceding 90 days and who has beneficially owned the
restricted shares for at least two years is entitled to sell them without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register the 2,000,000 shares of common stock reserved
for issuance under our 1997 Stock Incentive Plan and the 1999 Employee Stock
Purchase Plan. The registration statement will become effective automatically
upon filing. Shares issued under the foregoing plans, after the filing of a
registration statement on Form S-8, may be sold in the open market, subject, in
the case of certain holders, to the Rule 144 limitations applicable to
affiliates, the above referenced lock up agreements and vesting restrictions
imposed by us.
In addition, following this offering, the holders of 4,027,532 shares of
outstanding common stock will, under certain circumstances, have rights to
require us to register their shares for future sale. See "Description of Capital
Stock -- Registration Rights on page 57."
59
<PAGE>
PLAN OF DISTRIBUTION
Subject to the terms and conditions of the underwriting agreement, W.R.
Hambrecht & Co., LLC and First Security Van Kasper, as underwriters, have agreed
to purchase from GreatFood.com the following respective shares of common stock
at the public offering price less the underwriting discounts and commissions set
forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
W.R. Hambrecht & Co., LLC........................................................
First Security Van Kasper........................................................
----------
Total........................................................................ 2,500,000
----------
----------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to conditions, including the absence of any material adverse change
in GreatFood.com's business, and the receipt of certificates, opinions and
letters from GreatFood.com and its counsel and independent auditors. Subject to
those conditions, the underwriters are committed to purchase all shares of
common stock offered if any of the shares are purchased.
The underwriters propose to offer the shares of common stock directly to the
public at the offering price set forth on the cover page of this prospectus, as
this price is determined by the process described below, and to certain dealers
at this price less a concession not in excess of $[ ] per share. Any
dealers or agents that participate in the distribution of the common stock may
be deemed to be underwriters within the meaning of the Securities Act, and any
discounts, commissions or concessions received by them and any provided by the
sale of the shares by them might be deemed to be underwriting discounts and
commissions under the Securities Act. After the completion of the initial public
offering of the shares, the public offering price and other selling terms may be
changed by the underwriters.
The public offering price set forth on the cover page of this prospectus
will be based on the results of an auction process, rather than solely through
negotiations between GreatFood.com and the underwriters. The plan of
distribution of the offered shares differs somewhat from traditional
underwritten public offerings of equity securities.
The auction process will proceed as follows:
- Prior to effectiveness of the registration statement relating to this
offering, the underwriters and participating dealers will solicit
indications of interest from prospective investors through the Internet as
well as by traditional means. The indications of interest will specify the
number of shares the potential investor proposes to purchase and the price
the investor is willing to pay for the shares. The public offering price
will ultimately be determined by negotiation between the underwriters and
GreatFood.com. The principal factor in establishing the public offering
price will be the price per share, or clearing price, that equals the
highest price set forth in valid indications of interest at which all of
the shares may be sold to potential investors. The public offering price
may be lower than the clearing price based on negotiations between the
underwriters and GreatFood.com. Valid indications of interest are those
that meet the requirements, including suitability, account status and
size, established by the underwriters or participating dealers.
- In determining the validity of indications of interest, in addition to
minimum account balances, a prospective investor submitting indications of
interest through a W.R. Hambrecht & Co., LLC brokerage account may be
required to maintain an account balance equal to or in excess of the
aggregate dollar amount of the prospective investor's indications of
interest. Although funds may be required to be in an account, the funds
will not be transferred to the underwriters until the
60
<PAGE>
closing of the offering. Conditions for valid indications of interest,
including suitability standards and account funding requirements, of other
underwriters or participating dealers may vary.
- The offered shares will be purchased from GreatFood.com by the
underwriters and offered through the underwriters and participating
dealers to investors who have submitted indications of interest at or in
excess of the public offering price. The number of shares offered to an
investor submitting an indication of interest precisely at the public
offering price may be subject to a pro rata reduction. Each participating
dealer has agreed with the underwriters to offer shares they purchase from
the underwriters in this manner, unless otherwise consented to by the
underwriters. Shares issued upon exercise of the underwriters'
over-allotment option will be allocated in the same manner. The
underwriters reserve the right, in exceptional circumstances, to alter
this method of allocation as they deem necessary to effect a fair and
orderly distribution of the offered shares. For example, large orders may
be reduced to insure a public distribution and indications of interest may
be rejected by the underwriters or participating dealers based on
suitability or creditworthiness criteria.
Price and volume volatility in the market for GreatFood.com's common stock
may result from the somewhat unique nature of the proposed plan of distribution.
Price and volume volatility in the market for GreatFood.com's common stock after
the completion of this offering may adversely affect the market price of
GreatFood.com's common stock.
GreatFood.com has 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 375,000 additional shares of common stock at the offering price,
less the underwriting discount, set forth on the cover page of this prospectus.
To the extent that the underwriters exercise this option, the underwriters will
have a firm commitment to purchase the additional shares, and GreatFood.com will
be obligated to sell the additional shares to the underwriters. The underwriter
may exercise the option only to cover over-allotments made in connection with
the sale of shares offered.
The underwriting agreement provides that GreatFood.com will indemnify the
underwriters against specified liabilities, including liabilities under the
Securities Act, or contribute to payments that the underwriters may be required
to make.
GreatFood.com has agreed not to offer, sell, contract to sell, or otherwise
dispose of any shares of common stock, or any options or warrants to purchase
common stock other than the shares of common stock or options to acquire common
stock issued under GreatFood.com's 1997 Stock Incentive Plan or upon the
exercise of outstanding warrants to purchase up to 666,888 shares of common
stock, for a period of 180 days after the date of this prospectus, except with
the prior written consent of W.R. Hambrecht & Co., LLC.
Prior to the offering, there has been no public market for GreatFood.com's
common stock. The initial public offering price for the common stock will be
determined by the process described above and does not necessarily bear any
direct relationship to GreatFood.com's assets, current earnings or book value or
to any other established criteria of value, although these factors were
considered in establishing the initial public offering price range. Other
factors considered in determining the initial public offering price range
include:
- market conditions;
- the industry in which GreatFood.com operates;
- an assessment of GreatFood.com's management;
- GreatFood.com's operating results;
- GreatFood.com's capital structure;
61
<PAGE>
- the business potential of GreatFood.com;
- the demand for similar securities of comparable companies; and
- other factors deemed relevant.
Persons participating in this offering may engage in transactions that
stabilize, maintain or otherwise affect the price of GreatFood.com's common
stock, including over-allotment, stabilizing and short-covering transactions in
GreatFood.com's common stock, and the imposition of a penalty bid, in connection
with the offering.
W.R. Hambrecht & Co., LLC is an investment banking firm formed as a limited
liability company in February 1998. In addition to this offering, W.R. Hambrecht
& Co., LLC has engaged in the business of public and private equity investing
and financial advisory services since its inception. The manager of W.R.
Hambrecht & Co., LLC, William R. Hambrecht, has 40 years of experience in the
securities industry. Persons affiliated and associated with W.R. Hambrecht &
Co., LLC beneficially own an aggregate of 116,666 shares of GreatFood.com's
common stock issuable upon the conversion of preferred stock.
62
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for GreatFood.com by Heller Ehrman White & McAuliffe. Certain legal matters
in connection with the offering will be passed upon for the underwriters by
Morrison and Foerster LLP. Upon the closing of the offering, Heller Ehrman will
own 4,285 shares of GreatFood.com's common stock.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as expects in auditing and accounting.
WHERE TO FIND ADDITIONAL INFORMATION ABOUT GREATFOOD.COM
We have filed with the SEC a registration statement on Form S-1. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information included in the registration statement. Certain
information is omitted and you should refer to the registration statement and
its exhibits. You may review a copy of the registration statement, including
exhibits, at the SEC's public reference rooms at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 or Seven World Trade Center, 13th Floor,
New York, New York 10048 or Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms. Our SEC filings are also available
to the public from the SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Exchange Act, and will file periodic
reports, proxy statements and other information with the SEC. Such 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, which is
described above.
63
<PAGE>
GREATFOOD.COM, INC.
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<S> <C>
Report of Independent Accountants..................................................... F-2
Balance Sheet as of December 31, 1997 and 1998 and March 31, 1999 (unaudited)......... F-3
Statement of Operations for the Years Ended December 31, 1996, 1997 and 1998 and for
the Three Months Ended March 31, 1998 and 1999 (unaudited).......................... F-4
Statement of Changes in Shareholders' Equity for the Years Ended December 31, 1996,
1997, 1998 and for the Three Months Ended March 31, 1999 (unaudited)................ F-5
Statement of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 and for
the Three Months Ended March 31, 1998 and 1999 (unaudited).......................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
GreatFood.com, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in shareholders' equity and of cash flows present fairly,
in all material respects, the financial position of GreatFood.com, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Seattle, Washington
May 17, 1999
F-2
<PAGE>
GREATFOOD.COM, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
EQUITY AT
DECEMBER 31, MARCH 31, MARCH 31,
---------------------- 1999 1999
1997 1998 (UNAUDITED) (UNAUDITED)
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................. $ 124,092 $ 678,096 $ 1,932,277
Accounts receivable, net of allowance for doubtful accounts
of $0, $2,000 and $3,500 (unaudited) in 1997, 1998 and
1999, respectively....................................... 1,931 500,084 42,951
Prepaid expenses........................................... 140,270 94,548
--------- ----------- -----------
126,023 1,318,450 2,069,776
Property and equipment, net.................................. 34,626 99,594 148,055
Other assets................................................. 10,363 40,339
--------- ----------- -----------
Total assets............................................. $ 160,649 $ 1,428,407 $ 2,258,170
--------- ----------- -----------
--------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................... $ 73,768 $ 625,982 $ 161,922
Accrued payroll and related benefits....................... 38,934 40,523
Current portion of shareholder loans payable............... 1,489
Current portion of capital lease obligation................ 20,391 21,415
--------- ----------- -----------
75,257 685,307 223,860
--------- ----------- -----------
Noncurrent portion of shareholder loans payable.............. 11,791
---------
Noncurrent portion of capital lease obligation............... 27,012 29,958
----------- -----------
Commitments and contingencies (Note 5)
Shareholders' equity
Series A convertible preferred stock, no par value;
1,142,857 shares authorized in 1998 and 1999 (unaudited);
1,142,847 shares issued and outstanding in 1998 and 1999
(unaudited); no shares issued and outstanding, pro forma
(unaudited); liquidation value of $1.75 per share........ 1,964,066 1,964,066
Series B convertible preferred stock, no par value;
1,000,000 (unaudited) shares authorized in 1999; 705,521
(unaudited) shares issued and outstanding in 1999; no
shares issued and outstanding, pro forma (unaudited);
liquidation value of $3.00 per share..................... 2,104,830
Common stock, no par value; 5,000,000, 20,000,000 and
20,000,000 (unaudited), respectively, shares authorized;
1,545,831, 1,579,164 and 1,579,164 (unaudited) shares
issued and outstanding, respectively; 60,000,000
(unaudited) shares authorized, 3,427,532 (unaudited)
shares issued and outstanding, pro forma................. 197,043 257,824 281,396 $4,350,292
Deferred compensation........................................ (11,608) (25,276) (25,276)
Accumulated deficit.......................................... (123,442) (1,494,194) (2,320,664) (2,320,664)
--------- ----------- ----------- ------------
73,601 716,088 2,004,352 $2,004,352
--------- ----------- ----------- ------------
Total liabilities and shareholders' equity............... $ 160,649 $ 1,428,407 $ 2,258,170
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
GREATFOOD.COM, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.......................... $ 17,530 $ 119,633 $ 747,860 $ 28,036 $ 168,525
Cost of goods sold.................... 13,484 91,550 605,140 21,729 147,458
--------- --------- ---------- --------- ---------
Gross profit.......................... 4,046 28,083 142,720 6,307 21,067
Operating expenses
Sales and marketing................. 11,028 36,264 1,102,062 22,886 564,921
Product and site development........ 706 8,801 84,000 783 44,782
General and administrative.......... 52,815 65,707 357,709 20,610 242,739
--------- --------- ---------- --------- ---------
Total operating expenses............ 64,549 110,772 1,543,771 44,279 852,442
--------- --------- ---------- --------- ---------
Loss from operations.................. (60,503) (82,689) (1,401,051) (37,972) (831,375)
Other income (expense)
Other income........................ 24,500 3,200 793
Interest income..................... 63 164 33,298 187 6,952
Interest expense.................... (3,893) (2,612) (3,792) (459) (2,047)
--------- --------- ---------- --------- ---------
Net loss.............................. $ (39,833) $ (81,937) $(1,370,752) $ (38,244) $(826,470)
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Basic and diluted net loss per
share............................... $ (0.04) $ (0.06) $ (0.87) $ (0.02) $ (0.52)
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Weighted average shares outstanding... 1,007,432 1,273,915 1,579,164 1,579,164 1,579,164
--------- --------- ---------- --------- ---------
--------- --------- ---------- --------- ---------
Pro forma basic and diluted net loss
per share (unaudited)............... $ (0.66) $ (0.29)
---------- ---------
---------- ---------
Pro forma weighted average shares
outstanding (unaudited)............. 2,089,531 2,823,968
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
GREATFOOD.COM, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
------------------------------------------
SERIES A SERIES B COMMON STOCK
-------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995............................. -- $ -- -- $ -- 1,000,000 $ 30,090
Net loss..................................................
Capital contribution from founder......................... 18,500
Proceeds from issuance of stock, net...................... 87,500 17,500
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1996............................. -- -- -- -- 1,087,500 66,090
Net loss..................................................
Proceeds from issuance of stock, net...................... 458,331 125,000
Issuance of stock options to non-employees................ 2,320
Issuance of warrants...................................... 3,633
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1997............................. -- -- -- -- 1,545,831 197,043
Net loss..................................................
Proceeds from issuance of stock, net...................... 1,142,847 1,964,066 33,333 10,000
Issuance of stock options to employees.................... 15,625
Issuance of warrants...................................... 35,156
Amortization of deferred compensation.....................
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1998............................. 1,142,847 1,964,066 -- -- 1,579,164 257,824
Net loss (unaudited)......................................
Proceeds from issuance of stock, net (unaudited).......... 705,521 2,104,830
Issuance of stock options to employees (unaudited)........ 19,672
Issuance of warrants (unaudited).......................... 3,900
Amortization of deferred compensation (unaudited).........
--------- --------- --------- --------- --------- ---------
Balances at March 31, 1999 (unaudited).................... 1,142,847 $1,964,066 705,521 $2,104,830 1,579,164 $ 281,396
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<CAPTION>
DEFERRED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------- ------------ ----------
<S> <C> <C> <C>
Balances at December 31, 1995............................. $ -- $ (1,672) $ 28,418
Net loss.................................................. (39,833) (39,833)
Capital contribution from founder......................... 18,500
Proceeds from issuance of stock, net...................... 17,500
------------- ------------ ----------
Balances at December 31, 1996............................. -- (41,505) 24,585
Net loss.................................................. (81,937) (81,937)
Proceeds from issuance of stock, net...................... 125,000
Issuance of stock options to non-employees................ 2,320
Issuance of warrants...................................... 3,633
------------- ------------ ----------
Balances at December 31, 1997............................. -- (123,442) 73,601
Net loss.................................................. (1,370,752) (1,370,752)
Proceeds from issuance of stock, net...................... 1,974,066
Issuance of stock options to employees.................... (15,625) --
Issuance of warrants...................................... 35,156
Amortization of deferred compensation..................... 4,017 4,017
------------- ------------ ----------
Balances at December 31, 1998............................. (11,608) (1,494,194) 716,088
Net loss (unaudited)...................................... (826,470) (826,470)
Proceeds from issuance of stock, net (unaudited).......... 2,104,830
Issuance of stock options to employees (unaudited)........ (19,672) --
Issuance of warrants (unaudited).......................... 3,900
Amortization of deferred compensation (unaudited)......... 6,004 6,004
------------- ------------ ----------
Balances at March 31, 1999 (unaudited).................... $ (25,276) $(2,320,664) $2,004,352
------------- ------------ ----------
------------- ------------ ----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
GREATFOOD.COM, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ---------- ------------- ---------- -------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss...................................... $ (39,833) $ (81,937) $ (1,370,752) $ (38,244) $ (826,470)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization............... 14,004 14,577 24,827 4,236 11,409
Amortization of deferred compensation....... 4,017 6,004
Expense related to the issuance of stock
options and warrants...................... 5,953 7,737 722 3,900
Changes in:
Accounts receivable....................... (1,931) (498,153) 1,931 457,133
Prepaid expenses.......................... (140,270) 45,722
Other assets.............................. (5,802) (29,976)
Accounts payable.......................... 10,549 58,329 552,214 (67,350) (464,060)
Accrued payroll and related
benefits................................ 38,934 2,804 1,589
---------- ---------- ------------- ---------- -------------
Net cash used in operating
activities.............................. (15,280) (5,009) (1,387,248) (95,901) (794,749)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment........... (25,923) (8,510) (34,022) (6,762) (50,917)
---------- ---------- ------------- ---------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital contributions from
founder and issuance of common and preferred
stock, net of costs......................... 36,000 125,000 1,996,924 17,498 2,104,830
Proceeds from issuance of shareholder loan
payable..................................... 15,000 60,000 100,000
Payments of shareholder loan payable.......... (330) (1,390) (73,280) (28) (100,000)
Payment of capital lease obligation........... (8,370) (4,983)
---------- ---------- ------------- ---------- -------------
Net cash provided by financing
activities.............................. 50,670 123,610 1,975,274 17,470 2,099,847
---------- ---------- ------------- ---------- -------------
Net increase (decrease) in cash and cash
equivalents................................... 9,467 110,091 554,004 (85,193) 1,254,181
Cash and cash equivalents, beginning of
period........................................ 4,534 14,001 124,092 124,092 678,096
---------- ---------- ------------- ---------- -------------
Cash and cash equivalents, end of period........ $ 14,001 $ 124,092 $ 678,096 $ 38,899 $ 1,932,277
---------- ---------- ------------- ---------- -------------
---------- ---------- ------------- ---------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.......................... $ 3,893 $ 2,612 $ 3,792 $ 459 $ 2,047
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchased under capital
leases........................................ $ 55,773 $ 8,953
Issuance of stock warrants...................... $ 27,419
Issuance of stock options....................... $ 15,625 $ 19,672
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE BUSINESS
GreatFood.com (the Company) is an electronic commerce company focused on the
sale of gourmet and specialty food over the Internet to the retail, corporate
gift and wholesale markets. The Company offers a broad selection of high quality
branded specialty food products to a wide range of customers for special
occasions, parties and gifts. The Company's Web site combines a unique blend of
merchandise and related content.
The Company was incorporated as StratMan Associates, Inc. on August 31, 1995
under the laws of the state of Washington. The Company's name was legally
changed to Online Specialty Retailing, Inc. on September 25, 1997, and the name
was again legally changed to GreatFood.com, Inc. on May 14, 1999.
CASH AND CASH EQUIVALENTS
The Company considers all short term highly liquid investments purchased
within three months of their original maturity date to be cash equivalents.
CONCENTRATION OF CREDIT RISK AND MAJOR SUPPLIERS
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable and cash and
cash equivalents. The majority of the Company's sales are charged to customer
credit cards. The Company mitigates its credit risk by receiving
preauthorizations on all credit card charges. The Company's customers primarily
consist of small retail and wholesale customers, none of which accounted for
more than 10% of accounts receivable or net revenues as of and for the years
ended December 31, 1996, 1997 and 1998 and the three months ended March 31, 1999
(unaudited). The Company maintains an allowance for doubtful accounts based upon
its historical experience and the expected collectibility of all accounts
receivable. Credit losses to date have been within the Company's estimates.
The Company maintains its cash accounts with a financial institution where
certain deposits up to $100,000 are insured by the Federal Deposit Insurance
Corporation. The Company's deposits in overnight repurchase accounts are not
insured.
The Company purchases its products from specialty food suppliers. In 1996,
1997 and 1998, four suppliers provided 66%, 56%, and 34%, respectively, of the
Company's product purchases. In 1998, a fifth supplier provided 12% of the
Company's product purchases. For the three months ended March 31, 1998 and March
31, 1999, these five suppliers provided 54% and 27% (unaudited), respectively,
of the Company's product purchases.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued payroll and related benefits and
capital lease obligations. Except for capital lease obligations, the carrying
amounts of financial instruments approximate fair value due to their short
maturities. The fair value of capital lease obligations at December 31, 1998 and
March 31, 1999
F-7
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(unaudited) is not materially different from the carrying amount, based on
interest rates available to the Company for similar types of arrangements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost. Depreciation and
amortization is computed using the straight line method over the estimated
useful lives of the assets or the term of the lease, whichever is shorter. The
useful lives of the property and equipment range from three to seven years.
Maintenance and repairs, which neither materially add to the value of the
property nor prolong its life, are charged to expense as incurred. Gains or
losses on dispositions of property and equipment are included in income.
IMPAIRMENT OF LONG LIVED ASSETS
The Company periodically evaluates the carrying value of long lived assets
to be held and used, including but not limited to, property and equipment and
other assets, when events and circumstances warrant such a review. The carrying
value of a long lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable and is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair value of the long lived asset. Fair
value is determined primarily using the anticipated cash flows discounted at a
rate commensurate with the risk involved. Losses on long lived assets to be
disposed of are determined in a similar manner, except that fair values are
reduced for the cost to dispose. No losses from impairment have been recognized
in the financial statements.
PRO FORMA SHAREHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of this offering, the outstanding shares of
Series A and Series B convertible preferred stock will automatically convert
into 1,142,847 and 705,521 shares, respectively, of common stock. Also effective
prior to the closing of this offering, 60,000,000 shares of common stock and
20,000,000 shares of convertible preferred stock will be authorized. The pro
forma effects of these transactions are unaudited and have been reflected in the
accompanying pro forma shareholders' equity at March 31, 1999.
REVENUE RECOGNITION
The Company recognizes revenue from product sales, shipping and handling,
net of any returns and discounts, when the products are shipped to customers.
The Company provides an allowance for sales returns, which to date have not been
significant, based on historical experience.
PRODUCT AND SITE DEVELOPMENT
Product and site development expenses consist principally of payroll and
related expenses for Web site development and systems personnel and systems
programming costs. To date, all product and site development costs have been
expensed as incurred.
F-8
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
ADVERTISING COSTS
The Company utilizes print and online advertising, direct mail, trade shows
and online promotions to expand brand and product awareness. Costs incurred for
presence on third party Web sites are recognized ratably over the term of the
arrangements. Costs incurred for Internet page impressions are recognized over
the ratio of the number of impressions delivered over the total number of
contracted impressions. All other advertising costs are expensed as incurred.
Advertising costs for 1996, 1997 and 1998 were $11,028, $26,864 and $1,044,591,
respectively, and for the three months ended March 31, 1998 and March 31, 1999
were $11,642 and $537,762 (unaudited), respectively. At December 31, 1998 and
March 31, 1999, the Company has recorded in prepaid expenses $138,602 and
$85,323 (unaudited), respectively, of prepayments under online advertising
contracts.
INCOME TAXES
The Company provides for income taxes using the liability method. This
method requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. If it is more likely than
not that some portion of a deferred tax asset will not be realized, a valuation
allowance is recorded.
NET LOSS PER SHARE
Basic net loss per share represents net loss available to common
shareholders divided by the weighted average number of shares outstanding during
the period. Diluted net loss per share represents net loss available to common
shareholders divided by the weighted average number of shares outstanding
including the potentially dilutive impact of common stock options and warrants
and convertible preferred stock. Common stock options and warrants are converted
using the treasury stock method. Convertible preferred stock is converted using
the if converted method. Basic and diluted net loss per share are equal for the
periods presented because the impact of common stock equivalents is
anti-dilutive. Potentially dilutive securities totaling 126,000 and 2,145,491
shares for 1997 and 1998, respectively, and 126,000 and 2,871,012 (unaudited)
for the three months ended March 31, 1998 and March 31, 1999, respectively, were
excluded from diluted net loss per share due to their anti-dilutive effect.
There were no potentially dilutive securities during 1996.
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 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 date the shares were
originally issued.
F-9
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The following table sets forth the computation of the denominator in the
basic and pro forma net loss per share calculation for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average shares outstanding.............. 1,007,432 1,273,915 1,579,164 1,579,164 1,579,164
Weighted average effect of pro forma securities:
Series A converible preferred stock
(unaudited).................................. 510,367 1,142,847
Series B convertible preferred stock
(unaudited).................................. 101,957
---------- ----------
Pro forma weighted average shares outstanding
(unaudited).................................... 2,089,531 2,823,968
---------- ----------
---------- ----------
</TABLE>
STOCK OPTIONS
The Company's stock option plan is subject to the provisions of the
Financial Accounting Standards Board (FASB) Statement No. 123, "Accounting for
Stock Based Compensation" (SFAS 123). Under the provisions of this statement,
employee stock based compensation expense is measured using either the intrinsic
value method as prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), or the fair value method.
The Company has elected to account for its employee stock based compensation
under the provisions of APB 25 and to disclose the pro forma impact of the fair
value method on net loss and net loss per share. The Company accounts for stock
based awards issued to non-employees in accordance with the fair value method of
SFAS 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity
Instruments with Variable Terms that are Issued for Consideration other than
Employee Services under FASB Statement No. 123."
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement will
be effective in 1999 and establishes accounting standards for costs incurred in
the acquisition or development and implementation of computer software. These
new
F-10
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
standards will require the capitalization of certain software implementation
costs relating to software acquired or developed and implemented for the
Company's use. This statement is not expected to have a significant effect on
the Company's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start
Up Activities." This statement will be effective in 1999 and will require costs
of start up activities and organization costs to be expensed as incurred. This
statement is not expected to have a significant effect on the Company's
financial position or results of operations.
The FASB recently issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 supersedes SFAS 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management approach." The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas and major customers. The Company adopted SFAS 131
on January 1, 1998. The Company has determined that it does not have any
separately reportable business or geographic segments.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of March 31, 1999 and for the three months
ended March 31, 1999 and March 31, 1998 is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of normal
recurring adjustments necessary to present fairly the Company's financial
position as of March 31, 1999 and the results of its operations and cash flows
for the three months ended March 31, 1999 and 1998.
2. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment........................................................... $ 40,108 $ 88,149 $ 99,680
Furniture and office equipment............................................... 1,461 42,445 80,656
Software..................................................................... 22,337 23,107 33,235
---------- ---------- -----------
63,906 153,701 213,571
LESS: Accumulated depreciation and amortization.............................. (29,280) (54,107) (65,516)
---------- ---------- -----------
$ 34,626 $ 99,594 $ 148,055
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
Computer and office equipment held under capital leases are included in
property and equipment. The cost of the leased equipment is $55,773 and $64,726
(unaudited) at December 31, 1998 and March 31, 1999, respectively. Accumulated
amortization for these items was $6,247 and $10,427 (unaudited) at December 31,
1998 and March 31, 1999, respectively.
F-11
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
3. SHAREHOLDER LOANS PAYABLE
During 1996, a shareholder entered into a $15,000 loan on behalf of the
Company for the purchase of property and equipment. The loan was payable in
monthly installments over four years, with interest at 13.9% per annum. During
1998, the Company repaid its entire obligation under this loan to the
shareholder.
During 1998, two shareholders each loaned the Company $30,000 for working
capital needs prior to obtaining the Series A preferred stock financing. These
loans bore interest at 10% per annum. Upon receipt of the proceeds from the
Series A financing, the two shareholder notes were repaid.
4. SHAREHOLDERS' EQUITY
SERIES A CONVERTIBLE PREFERRED STOCK
In July 1998, the Company issued 1,142,847 shares of Series A convertible
preferred stock for $1.75 per share. These shares have voting rights,
registration rights and liquidation preferences, and are convertible, on a one
for one basis, into common stock at any time at the option of the holder. These
shares automatically convert to common stock upon an initial public offering.
The holders of the Series A preferred shares, voting separately as a class, are
entitled to elect one member of the Company's Board of Directors.
STOCK WARRANTS
During March 1997, the Company issued warrants to purchase 36,000 shares of
common stock with an exercise price of $0.20 per share. These warrants were
issued to the company from which the Company subleases space in consideration
for the shared use of certain technology facilities. The warrants vest ratably
over 36 months; vesting ceases upon termination of shared use of the technology
facilities. Vested warrants are exercisable through the earlier of (i) March 15,
2002, (ii) the effective date of an initial public offering of the Company's
common stock with cash proceeds of at least $10 million (an IPO), (iii) three
months following the termination of shared use of the technology facilities or
(vi) the effective date of a merger of the Company or the sale of substantially
all of the Company's assets (a Change of Control). The value of these warrants
is estimated using the Black Scholes pricing model and is being recorded as
general and administrative expense over the vesting period using the accelerated
amortization method prescribed by FASB Interpretation No. 28, "Accounting for
Stock Appreciation Rights and Other Variable Stock Option or Award Plans" (FIN
28). The Company recognized expense of $3,633 and $7,737 in 1997 and 1998,
respectively. Vesting terminated May 14, 1999 upon termination of shared use of
technology facilities.
In conjunction with the Series A preferred stock offering in July 1998, the
Company issued 14,286 warrants to purchase common stock with an exercise price
of $1.75 per share. The warrants expire after the earlier of ten years, an IPO
or a Change of Control. These warrants were recorded at their Black Scholes fair
value of $22,858, which was recorded as a stock issue cost.
In August 1998, the Company issued warrants to purchase 2,858 shares of
common stock with an exercise price of $1.75 per share. The warrants expire
after the earlier of ten years, an IPO or a Change of Control. These warrants
were issued in conjunction with obtaining a capital lease line. The warrants
were recorded at their Black Scholes fair value of $4,561, which was recorded as
a debt issue cost and is being amortized over the term of the capital lease
line.
F-12
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
4. SHAREHOLDERS' EQUITY (CONTINUED)
In October 1998, the Company issued warrants to purchase 300,000 shares of
common stock with an exercise price of $3.00 per share. These warrants were
issued in conjunction with entering into a marketing agreement. The Company may
cancel the marketing agreement and these warrants if certain sales targets are
not achieved by December 31, 1999. The warrants become exercisable on February
1, 2000, if not previously canceled, and remain exercisable through the earlier
of (i) December 31, 2001, (ii) 30 days following notice of completion of a stock
sale of at least $500,000 on or after December 31, 2000 or (iii) the date, if
any, the marketing agreement is terminated. The Company will record the value of
the warrants when it determines that it is probable that the sales targets will
be achieved. No value for the warrants was recorded during 1998.
STOCK OPTION PLAN
In September 1997, the Company adopted the 1997 Stock Incentive Plan (the
Plan) which provides for the granting of incentive stock options to key
employees and non qualified stock options to employees, consultants, and
nonemployee directors of the Company. The Plan also contains provisions for
stock bonuses, cash bonus rights, performance units and other stock based
incentives. A maximum of 1,000,000 shares of common stock may be issued under
the Plan. In May 1999, the maximum number of common shares reserved for issuance
under the Plan was increased to 1,600,000 shares.
The option price, number of shares, grant date and vesting schedule are
determined at the discretion of the Company's board of directors. While some
options vest immediately upon grant, options generally vest over one to five
years and are exercisable for a period not to exceed ten years from the grant
date.
In 1997, compensation expense of $2,320 was recognized under the Plan for
certain options granted to third parties. The fair value of each option grant
was estimated on the date of grant using the Black Scholes option pricing model.
The Company did not grant any options to third parties in 1996 and 1998.
In 1998, compensation expense of $4,017 was recognized under the Plan for
certain options that were granted to employees with exercise prices below the
fair value of the common stock. The compensation expense represents the
differential between the exercise price and the fair value, as determined by the
board of directors. Compensation related to these options is recognized as
expense using the accelerated method of FIN 28. There was no compensation
expense relating to option grants with exercise prices below fair market value
in 1996 or 1997.
F-13
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
4. SHAREHOLDERS' EQUITY (CONTINUED)
Had the Company determined compensation expense based on the fair value of
the option at the grant date for its stock options issued to employees, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
<S> <C> <C>
1997 1998
---------- -------------
Net loss
As reported....................................................................... $ (81,937) $ (1,370,752)
Pro forma......................................................................... $ (82,903) $ (1,410,497)
Basic and diluted net loss per share
As reported....................................................................... $ (0.06) $ (0.87)
Pro forma......................................................................... $ (0.07) $ (0.89)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value option pricing model. The following weighted average
assumptions were used for employee stock option grants in 1997 and 1998,
respectively: risk free interest rate at grant date of 5.99% and 5.48%, expected
lives of 4.1 and 4.6 years and 0% volatility and no dividends in both years.
The full impact of calculating compensation expense for stock options based
on fair value at the grant date is not reflected in the pro forma net loss
amounts because compensation expense is reflected over the options' vesting
period. In addition, because the determination of the fair value of all options
granted after such time as the Company becomes a public entity will include an
expected volatility factor in addition to the factors described in the
preceeding paragraph, the above results may not be representative of future
periods.
The following summarizes the activity under the Plan:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF WEIGHTED- AVERAGE
SHARES UNDER AVERAGE FAIR VALUE
OPTION EXERCISE OF OPTIONS
AGREEMENTS PRICE GRANTED
------------ ----------- -----------
<S> <C> <C> <C>
Options granted during 1997.................................................. 90,000 $ 0.30 $ 0.08
------------
Balance at December 31, 1997................................................. 90,000 $ 0.30
Options granted.............................................................. 559,500 $ 1.17 $ 0.29
------------
Balance at December 31, 1998................................................. 649,500 $ 1.05
------------
------------
Options exercisable at:
December 31, 1997.......................................................... 10,000 $ 0.30
December 31, 1998.......................................................... 180,139 $ 0.62
</TABLE>
At December 31, 1998, 350,500 shares remained reserved and available for
grant under the Plan.
F-14
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
4. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
under the Plan at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ----------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.30 315,000 7.7 $ 0.30 140,139 $ 0.30
$ 1.75 334,500 9.1 $ 1.75 40,000 $ 1.75
----------- -----------
649,500 8.4 $ 1.05 180,139 $ 0.62
----------- -----------
----------- -----------
</TABLE>
5. COMMITMENTS
CAPITAL LEASES
The Company leases various equipment under capital lease agreements which
expire at various dates between February 2001 and June 2001. Future minimum
lease payments under capital leases at December 31, 1998 are as follows:
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31,
1999.......................................................... $ 24,415
2000.......................................................... 24,788
2001.......................................................... 5,810
---------
Total minimum lease payments...................................... 55,013
LESS: Portion representing interest............................... (7,610)
---------
Present value of capital lease obligation......................... 47,403
LESS: Current portion............................................. (20,391)
---------
Noncurrent portion of capital lease obligation.................... $ 27,012
---------
---------
</TABLE>
At December 31, 1998, the Company had a $50,000 capital lease line, $2,597
of which remained unused. In March 1999, the total amount available under this
capital lease line was increased to $100,000.
OPERATING LEASES
As of December 31, 1998 the Company sublet its office facilities on a month
to month basis from a company whose chief executive officer is a shareholder and
director of the Company. This sublease was terminated in April 1999. In March
1999, the Company entered into an operating lease of office space from a
shareholder. The three year lease term expires February 2002 with a termination
option available in September 2000 and is subject to one three year renewal
option at the then fair market rent. Monthly rental payments under this lease
are $4,313.
F-15
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
5. COMMITMENTS (CONTINUED)
Operating lease expense was $0, $1,413 and $5,631 in 1996, 1997 and 1998,
respectively, and $499 and $6,668 (unaudited) for the three months ended March
31, 1998 and March 31, 1999, respectively.
ADVERTISING AND AFFILIATE AGREEMENTS
The Company has entered into several long term agreements to display its
logo and other messages on third party Web sites. Under these agreements, the
Company pays a fixed monthly or quarterly fee. One agreement also requires the
Company to pay commissions on sales generated through the agreement. During
1998, the Company paid $745,360 under these and other short term agreements,
including $1,215 in commissions. At December 31, 1998, future minimum payments
under these agreements are approximately $1,418,000 all payable in 1999. During
1999, the Company entered into additional advertising agreements.
In May 1999, the Company entered into an affiliate agreement with a
community oriented Web site. The affiliate program encourages users to create
links to the Company's Web site. Under this agreement, the Company pays a fixed
monthly fee of $25,000 through May 2000, as well as referral fees.
OTHER COMMITMENTS
In March 1999, the Company entered into an arrangement to purchase Web site
hosting services and license order processing software from a third party for a
monthly fee. For monthly sales up to $2,500,000, the monthly base fee is
$12,500, with an incremental transaction fee of 2% per sales dollar. For monthly
sales in excess of $2,500,000, the monthly base fee is $62,500, with an
incremental transaction fee of 1% per sales dollar in excess of $2,500,000. This
agreement has an initial term of two years and will be automatically renewed if
not previously cancelled.
6. INCOME TAXES
Effective January 1, 1998, the Company became a C corporation for income tax
reporting purposes. Previously, it was organized as an S Corporation, and as
such, the tax effects were passed directly to the shareholders. A current
provision for income taxes has not been recorded for the year ended December 31,
1998 due to taxable losses incurred during the year. A valuation allowance has
been recorded for deferred tax assets because realization is primarily dependent
on generating sufficient taxable income prior to expiration of net operating
loss carry forwards.
At December 31, 1998, the Company has net operating loss carry forwards of
approximately $1,347,000 which will expire in the year 2018, if not previously
utilized. Should certain changes in the Company's ownership occur, there could
be a limitation on the utilization of these net operating losses.
F-16
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
6. INCOME TAXES (CONTINUED)
Temporary differences that give rise to the Company's deferred tax assets
and liabilities comprise the following at December 31, 1998:
<TABLE>
<S> <C>
Deferred income tax assets:
Net operating loss carry forwards.............................. $ 458,000
Stock options and warrants..................................... 4,000
Allowance for doubtful accounts................................ 1,000
Accrued liabilities............................................ 3,000
---------
466,000
---------
Deferred income tax liabilities:
Depreciation and amortization.................................. (1,000)
---------
465,000
Valuation allowance.............................................. (465,000)
---------
$ --
---------
---------
</TABLE>
For 1998, the first year in which the Company was a C corporation, a
reconciliation of taxes on loss at the federal statutory rate is as follows:
<TABLE>
<S> <C>
Tax at statutory rate............................................ $(466,056)
Nondeductible items.............................................. 1,056
Change in valuation allowance.................................... 465,000
---------
$ --
---------
---------
</TABLE>
7. SUBSEQUENT EVENTS
On March 18, 1999, the Company sold 705,521 shares of Series B convertible
preferred stock for $3.00 per share, or approximately $2.1 million. These shares
have rights and preferences similar to the Series A preferred shares, including
automatic conversion into common stock upon an initial public offering. On May
17, 1999, the Company sold 600,000 shares of Series C mandatorily redeemable
convertible preferred stock for $5.00 per share, or $3,000,000. The Company also
has the option to sell an additional 300,000 shares of Series C preferred stock
at $5.00 per share prior to May 17, 2000. In connection with the sale of the
Series C shares, the Company issued warrants to purchase up to a total of
323,077 shares of Series C preferred stock at $.01 per share (up to 484,615
shares if the Company exercises its option to sell the additional 300,000
shares). These warrants will be exercisable in the event that the Company does
not complete a public offering of at least $10,000,000 of common stock at a
price of at least $10.00 per share by January 31, 2000. The Series C preferred
shares automatically convert into common stock on a one for one basis upon a
qualified initial public offering.
In April 1999, the Company issued warrants to purchase 1,667 shares of
common stock with an exercise price of $3.00 per share in conjunction with
increasing its capital lease line. The terms of these warrants are similar to
those issued in August 1998.
F-17
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
7. SUBSEQUENT EVENTS (CONTINUED)
In May 1999, the Company's Board of Directors adopted an employee stock
purchase plan which permits employees to purchase common stock at a discount
from fair market value. A total of 400,000 shares of common stock have been
reserved for issuance under this plan.
In May 1999, the Company's Board of Directors authorized the Company to file
a Registration Statement with the Securities and Exchange Commission to permit
the Company to proceed with an initial public offering of its common stock.
F-18
<PAGE>
[LOGO]
Until , 1999, which is 25 days after the date of this prospectus, all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement 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 to be paid by GreatFood.com, in
connection with this offering. All amounts shown are estimates except for the
registration fee and the NASDAQ listing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee.............................................................. $ 10,790
NASD filing fee................................................................... 5,000
NASDAQ National Market listing fee................................................ 66,875
Blue Sky fees and expenses........................................................ 10,000
Printing and engraving expenses................................................... 110,000
Legal fees and expenses........................................................... 225,000
Accounting fees and expenses...................................................... 190,000
Director and Officer Securities Act liability insurance........................... 100,000
Transfer Agent and Registrar fees................................................. 10,000
Miscellaneous expenses............................................................ 12,335
----------
Total......................................................................... $ 740,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Sections 23B.08.500 through 23.B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). The directors and officers of the registrant also may be
indemnified against liability they may incur for serving in that capacity
pursuant to a liability insurance policy maintained by the registrant for such
purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary damages
for acts or omission as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or any transaction from which
the director personally receives a benefit in money, property or services to
which the director is not legally entitled. Section of the registrant's
Amended and Restated Articles of Incorporation contains provisions implementing,
to the fullest extent permitted by Washington law, such limitations on a
director's liability to the registrant and its shareholders.
The registrant has entered into certain indemnification agreements with its
directors and certain of its officers, the form of which is attached as Exhibit
10.1 to this Registration Statement and incorporated hereby by reference. The
indemnification agreements provide the registrant's directors and certain of its
officers with indemnification to the maximum extent permitted by the WBCA.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriter of the registrant and its executive officers and directors
and by the registrant of the Underwriter, for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in this
Registration Statement.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in August 1995, the registrant has issued and sold
unregistered securities as follows:
(1) On September 12, 1995, the registrant issued 1,000,000 shares of common
stock to our founder. The aggregate consideration received for such shares was
$48,590.
(2) Between December 1996 and March 1997, the registrant issued an aggregate
of 212,500 shares of common stock in a private placement to three accredited
investors. The aggregate consideration received for such shares was $42,500.
(3) On March 15, 1997, the registrant issued a warrant for the purchase of
36,000 shares of common stock with an exercise price of $0.20 per share to The
Cobalt Group, Inc. in consideration of The Cobalt Group hosting the registrant's
servers and providing the registrant with high speed Internet access.
(4) Between September 1997 and January 1998, the registrant issued an
aggregate of 366,664 shares of common stock in a private placement to eight
accredited investors. The aggregate consideration received for such shares was
$109,999.
(5) On July 17, 1997, the registrant issued an aggregate of 1,142,847 shares
of Series A preferred stock to twenty two accredited investors pursuant to a
Series A preferred stock purchase agreement. The aggregate consideration
received for such shares was $1,999,982.
(6) On July 20, 1998, the registrant issued a warrant for the purchase of
14,286 shares of common stock with an exercise price of $1.75 per share to
William Cuff, the President of the registrant.
(7) On August 23, 1998, the registrant issued a warrant for the purchase of
2,858 shares of common stock with an exercise price of $1.75 and on April 9,
1999, the registrant issued a warrant for the purchase of 1,667 shares of common
stock with an exercise price of $3.00, each as partial consideration for
obtaining a capital lease credit line.
(8) On October 5, 1998, the registrant issued a warrant for the purchase of
300,000 shares of common stock with an exercise price of $3.00 per share to
Peapod, Inc. as partial consideration for Peapod's performance under a marketing
agreement between Peapod and the registrant.
(9) The registrant issued an aggregate of 705,521 shares of Series B
preferred stock in a private placement on March 18, 1999 to twenty seven
accredited investors pursuant to a Series B Preferred Stock Purchase Agreement.
The aggregate consideration received for such shares was $2,116,563.
(10) On May 17, 1999, the registrant sold 600,000 shares of Series C
preferred stock to four accredited investors. The aggregate consideration
received for such shares was $3,000,000. The purchasers of the Series C
preferred stock also agreed to purchase, at the registrant's option, up to
300,000 additional shares of Series C preferred stock at $5.00 per share. The
registrant has until May 17, 2000 to exercise this option. The purchasers of the
Series C preferred stock also received warrants to purchase up to a total of
323,077 additional shares of Series C preferred stock at $.01 per share (up to
484,615 shares if the registrant exercises the option to sell 300,000 additional
shares of Series C preferred stock).
(11) From September 1997 through May 17, 1999, the registrant granted stock
options to purchase an aggregate of 863,500 shares of common stock to employees,
executive officers, consultants and directors with exercise prices ranging from
$0.30 to $5.50 per share pursuant to the registrant's 1997 Stock Incentive Plan
in consideration for services.
The issuances described above in this Item 15 were deemed exempt from
registration under the Securities Act in reliance on either (1) Rule 701
promulgated under the Securities Act of 1933 as offers
II-2
<PAGE>
or sales of securities pursuant to certain compensatory benefit plans and
contracts relating to compensation in compliance with Rule 701 and (2) Section
4(2) of the Securities Act as transactions by an issuer not involving a public
offering.
No underwriters were used in connection with these issuances. The recipients
of securities in each such transaction represented their intention to acquire
the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and other instruments issued in such transactions. All
recipients either received adequate information about GreatFood.com or had
access, through employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1++ Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the registrant, as amended to date.
3.2 Form of Amended and Restated Articles of Incorporation of the registrant to be in effect immediately
prior to the closing of this offering.
3.3+ Amended and Restated Bylaws of the registrant.
3.4 Form of Amended and Restated Bylaws of the registrant to be in effect immediately prior to the closing
of this offering.
4.1+ Amended and Restated Investors' Rights Agreement, dated March 18, 1999, as amended to date.
4.2+ Registration Rights Agreement, dated May 17, 1999, between the registrant and the persons listed on
the schedule of purchasers attached thereto.
5.1++ Opinion of Heller Ehrman White & McAuliffe as to the legality of the shares.
10.1+ 1997 Stock Incentive Plan, as amended.
10.2 1999 Employee Stock Purchase Plan.
10.3+ Form of Series A Preferred Stock Purchase Agreement, dated July 17, 1998, between the registrant and
the investors named therein.
10.4+ Form of Series B Preferred Stock Purchase Agreement, dated March 18, 1999, between the registrant and
the investors named therein.
10.5+ Series C Preferred Stock Purchase Agreement, dated May 17, 1999, between the registrant and the
investors named therein.
10.6+ Form of Indemnification Agreement between the registrant and each of its directors and executive
officers.
10.7+ Employment Letter Agreement, dated April 2, 1998, between the registrant and William Cuff.
10.8+ Lease Agreement, dated January 25, 1999, between the registrant and Eastlake at Hamlin, LLC.
10.9+ Equipment Lease, dated August 23, 1998, between the registrant and First Portland Corporation.
10.10* "Pages that Pay" Affiliates Program Merchant Agreement, dated May, 1999, between the registrant and
GeoCities.
10.11* Shopping Channel Promotional Agreement, dated October 1, 1998, between the registrant and America
Online, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
10.12* Advertising Insertion Order, dated March 15, 1999, between the registrant and Yahoo! Inc.
10.13* Sponsorship Agreement, dated September 17, 1998, between the registrant and Excite, Inc. with respect
to the Excite Network.
10.14* Sponsorship Agreement, dated September 17, 1998, between the registrant and Excite, Inc. with respect
to the Netscape Network.
10.15+ Internet Data Center Services Agreement, dated April 10, 1999, between the registrant and Exodus
Communications, Inc.
10.16* Pandesic Agreement, dated March 18, 1999, between the registrant and Pandesic LLC.
10.17+ Professional Services Agreement, dated July 8, 1996, between the registrant and Netscape
Communications Corporation.
10.18* Marketing Partners Agreement, dated October 5, 1998, between the registrant and Peapod, Inc.
10.19+ Common Stock Purchase Warrant, dated March 15, 1997, issued by the registrant to The Cobalt Group,
Inc.
10.20+ Common Stock Purchase Warrant, dated July 20, 1998, issued by the registrant to William Cuff.
10.21+ Common Stock Purchase Warrant, dated August 23, 1998, issued by the registrant to First Portland
Corporation.
10.22+ Common Stock Purchase Warrant, dated April 9, 1999, issued by the registrant to First Portland
Corporation.
10.23+ Common Stock Purchase Warrant, dated October 5, 1998, issued by the registrant to Peapod, Inc.
10.24+ Form of Series C Preferred Stock Warrant, dated May 17, 1999, issued by the registrant to purchasers
of Series C preferred stock.
21.1+ List of Subsidiaries.
23.1+ Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2++ Consent of Heller Ehrman White & McAuliffe (included in Exhibit 5.1).
24.1+ Power of Attorney (included on page II-6).
27.1+ Financial Data Schedule (EDGAR filed version only).
</TABLE>
- ------------------------
+ Previously filed
++ To be filed by amendment
* Certain portions of this document have been omitted pursuant to a
confidential treatment request.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by GreatFood.com for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of GreatFood.com pursuant to the provisions
II-4
<PAGE>
described in Item 14 above, or otherwise, GreatFood.com has been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by GreatFood.com of expenses incurred or
paid by a director, officer, or controlling person of GreatFood.com in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, GreatFood.com 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
of 1933, 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 of 1933, 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 the
time shall be deemed to be the initial BONA FIDE offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
GreatFood.com certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned, in the
City of Seattle, State of Washington, on the 25th day of May, 1999.
<TABLE>
<S> <C> <C>
GREATFOOD.COM, INC.
By: /s/ BENJAMIN NOURSE
------------------------------------------
Benjamin Nourse
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD OF DIRECTORS
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------ -------------------
<S> <C> <C>
Chief Executive Officer,
/s/ BENJAMIN NOURSE Chairman of the Board of
- ------------------------------------ Directors, and Secretary May 25, 1999
Benjamin Nourse (Principal Executive Officer)
*
- ------------------------------------ President and Director May 25, 1999
William Cuff
Vice President of Finance and
* Administration and Chief
- ------------------------------------ Financial Officer (Principal May 25, 1999
Gayle Stetson Financial and
Accounting Officer)
*
- ------------------------------------ Director May 25, 1999
R. Stockton Rush, III
*
- ------------------------------------ Director May 25, 1999
Geoffrey Barker
*
- ------------------------------------ Director May 25, 1999
David E. Wyman
*
- ------------------------------------ Director May 25, 1999
Mark Koulogeorge
*By: /s/ BENJAMIN NOURSE
------------------------------
Benjamin Nourse
(ATTORNEY-IN-FACT)
</TABLE>
II-6
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
GREATFOOD.COM, INC.
ARTICLE I
NAME
The name of the Corporation is GreatFood.com, Inc.
ARTICLE II
CAPITAL STOCK
(A) COMMON STOCK. The Corporation is authorized to issue 20,000,000 shares of
common stock (the "Common Stock"). Common Stock is subject to the rights and
preferences of the Preferred Stock as hereinafter set forth.
(B) PREFERRED STOCK. The Corporation is authorized to issue 5,000,000 shares
of preferred stock (the "Preferred Stock").
(1) ISSUANCE. The Preferred Stock may be issued from time to time in
one or more series in any manner permitted by law and these Articles of
Incorporation of the Corporation, as determined from time to time by the Board
of Directors and stated in the resolution or resolutions providing for the
issuance thereof, prior to the issuance of any shares thereof. The Board of
Directors shall have the authority to fix and determine and to amend, subject to
the provisions hereof, the designations, preferences, limitations and relative
rights of the shares of any series that is wholly unissued or to be established.
Unless otherwise specifically provided in the resolution establishing any
series, the Board of Directors shall further have the authority, after the
issuance of shares of a series whose number it has designated, to amend the
resolution establishing such series to decrease the number of shares of that
series, but not below the number of shares of such series then outstanding.
(2) DIVIDENDS. The holders of shares of Preferred Stock shall be
entitled to receive dividends, out of the funds of the Corporation legally
available therefor, at the rate and at the time or times, whether cumulative or
noncumulative, as may be provided by the Board of Directors in designating a
particular series of Preferred Stock. If such dividends on the Preferred Stock
shall be cumulative, then if dividends shall not have been paid, the deficiency
shall be fully paid or the dividends declared and set apart for payment at such
<PAGE>
rate, but without interest on cumulative dividends, before any dividends on the
Common Stock shall be paid or declared and set apart for payment. The holders
of the Preferred Stock shall not be entitled to receive any dividends thereon
other than the dividends referred to in this section.
(3) REDEMPTION. The Preferred Stock may be redeemable at such price, in
such amount, and at such time or times as may be provided by the Board of
Directors in designating a particular series of Preferred Stock. In any event,
such Preferred Stock may be repurchased by the Corporation to the extent legally
permissible.
(4) LIQUIDATION. In the event of any liquidation, dissolution, or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
then, before any distribution shall be made to the holders of the Common Stock,
the holders of the Preferred Stock at the time outstanding shall be entitled to
be paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of Preferred Stock and
dividends accrued thereon to the date of such payment. The holders of the
Preferred Stock shall not be entitled to receive any distributive amounts upon
the liquidation, dissolution, or winding up of the affairs of the Corporation,
other than the distributive amounts referred to in this section, unless
otherwise provided by the Board of Directors in designating a particular series
of Preferred Stock.
(5) CONVERSION. Shares of Preferred Stock may be convertible into
Common Stock of the Corporation upon such terms and conditions, at such rate and
subject to such adjustments as may be provided by the Board of Directors in
designating a particular series of Preferred Stock.
(6) VOTING RIGHTS. Holders of Preferred Stock shall have such voting
rights, if any, as may be provided by the Board of Directors in designating a
particular series of Preferred Stock.
(C) SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK. A total of
1,142,857 shares of Preferred Stock shall be designated "Series A Preferred
Stock" and a total of 1,000,000 shares of Preferred Stock shall be designated
"Series B Preferred Stock". The Series A Preferred Stock and the Series B
Preferred Stock shall have the rights, preferences, privileges and restrictions
set forth in this Section C. The Series A Preferred Stock and the Series B
Preferred Stock shall sometimes be collectively referred to herein as the "A/B
Preferred Stock."
(1) LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, or in the event of its insolvency (a "Liquidation Event"), before
any distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the
2
<PAGE>
Corporation designated to be junior to the A/B Preferred Stock and subject to
the liquidation rights and preferences of the Series C Preferred Stock set
forth in section (D)(1) and of any other class or series of preferred stock
designated in the future to be senior to, or on a parity with, the A/B
Preferred Stock with respect to liquidation preferences, the holders of each
share of A/B Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes whether such assets are capital,
surplus or earnings ("Available Assets"), an amount equal to (a) $1.75 per
share of Series A Preferred Stock (the "Series A Liquidation Preference")
and (b) $3.00 per share of Series B Preferred Stock (the "Series B
Liquidation Preference")
The amounts set forth above and throughout this Section (C)(1) shall be
subject to equitable adjustment whenever there shall occur a stock dividend,
stock split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the capital structure of the
Corporation.
If, upon a Liquidation Event, the Available Assets shall be insufficient
to pay the holders of A/B Preferred Stock the full amount to which they
otherwise would be entitled to receive, the holders of A/B Preferred Stock shall
share ratably in any distribution of Available Assets pro rata in proportion to
the respective Liquidation Preference amounts to which they would otherwise be
entitled to receive upon liquidation if all Liquidation Preference dollar
amounts owing to the holders of A/B Preferred Stock were paid in full.
After such payment shall have been made in full to the holders of the A/B
Preferred Stock or funds necessary for such payment shall have been set aside by
the Corporation in trust for the account of holders of the A/B Preferred Stock
so as to be available for such payment, the remaining assets available for
distribution shall be distributed ratably among the holders of the Common Stock.
Whenever the distribution provided for in this Section (C)(1) shall be
payable in property other than cash, the value of such distribution shall be the
fair market value of such property as determined in good faith by the Board of
Directors of the Corporation, which determination shall be final and binding on
the holders of A/B Preferred Stock. All distributions (including distributions
other than cash) made hereunder shall be made pro rata with respect to each
holder of A/B Preferred Stock in accordance with the liquidation preference
amounts described in this Section (C)(1) above.
(2) VOTING POWER. Except as otherwise expressly provided in this
Section (C)(2), or as otherwise required by law, each holder of A/B Preferred
Stock shall be entitled to vote on all matters and shall be entitled to that
number of votes equal to the largest number of whole shares of Common Stock into
which such holder's shares of A/B Preferred Stock could be converted, pursuant
to the provisions of Section (C)(3) hereof, at the record date for the
determination of stockholders entitled to vote on such matter or, if
3
<PAGE>
no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited. Except as otherwise expressly
provided herein or as otherwise required by law, the holders of shares of
Series A Preferred Stock, Series B Preferred Stock and Common Stock shall vote
together (or render written consents in lieu of a vote) as a single class on
all matters submitted to the stockholders of the Corporation.
The Corporation shall not take any corporate action or otherwise amend its
Articles of Incorporation without the approval by vote or written consent of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock (voting as a separate class) or Series B Preferred Stock (voting
as a separate class), each share of Series A Preferred Stock or Series B
Preferred Stock to be entitled to one vote in each instance, if such corporate
action or amendment would change any of the rights, preferences, or privileges
of, or limitation provided in here for the benefit of, any shares of that series
of Preferred Stock.
At any time prior to the closing of the Corporation's initial firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
covering the offer and sale of Common Stock for the account of the Corporation
to the public (an "IPO"), the holders of Series A Preferred Stock, voting as a
separate class, shall be entitled to elect one director (the "Series A
Director"). At any annual or special meeting of the Corporation (or in a
written consent in lieu thereof) held for the purpose of electing directors, the
presence in person or by proxy of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock (voting together as a separate
class) shall constitute a quorum for the election of the Series A Director. The
holders of at least a majority of the shares of Series A Preferred Stock then
outstanding present in person or by proxy at any meeting relating to the
election of directors (calculated after the determination of a quorum) shall
then be entitled to elect the Series A Director.
A Series A Director may be removed during his or her term of office
without cause, by and only by, the affirmative vote or written consent of at
least a majority of the then outstanding shares of the Series A Preferred Stock
(voting as a separate class). A vacancy in a seat held by a Series A Director
shall be filled by the vote of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock (voting as a separate class)
present in person or represented by proxy at any meeting (calculated after the
determination of a quorum) or by written consent of all of the holders of the
then outstanding shares of Series A Preferred Stock (voting as a separate
class).
(3) CONVERSION RIGHTS.
(a) VOLUNTARY CONVERSION. Subject to and in compliance with the
provisions of this Section (C)(3), each share of A/B Preferred Stock held by any
person or
4
<PAGE>
entity may, at the option of such person or entity, be converted at any time
and from time to time into fully-paid and non-assessable shares of Common
Stock. The number of shares of Common Stock to which a holder of A/B
Preferred Stock shall be entitled to receive upon conversion shall be the
product obtained by multiplying the Series A Applicable Conversion Rate (for
conversions of shares of Series A Preferred Stock) or the Series B Applicable
Conversion Rate (for conversions of shares of Series B Preferred Stock), as
such rates are determined as provided in Section (C)(3)(c) by the number of
shares of Series A or Series B Preferred Stock, as applicable, being converted
at any time.
(b) AUTOMATIC CONVERSION. Each share of Series A or Series B
Preferred Stock shall automatically be converted into the number of shares of
Common Stock into which such share of A/B Preferred Stock is convertible
pursuant to Section D(3)(a), and in accordance with Section (C)(3)(h)
immediately prior to the closing of the Corporation's IPO or upon the conversion
of fifty percent (50%) or more of the shares of that series of Preferred Stock
then outstanding (whichever shall occur first).
(c) APPLICABLE CONVERSION RATES. The conversion rate in effect
at any time for the Series A Preferred Stock (the "Series A Applicable
Conversion Rate") shall be the quotient obtained by dividing $1.75 by the Series
A Applicable Conversion Price, calculated as provided in Section (C)(3)(d). The
conversion rate in effect at any time for the Series B Preferred Stock (the
"Series B Applicable Conversion Rate") shall be the quotient obtained by
dividing $3.00 by the Series B Applicable Conversion Price, calculated as
provided in Section (C)(3)(d).
(d) APPLICABLE CONVERSION PRICES. The Applicable Conversion
Price in effect from time to time for the Series A Preferred Stock, except as
adjusted in accordance with Section (C)(3)(e) and Section (C)(3)(f) hereof,
shall be $1.75 (the "Series A Applicable Conversion Price"). The Applicable
Conversion Price in effect from time to time for the Series B Preferred Stock,
except as adjusted in accordance with Section (C)(3)(e) and Section (C)(3)(f)
hereof, shall be $3.00 (the "Series B Applicable Conversion Price").
(e) ADJUSTMENTS TO APPLICABLE CONVERSION PRICES FOR DILUTIVE
EVENTS.
(i) SPECIAL DEFINITIONS. For purposes of this Section C only,
the following definitions shall apply:
(A) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(B) "Original Issue Date" shall mean the date on which the
first share of Series A Preferred Stock was issued, for purposes of
determining whether an
5
<PAGE>
adjustment to the Series A Applicable Conversion Price is required, or the
date on which the first share of Series B Preferred Stock was issued, for
purposes of determining whether an adjustment to the Series B Applicable
Conversion Price is required.
(C) "Convertible Securities" shall mean any evidence of
indebtedness, shares of capital stock (other than the Common Stock) or other
securities convertible into or exchangeable for Common Stock.
(D) "Dilutive Event" shall mean any transaction pursuant to
which the Corporation shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
(C)(3)(e)(ii)) without consideration or for a consideration (as determined in
Section (C)(3)(e)(iv)) per share issued less than the Series A Applicable
Conversion Price (a "Series A Dilutive Event") or the Series B Applicable
Conversion Price (a "Series B Dilutive Event") in effect on the date of and
immediately prior to such issuance.
(E) "Fully-Diluted Shares" on the date of any Dilutive
Event shall mean the sum of the following amounts: (1) the number of shares
of Common Stock outstanding on the date of and immediately prior to such
Dilutive Event, (2) the number of shares of Common Stock issuable upon
conversion or exercise of any Convertible Security, or Option outstanding,
and at the conversion or exercise or other purchase price in effect, on the
date of and immediately prior to such Dilutive Event, and (3) the number of
shares of Common Stock reserved for issuance, but not yet issued, pursuant to
any stock option plan or other restricted stock plan or employee stock bonus
program of the Corporation or other grant designated and approved by the
Board of Directors.
(F) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section (C)(3)(e)(iii), deemed
to be issued) by the Corporation after the applicable Original Issue Date,
other than: (1) shares of Common Stock issued or issuable upon conversion of
or in exchange for the Corporation's Series A Preferred Stock (for purposes
of determining whether an adjustment to the Series A Applicable Conversion
Price is required) or shares of Common Stock issued or issuable upon
conversion of or in exchange for the Corporation's A/B Preferred Stock (for
purposes of determining whether an adjustment to the Series B Applicable
Conversion Price is required); (2) shares of Common Stock issued or issuable
at any time to employees, officers or directors of, or consultants or
advisors to, the Corporation pursuant to any stock option plan, or other
restricted stock plan or employee stock bonus program or other grant
designated and approved by the Board of Directors; (3) shares of Common Stock
issued or issuable at any time as a dividend or distribution on Series A
Preferred Stock (for purposes of determining whether an adjustment to
6
<PAGE>
the Series A Applicable Conversion Price is required) or shares of Common
Stock issued or issuable at any time as a dividend or distribution on A/B
Preferred Stock (for purposes of determining whether an adjustment to the
Series B Applicable Conversion Price is required), or upon the occurrence of
any other event for which adjustment is made pursuant to Section (C)(3)(f)
hereof; (4) shares of Common Stock issued to financial institutions or lessors
in connection with commercial credit arrangements, equipment financings, or
similar transactions; (5) shares of Common Stock issued in connection with a
merger of the Corporation with or into another corporation or the acquisition
by the Corporation of another entity; (6) shares of Common Stock issued or
issuable at any time by way of dividend or other distribution on shares of
Common Stock excluded from the definition of Additional Shares of Common
Stock; and (7) any other share of Common Stock or any other securities
convertible into or exchangeable or exercisable for shares of Common Stock,
provided that such securities are designated as excluded from the definition
of Additional Shares of Common Stock by the vote or written consent of holders
of at least a majority of the then outstanding shares of Series A Preferred
Stock, for purposes of determining whether an adjustment to the Series A
Applicable Conversion Price is required, or a majority of the then outstanding
shares of Series B Preferred Stock, for purposes of determining whether an
adjustment to the Series B Applicable Conversion Price is required.
(ii) DEEMED ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(A) OPTIONS AND CONVERTIBLE SECURITIES. In the event the
Corporation at any time or from time to time after the applicable Original Issue
Date shall issue any Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number upon the
occurrence of an event which has not yet occurred and is uncertain to occur) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall, except as otherwise provided herein, be deemed to
be Additional Shares of Common Stock issued as of the time such Options or
Convertible Securities are issued; PROVIDED, HOWEVER, that if a Dilutive Event
requiring an adjustment in the Series A or Series B Applicable Conversion Price
occurs as a result of Additional Shares of Common Stock deemed to be issued
pursuant to this Section (C)(3)(e), then (notwithstanding the foregoing): (1) no
further adjustment in the Applicable Conversion Price for which an adjustment
was previously made shall be made (a) upon the subsequent issuance of shares of
Common Stock upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or (b), in the case of Options for the purchase of
Convertible Securities, upon the subsequent issuance of such Convertible
Securities upon exercise of such Options; (2) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, except
as provided in this Section (C)(3)(e), for any increase or decrease in the
consideration payable to the Corporation, or in the number of shares of Common
Stock issuable, upon the exercise, conversion or exchange thereof (a "Change
Event"), the Series A and Series B Applicable Conversion Prices computed upon
the original issuance thereof, and any subsequent
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adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities; PROVIDED, HOWEVER, that anything to the contrary
notwithstanding, if the Change Event is triggered or caused by a Dilutive
Event (as defined in Section (C)(3)(e)(i)(D), this Section (C)(3)(e)(ii) shall
be inapplicable and no adjustment shall be made to the Series A or Series B
Applicable Conversion Price as a result of the Change Event; (3) upon the
expiration of any such Options or any rights of conversion or exchange under
such Convertible Securities which shall not have been exercised, the Series A
and Series B Applicable Conversion Price computed upon the original issuance
thereof, and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if: (a) in the case of Convertible Securities or
Options for Common Stock, only the shares of Common Stock, if any, actually
issued upon the exercise of such Options or the conversion or exchange of such
Convertible Securities were issued at the time of the issuance of such
Convertible Securities or Options and the consideration received therefor was
the consideration actually received by the Corporation for the issue of all
such Options or Convertible Securities, whether or not exercised, converted,
or exchanged, plus the consideration actually received by the Corporation upon
such exercise, conversion or exchange, and (b) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration deemed to have been received
by the Corporation upon the issue of the Convertible Securities with respect
to which such Options were actually exercised; (4) no readjustment pursuant to
clause (2) or (3) above shall have the effect of increasing the Series A or
Series B Applicable Conversion Priceto an amount which exceeds the lower of
(a) the Applicable Conversion Price for the applicable series of Preferred
Stock on the original adjustment date, or (b) the Applicable Conversion Price
for the applicable series of Preferred Stock that would have resulted from any
other issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date; and (5) in the case of any Options
which expire by their terms not more than one hundred twenty (120) days after
the date of issuance thereof, no adjustment of the Series A or Series B
Applicable Conversion Price shall be made until the exercise and/or expiration
of all such Options.
In the event that a record date is established for the purpose of
determining the holders of the Corporation's securities who shall be entitled to
receive Options or Convertible Securities as a dividend or a distribution, the
Options or Convertible Securities to be so distributed or issued shall, for
purposes of this Section (C)(3)(e)(ii), be deemed to have been issued as of such
record date (PROVIDED that the Applicable Conversion Prices so
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computed shall be recomputed if such Options or Convertible Securities are not
so distributed or issued).
(B) STOCK DIVIDENDS. In the event the Corporation at any
time or from time to time after the applicable Original Issue Date shall declare
or pay any dividend on the Common Stock payable in Common Stock, then and in any
such event, Additional Shares of Common Stock shall be deemed to have been
issued immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend; PROVIDED, HOWEVER, that if such record date is fixed and such dividend
is not fully paid, the only Additional Shares of Common Stock deemed to have
been issued will be the number of shares of Common Stock actually issued in such
dividend, and such shares will be deemed to have been issued as of the close of
business on such record date, and the Applicable Conversion Prices shall be
recomputed accordingly.
(iii) ADJUSTMENT OF APPLICABLE CONVERSION PRICES UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK.
(A) SERIES A PREFERRED STOCK. If a Series A Dilutive Event
shall occur at any time or from time to time after the Series A Preferred
Stock's Original Issue Date, the Series A Applicable Conversion Price shall be
reduced, concurrently with the occurrence of such Dilutive Event, to a price
determined by multiplying the Series A Applicable Conversion Price with respect
to such Dilutive Event by a fraction, the numerator of which shall be the sum of
the Fully-Diluted Shares plus the number of shares of Common Stock which could
be purchased at such Series A Applicable Conversion Price with the aggregate
consideration received by the Corporation for the Additional Shares of Common
Stock issued, or deemed to be issued, in connection with such Dilutive Event;
and the denominator of which shall be the sum of the Fully-Diluted Shares plus
the number of Additional Shares of Common Stock issued, or deemed to be issued,
in connection with such Dilutive Event. The provisions of this paragraph as
they may apply to the Series A Preferred may be waived in any instance (without
the necessity of convening any meeting of stockholders of the Corporation) upon
written agreement of at least a majority of the outstanding shares of Series A
Preferred Stock (voting as a separate class).
(B) SERIES B PREFERRED STOCK. If a Series B Dilutive Event
shall occur at any time or from time to time after the Series B Preferred
Stock's Original Issue Date, the Series B Applicable Conversion Price shall be
reduced, concurrently with the occurrence of such Dilutive Event, to a price
determined by multiplying the Series B Applicable Conversion Price with respect
to such Dilutive Event by a fraction, the numerator of which shall be the sum of
the Fully-Diluted Shares plus the number of shares of Common Stock which could
be purchased at such Series B Applicable Conversion Price with the aggregate
consideration received by the Corporation for the Additional Shares of Common
Stock issued, or deemed to be issued, in connection with such Dilutive Event;
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and the denominator of which shall be the sum of the Fully-Diluted Shares plus
the number of Additional Shares of Common Stock issued, or deemed to be issued,
in connection with such Dilutive Event. The provisions of this paragraph as
they may apply to the Series B Preferred may be waived in any instance (without
the necessity of convening any meeting of stockholders of the Corporation) upon
written agreement of at least a majority of the outstanding shares of Series B
Preferred Stock (voting as a separate class).
(iv) DETERMINATION OF CONSIDERATION. For purposes of this Section
(C)(3)(e), the consideration received by the Corporation for any Additional
Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY. Such consideration shall: (1)
insofar as it consists of cash, be deemed to be the amount of cash paid therefor
before deducting any discounts, commissions or other expenses allowed, paid or
incurred by the Corporation for any underwriting or otherwise in connection with
the issuance and sale thereof, but excluding amounts paid or payable for accrued
interest or accrued dividends; (2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issuance, as
determined in good faith by the Board; and (3) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other assets
of the Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (1) and (2)
above, as determined in good faith by the Board.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section (C)(3)(e)(ii), relating to
Options and Convertible Securities, shall be determined by dividing: (x) the
total amount, if any, received or receivable by the Corporation as consideration
for the issue of such Options or Convertible Securities, plus the minimum
aggregate amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the Corporation upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities; by (y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(C) STOCK DIVIDENDS. Any Additional Shares of Common Stock
issued as stock dividends shall be deemed to have been issued for no
consideration.
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(f) ADDITIONAL ADJUSTMENTS TO APPLICABLE CONVERSION PRICE. In
addition to the adjustments made pursuant to Section (C)(3)(e), the Series A and
Series B Applicable Conversion Prices shall be subject to adjustment from time
to time as follows:
(i) DIVIDENDS AND STOCK SPLITS. If the number of shares of
Common Stock outstanding at any time after the applicable Original Issue Date
is increased by a dividend on the Common Stock payable in shares of Common
Stock or by a stock split, then immediately after the record date fixed for
the determination of holders of Common Stock entitled to receive such stock
dividend or stock split, as the case may be, the Series A and Series B
Applicable Conversion Prices shall be automatically reduced so that the
holder of any shares of Series A or Series B Preferred Stock thereafter
converted shall be entitled to receive the number of shares of Common Stock
which it would have owned immediately following such action had such shares
of Preferred Stock been converted immediately prior to the record date. Any
adjustment under this section shall become effective at the close of business
on the date the dividend or stock split becomes effective.
(ii) COMBINATIONS OF COMMON STOCK. If the number of shares of
Common Stock outstanding at any time after the applicable Original Issue Date is
decreased by a combination of the outstanding shares of Common Stock, then
immediately after the record date fixed for the combination, the Series A and
Series B Applicable Conversion Prices shall be automatically increased so that
the holder of any shares of Preferred Stock thereafter converted shall be
entitled to receive the number of shares of Common Stock which it would have
owned immediately following such action had such shares of Preferred Stock been
converted immediately prior to the record date. Any adjustment under this
section shall become effective the close of business on the date the combination
becomes effective.
(iii) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the applicable Original Issue
Date issues a dividend or other distribution to holders of Common Stock payable
in securities of the Corporation other than shares of Common Stock, in each such
event provision shall be made so that the holders of the Series A or Series B
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of other securities
of the Corporation which they would have received had their shares of Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities during such period, subject to all
other adjustments called for during such period under this Section (C)(3) with
respect to the rights of the holders of the Preferred Stock or with respect to
such other securities by their terms.
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(iv) REORGANIZATIONS. After a Reorganization (defined below)
which is not subject to Sections (C)(3)(e) or (C)(3)(f), upon the conversion of
a share of Series A or Series B Preferred Stock, the holder of that share shall
be entitled to receive that number of shares of stock and/or other property (the
"Reorganization Shares") which it would have been entitled to receive upon the
Reorganization had it converted into Common Stock immediately prior to the
record date for the Reorganization.
After a Reorganization, the Reorganization Shares shall be subject to
terms which, as nearly as may reasonably be possible, have the same effect as
this Section (C)(3)(f).
For purposes of this Section (C)(3) only, a "Reorganization" shall mean
any (A) capital reorganization of the Corporation, (B) reclassification of the
Common Stock of the Corporation, (C) consolidation, merger or share exchange of
the Corporation with or into any other entity, or (D) the sale, lease or other
disposition of all or substantially all of the assets of the Corporation.
(g) ROUNDING OF CALCULATIONS; MINIMUM ADJUSTMENT. All
calculations under Section (C)(3)(e) or Section (C)(3)(f) shall be made by
rounding downward to the nearest cent or rounding upward to the nearest one-
tenth (1/10th) of a share, as the case may be. Any provision of Section
(C)(3)(e) or Section (C)(3)(f) to the contrary notwithstanding, no adjustment in
the Series A or Series B Applicable Conversion Price shall be made if the amount
of such adjustment would be less than 1% thereof, but any such amount shall be
carried forward and an adjustment with respect thereto shall be made at the time
of and together with any subsequent adjustment which, together with such amount
and any other amount or amounts so carried forward, shall aggregate 1% or more
of the Series A or Series B Applicable Conversion Price then in effect.
(h) MECHANICS OF CONVERSION.
(i) NO FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of Series A or Series B Preferred Stock. In
lieu of any fractional share to which a holder would otherwise be entitled, the
Corporation shall, after aggregating all Series A Preferred Stock and Series B
Preferred Stock to be converted to Common Stock by such holder, pay cash equal
to such fraction multiplied by the fair market value of the Common Stock as
determined by the Board on the date of the conversion.
(ii) VOLUNTARY CONVERSION. Any holder of Series A or Series B
Preferred Stock wishing to convert shares of Series A or Series B Preferred
Stock into Common Stock pursuant to Section (C)(3)(a) shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or any transfer agent for the Preferred Stock and shall
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give the Corporation written notice (the "Conversion Notice") stating that
such holder elects to convert the same, the number of shares being converted
and the name or names in which the holder wishes the certificate or
certificates for shares of Common Stock to be issued. Any conversion
pursuant to Section (C)(3)(a) shall be deemed to be effective for all
purposes upon receipt by the Corporation or a transfer agent for the
Preferred Stock of such certificates, duly endorsed, and the Conversion
Notice and shall be deemed to have been made immediately prior to the close
of business on the date thereof. As soon as practicable after the
effectiveness of any conversion of Series A or Series B Preferred Stock, the
Corporation shall cause to be issued and delivered pursuant to the Conversion
Notice certificates representing the Common Stock into which such Preferred
Stock has been converted; PROVIDED, HOWEVER, that the Corporation shall not
be required to issue certificates for Common Stock in any name other than
that of the holder of the Series A or Series B Preferred Stock so converted
in the absence of assurances reasonably satisfactory to the Corporation that
all stamp and other transfer taxes relating to the transfer of such
securities have been or will be paid and that such transfer complies with all
applicable securities laws and applicable transfer restrictions.
(iii) AUTOMATIC CONVERSION. Upon any automatic conversion of
Series A or Series B Preferred Stock pursuant to Section (C)(3)(b), the
outstanding shares of Series A or Series B Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent; PROVIDED, HOWEVER, that the
Corporation shall not be obligated to issue to any such holder certificates
evidencing the shares of Common Stock issuable upon such conversion unless
the certificate or certificates evidencing the shares of Series A or Series B
Preferred Stock so converted (or an affidavit of lost, stolen or destroyed
certificate and indemnification agreement in respect of such certificate or
certificates in form and substance satisfactory to the Corporation in its
sole discretion) are delivered to the Corporation or any transfer agent of
the Corporation.
(i) EFFECT OF CONVERSION. Notwithstanding any issuance or lack
thereof of certificates representing Common Stock, from and after the
effectiveness of any conversion of any shares of Series A or Series B Preferred
Stock, the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated by the Corporation for all
purposes as the record holders of the Common Stock obtainable upon such
conversion and shall cease to have any other rights of a holder of Series A or
Series B Preferred Stock with respect to the shares of Series A or Series B
Preferred Stock so converted.
(j) PAYMENT OF DECLARED BUT UNPAID DIVIDENDS. Any dividends
which have been declared but remain unpaid with respect to any Series A or
Series B Preferred Stock which has been converted shall be payable in cash, or,
to the extent sufficient funds are not legally available therefor, in Common
Stock (at the Common Stock's fair market
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value as determined by the Board as of the date of such conversion) not later
than fourteen (14) days after the effectiveness of such conversion.
(k) NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities;
(ii) to offer for subscription pro rata to the holders of Common
Stock any additional shares of any class or series of any of the Corporation's
capital stock or any other rights;
(iii) to effect a Reorganization; or
(iv) to effect a Liquidation Event;
then, in connection with each such event, the Corporation shall send to the
holders of Series A Preferred Stock and Series B Preferred Stock at least ten
(10) days' prior written notice of the record date for such event and/or the
record date of any vote with respect to such event.
(l) STATEMENT REGARDING ADJUSTMENTS. Whenever the Series A or
Series B Applicable Conversion Price shall be adjusted as provided in Section
(C)(3)(e) or Section (C)(3)(f), the Corporation shall as soon as practicable and
at its expense, file, at the office of any transfer agent for the Series A or
Series B Preferred Stock and at the principal office of the Corporation, a
statement showing in detail the facts requiring such adjustment and the Series A
or Series B Applicable Conversion Price that shall be in effect after such
adjustment, and the Corporation shall also send a copy of such statement to the
holders of Series A or Series B Preferred Stock, as applicable.
(m) RESERVATION OF SHARES. The Corporation shall reserve and
keep available at all times, so long as any Series A or Series B Preferred Stock
remains outstanding, free from preemptive rights, out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series A or Series B Preferred Stock, sufficient shares of
Common Stock to provide for the conversion of all outstanding Series A and
Series B Preferred Stock. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding Series A and Series B Preferred Stock, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
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(D) SERIES C PREFERRED STOCK. A total of 1,384,615 shares of the authorized
shares of Preferred Stock are hereby designated "Series C Preferred Stock" (the
"Series C Preferred"). The capitalized terms used in this Section (D) are
defined within the paragraphs of this Section or in Section (D)(9) below. The
rights, preferences, privileges, restrictions and other matters relating to the
Series C Preferred are as follows:
(1) LIQUIDATION. Upon any liquidation, dissolution or winding up of the
Corporation, the Corporation's assets shall be distributed as follows: (i) if
the Net Proceeds are equal to or less than the aggregate Liquidation Value of
the Series C Preferred, plus all accrued and unpaid dividends on the Series C
Preferred, then such Net Proceeds shall be distributed ratably among all holders
of Series C Preferred; (ii) if the Net Proceeds are greater than the aggregate
Liquidation Value of the Series C Preferred, plus all accrued and unpaid
dividends, then such Net Proceeds shall be distributed as follows: (a) an
amount equal to the aggregate Liquidation Value of the Series C Preferred, plus
all accrued and unpaid dividends, shall be distributed ratably among all holders
of Series C Preferred; and (b) after the distribution set forth in clause (a),
the remainder of such Net Proceeds shall be distributed (x) first, ratably among
all holders of Junior Securities in an amount sufficient to return to such
holders an amount equal to the original price paid by such holders for their
shares (y) second, ratably among all holders of Common Stock in an amount
sufficient to return to such holders their cost basis in the shares, and (z)
third, to all holders of Common Stock and the Series C Preferred, ratably on an
as-converted basis.
The Corporation shall mail written notice of such liquidation, dissolution
or winding up, not less than 10 days prior to the payment date stated therein,
to each record holder of Series C Preferred.
(2) CUMULATIVE DIVIDENDS. Dividends on the Series C Preferred shall be
cumulative and shall cumulate and accrue on a semi-annual basis, without
interest, at the rate of 8.0% of the purchase price per share per annum from the
date of issue of the Series C Preferred, regardless of whether the Corporation
shall have funds legally available for such purpose. The holders of the
Series C Preferred shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available for such purpose, cumulative
dividends at the rates specified above.
(3) REDEMPTIONS.
(a) MANDATORY REDEMPTION. If requested in writing by holders of
a majority of the Series C Preferred at any time after May 14, 2004, the
Corporation shall redeem, with funds legally available therefor, all shares of
Series C Preferred at a price
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per share equal to the Liquidation Value thereof, plus all accrued and unpaid
dividends thereon (the "Redemption Price") as follows:
(i) one-third of the shares of Series C Preferred on the date
stated in such written request, which date shall not be earlier than May 14,
2004;
(ii) an additional one-third of such shares on the first
anniversary of such date; and
(iii) the final one-third of such shares on the second anniversary
of such date (each of the dates in (i)-(iii) being referred to as a
"Redemption Date").
(b) SURRENDER OF CERTIFICATES. Ten days prior to each Redemption
Date, the Corporation shall mail written notice (the "Redemption Notice"),
postage prepaid, to each holder of record of Series C Preferred, at such
holder's address as shown on the records of the Corporation; PROVIDED, HOWEVER,
that the Corporation's failure to give such Redemption Notice shall in no way
affect its obligation to redeem the Preferred Stock as provided in Section
(D)(3)(a) hereof. The Redemption Notice shall contain the following
information:
(i) The number of shares of Series C Preferred held by the
holder which shall be redeemed by the Corporation on such Redemption Date
pursuant to the provisions of Section (D)(3)(a);
(ii) the Redemption Date; and
(iii) the address at which the holder may surrender to
the Corporation its certificate or certificates representing shares of
Series C Preferred to be redeemed.
Each holder of shares of Series C Preferred to be redeemed shall surrender
the certificate or certificates representing such shares to the Corporation at
the place specified in the Redemption Notice on or before the Redemption Date
designated in the Redemption Notice (PROVIDED that failure to surrender a stock
certificate shall not prevent the redemption of the underlying stock), and
thereupon the applicable Redemption Price for such shares as set forth in this
Section (D)(3) shall be paid to the order of the person whose name appears on
such certificate or certificates. Each surrendered certificate shall be
canceled and retired and a new certificate, representing the remaining,
unredeemed shares of Series C Preferred, if any, shall be issued to the holder
of such shares.
(c) DIVIDENDS AFTER REDEMPTION DATE. No share of Series C
Preferred is entitled to any dividends accruing after the date on which the
Liquidation Value of
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such share, plus all accrued and unpaid dividends thereon, is paid to the
holder thereof. On such date all rights of the holder of such share shall
cease, and such share shall not be deemed to be outstanding.
(d) REDEEMED OR OTHERWISE ACQUIRED SHARES. Any shares of
Series C Preferred which are redeemed or otherwise acquired by the Corporation
shall be cancelled and shall not be reissued, sold or transferred.
(e) ACCRUED DIVIDENDS MUST BE PAID PRIOR TO ANY REDEMPTION. The
Corporation may not redeem any Series C Preferred, unless all dividends accrued
on the outstanding Series C Preferred through the immediately preceding
Redemption Date have been paid in full.
(f) FUNDS LEGALLY AVAILABLE. If the funds of the Corporation
legally available for a redemption pursuant to RCW 23B.06.400 on a Redemption
Date are insufficient to redeem the total number of shares of Series C Preferred
submitted for redemption, those funds which are legally available will be used
to redeem the maximum possible number of whole shares ratably among the holders
of such shares.
(4) VOTING RIGHTS. The holders of the Series C Preferred shall be
entitled to notice of all shareholders meetings in accordance with the
Corporation's bylaws and shall be entitled to vote on all matters submitted to
the shareholders for a vote together with the holders of the Common Stock voting
together as a single class with each share of Common Stock entitled to one vote
per share and each share of Series C Preferred entitled to one vote for each
share of Common Stock issuable upon conversion of the Series C Preferred at the
time the vote is taken, except as otherwise provided herein or by law.
At any time prior to the closing of the Corporation's Qualified Public
Offering, the holders of Series C Preferred, voting as a separate class, shall
be entitled to elect one director (the "Series C Director"). At any annual or
special meeting of the Corporation (or in a written consent in lieu thereof)
held for the purpose of electing directors, the presence in person or by proxy
of the holders of at least a majority of the then outstanding shares of Series C
Preferred (voting together as a separate class) shall constitute a quorum for
the election of the Series C Director. The holders of at least a majority of
the shares of Series C Preferred present in person or by proxy at any meeting
relating to the election of directors (calculated after the determination of a
quorum) shall then be entitled to elect the Series C Director.
A Series C Preferred Director may be removed during his or her term of
office without cause, by and only by, the affirmative vote or written consent of
at least a majority of the then outstanding shares of the Series C Preferred
(voting as a separate
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class). A vacancy in a seat held by a Series C Director shall be filled by
the vote of the holders of at least a majority of the shares of Series C
Preferred (voting as a separate class) present in person or represented by
proxy at any meeting at which a quorum of the Series C Preferred is present
(calculated after the determination of a quorum) or by written consent of the
holders of at least a majority of the then outstanding shares of Series C
Preferred (voting as a separate class).
(5) CONVERSION.
(a) CONVERSION PROCEDURE.
(i) At any time and from time to time, any holder of Series C
Preferred may convert all or any portion of the Series C Preferred (including
any fraction of a share) held by such holder into a number of shares of
Conversion Stock computed by multiplying the number of shares to be converted by
the Liquidation Value and dividing the result by the Series C Conversion Price
then in effect.
(ii) Each conversion of Series C Preferred shall be deemed to have
been effected as of the close of business on the date on which the certificate
or certificates representing the Series C Preferred to be converted have been
surrendered at the principal office of the Corporation. At such time as such
conversion has been effected, the rights of the holder of such Series C
Preferred as such holder shall cease and the Person or Persons in whose name or
names any certificate or certificates for shares of Conversion Stock are to be
issued upon such conversion shall be deemed to have become the holder or holders
of record of the shares of Conversion Stock represented thereby.
(iii) The conversion rights of any Series C Preferred share shall
terminate on the Redemption Date for such share unless the Corporation has
failed to pay to the holder thereof the Liquidation Value thereof plus all
accrued and unpaid dividends thereon.
(iv) As soon as possible after a conversion has been effected (but
in any event within ten days in the case of subparagraph (A) below), the
Corporation shall deliver to the converting holder:
(A) a certificate or certificates representing the number of
shares of Conversion Stock issuable by reason of such conversion in such
name or names and such denomination or denominations as the converting
holder has specified;
(B) payment in an amount equal to all accrued dividends with
respect to each share of Series C Preferred converted, which have not been
paid prior
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thereto, plus the amount payable under subparagraph (viii) below with
respect to such conversion; and
(C) a certificate representing any shares of Series C Preferred
which were represented by the certificate or certificates delivered to the
Corporation in connection with such conversion but which were not
converted.
(v) If the Corporation is not permitted under applicable law to
pay any portion of the accrued dividends on the Series C Preferred being
converted, the Corporation shall pay such dividends to the converting holder as
soon thereafter as funds of the Corporation are legally available for such
payment. At the request of any such converting holder, the Corporation shall
provide such holder with written evidence of its obligation to such holder.
(vi) The issuance of certificates for shares of Conversion Stock
upon conversion of Series C Preferred shall be made without charge to the
holders of such Series C Preferred for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Conversion Stock. Upon conversion of each
share of Series C Preferred, the Corporation shall take all such actions as are
necessary in order to insure that the Conversion Stock issuable with respect to
such conversion shall be validly issued, fully paid and nonassessable.
(vii) The Corporation shall assist and cooperate with any holder of
shares of Series C Preferred required to make any governmental filings or obtain
any governmental approval prior to or in connection with any conversion of
shares of Series C Preferred hereunder (including, without limitation, making
any filings required to be made by the Corporation).
(viii) If any fractional interest in a share of Conversion Stock
would, except for the provisions of this subparagraph, be deliverable upon any
conversion of the Series C Preferred, the Corporation, in lieu of delivering the
fractional share therefor, shall pay an amount to the holder thereof equal to
the Market Price of such fractional interest as of the date of conversion.
(ix) If the shares of Conversion Stock issuable by reason of such
conversion of Series C Preferred are convertible into or exchangeable for any
other stock or securities of the Corporation, the Corporation shall, at the
converting holder's option, upon surrender of the shares of Series C Preferred
to be converted by such holder as provided above together with any notice,
statement or payment required to effect such conversion or exchange of
Conversion Stock, deliver to such holder or as otherwise specified by such
holder a certificate or certificates representing the stock or securities
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into which the shares of Conversion Stock issuable by reason of such
conversion are so convertible or exchangeable, registered in such name or
names and in such denomination or denominations as such holder has specified.
(b) CONVERSION PRICE.
(i) The initial "Series C Conversion Price" shall be an amount
equal to the average per share price paid for the Series C Preferred by the
holders thereof (the "Series C Conversion Price"). In order to prevent dilution
of the conversion rights granted under this subdivision, the Series C Conversion
Price shall be subject to adjustment from time to time pursuant to this Section
(D)(5).
(ii) If and whenever on or after the original date of issuance of
the Series C Preferred the Corporation issues or sells, or in accordance with
Section (D)(5)(c) is deemed to have issued or sold, any shares of its Common
Stock for a consideration per share less than the Series C Conversion Price in
effect immediately prior to the time of such issuance or sale, then forthwith
upon such issue or sale the Series C Conversion Price shall be reduced to the
Series C Conversion Price determined by dividing (a) the sum of (1) the product
derived by multiplying the Series C Conversion Price in effect immediately prior
to such issue or sale by the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (2) the consideration, if any,
received by the Corporation upon such issue or sale, by (b) the number of shares
of Common Stock Deemed Outstanding immediately after such issue or sale;
provided that there shall be no adjustment in the Series C Conversion Price as a
result of any issuance or sale (or deemed issuance or sale) of (i) up to an
aggregate of 1,600,000 shares of Common Stock to directors, officers, employees
or consultants of the Corporation pursuant to stock option plans and stock
ownership plans and issuances approved by the Corporation's board of directors
under which the Corporation may grant options to purchase or otherwise acquire
Common Stock ("Options"), (ii) up to an aggregate of 354,811 shares of Common
Stock pursuant to warrant agreements outstanding on May 14, 1999 (as such number
of shares is proportionately adjusted for subsequent stock splits, combinations
and dividends affecting the Common Stock and as such number includes all such
employee stock options and purchase rights outstanding at the time of the
issuance of the Series C Preferred), (iii) shares of Common Stock issued or
issuable upon conversion or in exchange for the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock (collectively the
"Preferred"), (iv) shares of Common Stock issued or issuable as a dividend or
distribution on the Preferred, or any other share of Common Stock or other
security convertible into or exchangeable or exercisable for shares of Common
Stock that are designated as excluded from adjustment of the Series C Conversion
Price by the vote or written consent of at least a majority of the then
outstanding shares of Series C Preferred.
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(c) EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Series C Conversion Price under Section (D)(5)(b),
the following shall be applicable after the date of the original issuance of the
Series C Preferred:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation in any
manner grants any securities convertible into or otherwise exchangeable for
Common Stock ("Convertible Securities") or Options 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 C
Conversion Price in effect immediately prior to the time of the issuance or sale
of such Convertible Securities or granting of such Options, then the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon conversion or exchange of the total maximum amount of such
Convertible Securities shall be deemed to be outstanding and to have been issued
and sold by the Corporation at the time of the issuance or sale of such
Convertible Securities or granting of such Options for such price per share.
For purposes of this paragraph, the "price per share for which Common Stock is
issuable" shall be determined by dividing (A) the total amount, if any, received
or receivable by the Corporation as consideration for the issuance or sale of
such Convertible Securities or granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation upon
exercise of all such Options or issuance or sale of such Convertible Securities,
plus in the case of such Options which relate to Convertible Securities and in
the case of Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the issuance of sale or
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, including Convertible Securities issuable upon the exchange of such
Options. No further adjustment of the Series C Conversion Price shall be made
when Convertible Securities are actually issued upon the exercise of such
Options or Common Stock is actually issued upon the exercise of such Options or
upon the conversion or exchange of such Convertible Securities.
(d) EFFECT ON CONVERSION PRICE OF CERTAIN OTHER EVENTS. For
purposes of determining the adjusted Series C Conversion Price under Section
(D)(5)(b), the following shall be applicable at all times after the original
issuance of the Series C Preferred:
(i) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase
price provided for in any Option, the additional consideration (if any) payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any
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Convertible Securities are convertible into or exchangeable for Common Stock
change at any time, the Series C Conversion Price in effect at the time of
such change shall be readjusted to the Series C Conversion Price which would
have been in effect at such time had such Option or Convertible Securities
originally 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.
(ii) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED CONVERTIBLE
SECURITIES. Upon the expiration of any Option or the termination of any right
to convert or exchange any Convertible Securities without the exercise of any
such Option or right, the Series C Conversion Price then in effect hereunder
shall be adjusted to the Series C Conversion Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(iii) CALCULATION OF CONSIDERATION RECEIVED. If any Common Stock,
Option or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the gross amount received by the Corporation 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
Corporation shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Corporation shall be the Market Price thereof as of the date of
receipt. If any Common Stock, Option or Convertible Securities are issued to
the owners of the non-surviving entity in connection with any merger in which
the Corporation is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the net assets
and business of the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may be. The fair value of
any consideration other than cash and securities shall be determined in good
faith by the Board of Directors of the Corporation.
(iv) TREASURY SHARES. 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 Corporation, and the disposition of any shares so owned or
held shall be considered an issue or sale of Common Stock.
(v) RECORD DATE. If the Corporation 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 in
Convertible Securities or (b) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date shall 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
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the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(e) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Corporation 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 C Conversion Price in
effect immediately prior to such subdivision shall be proportionately reduced,
and if the Corporation 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 C Conversion Price in effect immediately
prior to such combination shall be proportionately increased.
(f) REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Corporation's assets to another
Person or other transaction which is effected in such a manner that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as an "Organic Change." Prior to the
consummation of any Organic Change, the Corporation shall make appropriate
provisions (in form and substance reasonably satisfactory to the holders of a
majority of the Series C Preferred then outstanding) to insure that each of the
holders of Series C Preferred shall thereafter have the right to acquire and
receive, in lieu of or in addition to (as the case may be) the shares of
Conversion Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Series C Preferred, such shares of stock, securities
or assets as such holder would have received in connection with such Organic
Change if such holder had converted its Series C Preferred immediately prior to
such Organic Change. In each such case, the Corporation shall also make
appropriate provisions (in form and substance satisfactory to the holders of a
majority of the Series C Preferred then outstanding) to insure that the
provisions of this Section (D)(5) and Sections (D)(6) and (D)(7) hereof shall
thereafter be applicable to the Series C Preferred (including, in the case of
any such consolidation, merger or sale in which the successor entity or
purchasing entity is other than the Corporation, an immediate adjustment of the
Series C Conversion Price to the value for the Common Stock reflected by the
terms of such consolidation, merger or sale, and a corresponding immediate
adjustment in the number of shares of Conversion Stock acquirable and receivable
upon conversion of Series C Preferred, if the value so reflected is less than
the Series C Conversion Price in effect immediately prior to such consolidation,
merger or sale). The Corporation shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor
corporation (if other than the Corporation) resulting from consolidation or
merger or the corporation purchasing such assets assumes by written instrument
(in form satisfactory to the holders of a majority of the Series C Preferred
then outstanding), the obligation to deliver to each such holder
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such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
(g) CERTAIN EVENTS. If any event occurs of the type contemplated
by the provisions of this Section (D)(5) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Corporation's board of directors shall make an appropriate adjustment in the
Series C Conversion Price so as to protect the rights of the holders of Series C
Preferred; provided that no such adjustment shall increase the Series C
Conversion Price as otherwise determined pursuant to this Section (D)(5) or
decrease the number of shares of Conversion Stock issuable upon conversion of
each share of Series C Preferred.
(h) NOTICES.
(i) Upon any adjustment of the Series C Conversion Price, the
Corporation shall give written notice thereof to all holders of Series C
Preferred, setting forth in reasonable detail and certifying the calculation of
such adjustment.
(ii) The Corporation shall give written notice to all holders of
Series C Preferred at least 10 days prior to the date on which the Corporation
closes its books or takes a record (a) with respect to any dividend or
distribution upon Common Stock, or (b) with respect to any pro rata subscription
offer to holders of Common Stock or at least 20 days prior for determining
rights to vote with respect to any Organic Change, dissolution or liquidation.
(iii) The Corporation shall also give written notice to the holders
of Series C Preferred at least 20 days prior to the date on which any Organic
Change shall take place.
(i) MANDATORY CONVERSION. The Corporation may at any time
require the conversion of all of the outstanding Series C Preferred if the
Corporation is at such time consummating a Qualified Public Offering, with such
mandatory conversion only to be effected at the time of and subject to the
closing of the sale of such shares pursuant to such Qualified Public Offering;
or if the holders of a majority of the outstanding shares of Series C Preferred
elect by affirmative vote or written consent to convert.
(6) PURCHASE RIGHTS. If at any time the Corporation grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then each holder of Series C Preferred
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such
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holder could have acquired if such holder had held the number of shares of
Conversion Stock acquirable upon conversion of such holder's Series C
Preferred immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
(7) REGISTRATION OF TRANSFER. The Corporation shall keep at its
principal office a register for the registration of Series C Preferred. Upon
the surrender of any certificate representing Series C Preferred at such place,
the Corporation shall, at the request of the record holder of such certificate,
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor representing in the aggregate the number of
shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of shares as is
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Series C Preferred represented by such new certificate from
the date to which dividends have been fully paid on such Series C Preferred
represented by the surrendered certificate.
(8) REPLACEMENT. Upon receipt of evidence reasonably satisfactory to
the Corporation (an affidavit of the registered holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of any Series C Preferred, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at such shareholder's expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the number of shares represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Series C Preferred represented by
such new certificate from the date to which dividends have been fully paid on
such lost, stolen, destroyed or mutilated certificate.
(9) DEFINITIONS. As used in this Section (D) only, the following terms
shall have the following meanings:
"COMMON STOCK" means, collectively, the Corporation's Common Stock.
"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
Section (D)(5)(c)
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hereof whether or not the Options or Convertible Securities are actually
exercisable at such time.
"CONVERSION STOCK" means shares of the Corporation's Common Stock;
provided that if there is a change such that the securities issuable upon
conversion of the Series C Preferred are issued by an entity other than the
Corporation or there is a change in the class of securities so issuable, then
the term "Conversion Stock" shall mean one share of the security issuable upon
conversion of the Series C Preferred if such security is issuable in shares, or
shall mean the smallest unit in which such security is issuable if such security
is not issuable in shares.
"CONVERTIBLE SECURITIES" has the meaning provided in
Section (D)(5)(c).
"JUNIOR SECURITIES" means the Corporation's Series A Preferred Stock
and Series B Preferred Stock.
"LIQUIDATION VALUE" of any share of Series C Preferred as of any
particular date shall be an amount equal to the average per share price paid for
the Series C Preferred by the holders thereof.
"MARKET PRICE" of any security means the average of the closing
prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
The Nasdaq Stock Market as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in The Nasdaq Stock Market, the average of the highest
bid and lowest asked prices on such day in the domestic over-the-counter market
as reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the
20 consecutive business days prior to such day. If at any time such security is
not listed on any securities exchange or quoted in The Nasdaq Stock Market or
the over-the-counter market, the "Market Price" shall be the fair value thereof
determined in good faith by the Board of Directors of the Corporation.
"NET PROCEEDS" means gross consideration paid to the Corporation
upon a liquidation event less any commissions or other expenses payable by the
Corporation in connection therewith.
"OPTIONS" has the meaning provided in Section (D)(5)(b).
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"ORGANIC CHANGE" has the meaning provided in Section (D)(5)(f).
"PERSON" means an individual, a partnership, a corporation, limited
liability company, 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.
"PURCHASE RIGHTS" has the meaning provided in Section (D)(6).
"QUALIFIED PUBLIC OFFERING" means the sale in an underwritten public
offering registered under the Securities Act of 1933, as amended, of shares of
the Common Stock in which (i) the aggregate price paid by the public for the
shares shall be at least $10,000,000, and (ii) the price per share paid by the
public for such shares shall be at least two times an amount equal to the
average per share price paid for the Series C Preferred by the holders thereof.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of May 17, 1999 by and among the Corporation and the holders
of the Series C Preferred.
(10) AMENDMENT AND WAIVER. No amendment, modification or waiver shall be
binding or effective with respect to any provision of this Section (D) without
the prior written consent of the holders of at least a majority of the Series C
Preferred outstanding at the time such action is taken; provided that no such
action shall change (a) the amount payable on redemption of the Series C
Preferred or the times at which redemption of Series C Preferred is to occur,
without the prior written consent of the holders of at least 90% of the Series C
Preferred then outstanding, (b) the Series C Conversion Price of the Series C
Preferred or the number of shares or class of stock into which the Series C
Preferred is convertible, without the prior written consent of the holder of at
least 90% of the Series C Preferred then outstanding or (c) the percentage
required to approve any change described in clauses (a) and (b) above, without
the prior written consent of the holders of at least 90% of the Series C
Preferred then outstanding; and provided further that no change in the terms
hereof may be accomplished by merger or consolidation of the Corporation with
another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of at least 90% of the Series C Preferred.
(11) NOTICES. Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, by
reputable overnight courier service, charges prepaid, or by electronic mail or
facsimile transmission and shall be deemed to have been given when so mailed or
sent (i) to the Corporation, at its principal executive offices, attention
President; and (ii) to any shareholder, at such holder's
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address as it appears in the stock records of the Corporation (unless
otherwise indicated by any such holder).
ARTICLE III
NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the Board of Directors, no holder
of any shares of this Corporation shall have any preemptive right to purchase,
subscribe for or otherwise acquire any securities of this Corporation of any
class or kind now or hereafter authorized.
ARTICLE IV
NUMBER OF DIRECTORS
This Corporation shall have at least one director, the actual number to be
fixed in accordance with the Bylaws. The initial Board of Directors shall
consist of (1) Director.
ARTICLE V
CUMULATIVE VOTING
There shall be no cumulative voting of shares in this Corporation.
ARTICLE VI
LIMITATION ON DIRECTOR LIABILITY
To the fullest extent permitted by Washington law and subject to the
Bylaws of this Corporation, a director of this Corporation shall not be liable
to the Corporation or its shareholders for monetary damages for his or her
conduct as a director. Any amendment to or repeal of this Article shall not
adversely affect any right of a director of this Corporation hereunder with
respect to any acts or omissions of the director occurring prior to amendment or
repeal.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS
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To the fullest extent permitted by its Bylaws and Washington law, this
corporation is authorized to indemnify any of its directors. The Board of
Directors shall be entitled to determine the terms of indemnification, including
advance of expenses, and to give effect thereto through the adoption of Bylaws,
approval of agreements, or by any other manner approved by the Board of
Directors. Any amendment to or repeal of this Article shall not adversely
affect any right of an individual with respect to any right to indemnification
arising prior to such amendment or repeal
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ARTICLE VIII
REGISTERED OFFICE AND REGISTERED AGENT
The name of the registered agent of this Corporation and the street
address of its registered office are as follows:
Noelle E. Cooper
Heller Ehrman White & McAuliffe
701 Fifth Avenue, Suite 6100
Seattle, Washington 98104
ARTICLE IX
SHAREHOLDER ACTION WITHOUT A MEETING BY LESS THAN UNANIMOUS CONSENT
Any action required or permitted to be taken at a meeting of shareholders
of the Corporation may be taken without a meeting or a vote if the action is
taken by shareholders holding of record or otherwise entitled to vote in the
aggregate 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
on the action were present and voted, provided that at the time the action is
taken the Corporation is not a Public Company (as defined in the Washington
Business Corporation Act, as amended, the "Act"). Notice of the taking of
action by shareholders without a meeting by less than unanimous written consent
of all shareholders entitled to vote on the action shall be given to those
shareholders entitled to vote on the action who have not consented in writing
such that such notice shall be deemed effective (in the manner described below)
no fewer than twenty four hours before the effective date of the action, except
where longer notice is required under the Act. The notice shall be in writing
and may be transmitted by: mail, private carrier or personal delivery;
telegraph or teletype; telephone, wire or wireless equipment which transmits a
facsimile of the notice; or by any other means permitted by the Act. Written
notice shall be effective as provided in Section 23B.01.410 of the Act
(specifically including paragraph 5(a) thereof) or any successor provisions
thereto.
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IN WITNESS WHEREOF, the undersigned certifies that he or she is an officer
of the Corporation and has executed these Amended and Restated Articles of
Incorporation in an official and authorized capacity under penalty of perjury on
this 24 day of May, 1999.
GREATFOOD.COM, INC.
By:______________________________
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AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
GREATFOOD.COM, INC.
ARTICLE I
NAME
The name of the Corporation is GreatFood.com, Inc.
ARTICLE II
CAPITAL STOCK
(a) AUTHORIZED CAPITAL. The total number of shares which the corporation
is authorized to issue is eighty million (80,000,000), consisting of sixty
million (60,000,000) shares of common stock, no par value, and twenty million
(20,000,000) shares of preferred stock, no par value. Shares shall be issued at
such prices as shall be determined by the Board of Directors. The common stock
is subject to the rights and preferences of the preferred stock as hereinafter
set forth.
(b) ISSUANCE OF PREFERRED STOCK IN SERIES. The preferred stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Restated Articles of Incorporation, as determined
from time to time by the Board of Directors and stated in the resolution or
resolutions providing for the issuance thereof, prior to the issuance of any
shares thereof. The Board of Directors shall have the authority to fix and
determine and to amend, subject to the provisions hereof, the rights and
preferences of the shares of any series that is wholly unissued or to be
established. Unless otherwise specifically provided in the resolution
establishing any series, the Board of Directors shall further have the
authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding.
(c) DIVIDENDS. The holders of shares of the preferred stock shall be
entitled to receive dividends, out of the funds of the corporation legally
available therefor, at the rate and at the time or times as may be provided
by the Board of Directors in designating a particular series of preferred
stock. If such dividends on the preferred stock shall be cumulative, and if
dividends shall not have been paid, then the deficiency shall be fully paid
or the dividends declared and set apart for payment at such rate, but without
interest on cumulative dividends, before any dividends on the common stock
shall be paid or
<PAGE>
declared and set apart for payment. The holders of the preferred stock
shall not be entitled to receive any dividends thereon other than the
dividends referred to in this section, unless otherwise provided by the Board
of Directors in designating a particular series of preferred stock.
(d) REDEMPTION. The preferred stock may be redeemable in such amounts,
and at such time or times, as may be provided by the Board of Directors in
designating a particular series of preferred stock. In any event, such
preferred stock may be repurchased by the corporation to the extent legally
permissible.
(e) LIQUIDATION. In the event of any liquidation, dissolution or winding
up of the affairs of the corporation, whether voluntary or involuntary, then,
before any distribution shall be made to the holders of the common stock, the
holders of the preferred stock at the time outstanding shall be entitled to be
paid the preferential amount or amounts per share as may be provided by the
Board of Directors in designating a particular series of preferred stock plus
dividends accrued thereon to the date of such payment. The holders of the
preferred stock shall not be entitled to receive any distributive amounts upon
the liquidation, dissolution or winding up of the affairs of the corporation
other than the distributive amounts referred to in this section, unless
otherwise provided by the Board of Directors in designating a particular series
of preferred stock.
(f) CONVERSION. Shares of preferred stock may be convertible to shares of
common stock at such rate and subject to such adjustments as may be provided by
the Board of Directors in designating a particular series of preferred stock.
(g) VOTING RIGHTS. Holders of preferred stock shall have such voting
rights as may be provided by the Board of Directors in designating a particular
series of preferred stock.
ARTICLE III
DIRECTORS; REMOVAL OF DIRECTORS
The number of directors which shall constitute the entire Board of
Directors of this corporation shall be not be less than three (3) nor more than
eleven (11), the number of which shall be fixed from time to time by resolution
of the Board of Directors. The Board shall be divided into three classes:
Class I Directors, Class II Directors and Class III Directors. Each such class
of directors shall be as nearly equal in number of directors as possible. Each
director shall serve for a term ending at the third annual shareholders' meeting
following the annual meeting at which such director was elected; provided,
however, that the directors first elected as Class I Directors shall serve for a
term ending at the annual meeting to be held in the year following the first
election of directors by classes, the directors first elected as Class II
Directors shall serve for a term ending at the annual
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meeting to be held in the second year following the first election of
directors by classes and the directors first elected as Class III Directors
shall serve for a term ending at the annual meeting to be held in the third
year following the first election of directors by classes. Notwithstanding
the foregoing, each director shall serve until his or her successor shall
have been elected and qualified or until his or her earlier death,
resignation or removal.
At each annual election, the directors chosen to succeed those whose terms
then expire shall be identified as being of the same class as the directors they
succeed, unless, by reason of any intervening changes in the authorized number
of directors, the Board shall designate one or more directorships whose terms
then expire as directorships of another class in order more nearly to achieve
equality in the number of directors among the classes. Newly created
directorships resulting from any increase in the number of directors or any
vacancies on the Board of Directors resulting from death, resignation, removal
or other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors. Any director elected to fill a vacancy in accordance with the
preceding sentence shall be of the same class as the director he or she succeeds
and shall hold office for the remainder of the full term of such class, unless,
by reason of any previous changes in the authorized number of directors, the
Board shall designate the vacant directorship as a directorship of another class
in order more nearly to achieve equality in the number of directors among the
classes.
Notwithstanding the rule that the three classes shall be as nearly equal in
number of directors as possible, upon any change in the authorized number of
directors, each director then continuing to serve as such will nevertheless
continue as a director of the class of which he or she is a member, until the
expiration of his or her current term or his or her earlier death, resignation
or removal. If there are any newly created directorships or vacancies on the
Board, the Board shall allocate any such directorship or vacancy to that of the
available classes of directors whose term of office is due to expire at the
earliest date following such allocation.
At any meeting of shareholders called expressly for that purpose, the
entire Board of Directors, or any member thereof, may be removed from office at
any time, but only (1) for cause and (2) by the affirmative vote of the holders
of a majority of shares then entitled to vote at an election of such directors.
Where a question of removal of a director for cause is to be presented for
shareholder consideration, an opportunity must be provided such director to
present his or her defense to the shareholders by a statement which must
accompany or precede the notice of the meeting at which removal of such director
for cause shall be considered. Under such circumstances the director involved
shall be served with notice of the meeting at which such action is proposed to
be taken together with a statement of the specific charges and shall be given an
opportunity to be present and to be heard at the meeting at which his or her
removal is considered.
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ARTICLE IV
SHAREHOLDER VOTING REQUIREMENTS FOR CERTAIN TRANSACTIONS
(a) Definitions. For purposes of this Article IV:
(i) "Business Combination" means (a) a merger, share exchange
or consolidation of this corporation or any of its Subsidiaries with any other
corporation or other entity; (b) the sale, lease, exchange, mortgage, pledge,
transfer or other disposition or encumbrance, whether in one transaction or a
series of transactions, by this corporation or any of its Subsidiaries of all or
a substantial part of this corporation's assets otherwise than in the usual and
regular course of business; or (c) any agreement, contract or other arrangement
providing for any of the foregoing transactions.
(ii) "Subsidiary" means a domestic or foreign corporation that
has a majority of its outstanding voting shares owned, directly or indirectly,
by this corporation.
(iii) "Continuing Director" means any member of the Board of
Directors (i) who was a member of the Board of Directors on the date of closing
of the Company's initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Effective Date"),
or (ii) who is elected or appointed to the Board of Directors after the
Effective Date, after being nominated by a majority of the Continuing Directors
voting separately and as a subclass of directors on such nomination.
(b) Vote Required for Business Combinations.
(i) Except as provided in subsection (b)(ii) of this
Article IV, the affirmative vote of the holders of not less than two-thirds of
the outstanding shares of stock entitled to vote thereon and, to the extent, if
any, provided by resolution adopted by the Board of Directors authorizing the
issuance of a class or series of Common Stock or Preferred Stock, the
affirmative vote of the holders of not less than two-thirds of the outstanding
shares of such class or series, voting as a separate voting group, shall be
required for the adoption or authorization of a Business Combination.
(ii) Notwithstanding subsection (b)(i) of this Article IV, if a
Business Combination shall have been approved by a majority of the Continuing
Directors, voting separately and as a subclass of Directors, and is otherwise
required by law to be approved by this corporation's shareholders, the
affirmative vote of not less than a majority of the outstanding shares of stock
entitled to vote thereon and, to the extent, if any, provided by resolution
adopted by the Board of Directors authorizing the issuance of a class or series
of common stock or preferred stock, the affirmative vote of the holders of
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not less than a majority of the outstanding shares of such class or series,
voting as separate voting group, shall be required for the adoption or
authorization of such Business Combination.
ARTICLE V
AMENDMENTS TO ARTICLES OF INCORPORATION
This corporation reserves the right to amend, alter, change or repeal any
provision contained in these Amended and Restated Articles of Incorporation by
the affirmative vote of the holders of two-thirds of the outstanding shares and,
to the extent, if any provided by resolution or resolutions of the Board of
Directors providing for the issue of a series of Common Stock or Preferred
Stock, not less than two-thirds of the outstanding shares entitled to vote
thereon, voting as a class; provided that Article I and Articles VII through XI
may be amended in any manner now or hereafter permitted by law. The rights of
the shareholders of this corporation are granted subject to this reservation.
ARTICLE VI
AMENDMENT TO BYLAWS BY SHAREHOLDERS
The shareholders shall have the power to adopt, amend or repeal the Bylaws
of this corporation by the affirmative vote of the holders of not less than
two-thirds of the outstanding shares, and, to the extent, if any, provided by
resolution or resolutions of the Board of Directors providing for the issuance
of a series of Common or Preferred Stock, not less than two-thirds of the
outstanding shares of such class or series entitled to vote thereon, voting as a
class. The rights of the shareholders of this corporation are granted subject
to this reservation. Any Bylaw of this corporation may be amended or repealed
at any time by the Board of Directors in the manner provided in the Bylaws;
provided, however, that the Board of Directors may not repeal or amend any Bylaw
that the shareholders have expressly provided may not be amended or repealed by
the Board of Directors.
ARTICLE VII
LIMITATION OF DIRECTORS' LIABILITY
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for his or her conduct as a
director on or after the date this Article becomes effective, except for:
(i) acts or omissions that involve intentional misconduct or a knowing violation
of law by the director, (ii) approval of certain distributions or loans in
violation of RCW 23B.08.310, or (iii) any transaction from which the director
will personally receive a benefit in money, property or services to which the
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director is not legally entitled. If the Washington Business Corporation Act,
is amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
corporation shall be eliminated or limited to the fullest extent permitted by
the Washington Business Corporation Act, as so amended. Any amendment to or
repeal of this Article shall not adversely affect any right or protection of a
director of the corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) RIGHT TO INDEMNIFICATION. Each person who was, or is threatened to be
made a party to or is otherwise involved (including, without limitation, as a
witness) in any actual or threatened action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was serving at the request of the corporation as a director, trustee,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, trustee officer, employee or agent or in any
other capacity while serving as a director, trustee, officer, employee or agent,
shall be indemnified and held harmless by the corporation, to the full extent
permitted by applicable law as then in effect, against all expense, liability
and loss (including attorney's fees, judgments, fines ERISA excise taxes or
penalties and amounts to be paid in settlement) actually and reasonably incurred
or suffered by such person in connection therewith, and such indemnification
shall continue as to a person who has ceased to be a director, trustee, officer,
employee or agent and shall inure to the benefit of his or her heirs, executors
and administrators; PROVIDED, HOWEVER, that except as provided in Section (b) of
this Article with respect to proceedings seeking to enforce rights to
indemnification, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
board of directors of the corporation. The right to indemnification conferred
in this Section (a) shall be a contract right and shall include the right to be
paid by the corporation the expenses incurred in defending any such proceeding
in advance of its final disposition; PROVIDED, HOWEVER, that the payment of such
expenses in advance of the final disposition of a proceeding shall be made only
upon delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section (a) or otherwise.
(b) RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section (a) of this
Article is not paid in full by the corporation within sixty (60) days after a
written claim has been received by the corporation, except in the case of a
claim for expenses incurred in
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defending a proceeding in advance of its final disposition, in which case the
applicable period shall be twenty (20) days, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim against the corporation to recover the unpaid amount of the claim
and, to the extent successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. The claimant
shall be presumed to be entitled to indemnification under this Article upon
submission of a written claim (and, in an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition, where the required undertaking has been tendered to the
corporation), and thereafter the corporation shall have the burden of proof
to overcome the presumption that the claimant is not so entitled. Neither
the failure of the corporation (including its board of directors, independent
legal counsel or its shareholders) to have made a determination prior to the
commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances nor an
actual determination by the corporation (including its board of directors,
independent legal counsel or its shareholders) that the claimant is not
entitled to indemnification or to the reimbursement or advancement of
expenses shall be a defense to the action or create a presumption that the
claimant is not so entitled.
(c) NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Articles of Incorporation, Bylaws, agreement, vote of shareholders or
disinterested directors or otherwise.
(d) INSURANCE CONTRACTS AND FUNDING. The corporation may maintain
insurance, at its expense, to protect itself and any director, trustee, officer,
employee or agent of the corporation or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not the corporation would have the power to indemnify such person
against such expense, liability or loss under the Washington Business
Corporation Act. The corporation may, without further shareholder action, enter
into contracts with any director or officer of the corporation in furtherance of
the provisions of this Article and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article.
(e) INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
corporation may, by action of its board of directors from time to time, provide
indemnification and pay expenses in advance of the final disposition of a
proceeding to employees and agents of the corporation with the same scope and
effect as the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the corporation or pursuant
to rights granted pursuant to, or provided by, the Washington Business
Corporation Act or otherwise.
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ARTICLE IX
NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the Board of Directors, no holder of
any shares of this Corporation shall have any preemptive right to purchase,
subscribe for or otherwise acquire any securities of this Corporation of any
class or kind now or hereafter authorized.
ARTICLE X
CUMULATIVE VOTING
There shall be no cumulative voting of shares in this Corporation.
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ARTICLE XI
REGISTERED OFFICE AND REGISTERED AGENT
The name of the registered agent of this Corporation and the street address
of its registered office are as follows:
Noelle E. Cooper
Heller Ehrman White & McAuliffe
701 Fifth Avenue, Suite 6100
Seattle, Washington 98104
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IN WITNESS WHEREOF, the undersigned certifies that he or she is an officer
of the Corporation and has executed these Amended and Restated Articles of
Incorporation in an official and authorized capacity under penalty of perjury on
this ____ day of ___, 1999.
GREATFOOD.COM, INC.
By:______________________________
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AMENDED AND RESTATED BYLAWS
OF
GREATFOOD.COM, INC.
1. SHAREHOLDERS AND SHAREHOLDERS' MEETINGS
1.1 ANNUAL MEETING. The annual meeting of the shareholders of this
corporation (the "Corporation") the election of directors and for the
transaction of such other business as may properly come before the meeting
shall be held each year at the principal office of the Corporation, or at
some other place either within or without the State of Washington as
designated by the Board of Directors, on the day and at the time determined
by the board of directors of this corporation.
1.2 SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes may be called at any time by the Board of Directors, the
Chairman of the Board, the President, a majority of the Board of Directors,
or any shareholder or shareholders holding in the aggregate ten percent of
the voting power of all shareholders. The meetings shall be held at such
time and place as the Board of Directors may prescribe, or, if not held upon
the request of the Board of Directors, at such time and place as may be
established by the President or by the Secretary in the President's absence.
Only business within the purpose or purposes described in the meeting notice
may be conducted.
1.3 NOTICE OF MEETINGS. Written notice of the place, date and time of
the annual shareholders' meeting and written notice of the place, date, time
and purpose or purposes of special shareholders' meetings shall be delivered
not less than 10 (or, if required by Washington law, 20) or more than 60 days
before the date of the meeting, either personally, by facsimile, or by mail,
or in any other manner approved by law, by or at the direction of the
President or the Secretary, to each shareholder of record entitled to notice
of such meeting. Mailed notices shall be deemed to be delivered when
deposited in the mail, first-class postage prepaid, correctly addressed to
the shareholder's address shown in the Corporation's current record of
shareholders.
1.4 WAIVER OF NOTICE. Except where expressly prohibited by law or the
Articles of Incorporation, notice of the place, date, time and purpose or
purposes of any shareholders' meeting may be waived in a signed writing
delivered to the Corporation by any shareholder at any time, either before or
after the meeting. Attendance at the meeting in person or by proxy waives
objection to lack of notice or defective notice of the meeting unless the
shareholder at the beginning of the meeting objects to holding the meeting or
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transacting business at the meeting. A shareholder waives objection to
consideration of a particular matter at a meeting that is not within the
purpose or purposes described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.
1.5 SHAREHOLDERS' ACTION WITHOUT A MEETING. Any action required or
permitted to be taken at a meeting of shareholders of the Corporation may be
taken without a meeting or a vote if one or more consents setting forth the
action so taken signed by all the shareholders entitled to vote on the action
are delivered to the Corporation for inclusion in the minutes or filing with
the corporate records. If required by Washington law, all nonvoting
shareholders must be given written notice of the proposed action at least ten
days before the action is taken, unless such notice is waived in a manner
consistent with these Bylaws. Actions taken under this section are effective
when all consents are in the possession of the Corporation, unless otherwise
specified in the consent. A shareholder may withdraw consent only by
delivering a written notice of withdrawal to the Corporation prior to the
time that all consents are in possession of the Corporation.
1.6 TELEPHONE MEETINGS. To the extent permitted by a resolution of
the Board of Directors, shareholders may participate in a meeting of
shareholders by means of a conference telephone or any similar communications
equipment that enables all persons participating in the meeting to hear each
other during the meeting. Participation by such means shall constitute
presence in person at a meeting.
1.7 LIST OF SHAREHOLDERS. At least ten days before any shareholders'
meeting, the Secretary of the Corporation or the agent having charge of the
stock transfer books of the Corporation shall have compiled a complete list
of the shareholders entitled to notice of a Shareholders meeting, arranged in
alphabetical order and by voting group, with the address of each shareholder
and the number, class, and series, if any, of shares owned by each.
1.8 QUORUM AND VOTING. The presence in person or by proxy of the
holders of a majority of the votes entitled to be cast on a matter at a
meeting shall constitute a quorum of shareholders for that matter. If a
quorum exists, action on a matter shall be approved by a voting group if the
votes cast within a voting group favoring the action exceed the votes cast
within the voting group opposing the action, unless a greater number of
affirmative votes is required by the Articles of Incorporation or by law. If
the Articles of Incorporation or Washington law provide for voting by two or
more voting groups on a matter, action on a matter is taken only when voted
upon by each of those voting groups counted separately. Action may be taken
by one voting group on a matter even though no action is taken by another
voting group.
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1.9 ADJOURNED MEETINGS. If a shareholders' meeting is adjourned to a
different place, date or time, whether for failure to achieve a quorum or
otherwise, notice need not be given of the new place, date or time if the new
place, date or time is announced at the meeting before adjournment. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in these Bylaws, that determination shall apply to
any adjournment thereof, unless Washington law requires fixing a new record
date. If Washington law requires that a new record date be set for the
adjourned meeting, notice of the adjourned meeting must be given to
shareholders as of the new record date. Any business may be transacted at an
adjourned meeting that could have been transacted at the meeting as
originally called.
1.10 PROXIES. A shareholder may appoint a proxy to vote or otherwise
act for the shareholder by signing an appointment form, either personally or
by an agent. No appointment shall be valid after 11 months from the date of
its execution unless the appointment form expressly so provides. An
appointment of a proxy is revocable unless the appointment is coupled with an
interest. No revocation shall be effective until written notice thereof has
actually been received by the Secretary of the Corporation or any other
person authorized to tabulate votes.
1.11 ADVANCE NOTICE OF SHAREHOLDER NOMINATIONS AND PROPOSALS.
Nominations of persons for election to the Board and the proposal of business
to be transacted by the shareholders may be made at an annual meeting of
shareholders (a) pursuant to the Corporation's notice with respect to such
meeting, (b) by or at the direction of the Board or (c) by any shareholder of
record of the Corporation who was a shareholder of record at the time of the
giving of the notice provided for in the following paragraph, who is entitled
to vote at the meeting and who has complied with the notice procedures set
forth in this section.
For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of the foregoing
paragraph, the shareholder must have given timely notice thereof in writing
to the Secretary of the Corporation. To be timely, a shareholder's notice
shall be delivered to the Secretary at the principal executive offices of the
Corporation not less than 60 or more than 90 days prior to the first
anniversary (the "Anniversary") of the date on which the Corporation first
mailed its proxy materials for the preceding year's annual meeting of
shareholders; provided, however, that if the date of the annual meeting is
advanced more than 30 days prior to or delayed by more than 30 days after the
anniversary of the preceding year's annual meeting, notice by the shareholder
to be timely must be so delivered not later than the close of business on the
later of (i) the 60th day prior to such annual meeting or (ii) the 10th day
following the day on which public announcement of the date of such meeting is
first made. Such shareholder's notice shall set forth (a) as to each person
whom the shareholder proposes to nominate for election or reelection as a
director all information relating to such person as would be
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required to be disclosed in solicitations of proxies for the election of such
nominees as directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and such person's
written consent to serve as a director if elected; (b) as to any other
business that the shareholder proposes to bring before the meeting, a brief
description of such business, the reasons for conducting such business at the
meeting and any material interest in such business of such shareholder and
the beneficial owner, if any, on whose behalf the proposal is made; and (c)
as to the shareholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination or proposal is made (i) the name and address of
such shareholder, as they appear on the Corporation's books, and of such
beneficial owner, and (ii) the class and number of shares of the Corporation
that are owned beneficially and of record by such shareholder and such
beneficial owner.
Notwithstanding anything in this Section 1.11 to the contrary, in the
event that the number of directors to be elected to the Board is increased
and there is no public announcement naming all of the nominees for director
or specifying the size of the increased Board made by the Corporation at
least 70 days prior to the Anniversary, a shareholder's notice required by
this Bylaw shall also be considered timely, but only with respect to nominees
for any new positions created by such increase, if it shall be delivered to
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the 10th day following the day on which such
public announcement is first made by the Corporation.
Only persons nominated in accordance with the procedures set forth in
this Section 1.11 shall be eligible to serve as directors and only such
business shall be conducted at an annual meeting of shareholders as shall
have been brought before the meeting in accordance with the procedures set
forth in this section. The chair of the meeting shall have the power and the
duty to determine whether a nomination or any business proposed to be brought
before the meeting has been made in accordance with the procedures set forth
in these Bylaws and, if any proposed nomination or business is not in
compliance with these Bylaws, to declare that such defective proposed
business or nomination shall not be presented for shareholder action at the
meeting and shall be disregarded.
Only such business shall be conducted at a special meeting of
shareholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
Board may be made at a special meeting of shareholders at which directors are
to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board or (b) by any shareholder of record of the
Corporation who is a shareholder of record at the time of giving of notice
provided for in this paragraph, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in this Section 1.11.
Nominations by shareholders of persons for
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election to the Board may be made at such a special meeting of shareholders
if the shareholder's notice required by the second paragraph of this Section
1.11 shall be delivered to the Secretary at the principal executive offices
of the Corporation not later than the close of business on the later of the
60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board to be elected at such meeting.
For purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document
publicly filed by the Corporation with the Securities and Exchange Commission
pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this Section 1.11, a
shareholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to matters
set forth in this Section 1.11. Nothing in this Section 1.11 shall be deemed
to affect any rights of shareholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
2. BOARD OF DIRECTORS
2.1 NUMBER AND QUALIFICATION. The business affairs and
property of the Corporation shall be managed under the direction of a Board
of Directors. The number of directors which shall constitute the entire Board
of Directors of this Corporation shall be not be less than three (3) nor more
than eleven (11), the number of which shall be fixed from time to time by
resolution of the Board of Directors.
2.2 ELECTION -- TERM OF OFFICE. The Board of Directors shall be
divided into three classes which shall be elected in the manner, and which
shall serve the terms of office, specified in the Corporation's Articles of
Incorporation. The directors shall be elected by the shareholders at each
annual shareholders' meeting or at a special shareholders' meeting called for
such purpose. Despite the expiration of a director's term, the director
continues to serve until his or her successor is elected and qualified or
until there is a decrease in the authorized number of directors.
2.3 VACANCIES. Except as otherwise provided by law, vacancies in the
Board of Directors, whether caused by resignation, death, retirement,
disqualification, removal, increase in the number of directors, or otherwise,
shall be filled by the affirmative vote of a majority of the remaining
directors in office even though less than a quorum of the Board of Directors.
The term of a director elected to fill a vacancy expires at the next
shareholders' meeting at which directors are elected. A vacancy that will
occur at a
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specific later date may be filled before the vacancy occurs, but the new
director may not take office until the vacancy occurs.
2.4 QUORUM AND VOTING. At any meeting of the Board of Directors, the
presence in person (including presence by electronic means such as a
telephone conference call) of a majority of the number of directors presently
in office shall constitute a quorum for the transaction of business.
Notwithstanding the foregoing, in no case shall a quorum be less than
one-third of the authorized number of directors. If a quorum is present at
the time of a vote, the affirmative vote of a majority of the directors
present at the time of the vote shall be the act of the Board of Directors
and of the Corporation except as may be otherwise specifically provided by
the Articles of Incorporation, by these Bylaws, or by law. A director who is
present at a meeting of the Board of Directors when action is taken is deemed
to have assented to the action taken unless: (a) the director objects at the
beginning of the meeting, or promptly upon his or her arrival, to holding it
or to transacting business at the meeting; (b) the director's dissent or
abstention from the action taken is entered in the minutes of the meeting; or
(c) the director delivers written notice of his or her dissent or abstention
to the presiding officer of the meeting before its adjournment or to the
Corporation within a reasonable time after adjournment of the meeting. The
right of dissent or abstention is not available to a director who votes in
favor of the action taken.
2.5 REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such place, date and time as shall from time to time be
fixed by resolution of the Board.
2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at any place and at any time and may be called by the Chairman of the
Board, the President, Vice President, Secretary or Treasurer, or any two or
more directors.
2.7 NOTICE OF MEETINGS. Unless the Articles of Incorporation provide
otherwise, any regular meeting of the Board of Directors may be held without
notice of the date, time, place, or purpose of the meeting. Any special
meeting of the Board of Directors must be preceded by at least two days'
notice of the date, time, and place of the meeting, but not of its purpose,
unless the Articles of Incorporation or these Bylaws require otherwise.
Notice may be given personally, by facsimile, by mail, or in any other manner
allowed by law. Oral notice shall be sufficient only if a written record of
such notice is included in the Corporation's minute book. Notice shall be
deemed effective at the earliest of: (a) receipt; (b) delivery to the proper
address or telephone number of the director as shown in the Corporation's
records; or (c) five days after its deposit in the United States mail, as
evidenced by the postmark, if correctly addressed and mailed with first-class
postage prepaid. Notice of any meeting of the Board of Directors may be
waived by any director at any time, by a signed writing, delivered to the
corporation for inclusion in the minutes, either before or after the meeting.
Attendance or participation
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by a director at a meeting shall constitute a waiver of any required notice
of the meeting unless the director promptly objects to holding the meeting or
to the transaction of any business on the grounds that the meeting was not
lawfully convened and the director does not thereafter vote for or assent to
action taken at the meeting.
2.8 DIRECTORS' ACTION WITHOUT A MEETING. The Board of Directors or a
committee thereof may take any action without a meeting that it could
properly take at a meeting if one or more written consents setting forth the
action are signed by all of the directors, or all of the members of the
committee, as the case may be, either before or after the action is taken,
and if the consents are delivered to the Corporation for inclusion in the
minutes or filing with the corporate records. Such action shall be effective
upon the signing of a consent by the last director to sign, unless the
consent specifies a later effective date.
2.9 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors, by
resolutions adopted by a majority of the members of the Board of Directors in
office, may create from among its members one or more committees and shall
appoint the members thereof. Each such committee must have two or more
members, who shall be directors and who shall serve at the pleasure of the
Board of Directors. Each committee of the Board of Directors may exercise the
authority of the Board of Directors to the extent provided in its enabling
resolution and any pertinent subsequent resolutions adopted in like manner,
provided that the authority of each such committee shall be subject to
applicable law. Each committee of the Board of Directors shall keep regular
minutes of its proceedings and shall report to the Board of Directors when
requested to do so.
2.10 TELEPHONE MEETINGS. Members of the Board of Directors or of any
committee appointed by the Board of Directors may participate in a meeting of
the Board of Directors or committee by means of a conference telephone or
similar communications equipment that enables all persons participating in
the meeting to hear each other during the meeting. Participation by such
means shall constitute presence in person at a meeting.
2.11 COMPENSATION OF DIRECTORS. The Board of Directors may fix the
compensation of directors as such and may authorize the reimbursement of
their expenses.
3. OFFICERS
3.1 OFFICERS ENUMERATED -- ELECTION. The officers of the Corporation
shall consist of such officers and assistant officers as may be designated by
resolution of the Board of Directors. The officers may include a Chairman of
the Board, a President, one or more Vice Presidents, a Secretary, a
Treasurer, and any assistant officers. The officers shall hold office at
the pleasure of the Board of Directors. Unless otherwise restricted by the
Board of Directors, the President may appoint any assistant officer, the
Secretary
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may appoint one or more Assistant Secretaries, and the Treasurer may appoint
one or more Assistant Treasurers; provided that any such appointments shall
be recorded in writing in the corporate records.
3.2 QUALIFICATIONS. None of the officers of the Corporation need be a
director. Any two or more corporate offices may be held by the same person.
3.3 DUTIES OF THE OFFICERS. Unless otherwise prescribed by the Board
of Directors, the duties of the officers shall be as follows:
CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside at meetings of the Board of Directors and of the
shareholders, shall be responsible for carrying out the plans and directives
of the Board of Directors, shall report to and consult with the Board of
Directors and, if the Board so resolves, shall be the Chief Executive
Officer. The Chairman of the Board shall have such other powers and duties
as the Board of Directors may from time to time prescribe.
PRESIDENT. The President shall exercise the usual executive powers
pertaining to the office of President. In the absence of a Chairman of the
Board, the President shall preside at meetings of the Board of Directors and
of the shareholders, perform the other duties of the Chairman of the Board
prescribed in this Section, and perform such other duties as the Board of
Directors may from time to time designate. In addition, if there is no
Secretary in office, the President shall perform the duties of the Secretary.
VICE PRESIDENT. Each Vice President shall perform such duties as
the Board of Directors may from time to time designate. In addition, the
Vice President, or if there is more than one, the most senior Vice President
available, shall act as President in the absence or disability of the
President.
SECRETARY. The Secretary shall be responsible for and shall keep,
personally or with the assistance of others, records of the proceedings of
the directors and shareholders; authenticate records of the Corporation;
attest all certificates of stock in the name of the Corporation; keep the
corporate seal, if any, and affix the same to certificates of stock and other
proper documents; keep a record of the issuance of certificates of stock and
the transfers of the same; and perform such other duties as the Board of
Directors may from time to time designate.
TREASURER. The Treasurer shall have the care and custody of, and
be responsible for, all funds and securities of the Corporation and shall
cause to be kept regular books of account. The Treasurer shall cause to be
deposited all funds and other valuable effects in the name of the Corporation
in such depositories as may be designated by the Board of Directors. In
general, the Treasurer shall perform all of the duties
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incident to the office of Treasurer, and such other duties as from time to
time may be assigned by the Board of Directors.
ASSISTANT OFFICERS. Assistant officers may consist of one or more
Assistant Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. Each assistant officer shall perform those duties
assigned to him or her from time to time by the Board of Directors, the
President, or the officer who appointed him or her.
3.4 VACANCIES. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting.
3.5 REMOVAL. Any officer or agent may be removed by action of the
Board of Directors with or without cause, but any removal shall be without
prejudice to the contract rights, if any, of the person removed. Election or
appointment of an officer or agent shall not of itself create any contract
rights.
3.6 COMPENSATION. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors.
4. SHARES AND CERTIFICATES OF SHARES
4.1 SHARE CERTIFICATES. Share certificates shall be issued in
numerical order, and each shareholder shall be entitled to a certificate
signed by the President or a Vice President, and attested by the Secretary or
an Assistant Secretary. Share certificates may be sealed with the corporate
seal, if any. Facsimiles of the signatures and seal may be used as permitted
by law. Every share certificate shall state:
(a) the name of the corporation;
(b) that the Corporation is organized under the laws of the State
of Washington;
(c) the name of the person to whom the share certificate is issued;
(d) the number, class and series (if any) of shares that the
certificate represents; and
(e) if the Corporation is authorized to issue shares of more than
one class or series, that upon written request and without charge, the
Corporation will furnish any shareholder with a full statement of the
designations, preferences, limitations and relative rights of the shares of
each class or series, and the authority of the Board of Directors to
determine variations for future series.
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4.2 CONSIDERATION FOR SHARES. Shares of the Corporation may be issued
for such consideration as shall be determined by the Board of Directors to be
adequate. The consideration for the issuance of shares may be paid in whole
or in part in cash, or in any tangible or intangible property or benefit to
the corporation, including but not limited to promissory notes, services
performed, contracts for services to be performed, or other securities of the
corporation. Establishment by the Board of Directors of the amount of
consideration received or to be received for shares of the Corporation shall
be deemed to be a determination that the consideration so established is
adequate.
4.3 TRANSFERS. Shares may be transferred by delivery of the
certificate, accompanied either by an assignment in writing on the back of
the certificate, or by a written power of attorney to sell, assign and
transfer the same, signed by the record holder of the certificate. Except as
otherwise specifically provided in these Bylaws, no shares of stock shall be
transferred on the books of the Corporation until the outstanding certificate
therefor has been surrendered to the Corporation.
4.4 LOSS OR DESTRUCTION OF CERTIFICATES. In the event of the loss or
destruction of any certificate, a new certificate may be issued in lieu
thereof upon satisfactory proof of such loss or destruction, and upon the
giving of security against loss to the Corporation by bond, indemnity or
otherwise, to the extent deemed necessary by the Board of Directors, the
Secretary, or the Treasurer.
4.5 FIXING RECORD DATE. The Board of Directors may fix in advance a
date as the record date for determining shareholders entitled: (i) to notice
of or to vote at any shareholders I meeting or any adjournment thereof; (ii)
to receive payment of any share dividend; or (iii) to receive payment of any
distribution. The Board of Directors may in addition fix record dates with
respect to any allotment of rights or conversion or exchange of any
securities by their terms, or for any other proper purpose, as determined by
the Board of Directors and by law. The record date shall be not more than 70
days and, in case of a meeting of shareholders, not less than 10 days (or
such longer period as may be required by Washington law) prior to the date on
which the particular action requiring determination of shareholders is to be
taken. If no record date is fixed for determining the shareholders entitled
to notice of or to vote at a meeting of shareholders, the record date shall
be the date before the day on which notice of the meeting is mailed. If no
record date is fixed for the determination of shareholders entitled to a
distribution (other than one involving a purchase, redemption, or other
acquisition of the Corporation's own shares), the record date shall be the
date on which the Board adopted the resolution declaring the distribution.
If no record date is fixed for determining shareholders entitled to a share
dividend, the record date shall be the date on which the Board of Directors
authorized the dividend.
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5. BOOKS, RECORDS AND REPORTS
5.1 RECORDS OF CORPORATE MEETINGS, ACCOUNTING RECORDS AND SHARE
REGISTERS. The Corporation shall keep, as permanent records, minutes of all
meetings of the Board of Directors and shareholders, and all actions taken
without a meeting, and all actions taken by a committee exercising the
authority of the Board of Directors. The Corporation or its agent shall
maintain, in a form that permits preparation of a list, a list of the names
and addresses of its shareholders, in alphabetical order by class of shares,
and the number, class, and series, if any, of shares held by each. The
Corporation shall also maintain appropriate accounting records, and at its
principal place of business shall keep copies of: (a) its Articles of
Incorporation or restated Articles of Incorporation and all amendments in
effect; (b) its Bylaws or restated Bylaws and all amendments in effect; (c)
minutes of all shareholders' meetings and records of all actions taken without
meetings for the past three years; (d) the year end balance sheets and income
statements for the past three fiscal years, prepared as required by
Washington law; (e) all written communications to shareholder's generally in
the past three years; (f) a list of the names and business addresses of its
current officers and directors; and (g) its most recent annual report to the
Secretary of State.
5.2 COPIES OF CORPORATE RECORDS. Any person dealing with the
Corporation may rely upon a copy of any of the records of the proceedings,
resolutions, or votes of the Board of Directors or shareholders, when
certified by the Chairman of the Board, President, Vice President, Secretary
or Assistant Secretary.
5.3 EXAMINATION OF RECORDS. A shareholder shall have the right to
inspect and copy, during regular business hours at the principal office of
the Corporation, in person or by his or her attorney or agent, the corporate
records referred to in the last sentence of Section 5.1 of these Bylaws if
the shareholder gives the Corporation written notice of the demand at least
five business days before the date on which the shareholder wishes to make
such inspection. In addition, if a shareholder's demand is made in good faith
and for a proper purpose, a shareholder may inspect and copy, during regular
business hours at a reasonable location specified by the Corporation,
excerpts from minutes of any meeting of the Board of Directors, records of
any action of a committee of the Board of Directors, records of actions taken
by the Board of Directors without a meeting, minutes of shareholders' meetings
held or records of action taken by shareholders without a meeting not within
the past three years, accounting records of the Corporation, or the record of
shareholders; provided that the shareholder shall have made a demand
describing with reasonable particularity the shareholder Is purpose and the
records the shareholder desires to inspect, and provided further that the
records are directly connected to the shareholders' purpose. This section
shall not affect any right of shareholders to inspect records of the
Corporation that may be otherwise granted to the shareholders by law.
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5.4 FINANCIAL STATEMENTS. Not later than four months after the end of
each fiscal year, or in any event prior to its annual meeting of
shareholders, the Corporation shall prepare a balance sheet and income
statement in accordance with Washington law. The Corporation shall furnish a
copy of each to any shareholder upon written request.
6. FISCAL YEAR
The fiscal year end of the Corporation shall be December 31.
7. MISCELLANEOUS PROCEDURAL PROVISIONS
The Board of Directors may adopt rules of procedure to govern any
meetings of shareholders or directors to the extent not inconsistent with
law, the Corporation's Articles of Incorporation, or these Bylaws, as they are
in effect from time to time. In the absence of any rules of procedure
adopted by the Board of Directors, the chairman of the meeting shall make all
decisions regarding the procedures for any meeting.
8. AMENDMENT OF BYLAWS
The Board of Directors is expressly authorized to make, alter and repeal
the Bylaws of the Corporation, subject to the power of the shareholders of
the Corporation to change or repeal the Bylaws in the manner set forth in the
Corporation's Articles of Incorporation.
9. INDEMNIFICATION OF DIRECTORS AND OTHERS
9.1 Each person who was, or is threatened to be made a party to or is
otherwise involved (including, without limitation, as a witness) in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or
was serving at the request of the corporation as a director, trustee,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise shall be indemnified and held harmless by
the Corporation to the extent and in the manner provided in the Corporation's
Articles of Incorporation.
10. REPRESENTATION OF SHARES OF OTHER CORPORATIONS
Unless otherwise restricted by the Board of Directors, the Chairman,
President, and any Vice President of the corporation are each authorized to
vote, represent and exercise on behalf of the Corporation all rights incident
to any and all shares of other corporations standing in the name of the
Corporation. This authority may be exercised by such officers either in
person or by a duly executed proxy or power of attorney.
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GREATFOOD.com
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE
This GreatFood.com Employee Stock Purchase Plan (the "Plan") is
designed to encourage and assist employees of GreatFood.com, a Washington
corporation (the "Company") and any Participating Subsidiary, as defined in
Section 4, to acquire an equity interest in the Company through the purchase
of shares of Company common stock (the "Common Stock").
2. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
or a committee of "non-employee" directors no fewer in number than required
by Rule 16b-3 of the Securities and Exchange Commission ("Rule 16b-3") as in
effect with respect to the Company from time to time, which in either case is
referred to as the "Board" in accordance with Rule 16b-3. The Board of
Directors or any committee established pursuant to this Section 2 is referred
to herein as the "Administrator". Subject to the express provisions of the
Plan, to the overall supervision of the Board, and to the limitations of
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"),
the Administrator may administer and interpret the Plan in any manner it
believes to be desirable, and any such interpretation shall be conclusive and
binding on the Company and all participants.
3. NUMBER OF SHARES
(a) The total number of shares of Common Stock reserved and available for
issuance pursuant to this Plan shall be 400,000. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares
reacquired in private transactions or open market purchases, but all shares
issued under this Plan shall be counted against the 400,000 share limitation.
(b) In the event of any reorganization, recapitalization, stock split,
reverse stock split, stock dividend, combination of shares, merger,
consolidation, offering of rights, or other similar change in the capital
structure of the Company, the Board may make such adjustment, if any, as it
deems appropriate in the number, kind, and purchase price of the shares
available for purchase under the Plan and in the maximum number of shares
subject to any option under the Plan.
<PAGE>
4. ELIGIBILITY REQUIREMENTS
(a) Each employee of the Company and each Participating Subsidiary,
except those described in the next paragraph, shall become eligible to
participate in the Plan in accordance with Section 5 on the first Enrollment
Date on or following commencement of his or her employment by the Company or
the Participating Subsidiary or following such period of employment as is
designated by the Board from time to time. Participation in the Plan is
entirely voluntary.
(b) The following employees are not eligible to participate in the Plan:
(i) employees who would, immediately upon enrollment in the Plan,
own directly or indirectly (including options or rights to acquire stock
possessing) five percent or more of the total combined voting power or value
of all classes of stock of the Company or any subsidiary of the Company;
(ii) employees who are customarily employed by the Company or a
Participating Subsidiary less than 20 hours per week or less than five months
in any calendar year; and
(iii) employees who are prohibited by the laws of the nation
of their residence or employment from participating in the Plan.
(c) "Employee" shall mean any individual who is an employee of the
Company or a Participating Subsidiary. Whether an individual qualifies as an
Employee shall be determined by the Administrator, in its sole discretion.
The Administrator shall be guided by the provisions of Treasury Regulation
Section 1.421-7 and Section 3401(c) of the Code and the Treasury Regulations
thereunder, with the intent that the Plan cover all "employees" within the
meaning of those provisions other than those who are not eligible to
participate in the Plan. Unless the Administrator makes a contrary
determination, the Employees of the Company shall, for all purposes of this
Plan, be those individuals who are carried as employees of the Company or a
Participating Subsidiary for regular payroll purposes. Any inquiries
regarding eligibility to participate in the Plan shall be directed to the
Administrator.
(d) "Subsidiary" shall mean any corporation described in Section 424(e)
or (f) of the Code. "Participating Subsidiary" shall mean a subsidiary which
has been designated by the Administrator as covered by the Plan.
5. ENROLLMENT
Any eligible employee may enroll or re-enroll in the Plan each year as
of the first trading day of (i) July, (ii) the sixth month following such
month, and (iii) each yearly
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anniversary of such months (E.G., any January and July), or such other days
as may be established by the Board from time to time (the "Enrollment
Dates"). In order to enroll, an eligible employee must complete, sign, and
submit to the Company an enrollment form. Any enrollment form received by
the Company by the 15th day of the month preceding an Enrollment Date (or by
the Enrollment Date in the case of employees hired after such 15th day), or
such other date established by the Administrator from time to time, will be
effective on that Enrollment Date. For purposes of the Plan, a "trading day"
is any day on which regular trading occurs on any established stock exchange
or market system on which the Common Stock is traded.
6. GRANT OF OPTION ON ENROLLMENT
(a) Enrollment or re-enrollment by a participant in the Plan on an
Enrollment Date will constitute the grant by the Company to the participant of
an option to purchase shares of Common Stock from the Company under the Plan.
Any participant whose option expires and who has not withdrawn from the Plan
will automatically be re-enrolled in the Plan and granted a new option on the
Enrollment Date immediately following the date on which the option expires.
(b) Except as provided in Section 9, each option granted under the Plan
shall have the following terms:
(i) each option granted under the Plan will have a term of not more
than 6 months or such shorter option period as may be established by the
Board from time to time; notwithstanding the foregoing, however, whether or
not all shares have been purchased thereunder, the option will expire on the
earlier to occur of (A) the completion of the purchase of shares on the last
Purchase Date occurring within 6 months after the Enrollment Date for such
option, or such shorter option period as may be established by the Board
before an Enrollment Date for all options to be granted on such date or (B)
the date on which the employee's participation in the Plan terminates for any
reason;
(ii) payment for shares purchased under the option will be made
only through payroll withholding in accordance with Section 7;
(iii) purchase of shares upon exercise of the option will be
effected only on the Purchase Dates established in accordance with Section 8;
(iv) the price per share under the option will be determined as
provided in Section 8;
(v) the number of shares available for purchase under an option
will, unless otherwise established by the Board before an Enrollment Date for
all options to be granted on such date, be determined by dividing $25,000 by
the fair market value of a
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share of Common Stock on the Enrollment Date and by multiplying the result by
the number of calendar years included in whole or in part in the period from
grant to expiration of the option;
(vi) the option (taken together with all other options then
outstanding under this and all other similar stock purchase plans of the
Company and any subsidiary of the Company, collectively "Options") will in no
event give the participant the right to purchase shares at a rate per
calendar year which accrues in excess of $25,000 of fair market value of such
shares, determined at the applicable Enrollment Date; and
(vii) the option will in all respects be subject to the terms and
conditions of the Plan, as interpreted by the Administrator from time to
time.
7. PAYROLL AND TAX WITHHOLDING; USE BY COMPANY
(a) Each participant shall elect to have amounts withheld from his or
her compensation paid by the Company during the option period, at a rate
equal to any whole percentage up to 15%, or such other maximum percentage
as the Board may establish from time to time before an Enrollment Date.
Compensation includes regular salary payments, commissions, overtime pay and
any other compensation as may be determined from time to time by the Board of
Directors, but excludes all other payments including, without limitation,
long-term disability or workers compensation payments, car allowances,
employee referral bonuses, relocation payments, expense reimbursements
(including but not limited to travel, entertainment, and moving expenses),
salary gross-up payments, and non-cash recognition awards. The participant
shall designate a rate of withholding in his or her enrollment form and may
elect to increase or decrease the rate of contribution effective as of any
Enrollment Date, by delivery to the Company, not later than 15 days before
such Enrollment Date, of a written notice indicating the revised withholding
rate.
(b) Payroll withholdings shall be credited to an account maintained for
purposes of the Plan on behalf of each participant, as soon as
administratively feasible after the withholding occurs. The Company shall be
entitled to use the withholdings for any corporate purpose, shall have no
obligation to pay interest on withholdings to any participant, and shall not
be obligated to segregate withholdings.
(c) Upon disposition of shares acquired by exercise of an option, the
participant shall pay, or make provision adequate to the Company for payment
of, all federal, state, and other tax (and similar) withholdings that the
Company determines, in its discretion, are required due to the disposition,
including any such withholding that the Company determines in its discretion
is necessary to allow the Company to claim tax deductions or other benefits
in connection with the disposition. A participant shall make such similar
provisions for payment that the Company determines, in its discretion, are
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required due to the exercise of an option, including such provisions as are
necessary to allow the Company to claim tax deductions or other benefits in
connection with the exercise of the option.
8. PURCHASE OF SHARES
(a) On the last trading day of each month immediately preceding a month
containing an Enrollment Date, or on such other days as may be established by
the Board from time to time prior to an Enrollment Date for all options to be
granted on an Enrollment Date (each a "Purchase Date"), the Company shall
apply the funds then credited to each participant's payroll withholdings
account to the purchase of whole shares of Common Stock. The cost to the
participant for the shares purchased under any option shall be not less than
85 percent of the lower of:
(i) the fair market value of the Common Stock on the
Enrollment Date for such option; or
(ii) the fair market value of the Common Stock on that
Purchase Date.
The "fair market value" of the Common Stock on a date shall be the closing
price of the Common Stock on such date on any established stock exchange or
market system if the Common Stock is traded on such an exchange or market
system (and the largest such exchange or market system if the Common Stock is
traded on more than one), if the Common Stock is not so traded then the mean
between the bid and asked prices for Common Stock on such date as quoted on
Nasdaq National Market or reported in The Wall Street Journal or similar
publication if such prices are so quoted or reported, or the fair market
value on such date as determined by the Administrator if shares of Common
Stock are not so traded, quoted, or reported.
(b) Any funds in an amount less than the cost of one share of Common
Stock left in a participant's payroll withholdings account on a Purchase Date
shall be carried forward in such account for application on the next Purchase
Date, and any additional amount shall be distributed to the participant.
(c) If at any Purchase Date, the shares available under the Plan are
less than the number all participants would otherwise be entitled to purchase
on such date, purchases shall be reduced proportionately to eliminate the
deficit. Any funds that cannot be applied to the purchase of shares due to
such a reduction shall be refunded to participants as soon as
administratively feasible.
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9. WITHDRAWAL FROM THE PLAN
A participant may withdraw from the Plan in full (but not in part) at
any time, effective after written notice thereof is received by the Company.
All funds credited to a participant's payroll withholdings account shall be
distributed to him or her without interest within 60 days after notice of
withdrawal is received by the Company. Any eligible employee who has
withdrawn from the Plan may enroll in the Plan again on any subsequent
Enrollment Date in accordance with the provisions of Section 5.
10. TERMINATION OF EMPLOYMENT
Participation in the Plan terminates immediately when a participant
ceases to be employed by the Company or a Participating Subsidiary for any
reason whatsoever (including death or disability) or otherwise becomes
ineligible to participate in the Plan. As soon as administratively feasible
after termination, the Company shall pay to the participant or his or her
beneficiary or legal representative, all amounts credited to the
participant's payroll withholdings account; provided, however, that if a
participant ceases to be employed by the Company or a Participating
Subsidiary because of the commencement of employment with a Subsidiary of the
Company that is not a Participating Subsidiary, funds then credited to such
participant's payroll withholdings account shall be applied to the purchase
of whole shares of Common Stock at the next Purchase Date, and any funds
remaining after such purchase shall be paid to the participant.
11. DESIGNATION OF BENEFICIARY
(a) Each participant may designate one or more beneficiaries in the
event of death and may, in his or her sole discretion, change such
designation at any time. Any such designation shall be effective upon
receipt in written form by the Company and shall control over any disposition
by will or otherwise.
(b) As soon as administratively feasible after the death of a
participant, amounts credited to his or her account shall be paid in cash to
the designated beneficiaries or, in the absence of a designation, to the
executor, administrator, or other legal representative of the participant's
estate. Such payment shall relieve the Company of further liability with
respect to the Plan on account of the deceased participant. If more than one
beneficiary is designated, each beneficiary shall receive an equal portion of
the account unless the participant has given express contrary written
instructions.
12. ASSIGNMENT
(a) The rights of a participant under the Plan shall not be
assignable by such participant, by operation of law or otherwise. No
participant may create a lien on
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any funds, securities, rights, or other property held by the Company for the
account of the participant under the Plan, except to the extent that there
has been a designation of beneficiaries in accordance with the Plan, and
except to the extent permitted by the laws of descent and distribution if
beneficiaries have not been designated.
(b) A participant's right to purchase shares under the Plan shall be
exercisable only during the participant's lifetime and only by him or her,
except that a participant may direct the Company in the enrollment form to
issue share certificates to the participant and his or her spouse in
community property, to the participant jointly with one or more other persons
with right of survivorship, or to certain forms of trusts approved by the
Administrator.
13. ADMINISTRATIVE ASSISTANCE
If the Administrator in its discretion so elects, it may retain a
brokerage firm, bank, or other financial institution to assist in the
purchase of shares, delivery of reports, or other administrative aspects of
the Plan. If the Administrator so elects, each participant shall be deemed
upon enrollment in the Plan to have authorized the establishment of an
account on his or her behalf at such institution. Shares purchased by a
participant under the Plan shall be held in the account in the name in which
the share certificate would otherwise be issued pursuant to Section 12(b).
14. COSTS
All costs and expenses incurred in administering the Plan shall be
paid by the Company, except that any stamp duties or transfer taxes
applicable to participation in the Plan may be charged to the account of such
participant by the Company. Any brokerage fees for the purchase of shares by
a participant shall be paid by the Company, but brokerage fees for the resale
of shares by a participant shall be borne by the participant.
15. EQUAL RIGHTS AND PRIVILEGES
All eligible employees shall have equal rights and privileges with
respect to the Plan so that the Plan qualifies as an "employee stock purchase
plan" within the meaning of Section 423 of the Code and the related Treasury
Regulations. Any provision of the Plan which is inconsistent with Section 423
of the Code shall without further act or amendment by the Company or the
Board be reformed to comply with the requirements of Section 423. This
Section 15 shall take precedence over all other provisions of the Plan.
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16. APPLICABLE LAW
The Plan shall be governed by the substantive laws (excluding the
conflict of laws rules) of the State of Washington.
17. MODIFICATION AND TERMINATION
(a) The Board may amend, alter, or terminate the Plan at any time,
including amendments to outstanding options. No amendment shall be effective
unless within 12 months after it is adopted by the Board, it is approved by
the holders of a majority of the votes cast at a duly held shareholders'
meeting at which a quorum of the voting power of the Company is represented
in person or by proxy, if such amendment would:
(i) increase the number of shares reserved for purchase under
the Plan; or
(ii) require shareholder approval in order to comply with SEC
Rule 16b-3.
(b) In the event the Plan is terminated, the Board may elect to
terminate all outstanding options either immediately or upon completion of
the purchase of shares on the next Purchase Date, or may elect to permit
options to expire in accordance with their terms (and participation to
continue through such expiration dates). If the options are terminated prior
to expiration, all funds contributed to the Plan that have not been used to
purchase shares shall be returned to the participants as soon as
administratively feasible.
(c) In the event of the sale of all or substantially all of the
assets of the Company, or the merger or consolidation of the Company with or
into another corporation, or the dissolution or liquidation of the Company,
the Board shall provide for the assumption or substitution of each option
under the Plan by the successor or surviving corporation, or a parent or
subsidiary thereof, unless the Board decides to take such other action as it
deems appropriate, including, without limitation, providing for the
termination of the Plan and providing for a Purchase Date to occur on the
trading day immediately preceding the date of such termination.
18. RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person the right
to remain in the employ of the Company or to affect the Company's right to
terminate the employment of any person at any time with or without cause.
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19. RIGHTS AS A SHAREHOLDER; DELIVERY OF CERTIFICATES
Unless otherwise determined by the Board, certificates evidencing
shares purchased on any Purchase Date shall be delivered to participants as
soon as administratively feasible. Participants shall be treated as the
owners of their shares effective as of the Purchase Date. If approved by the
Administrator in its discretion, the Company may instead of delivery of share
certificates (i) deliver a certificate (or equivalent) to a broker for
crediting to the Participant's account, or (ii) make a notation in the
Participant's favor on non-certificated shares on the Company's stock records.
Adopted by the Board of Directors: ___________________________
Approved by the Shareholders: ___________________________
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EXHIBIT 10.10
GEOCITIES "PAGES THAT PAY" AFFILIATES PROGRAM
MERCHANT AGREEMEENT
This Merchant Agreement ("Agreement") is entered as of
_______________ 1999 (the "Effective Date") by and between GeoCities, a
California corporation, with its principal place of business at 4499 Glencoe
Avenue, Marina del Rey, California 90292 ("GeoCities"), and______________, a
_______________corporation, with its principal place of business at
____________________("Merchant").
WHEREAS, GeoCities operates a community oriented World Wide Web
("Web") site (the "GeoCities Site", deemed to include successor and related
Web sites) and has organized a GeoCities-branded affiliates program under the
name "Pages That Pay" comprising a network of affiliated Web sites and a
corresponding network of merchant Web sites whereby certain affiliate sites
are linked to certain merchant Web sites and merchants compensate such
affiliates for certain commercial activities on such merchant sites which
result from user traffic for which the affiliates are directly responsible;
WHEREAS, GeoCities has entered into an agreement with Be Free, Inc.
("Be Free") for, among other things, Be Free to administer GeoCities'
affiliates program using its proprietary technology and services (the "Be
Free Agreement");
WHEREAS, the parties hereto desire that Merchant participate in the
GeoCities affiliates program as a merchant;
AND WHEREAS, GeoCities is willing to enroll Merchant in the
affiliates program under the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the agreements and obligations
set forth herein and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. DEFINITIONS.
1.1 "Affiliate(s)" means an individual or legal entity which (a)
GeoCities deems eligible to participate in the Program, (b) agrees to
GeoCities' terms and conditions of membership in the Pro-ram, (c) agrees to
Merchant Terms and Conditions (as defined in Section 3.4), if any, attached
hereto as Exhibit C, and (d) places a Qualifying Link on its own Web site for
the purpose of referring potential Customers to Merchant for a Commission.
1.2 "Affiliate Pageview" means the successful move of a Visitor from an
Affiliate's Web site to the Merchant Web site directly through the use of a
Qualifying Link.
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1.3 "Confidential Information" of a Disclosing Party means the
following, to the extent previously, currently or subsequently disclosed to
the other party hereunder or otherwise: information relating to products,
services or technology of the Disclosing Party or the properties,
composition, structure, organization, use or processing thereof, or systems
therefor, or to the Disclosing Party's other proprietary information
including, without limitation, computer programs, code, algorithms,
schematics, data, know-how, processes, ideas, inventions (whether patentable
or not), names and expertise of employees and consultants and other
technical, business, financial, customer and product development plans,
forecasts, strategies and information) and the terms and conditions of this
Agreement. In particular, but without limitation, Program Technology and
modifications or improvements thereto by whomever made shall be considered
Confidential Information of GeoCities.
1.4 "Commission(s)" means the fee(s) Merchant shall pay to Affiliates
for Qualifying Transactions under this Agreement and as specified in Addendum
No. 1 to this Agreement.
1.5 "Customer" means any Visitor or Affiliate who completes a commercial
transaction through the Merchant Web site or who provides Merchant with
Customer Data.
1.6 "Customer Data" means any and all information reasonably obtainable
in connection with commercial transactions enabled or facilitated through the
Program concerning GeoCities Members, Customers or potential Customers,
whether in separately identifiable or aggregated form, including, without
limitation, first or last name; e-mail or other address; postal code; gender
or other demographic characteristics; year or date of birth; social security
or other tax identification number; occupation or other socioeconomic or
financial information; nature, subject matter, date or amount paid in any
commercial transaction(s); number or identification of viewed/downloaded Web
site(s); preferences or habits; and any other identifying information,
whether or not actually provided, collected, derived or deduced, and
regardless of its accuracy or completeness.
1.7 "Disclosing Party" means a party hereto that discloses its
Confidential Information to the other party.
1.8 "FTC Order" means that certain "Agreement Containing Consent Order"
issued by the U.S. Federal Trade Commission on June 11, 1998, attached hereto
as Exhibit B as well as any and all subsequent or related official materials,
regulations, laws, judgements or orders.
1.9 "GeoCities Member" means a GeoCities customer or other individual or
entity which, according to GeoCities' then-current policies and procedures is
entitled to participate in the Program as an Affiliate.
1.10 "Impression" means a Web page containing a Merchant advertising
banner, a Merchant text mention of, or a hyperlink to, the Merchant Web site
transmitted by GeoCities in response to a request from a Visitor entitled to
interact with the GeoCities Site (whether or not such user receives the
transmitted Web page).
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1.11 "Merchant Website" means the Web site owned and/or operated by
Merchant located at the Uniform Resource Locator listed in Addendum No. 1
(and any successor or replacement Web site).
1.12 "Program" means the network of participating affiliates and
merchants, subject to the terms of applicable separate agreements, in
GeoCities' affiliates program currently known as "Pages That Pay" wherein
affiliates (a) are enabled to generate hypertext links ("Links") from their
personalized Web pages to participating merchant Web sites, (b)
encourage/enable Visitors to Affiliate Web pages to use Qualifying Links to
make purchases and otherwise interact with merchant Web sites, and (c)
receive compensation on an agreed upon basis with respect to commercial
activity generated by such Qualifying Links.
1.13 "Program Technology" means any software (in object code fon-n only),
hardware or other technology provided to Merchant by Be Free or GeoCities
relating to the Program, and all updates, improvements, patches, upgrades,
and bug, fixes thereof.
1.14 "Qualifying Link" means a hypertext link, represented by a graphical
icon or text message, from an Affiliate's Web page to Merchant's Web site
which effectuates a Qualifying Transaction. A Qualifying Link establishes a
direct hyperlink connection enabling Visitors to move from an Affiliate's Web
page to Merchant Web site using, a single keystroke or mouse click.
1.15 "Qualifying Transaction" means a sale or other event as described in
Addendum No. 1 to this Agreement which is completed after a direct hyperlink
move from Affiliate's Web page to Merchant's Web site through a Qualifying,
Link that triggers an obligation on Merchant to pay such Affiliate a
Commission under this Agreement. GeoCities shall have sole authority to make
determinations of Qualifying, Transactions and such determinations shall be
binding on Merchant.
1.16 "Receiving Party" means a party hereto that receives Confidential
Information of the other party.
1.17 "Start Date" means the date on which the first Affiliate establishes
a Qualifying Link to Merchant Web site.
1.18 "Visitor(s)" means, with respect to an Affiliate's Web page or
Merchant Web site, a third party Internet user entitled to interact with such
Web site (such as by viewing or downloading material).
1.19 "Web site" or "Site" or "Web page" means a URL site or page on the
Web.
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2. PROGRAM IMPLEMENTATION AND OPERATION.
2.1 Subject to the terms and conditions of this Agreement, GeoCities
shall have the sole right and responsibility to solicit merchants and
affiliates for participation in the Program unless otherwise agreed by
GeoCities.
2.2 Each of the parties agrees to use its commercially reasonable
efforts to assist Be Free, and Merchant agrees to use commercially reasonable
efforts to assist GeoCities, (in each case, including but not limited to the
commitment of adequate technical personnel) in the expeditious installation
and testing of software and/or hardware necessary to add Merchant to the
Program and to resolve technical issues that arise in connection with
Merchant's integration into the Program, including, but not limited to any
materials needed for accurate and timely reporting of Qualifying Transaction
data into the Be Free system and as further specified in Exhibit A. In the
event of Merchant's failure or delay to provide such assistance causing a
material delay in the commencement of Merchant's participation in the Program
or causing Be Free and/or GeoCities to incur additional costs associated with
Merchant's inclusion in the Program, GeoCities may elect either (a) to
terminate this Agreement upon notice to Merchant, or (b) to charge Merchant
such additional costs which shall be payable by Merchant in accordance with
Section 4.
2.3 GeoCities shall be solely responsible for compensating Be Free for
the reasonable installation costs of adding, Merchant to the Program under
this Agreement; provided, however, that if GeoCities reasonably determines
such installation costs to be excessive taking into consideration
installation costs of integrating other Merchants into the Program, then
GeoCities may elect to terminate this Agreement upon notice to Merchant.
3. PROGRAM MANAGEMENT.
3.1 GeoCities will provide Merchant with certain program management
tools that GeoCities receives from Be Free for use by merchants in the
Program to obtain information relating to Qualifying Links, Qualifying
Transactions and other relevant data. Merchant shall have access to regular
reports reasonably necessary to allow Merchant generally to monitor
Qualifying Transactions and Commissions owed to Affiliates.
3.2 Merchant shall make available in a timely manner at no charge to
GeoCities all software, technical data, files, documentation, sample output
or other information and resources reasonably required by GeoCities or Be
Free for the operation of the Program. Merchant will be solely responsible
for, and assumes the risk of, any problems resulting from the content,
accuracy, completeness and consistency of such data, materials and
information supplied by Merchant. GeoCities shall make available in a timely
manner at no charge to Merchant all such software, technical data, files,
documentation, sample output or other information and resources that
GeoCities determines to be reasonably required by Merchant to participate in
the Program.
3.3 Merchant shall not promote through its participation in the Program
or a Qualifying Link or display, sell, rent or make available through a
Qualifying Link any materials or content that (i) are sexually explicit or
are characterized as "pornographic", "soft
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porn", "adult entertainment", "X", "XX", or "XXX", (ii) promote violence,
discrimination against any group (including, without limitation,
discrimination based on race, gender, religion, ethnicity, nationality,
disability, sexual orientation or age), or engaging in illegal activities or
(iii) contain material or promote the sale, distribution or use of any
material that infringes or violates or infringes any contract, publicity,
privacy or intellectual property rights. Merchant represents and warrants
that (a) it shall comply with all applicable laws of all applicable
jurisdictions (including, without limitation, those relating to the
protection of intellectual property, export restrictions, consumer protection
and taxation) and (b) it has full and unencumbered title to all products
distributed or sold through a Qualifying Link.
3.4 Except as expressly set forth in the terms and conditions, if any
should exist on the Effective Date, of Affiliates' participation in
Merchant's affiliates program (which terms and conditions shall be attached
as Exhibit C hereto) ("Merchant Terms and Conditions"), Merchant may not
impose any additional requirements or restrictions on Affiliates'
participation in the Program without the prior written consent of GeoCities.
Merchant represents and warrants that (i) it will apply Merchant Terms and
Conditions in a fair and even manner and (ii) the enforcement of the Merchant
Terms and Conditions will not violate any applicable laws or regulations.
3.5 Merchant shall automatically approve each and every GeoCities Member
that wishes to establish a Qualifying Link and become an Affiliate on a
preliminary basis; provided, however, Merchant shall have the right to review
Affiliate Sites and reject a new Affiliate, within ten (10) business days of
the establishment of a Qualifying Link if Merchant reasonably determines that
such GeoCities Member's participation would violate GeoCities' terms and
conditions of membership in the Program or the Merchant Terms and Conditions.
Following such ten (10) business day period Merchant may terminate an
Affiliate's Qualifying Link(s) if such Affiliate violates GeoCities' terms
and conditions of membership in the Program or the Merchant Terms and
Conditions. Notwithstanding the foregoing, Merchant shall provide e-mail
notice to GeoCities at least two (2) business days prior to notifying the
Affiliate that it has been rejected or terminated by Merchant. Such notice
shall identify the rejected or terminated Affiliate, the URL of the Affiliate
Site, and a detailed explanation of the bases for rejecting the Affiliate.
Notwithstanding the rejection of an Affiliate or termination of a Qualifying
Link under this Section 3.5, Merchant shall, under the terms of this
Agreement, pay such Affiliate all Commissions earned by the Affiliate for
Qualifying Transactions that occurred prior to the Affiliate's rejection or
termination, as the case may be.
3.6 Merchant acknowledges and agrees that GeoCities shall have the sole
right and responsibility to host all Web pages relating to link generation,
reporting, account management and other functions of the Program. If Merchant
wishes to add certain Program functionality (e.g., link generation, profile
management, etc.) to the Merchant Web site, it shall submit a written request
to GeoCities. Merchant shall have the right to add such functionality to the
Merchant Web site only with the consent of both GeoCities and Be Free, which
consent will not be unreasonably withheld, and only on terms and conditions
to be negotiated by the parties.
4. PAYMENT TERMS.
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4.1 Merchant shall timely provide GeoCities with funds with which to pay
Commissions to Affiliates on a calendar quarterly basis according to the
terms of the Be Free payment system implemented by GeoCities, in its sole
discretion, as part of the Program (the "Payment System"). Such payments
shall be made within thirty (30) days following the last day of the
applicable calendar quarter.
4.2 GeoCities shall be responsible for transmitting any payments
directly to Affiliates in the form of a check, or by other means determined
by GeoCities, in its sole discretion, including, but not limited to, consumer
credits or merchant points.
4.3 GeoCities shall provide such documentation as GeoCities deems
reasonably necessary under the Payment System to substantiate payments to
Affiliates.
4.4 The parties shall use best efforts to correct payment errors,
whether such errors result in overpayment or underpayment to Affiliates.
4.5 All late payments by Merchant under this Agreement will be assessed
a service fee of one and one-half percent (1.5%) of the amount due per month,
to the extent allowed by law. Additionally, Merchant shall pay any collection
costs, including reasonable attorneys' fees, incurred by GeoCities in the
course of collecting on such overdue or unpaid amounts.
5. SUPPORT AND MAINTENANCE
5.1 Merchant acknowledges that support and maintenance for the Program
will be provided by Be Free, not GeoCities. The terms of such support and
maintenance are more particularly described in Exhibit D hereto. The Program
Technology shall, from time to time, be upgraded at no additional cost to
Merchant; provided, however, that Merchant uses best efforts to assist
(including, but not limited to, the commitment of adequate technical
personnel) Be Free and GeoCities in the expeditious installation and testing
of software and/or hardware necessary to implement such upgrades in a timely
fashion.
5.2 GeoCities shall work diligently with Be Free to address technical
problems with Qualifying Links or other aspects of the Program. In the event
equipment failure, human error or other technical problems prevent all
Qualifying Links from operating for more than twenty-four (24) consecutive
hours, GeoCities will compensate Merchant as follows: GeoCities will provide
Merchant with one Impression for each Affiliate Pageview estimated to be lost
as a result of the total outage; the estimated number of Affiliate Pageviews
lost shall be calculated by multiplying the average number of Affiliate
Pageviews per day for the immediately preceding seven (7) calendar days by
the number of days of complete outage. The compensation set forth in this
Section 5.2 shall be Merchant's sole and exclusive remedy for any breach of
this Section 5 or errors in Qualifying Links or interruption or degradation
of services to be performed by GeoCities or Be Free relating to the Program,
including, without limitation, GeoCities' failure to provide the required
number of Impressions, due to equipment failure, human error or other
technical problem.
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6. AFFILIATE INFORMATION.
6.1 Subject to the terms and conditions of this Agreement and any
applicable laws, rules or regulations, GeoCities shall provide Merchant with
information relating to Affiliates as GeoCities deems reasonably necessary to
accomplish the purposes of this Agreement ("Affiliate Information").
6.2 Merchant represents and warrants that it will not resell any
Affiliate Information or Customer Data or use Affiliate Information or
Customer Data or engage in any other conduct in violation of the FTC Order.
Merchant shall cooperate fully with GeoCities, and follow and comply with all
reasonable instructions and directions of GeoCities, to ensure compliance
with the FTC Order.
6.3 Merchant shall provide a readily-visible, accessible and otherwise
reasonable mechanism on Merchant Web site for Affiliates to request the
removal of all personal identifying information relating to such Affiliate
from Merchant's database and other records.
6.4 Merchant shall not solicit, or facilitate any third party to solicit
on behalf of Merchant, any Affiliate to join another affiliate program
(including, without limitation, Merchant's own affiliate program), to create
a mirror Web site for use in another affiliate program and/or to withdraw
from the Program. During the term of this Agreement, Merchant may, from time
to time, send communications to one or more Affiliates regarding specific
product offers of Merchant or otherwise promoting Merchant's products and/or
services only; provided that, except with respect to conununications with
Customers, (i) the content of such communications is limited to the scope of
Merchant's participation status as defined in Addendum No. 1 attached hereto,
(ii) such communications do not promote or reference the products or services
of any other party except GeoCities or its affiliates and (iii) Merchant
provides GeoCities twenty-four (24) hours prior written notice of such
communication including the actual text or a detailed description of the
proposed message content, the Affiliates to whom the conununication is to be
sent, the means by which the communication is to be transmitted and the
approximate time and nature of the transmission. Any breach of this Section
6.4 shall be deemed a material breach of the Agreement and GeoCities may
elect to terminate this Agreement upon written notice to Merchant in addition
to all other available legal and equitable remedies. Merchant acknowledges
that it would be impracticable and extremely difficult to determine the exact
amount of GeoCities' damages in the event of Merchant's breach of this
Section 6.4. Accordingly, Merchant and GeoCities agree that, as compensation
to GeoCities for any such damages in addition to GeoCities' other legal and
equitable remedies, rather than as a penalty to Merchant, Merchant shall pay
GeoCities liquidated damages in the amount of ten dollars for each
communication transmitted by Merchant to an Affiliate in violation of this
Section 6.4.
6.5 For a period of twelve (12) months following the effective date of
any termination or the expiration of this Agreement, Merchant shall not
directly or indirectly contact or communicate with any Affiliates other than
Customers.
7. ADVERTISING, PROMOTION AND TRADEMARKS.
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7.1 Merchant shall participate in the Program at the participation level
set forth in Addendum No. 1 to this Agreement (the "Participation Level"). As
a condition to participating in Program at the Participation Level, Merchant
shall pay the participation fee as specified in Addendum No. 1 to this
Agreement (the "Participation Fee").
7.2 Merchant will use commercially reasonable efforts to provide art,
copy and other materials necessary for the creation of Qualifying Links and
other hyperlinks pursuant to this Agreement. Additionally, if Merchant
chooses to participate in any promotions in the Program, Merchant shall
provide any materials reasonably required by GeoCities for such participation.
7.3 Merchant hereby grants GeoCities and Affiliates a nonexclusive,
nontransferable (except as permitted in Section 16.1), non-sublicensable
license to use the Merchant Marks on their respective Web sites solely in
connection with the Affiliates' participation in and GeoCities' operation of
the Program. "Merchant Marks" shall mean solely the Merchant name, logo and
tag lines in the form provided by Merchant to GeoCities for use in the
Program under this Agreement; provided, however, that Merchant, from time to
time, may change the appearance and/or style of the Merchant Marks, and
GeoCities may alter the size of the Merchant Marks to the extent necessary to
comply with GeoCities general formatting and publishing requirements.
GeoCities hereby acknowledges and agrees that (i) the Merchant Marks are
owned solely and exclusively by Merchant, (ii) except as set forth herein,
GeoCities has no rights, title or interest in or to the Merchant Marks and
(iii) all use of the Merchant Marks by GeoCities shall inure to the benefit
of Merchant. GeoCities agrees not to apply for registration of the Merchant
Marks (or any mark confusingly similar thereto) anywhere in the world.
7.4 Merchant shall have the right to promote the Program on the Merchant
Web site provided however, that the form and substance of such promotion
shall be subject to GeoCities prior review and written consent, which consent
will not be unreasonably withheld. Subject to all the terms and conditions of
this Agreement and to GeoCities' right to prior review and approval of
Merchant's use of any GeoCities' Marks, GeoCities hereby grants Merchant a
nonexclusive, non-transferable (except as permitted in Section 16.1),
non-sublicensable license to use the GeoCities Marks on its Web site solely
in connection with the prom - otion of the Program under this Section 7.4.
"GeoCities Marks" shall mean solely GeoCities' name, logo and tag lines in
the form provided by GeoCities to Merchant for promoting the Program under
this Agreement; provided, however, that GeoCities, from time to time, may
change the appearance and/or style of the GeoCities Marks. Merchant hereby
acknowledges and agrees that (i) the GeoCities Marks are owned solely and
exclusively by GeoCities, (ii) except as set forth herein, Merchant has no
rights, title or interest in or to the GeoCities Marks and (iii) all use of
the GeoCities Marks by Merchant shall inure to the benefit of GeoCities.
Merchant agrees not to apply for registration of the GeoCities Marks (or any
mark confusingly similar thereto) anywhere in the world.
8. LICENSES.
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8.1 Subject to the terms and conditions of this Agreement, GeoCities
hereby grants Merchant a nonsublicenseable, non-exclusive, non-transferable,
worldwide right and license during the term of this Agreement to use the
Program Technology internally only to participate in the Program as set forth
herein and only as set forth in the documentation provided by GeoCities or Be
Free. Merchant has no right to receive, use or examine any source code or
design documentation relating to the Program Technology.
8.2 Other than the rights and licenses expressly granted to Merchant in
this Agreement, no rights or licenses, express or implied, are granted or
deemed granted hereunder or in connection herewith.
9. OWNERSHIP.
9.1 As between the parties, GeoCities, Be Free and their licensors
retain all title to, and all right to Program Technology and any intellectual
property rights thereto, all copies and derivative works thereof by whomever
made, and all related documentation and materials. GeoCities shall have all
right, title and interest in and to all Customer Data, Affiliate Information
and content created by or otherwise provided by GeoCities in conjunction with
the Program.
9.2 Merchant represents, warrants and agrees not to (i) disassemble,
decompile or otherwise reverse engineer the Program Technology or otherwise
attempt to learn the source code, structure, algorithms or ideas underlying
the Program Technology, to the maximum extent allowed under applicable law,
(ii) rent, lease or otherwise provide temporary access to Program Technology,
(iii) copy, alter or modify the Program Technology, or (iv) allow others to
do any of the foregoing.
10. TERM AND TERMINATION.
10.1 The term of this Agreement and the rights granted herein is set
forth in Addendum No. 1 to this Agreement.
10.2. The Agreement may be terminated immediately upon the following
events:
(i) if either party ceases to do business, or otherwise
terminates its business operation. Additionally, GeoCities may
terminate this Agreement if there is a change in Control of Merchant.
"Control" for purposes of this provision means the ownership or
control, directly or indirectly, of more than twenty-nine percent (29%)
of all of the voting shares (or other securities or rights) entitled to
vote for the election of directors or other governing authority; or
(ii) if either party breaches any material provision of this
Agreement and fails to cure such breach within thirty (30) days of
written notice describing the breach (except in the event of a breach
of Section 6.2, 6.4, 9.2 or 11, in which case termination shall be
effective immediately); or
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(iii) if either party becomes insolvent or seeks protection
under any bankruptcy, receivership, trust deed, creditors arrangement,
composition or comparable proceeding.
10.3 GeoCities and Merchant shall each have the right immediately to
terminate this Agreement upon notice to the other party in the event that
such other party commits fraud or violates any law, statute, ordinance or
regulation applicable to such party's performance hereunder (including
without limitation those governing, export control, consumer protection,
unfair competition, anti-discrimination or false advertising).
10.4 Additional termination rights of the parties, if any, are set forth
in Addendum No. 1 to this Agreement.
10.5 Upon any termination of this Agreement by either party, (i) all
rights and licenses granted Merchant and GeoCities under this Agreement shall
terminate, (ii) Merchant will immediately cease using and return to GeoCities
and/or destroy all GeoCities Confidential Information, Program Technology and
other GeoCities materials in its possession, custody or control in whichever
form held (including without limitation all documents or media containing any
of the foregoing and all copies, extracts or embodiments thereof), (iii)
Merchant shall immediately pay all sums due under this Agreement, (iv)
GeoCities will immediately cease using and return to Merchant and/or destroy
all Merchant Confidential Information and other Merchant materials in its
possession, custody or control in whichever form held (including, without
limitation, all documents or media containing any of the foregoing and all
copies, extracts or embodiments thereof) and (v) all other obligations and
rights under this Agreement shall terminate except Sections 1, 4.1, 4.2, 4.4,
4.5, 6.2, 6.3, 6.5 (for a period of twelve (12) months), 9, 10.5, 10.6,
11-14, 15 (for two years) and 16 of this Agreement will continue in
accordance with their terms.
10.6 Each party understands that the rights of termination hereunder are
absolute. Neither party shall incur any liability whatsoever for any damage,
loss or expenses of any kind suffered or incurred by the other (or for any
compensation to the other) arising from or incident to any termination of
this Agreement by such party which complies with the terms of the Agreement
whether or not such party is aware of any such damage, loss or expenses.
Termination is not the sole remedy under this Agreement and, whether or not
termination is effected, all other remedies will remain available.
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11. CONFIDENTIALITY; EXPORT CONTROLS.
11.1 Each party recognizes that the Confidential Information of the other
party (and the confidential nature thereof) are critical to the business of
the other party and that it would not enter into this Agreement without
assurance that such technology and information and the value thereof will be
protected as provided in this Section 11 and elsewhere in this Agreement.
11.2 The Receiving Party agrees (i) to hold the Disclosing Party's
Confidential Information in confidence and to take all reasonable precautions
to protect such Confidential Information (including, without limitation, all
precautions the Receiving Party employs with respect to its confidential
materials), (ii) not to divulge any such Confidential Information or any
information derived therefrom to any third person, (iii) not to make any use
whatsoever at any time of such Confidential Information except as expressly
authorized in this Agreement, and (iv) shall comply with all export laws,
restrictions, national security controls and regulations of the United States
or other applicable foreign agency or authority, and not to export or
re-export, or allow the export or re-export of any such Confidential
Information or any copy or direct product thereof in violation of any such
restrictions, laws or regulations, or to any Group D: 1 or E:2 country (or
any national of such country) specified in the then current Supplement No. 1
to Part 740, or, in violation of the embargo provisions in Part 746, of the
U.S. Export Administration Regulations (or any successor regulations or
supplement), except in compliance with and with all licenses and approvals
required under applicable export laws and regulations, including without
limitation, those of the U.S. Department of Commerce.
11.3. Any employee, contractor or other person given access to any such
Confidential Information must have a legitimate "need to know" and shall be
similarly bound in writing. Without granting any right or license, the
Disclosing Party agrees that the foregoing clauses (i), (ii) and (iii) shall
not apply with respect to information the Receiving Party can document (A) is
in or (through no improper action or inaction by the Receiving Party, agent
or employee) enters the public domain (and is readily available without
substantial effort), (B) was rightfully in its possession or known by it
prior to receipt from the Disclosing Party, (C) was rightfully disclosed to
it by another person without restriction, (D) was independently developed by
it by persons without access to such information and without use of any
Confidential Information of the Disclosing Party or (E) was required to be
disclosed in accordance with applicable law or regulation or by an order,
decree or request of any legal, judicial or governmental entity provided that
reasonable efforts are undertaken by the Receiving Party to minimize the
extent of any required disclosure and to obtain an undertaking from the
recipient to maintain the confidentiality thereof. Each party's obligations
under this Section 1 1 (except under clause (iv) of Section 11.2) shall
terminate, with respect to any particular information, five (5) years after
the date of disclosure of such information.
11.4 The Receiving Party acknowledges and agrees that due to the unique
nature of the Disclosing Party's Confidential Information, there can be no
adequate remedy at law for any breach of its obligations hereunder, that any
such breach may allow the Receiving Party
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or third parties unfairly to compete with the Disclosing, Party resulting in
irreparable harm to the Disclosing Party, and therefore, that upon any such
breach or any threat thereof, the Disclosing Party shall be entitled to
appropriate equitable relief in addition to whatever remedies it might have
at law and to be indemnified by the Receiving Party from any loss or harm,
including, without limitation, lost profits and attorney's fees, in
connection with any breach or enforcement of the Receiving Party's
obligations hereunder or the unauthorized use or release of any such
Confidential Information. Merchant acknowledges that it would be
impracticable and extremely difficult to determine the exact amount of
GeoCities' damages in the event of Merchant's disclosure of the terms and
conditions of this Agreement in violation of this Section 11 Merchant and
GeoCities agree that, as compensation to GeoCities for any such damages in
addition to GeoCities' other legal and equitable remedies, rather than as a
penalty to Merchant, Merchant shall pay GeoCities liquidated damages in the
amount of the greater of three (3) times (i) the amounts in aggregate paid by
Merchant hereunder during the twelve (12) month period prior to the date the
first such disclosure occurred or (ii) the amounts in aggregate to be paid by
Merchant during the remainder of the term of the Agreement following the date
of the first such disclosure. The Receiving Party will notify the Disclosing
Party in writing immediately upon the occurrence of any such unauthorized
release or other breach. Any breach of this Section 11 will constitute a
material breach of this Agreement.
12. INCIDENTAL AND CONSEQUENTIAL DAMAGES. EXCEPT FOR A BREACH OF SECTION 6.2,
6.4, 6.5, 9.2 OR 1 1, NEITHER GEOCITIES NOR MERCHANT WILL BE LIABLE UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR ANY INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION LOST
PROFITS) WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT.
13. LIMITATION OF LIABILITY; DISCLAIMER.
13.1 GEOCITIES MAKES NO REPRESENTATIONS THAT THE OPERATION OF THE SERVICE
WILL BE UNINTERRUPTED OR ERROR FREE. GEOCITIES HAS NO RESPONSIBILITY FOR THE
CONTENT, QUALITY AND ACCURACY OF THE PRODUCTS, SERVICES OR WEB SITES OF
MERCHANT, AFFILIATES OR BE FREE. UNDER NO CIRCUMSTANCES WILL GEOCITIES BE
RESPONSIBLE OR LIABLE TO MERCHANT OR ANY OTHER PERSON OR ENTITY FOR THE
TRANSACTIONS OR ANY NEGLIGENCE OF MERCHANT, AFFILIATES OR VISITORS.
13.2 GEOCITIES MAKES NO EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO THE
SUBJECT MATTER OF THIS AGREEMENT INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.
13.3 NEITHER PARTY WELL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF
THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER
THEORY FOR COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES, TECHNOLOGY OR
RIGHTS OR FOR ANY AMOUNTS
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AGGREGATING IN EXCESS OF AMOUNTS PAID TO IT (IN THE CASE OF GEOCITIES) OR (IN
THE CASE OF MERCHANT) PAID AND PAYABLE BY IT HEREUNDER IN THE TWELVE MONTH
(12) PERIOD BEFORE THE CAUSE OF ACTION AROSE. THE LIMITATIONS OF THIS SECTION
13.3 SHALL NOT APPLY TO EITHER PARTY'S INDEMNITY OBLIGATIONS UNDER SECTION 14
OR TO A PARTY'S BREACH OF SECTION 6.2, 6.4, 6.5, 9.2 OR 11.
14. INDEMNIFICATION. GeoCities will defend or settle at its expense all
claims, suits and proceedings, civil or criminal, (including, without
limitation, government agency proceedings) against Merchant and its
directors, officers, employees, contractors and agents from any third party
claims, liability, damage, cost and expense (including attorneys' fees and
costs of suit) to the extent they arise out of (i) fraud, negligence or
willful misconduct of GeoCities in the operation of the Program, (ii) fraud,
negligence or willful misconduct of Be Free in the performance of services
relating to the Program or (iii) Merchant's use of Program Technology in
compliance with this Agreement that infringes any third party's intellectual
property rights. Merchant will defend or settle at its expense all third
party claims, suits and proceedings, civil or criminal, (including, without
limitation, government agency proceedings) against GeoCities and its
directors, officers, employees, contractors and agents from any claims,
liability, damage, cost and expense (including attorneys' fees and costs of
suit) to the extent they arise out of (a) fraud, negligence or misconduct
Merchant in the operation of Merchant's Web site (including, without
limitation transactions involving the sale of products or services via
Merchant's Web site), (b) infringement of any third party's intellectual
property rights by any product displayed, promoted, distributed or sold via
Merchant's Web site, (c) disputes with any Affiliate relating to
participation in Merchant's affiliate program, (d) Merchant's collection, use
or distribution of any Customer Data or Affiliate Information or any act or
omission to act by Merchant causing GeoCities to violate the FTC Order or (e)
the content of any promotional materials supplied by Merchant to GeoCities.
Each party (the "Indemnitor") shall indemnify and hold harmless the other
party, its directors, officers, employees, contractors and agents (each, an
"Indemnitee") against and from damages, costs, expenses and attorneys' fees,
if any, finally awarded in such suit or the amount of the settlement thereof;
provided that (w) the Indemnitor is notified in writing as soon as reasonably
possible of such claim or suit, (x) the Indemnitor shall have the sole
control of the defense and/or settlement thereof, (y) each Indemnitee
furnishes to the Indemnitor, on request, information available to such
Indemnitee for such defense, and (z) each Indemnitee reasonably cooperates in
any defense and/or settlement thereof as long as the Indemnitor pays all of
the Indemnitee's reasonable out of pocket expenses and attomeys' fees. Each
party is in no way authorized to agree to any settlement, compromise or the
like which would require the other party to make any payment, or bear other
obligations.
15. AUDIT. During the term of this Agreement and for a period of two (2)
years thereafter, Merchant and GeoCities shall keep and maintain detailed and
accurate books and records with regard to amounts payable by such party
hereunder. During the term of this Agreement and for a period of two (2)
years following termination or expiration of this Agreement, each party may
appoint an independent certified public accountant from a Big Five accounting
firm to review and audit such books and records of the other party no more
than twice per year, during normal business hours upon reasonable notice to
the other party and at the auditing party's expense; provided that the
audited party will bear such expense fully if the review or audit shows an
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underpayment of five percent (5%) or more of the amount subject to the audit.
The audited party shall promptly pay any underpayment revealed by the audit.
16. GENERAL.
16.1 ASSIGNABILITY. Each party shall not, directly or indirectly, assign,
transfer, divide, share or sublicense this Agreement, or any or all of its
performance, rights or obligations hereunder to any third party without the
other party's prior written consent, except in the case of GeoCities'
acquisition by Yahoo!, Inc. ("Yahoo") GeoCities may assign its rights and
obligations under this Agreement to Yahoo or any affiliate thereof without
Merchant's consent. Any purported assignment in violation of this Section
16.1 shall be null and void. This Agreement will inure to the benefit of and
be binding upon the parties and their respective successors and permitted
assigns.
16.2 WAIVER. Any failure on the part of any party to enforce at any time,
or for any period of time, any of the provisions of this Agreement shall not
be deemed or construed to be a waiver of such provisions or of the right of
such party thereafter to enforce each and every such provision. No waiver
will be binding unless executed in writing by the party making the waiver.
16.3 SEVERABILITY. If a court of law finds any provision of this
Agreement unenforceable, the parties agree to replace the offending provision
with an enforceable provision that most nearly achieves the intent and
economic effect of the unenforceable provision and all other terms shall
remain in full force and effect.
16.4 FORCE MAJEURE. No party shall be liable hereunder by any reason of
any failure or delay in the performance of its obligations hereunder (except
payment of money) on account of strikes, riots, insurrection, fires, floods,
storms, explosions, war, governmental action, labor conditions, earthquakes,
material shortages or any other cause which is beyond the reasonable control
of such party. If a force majeure event continues in effect for more than
thirty (30) consecutive days, then either party may terminate this Agreement,
as its sole remedy, without any further obligation of either party hereunder.
16.5 NO THIRD PARTY BENEFICIARIES. Except as otherwise expressly provided
herein, the provisions of this Agreement are for the benefit of the parties
hereto and not for any other person or entity. This Agreement shall not
provide any non-party with any remedy, claim, liability, reimbursement, claim
of action or other right in excess of those existing without reference hereto.
16.6 NOTICE. All notices, requests, demands, applications, services of
process, and other communications which are required to be or may be given
under this Agreement will be in writing, and will be deemed to have been duly
given if sent by telecopy or facsimile transmission, answer back requested,
or delivered by courier or mailed, certified first class mail, postage
prepaid, return receipt requested, to the parties to this Agreement at the
address for such party set forth in the first paragraph of this Agreement or
to such other address as
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either party will have furnished to the other by notice given in accordance
with this Section 16.6. Such notice will be effective, (i) if delivered in
person or by courier, upon actual receipt by the intended recipient, or (ii)
if sent by telecopy or facsimile transmission, on the date of transmission
unless transmitted after normal business hours, in which case on the
following date, (iii) if mailed, upon the date of first attempted delivery.
16.7 MODIFICATION. No alteration of or modification to this Agreement
shall be effective unless made in writing and executed by the authorized
representative of both parties.
16.8 RELATIONSHIP OF PARTIES. The parties hereto are independent
contractors and nothing contained in this Agreement shall be deemed or
construed to create a partnership, joint venture, employment, franchise, or
agency relationship between the parties.
16.9 GOVERNING LAW. This Agreement will be governed by and construed
under, the legal relations between the parties hereto and all disputes
related thereto will be determined in accordance with, the laws of the State
of California, without giving effect to such state's conflict of law
principles. The parties hereby submit to the personal jurisdiction of, and
agree that any legal proceeding with respect to or arising under this
Agreement will be brought in, the state and federal courts sitting in the
State of California.
16.10 ATTORNEYS FEES. If any suit is brought, or an attorney retained to
collect any money due under this Agreement, or to collect a judgment for
breach of this Agreement, the prevailing party will be entitled to recover,
in addition to any other remedy, reimbursement for reasonable attorneys'
fees, court costs, investigation costs and other related expenses incurred in
connection therewith.
16.11 ENTIRE AGREEMENT. This Agreement, together with all exhibits and
addenda attached hereto, constitutes the entire agreement between the parties
with respect to the subject matter thereof, and supersedes all prior
agreements, understandings and other communications between the parties with
respect to the subject matter hereof. The terms of this Agreement shall
control in the event of a conflict with any of the provisions contained in an
exhibit or addendum hereto.
16.12 PUBLICITY. To the extent that a press release is desired by the
parties, Merchant and GeoCities will prepare and distribute a joint press
release. The contents and timing of the release (or releases) shall be as
mutually agreed by the parties. Neither party will issue any further press
releases or make any other disclosures regarding this Agreement or its
contents without the other party's prior written consent or except as may be
required by law in the opinion of such party's counsel.
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IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement the day and year first above
written.
GEOCITIES MERCHANT:
--------------------
By: By
------------------------- ---------------------------
Name: Name:
----------------------- ------------------------
Title: Title:
---------------------- -----------------------
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ADDENDUM NO. 1
TO GEOCITIES PAGES THAT PAY
MERCHANT AGREEMENT
(1) QUALIFYING TRANSACTION(S).
The term "Qualifying Transaction(s)" shall have the following meaning:
A Qualifying Transaction is one in which Merchant receives full payment, and
customer accepts goods and/or services after purchasing through a Qualifying
Link, as determined by GeoCities in its sole discretion.
(2) COMMISSION(S).
The term "Commission(s)" shall have the following meaning:
Affiliates shall receive a Commission of [***] of every Qualifying Transaction.
(3) MERCHANT CATEGORY.
The term "Merchant Category" shall have the following meaning:
The category on the Merchant Center into which said Merchant is placed.
Except as expressly stated, nothing in this Agreement implies or grants to
Merchant exclusivity of any kind within the Merchant Category or otherwise.
Merchant will be placed into the following Merchant Category:
Gourmet Food Online
(4) MERCHANT PARTICIPATION LEVEL.
Subject to Merchant's payment of the Merchant Participation Fee (defined in
Section (5) below), Merchant shall enjoy the following benefits in the Program:
(a) Persistent links to the Merchant's Program sign-up page will be
placed on each of the following homepages on a rotating,
periodic basis at the discretion of GeoCities in accordance with
the other terms of this Agreement: the homepage of the Program
Sales Center, Program Merchant Selection Center and Program Link
Generation Center and on any successor pages.
(b) Subject to Merchant's payment of all current fees due hereunder,
Merchant shall receive [***] Impressions per month throughout
the term of this Agreement.
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Such Impressions shall be of the following types:
[***] banner impressions per month;
[***] text impressions (which will provide links
to the Merchant's Affiliate registration area on
GeoCities) per month; and
[***] Impressions for promotion of the
Recipe Finder Gadget on the GeoCities website.
Such Impressions shall be delivered and scheduled at
GeoCities sole discretion.
(c) GeoCities shall, in its sole discretion, send e-mail messages
from time to time to Affiliates relating to the Program (each
communication to Affiliates, an "Affiliate E-mail"). Subject
to the terms and conditions of this Agreement and GeoCities'
reasonable policies regarding promotional materials, Merchant
shall have the right to placement in up to [***] Affiliate
E-mails to current Affiliates in which Merchant may message
Affiliates regarding specific programs of a commercial nature.
(d) For the duration of this Agreement, Merchant will be
identified on the Affiliate registration page of the Program
and other Web pages of the GeoCities Site at which an
individual may apply, or otherwise register, to become a
GeoCities Member; provided that GeoCities, in its sole
discretion, continues the practice of listing Program
merchants on such registration pages.
(e) Subject to availability and at GeoCities' sole discretion,
Merchant may have the option from time to time to purchase
Impressions in addition to the number of Impressions set for
in subsection (b) above at a rate not to exceed [***] per one
thousand (1,000) Impressions.
(f) Merchant shall receive the opportunity to allow GeoCities
members to place a link ("Recipe Finder Gadget") on their
websites to the website with the URL:
< http//:www.greatfood.com/products/grtfood/html/gfrecipe.htm >
or any successor URLs ("Recipe Finder Website") by using tools
provided by GeoCities in the Gadget Factory area of the
GeoCities website.
(5) FEES.
(a) MERCHANT PARTICIPATION FEE.
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Beginning on the Effective Date and throughout the term of the Agreement,
Merchant shall pay [***] per calendar month to GeoCities in consideration for
the benefits set forth in Section (4) above ("Merchant Participation Fee"). If
the Effective Date of said Agreement is not the first 1st day of the calendar
month, the payments for the first and last calendar months will be prorated
accordingly.
(b) BOUNTY ACQUISITION FEE.
Merchant shall also pay GeoCities a fee in connection with each Affiliate
("Bounty Acquisition Fee") on a calendar quarterly basis as follows:
<TABLE>
<CAPTION>
NUMBER OF AFFILIATES REGISTERED BOUNTY ACQUISITION FEE PER INCREMENTAL AFFILIATE
------------------------------- ------------------------------------------------
<S> <C>
0 - 10,000 [***]
Over 10,000 [***]
</TABLE>
(c) Payment Terms.
All payments to GeoCities under this Agreement shall be paid on or
before the tenth (10th) day of the calendar month following the period
during which such amounts accrue. Late payments shall be subject to the
terms of Section 4.5 of the Agreement.
(6) DEFINITION OF "MERCHANT WEBSITE": < http://www.greatfood.com > .
(7) TERM; TERMINATION.
This Agreement shall remain in force from April 25, 1999 through April 25, 2000.
Merchant shall have a one-time right to terminate the program after July 24,
1999 should GeoCities fail to enroll [***] Affiliates by July 23, 1999
("Termination Option"). Should Merchant elect to exercise the Termination Option
pursuant to this section, Merchant shall be required to provide GeoCities with
written notice of its intention to terminate ("Notice of Termination") by 5:00
p.m. Pacific Time on July 23, 1999 in accordance with Section 16.6 of the
Agreement.
Upon expiration or termination of the Agreement, Recipe Finder Gadgets will no
longer link to the Recipe Finder Website and may be removed from GeoCities
member websites. Furthermore, GeoCities members will be unable to add new Recipe
Finder Gadgets to their websites. However, if Recipe Finder Gadget deactivation
is the result of election by the Merchant of the Termination Option described in
the preceding paragraph, Merchant shall have the one-time right to elect to
maintain links from Recipe Finder Gadgets to the Recipe Finder
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Website as well as to enable GeoCities members to add new recipe Finder
Gadgets to their websites for an additional twelve (12) months ("Gadget
Extension"). Merchant can exercise the Gadget Extension option only upon
exercise of Merchant's Termination Option.
If Merchant elects the Gadget Extension option, Merchant shall be required to
provide notice to GeoCities, in writing, at the same time as Merchant provides
GeoCities with the Notice of Termination. If Merchant elects the Gadget
Extension option, Merchant shall be required to pay GeoCities a fee of [***] per
month ("Gadget Extension Maintenance Fee") in addition to a percentage of all
gross receipts from sales ("GeoCities Percentage") generated after a direct
hyperlink move from a GeoCities website to the Recipe Finder Website when this
move occurs by means of a mouse click or similar action on the Recipe Finder
Gadget. The rate of the GeoCities Percentage shall be determined by mutual
agreement of both parties, on or before July 1, 1999. Both the Gadget Extension
Maintenance Fee and the GeoCities Percentage shall be subject to the payment
terms described in Section (5)(c) above. GeoCities shall be entitled to audit
rights as described in Section 15 of the Agreement.
(8) ADDITIONAL PROMOTIONAL EFFORTS.
For the duration of this Agreement, GeoCities will use reasonable commercial
efforts to promote the Program.
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EXHIBIT 10.11
CONFIDENTIAL
SHOPPING CHANNEL PROMOTIONAL AGREEMENT
This Agreement, dated as of October 1, 1998 (the "Effective Date"),
is made and entered into by and between America Online, Inc. ("AOL"), a
Delaware corporation, with its principal offices at 22000 AOL Way, Dulles,
Virginia 20166 and Online Specialty Retailing Inc. ("MERCHANT") a Washington
corporation, with its principal offices at 2030 First Avenue, 3rd Floor,
Seattle, WA 98121 (each a "Party" and collectively the "Parties").
INTRODUCTION
AOL owns, operates and distributes the U.S. America
Online-REGISTERED TRADEMARK- brand commercial online service (the "AOL
Service"), the U.S. version of its primary website marketed under the
AOL.com-REGISTERED TRADEMARK- brand ("AOL.com") and the affiliate U.S.
CompuServe-REGISTERED TRADEMARK- brand commercial online service (the
"CompuServe Service"). MERCHANT wishes to secure a promotional placement
(the "Promotion") within the shopping channel of the AOL Service, AOL.com and
the CompuServe Service (as specified in Exhibit A) (each channel, a "Shopping
Channel") which, when activated, will provide access to MERCHANT's site on
the World Wide Web or its area on the AOL or CompuServe Services (as the case
may be) (the "Merchant Site") where MERCHANT offers content, products and/or
services for sale.
TERMS
1. MERCHANT PROGRAMMING. MERCHANT WILL MAKE AVAILABLE THROUGH
THE MERCHANT SITE THE CERTAIN PRODUCTS, CONTENT AND/OR SERVICES SPECIFIED IN
EXHIBIT A (THE "PRODUCTS") IN ACCORDANCE WITH THE STANDARD SHOPPING CHANNEL
TERMS AND CONDITIONS SET FORTH ON EXHIBIT B.
2. PROMOTIONAL OBLIGATIONS.
2.1 AOL PROMOTION OF MERCHANT. Commencing on a date to be
mutually agreed promptly following execution hereof, AOL will provide the
Promotion(s) set forth in Exhibit A. Except to the extent expressly
described in Exhibit A, the specific form, placement, positioning, duration
and nature of the Promotion(s) will be as determined by AOL in its reasonable
discretion (consistent with the editorial composition of the applicable
screens) and the nature of the Promotion being purchased by MERCHANT, as
reflected in Exhibit A and in any placement fee specified in Section 3
below). The specific content to be contained within the Promotions
(including, without limitation, within any advertising banners or contextual
promotions) will be determined by MERCHANT, subject to AOL's technical
limitations, the terms of
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this Agreement and AOL's then-applicable policies relating to advertising and
promotions. Each Promotion will link only to the Merchant Site and will
promote only Products in the category directly relating to the Shopping
Channel department for which the Promotion is being purchased by MERCHANT.
MERCHANT acknowledges that the sole obligation of AOL is to display the
Promotion(s) in the Shopping Channel(s) in accordance with the terms and
conditions hereto.
2.2 MERCHANT CROSS-PROMOTION. Within each Merchant Site,
MERCHANT shall include a promotional mention ("AOL Promo") on the Merchant
Site, to promote such AOL Products or services as AOL may reasonably
designate (for example, the America Online-REGISTERED TRADEMARK- brand
service, the CompuServ-REGISTERED TRADEMARK- brand service, the
AOL.com-REGISTERED TRADEMARK-site, the Digital City-REGISTERED TRADEMARK-
services or the AOL Instant Messenger-TM- service); AOL will provide the
creative content to be used in the AOL Promo (including designation of links
from such content to other content pages). MERCHANT shall post (or update,
as the case may be) the creative content supplied by AOL (within the spaces
for the AOL Promo) within a commercially reasonable period of time from its
receipt of such content from AOL. Without limiting any other reporting
obligations of the Parties contained herein, MERCHANT shall provide AOL with
monthly written reports specifying the number of Impressions to the pages
containing the AOL Promo during the prior month. In MERCHANT's television,
radio, print and "out of home" (e.g., buses and billboards) advertisements
and in any publications, programs, features or other forms of media over
which MERCHANT exercises at least partial editorial control, MERCHANT will
include specific references or mentions (verbally where possible) of the
availability of the MERCHANT's site through the America Online-REGISTERED
TRADEMARK- brand service, which are at least as prominent as any references
that MERCHANT makes to any other MERCHANT online or Internet site (by way of
site name, related company name, URL or otherwise). Without limiting the
generality of the foregoing, MERCHANT's listing of the "URL" for any Merchant
online site will be accompanied by an equally prominent listing of the
"keyword" term on AOL for Merchant's Site.
3. PAYMENTS; REPORTS.
3.1 PLACEMENT FEES. MERCHANT will pay AOL [***] for
displaying the Promotion on the AOL Service, AOL.com and the CompuServe
Service. The total amount of [***] will be payable in equal quarterly
installments, with the first such payment to be made upon the Effective Date
and subsequent quarterly payments to be made on the first day of each
subsequent quarter. MERCHANT agrees that, except as specified herein, once
the Promotion is installed, there will be no refunds or proration of rates if
MERCHANT elects to discontinue display of the Promotion prior to expiration
of the Term.
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3.2 REPORTS. AOL will provide MERCHANT with monthly usage
information related to the Promotion in substance and form determined by AOL.
MERCHANT may not distribute or disclose usage information to any third party
without AOL's prior written consent. AOL makes no guarantees regarding the
accuracy, reliability or completeness of any usage information provided to
MERCHANT. MERCHANT will provide AOL with monthly reports, in a form
reasonably satisfactory to AOL, which detail the number of daily items,
orders and gross sales through the Merchant Site on the AOL Service, AOL.com
and the CompuServe Service (as applicable).
3.3 PRODUCTION. MERCHANT will create a customized home page
"welcome mat" for the AOL audience for each area on the Merchant Site linked
to from the AOL Network on a continuous basis (each a "Welcome Mat"), which
Welcome Mat(s) shall be subject to AOL approval and shall only promote the
Products set forth on Exhibit A attached. Any and all costs associated with
the development, design and construction of such Welcome Mat(s) shall be the
sole responsibility of MERCHANT, including but not limited to any specific
production resources which AOL allocates to any production work to be
performed on behalf of MERCHANT. In the event that MERCHANT elects to host
such Welcome Mat(s) on the AOL Network, such hosting will be at AOL's sole
discretion and MERCHANT will bear sole responsibility for any costs
associated with such hosting.
4. TERM. UNLESS OTHERWISE RIGHTFULLY TERMINATED PURSUANT TO THE
TERMS HERETO, THE TERM OF THIS AGREEMENT WILL BE FOR A PERIOD OF FIFTEEN (15)
MONTHS COMMENCING ON OCTOBER 1, 1998, AND ON ENDING DECEMBER 31, 1998 (THE
"TERM").
5. GENERAL TERMS. THE GENERAL LEGAL TERMS AND CONDITIONS SET
FORTH AN EXHIBIT C ATTACHED HERETO ARE HEREBY MADE A PART OF THIS AGREEMENT.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement
as of the Effective Date.
AMERICA ONLINE, INC. Online Specialty Retailing Inc.
By: By: /s/ Benjamin C. Nourse
--------------------------------- ------------------------------------
Print Name: Print Name: Benjamin C. Nourse
------------------------- ----------------------------
Title: Title: Chairman
------------------------------ ---------------------------------
Date: Date: August 4, 1998
------------------------------- ----------------------------------
Tax ID/EIN#:91-1694451
---------------------------
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EXHIBIT A
DESCRIPTION OF PRODUCTS:
The only categories of Products to be sold through the Merchant
Site are as listed below.
MERCHANT will offer through its GreatFood.com Merchant site a wide
variety of food and food-related items. These include specialty foods,
ingredients, grocery items, cooking utensils and food-related books.
Specific items include, but are not limited to, coffees, teas, hors d'oeuvre,
oils, vinegars, relishes, sauces, condiments, meats, seafoods, snacks,
desserts, salsas, cookbooks, cooking utensils and supplies, smoked salmon,
lox, cheese, pesto, herbs, garlic, olives, sausage, chocolates, candy, jam,
fruit, shrimp, crab, fish, turkey, ham, beef, quail, chicken, pork, steaks,
bacon, fruit, fruitcake, smoked meat, olive oil, vinegar, relish, confection,
chutney, hot sauces, salsas, pastas, snacks, candies, cake, biscotti,
cookies, brownies, tortes, barbecue, BBQ sauces, shortbread, chocolate,
truffle, almonds, hazelnuts, ginger, raisins, citrus, cheesecake, ice cream,
maple syrup, pecans, and marinades.
MERCHANT currently offers approximately 700 SKUs and expects
that number to increase significantly by year-end 1999.
PRODUCTS. MERCHANT will make available through the Merchant Site
the comprehensive offering of Products and other related Content specifically
described above.
IMPRESSIONS:
The screens on which the promotions appear on each of the AOL
Service, AOL.com and the CompuServe Service will receive a minimum of [***]
Impressions in the aggregate, subject to the remainder of this paragraph. In
the event there is (or will be in AOL's reasonable judgment) a shortfall in
Impressions as of the end of the Initial Term (a " Shortfall"), AOL will
provide MERCHANT, as its sole remedy, with advertising placements through
reasonably comparable advertising on AOL properties (determined by AOL) which
has a total value, based on AOL's then-current advertising rate card, equal
to the value of the Shortfall (determined by multiplying the percentage of
Impressions that were not delivered by the total, guaranteed Payment provided
for in Section 3 of the Agreement). For purposes of this Agreement,
"Impression" shall mean user exposure to the department level screen
containing the applicable promotion or
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advertisement. as such exposure may be reasonably determined and measure by
AOL in accordance with its standard methodologies and protocols.
Notwithstanding the foregoing, no representation is made with respect to
impressions in conjunction with the More Stores Plus Package described below.
DESCRIPTION OF SPECIFIC PROMOTION(S):
Please check the box next to the Promotion(s) that MERCHANT is
purchasing.
/ / ANCHOR PROMOTION
MERCHANT will become an "Anchor" in the _____________ department(s)
of the Shopping Channel on the AOL Service, AOL.com and the CompuServe
Service. As an Anchor in a department, MERCHANT will be entitled to the
following:
Principal Exposure on the AOL Service, AOL.com and the CompuServe
Service:
- One continuous (24/7) 130 x 90 button with corporate brand or
logo on the department front screen of the AOL Service.
- One continuous (24/7) 120 x 60 button with corporate brand or
logo on the department front screen of AOL.com.
- One continuous (24/7) 120 x 60 button with corporate brand or
logo on the department front screen of the CompuServe Service.
Additional Promotion on the AOL Service Shopping Channel:
- One continuous (24/7) two-line text field with featured
product to promote store product offerings on the
corresponding department screen.
- Product listing availability through the AOL Service Shopping
channel search screen. Web MERCHANT search links to
storefront.
- Up to three (3) AOL Keywords-TM- for use from the AOL Service,
for registered MERCHANT trade name or trademark (subject to
the other provisions contained herein).
- Twenty percent (20%) discount from the then-current rate card
on purchases of additional advertising banners or buttons on
the AOL Service, AOL.com and the CompuServe Service, subject
to availability for the period requested (with such purchases
to be made in accordance with the then-applicable Standard
Advertising Insertion Order for the property in question).
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- Eligibility to participate in the following AOL Shopping
promotional programs (the "Program Areas"):
- Bargain Basement by Department
- Quick Gifts
- Seasonal Catalogs or Special Events areas (e.g.,
Christmas Shop)
- Order from Print Catalogs
- Gift Reminder
- Newsletters
- AOL's Quick Checkout
- BizRate-REGISTERED TRADEMARK- Program
/X/ TENANT PROMOTION
MERCHANT will become a "Tenant" in the Gourmet Foods & Grocery
department(s) of the Shopping Channel on the AOL Service, AOL.com and the
CompuServe Service. As a Tenant in a department, MERCHANT will be entitled
to the following:
Principal Exposure on the AOL Service, AOL.com and the CompuServe
Service:
- One continuous (24/7) 120 x 20 button with corporate brand or
logo on the department front screen.
Additional Promotion on the AOL Service:
- Rotation with other Tenants in the department on a continuous
(24/7) 120 x 60 promotional banner with text or branded art
promotion on the department front screen). These banner
rotations are reserved for the Tenant MERCHANT's on the
department screen and will be divided proportionately among
them.
- Product listing availability through the AOL Service Shopping
channel search screen. Web MERCHANT search links to
storefront.
- Up to three (3) AOL Keywords-TM- for use from the AOL Service,
for registered MERCHANT trade name or trademark (subject to
the other provisions contained herein).
- Twenty percent (20%) discount from the then-current rate card
on purchases of additional advertising banners or buttons on
the AOL Service, AOL.com and the CompuServe Service subject to
availability for the period requested (with such purchases to
be made in accordance with the then-applicable Standard
Advertising Insertion Order for the property in question).
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- Eligibility to participate in the Program Areas (listed under
the Anchor description above).
/ / "MORE STORES" PLUS PROMOTION
MERCHANT will be listed or be provided a button in the "More
Stores" area in the __________________ department(s) of the Shopping Channel
on the AOL Service, AOL.com and the CompuServe Service, as specified below.
Principal Exposure:
- One continuous (24/7) listing in the More Stores list box in a
department specified above on the AOL Service.
- One continuous (24/7) 120 x 20 button with corporate brand or
logo on the corresponding department level page on AOL.com.
- One continuous (24/7) 120 x 20 button with corporate brand or
logo on the corresponding department front screen on
CompuServe.
All additional Promotions on AOL.com and the CompuServe Service not specified
herein will be determined at AOL's reasonable and sole discretion; provided
that the additional, standard Promotions to be provided to the MERCHANT
within the Shopping areas on AOL.com and the CompuServe Service will be
comparable in nature to the additional, standard Promotions provided to other
similarly situated merchants in the same category (i.e. Anchor, Tenant or
More Stores).
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EXHIBIT B
STANDARD SHOPPING CHANNEL TERMS & CONDITIONS
1. MERCHANT SITE. MERCHANT WILL WORK DILIGENTLY TO DEVELOP AND
IMPLEMENT THE MERCHANT SITE, CONSISTING OF THE SPECIFIC PRODUCT(S) SET FORTH
IN EXHIBIT A TO THE SHOPPING CHANNEL PROMOTIONAL AGREEMENT WHICH HAS BEEN
EXECUTED BY AOL AND MERCHANT (THE "PROMOTIONAL AGREEMENT," AND, COLLECTIVELY
WITH THESE STANDARD SHOPPING CHANNEL TERMS AND CONDITIONS, THE "AGREEMENT")
AND ANY ADDITIONAL PRODUCTS AGREED UPON IN WRITING BY THE PARTIES SUBSEQUENT
TO THE EFFECTIVE DATE. EXCEPT AS MUTUALLY AGREED UPON IN WRITING BY THE
PARTIES, THE MERCHANT SITE WILL CONTAIN ONLY CATEGORIES OF PRODUCTS, SERVICES
AND CONTENT THAT ARE DIRECTLY RELATED TO THE MERCHANT PRODUCTS LISTED IN
EXHIBIT A. ALL SALES OF PRODUCTS THROUGH THE MERCHANT SITE WILL BE CONDUCTED
THROUGH A DIRECT SALES FORMAT, ABSENT THE MUTUAL CONSENT OF THE PARTIES.
MERCHANT WILL ENSURE THAT THE MERCHANT SITE DOES NOT IN ANY RESPECT PROMOTE,
ADVERTISE, MARKET OR DISTRIBUTE THE PRODUCTS, SERVICES OR CONTENT OF ANY
OTHER INTERACTIVE SERVICE.
2. MANAGEMENT OF MERCHANT SITE. MERCHANT WILL MANAGE, REVIEW,
DELETE, EDIT, CREATE, UPDATE AND OTHERWISE MANAGE ALL PRODUCTS AVAILABLE ON
OR THROUGH THE MERCHANT SITE, IN A TIMELY AND PROFESSIONAL MANNER AND IN
ACCORDANCE WITH THE TERMS OF THIS AGREEMENT AND AOL'S APPLICABLE TERMS OF
SERVICE AND PRIVACY POLICY (AS SET FORTH ON THE AOL SERVICE). TO THE EXTENT
THAT MERCHANT SITE INCLUDES AOL'S QUICK CHECKOUT (AS DEFINED IN SECTION 3 OF
EXHIBIT B) MERCHANT WILL ENSURE THAT THE AOL QUICK CHECKOUT IS OF EQUAL
PLACEMENT AND PROMOTION PROMINENCE TO OTHER AVAILABLE PAYMENT OPTIONS.
MERCHANT WILL ENSURE THAT THE MERCHANT SITE IS CURRENT, ACCURATE AND
WELL-ORGANIZED AT ALL TIMES. MERCHANT WARRANTS THAT THE MERCHANT SITE AND
ANY MATERIAL CONTAINED HEREIN: (I) WILL CONFORM TO AOL'S APPLICABLE TERMS OF
SERVICE AND PRIVACY POLICY; (II) WILL NOT INFRINGE ON OR VIOLATE ANY
COPYRIGHT, TRADEMARK, U.S. PATENT OR ANY OTHER THIRD PARTY RIGHT, INCLUDING
WITHOUT LIMITATION, ANY MUSIC PERFORMANCE OR OTHER MUSIC-RELATED RIGHTS; AND
(III) WILL NOT CONTAIN ANY PRODUCT WHICH VIOLATES ANY APPLICABLE LAW OR
REGULATION, INCLUDING
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THOSE RELATING TO CONTESTS, SWEEPSTAKES OR SIMILAR PROMOTIONS. AOL WILL HAVE
NO OBLIGATIONS WITH RESPECT TO THE PRODUCTS AVAILABLE ON OR THROUGH THE
MERCHANT SITE, INCLUDING, BUT NOT LIMITED TO, ANY DUTY TO REVIEW OR MONITOR
ANY SUCH PRODUCTS; PROVIDED, HOWEVER, THAT AOL RESERVES THE RIGHT TO REVIEW
AND APPROVE ANY ADDITIONAL PRODUCTS AND ANY THIRD-PARTY CONTENT, PRODUCTS OR
SERVICES THAT MERCHANT MAKES OR DESIRES TO MAKE AVAILABLE THROUGH THE
MERCHANT SITE. UPON AOL'S REQUEST, MERCHANT AGREES TO INCLUDE WITHIN THE
MERCHANT SITE A PRODUCT DISCLAIMER (THE SPECIFIC FORM AND SUBSTANCE TO BE
MUTUALLY AGREED UPON BY THE PARTIES) INDICATING THAT TRANSACTIONS ARE SOLELY
BETWEEN MERCHANT AND THE AOL USERS WHO PURCHASE PRODUCTS FROM MERCHANT.
MERCHANT WILL ENSURE THAT NEITHER MERCHANT NOR ANY CONTENT, PRODUCT OR
SERVICE CONTAINED WITHIN THE MERCHANT SITE, LINKED TO THE PROMOTION OR
OTHERWISE RELATING THE AGREEMENT SHALL (I) DISPARAGE AOL; (II) PROMOTE A
COMPETITOR OF AOL; OR (III) STATE OR IMPLY THAT AOL ENDORSES MERCHANT'S
PRODUCTS.
3. OPTIMIZATION OF MERCHANT SITE. MERCHANT WILL TAKE ALL
REASONABLE STEPS NECESSARY TO CONFORM ITS PROMOTION AND SALE OF PRODUCTS
THROUGH THE MERCHANT SITE TO THE THEN-EXISTING COMMERCE TECHNOLOGIES MADE
AVAILABLE TO MERCHANT BY AOL, INCLUDING WITHOUT LIMITATION AOL'S "QUICK
CHECKOUT" TOOL WHICH ALLOWS AOL USERS TO ENTER PAYMENT AND SHIPPING
INFORMATION WHICH IS THEN PASSED FROM AOL'S CENTRALIZED SERVER UNIT TO
MERCHANT FOR ORDER FULFILLMENT ("AOL QUICK CHECKOUT"). AOL WILL MAKE ALL
REASONABLE EFFORTS TO PROVIDE THE TOOLS FOR THE MERCHANT TO ENABLE MERCHANT
SITE WITH THE AOL QUICK CHECKOUT TECHNOLOGY AND FUNCTIONALITY BY MARCH 31,
1999. COLLECTION, STORAGE AND DISCLOSURE OF INFORMATION WHICH MERCHANT
PROVIDES TO AOL, WILL BE SUBJECT TO AOL'S PRIVACY POLICY AND ALL
CONFIDENTIALITY REQUIREMENTS HEREUNDER. AOL RESERVES THE RIGHT TO REVIEW AND
TEST THE MERCHANT SITE FROM TIME TO TIME TO DETERMINE WHETHER THE SITE IS
COMPATIBLE WITH AOL'S AND COMPUSERVE'S THEN-AVAILABLE CLIENT AND HOST
SOFTWARE AND THEIR CORRESPONDING NETWORKS. AOL WILL BE ENTITLED TO REQUIRE
REASONABLE CHANGES TO THE CONTENT, FEATURES AND/OR FUNCTIONALITY WITHIN ANY
SCREEN OR FORM CREATED USING AOL'S PROPRIETARY FORM TECHNOLOGY (A) "RAINMAN
AREA" OR (B) HTML-BASED WORLD WIDE WEB FORMS (OR ANY OTHER FORMS CREATED
USING A TECHNOLOGY OTHER THAN AOL'S
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PROPRIETARY FORM TECHNOLOGY) ("WEB FORMS") TO THE EXTENT SUCH RAINMAN AREA OR
WEB FORMS WILL, IN AOL'S GOOD FAITH JUDGMENT, ADVERSELY AFFECT OPERATIONS OF
THE AOL SERVICE, AOL.COM AND THE COMPUSERVE SERVICE. MERCHANT AGREES TO
OPTIMIZE OPERATIONS OF THE MERCHANT SITE CONSISTENT WITH EXHIBIT D ATTACHED
HERETO.
4. REMOVAL OF CONTENT. AOL WILL HAVE THE RIGHT TO REMOVE, OR
DIRECT MERCHANT TO REMOVE. ANY CONTENT IN THE MERCHANT SITE (INCLUDING,
WITHOUT LIMITATION, ANY FEATURES, FUNCTIONALITY OR TECHNOLOGY) WHICH, AS
REASONABLY DETERMINED BY AOL (I) VIOLATES AOL'S THEN-STANDARD TERMS OF
SERVICE OR PRIVACY POLICY (AS SET FORTH ON THE AOL SERVICE), ANY OTHER
STANDARD, WRITTEN AOL POLICY OR THE TERMS OF THIS AGREEMENT (II) IS
INCONSISTENT IN ANY MANNER WITH THE TERMS OF THE AGREEMENT OR WITH THE
PRODUCT DESCRIPTION SET FORTH IN EXHIBIT A OR (III) IS OTHERWISE IN CONFLICT
WITH AOL'S PROGRAMMING OBJECTIVES OR ITS EXISTING CONTRACTUAL COMMITMENTS TO
THIRD PARTIES. IN ADDITION, IN THE EVENT THAT AOL REASONABLY BELIEVES THAT
SOFTWARE, TECHNOLOGY OR OTHER TECHNICAL COMPONENTS OF THE MERCHANT SITE WILL
MATERIALLY AFFECT AOL OR COMPUSERVE OR OTHER OPERATIONS, MERCHANT WILL WORK
IN GOOD FAITH WITH AOL TO LIMIT ACCESS TO SUCH COMPONENTS FROM THE AOL
SERVICE, AOL.COM AND THE COMPUSERVE SERVICE. MERCHANT WILL TAKE ALL
COMMERCIALLY REASONABLE STEPS USING MERCHANT'S THEN-AVAILABLE TECHNOLOGY TO
BLOCK ACCESS BY AOL USERS TO CONTENT WHICH AOL DESIRES TO REMOVE OR HAVE
REMOVED PURSUANT TO ANY OF THE FOREGOING. IN THE EVENT THAT MERCHANT CANNOT,
THROUGH SUCH EFFORTS, BLOCK ACCESS TO THE CONTENT IN QUESTION, THEN MERCHANT
WILL PROVIDE AOL PROMPT WRITTEN NOTICE OF SUCH FACT NO LATER THEN FIVE (5)
DAYS AFTER AOL NOTIFIES MERCHANT OF AOL'S OBJECTION TO SUCH CONTENT, AOL MAY
THEN, AT ITS OPTION, EITHER (I) RESTRICT ACCESS BY AOL USERS TO THE CONTENT
IN QUESTION USING TECHNOLOGY AVAILABLE TO AOL OR (II) TERMINATE ALL LINKS,
PROMOTIONS AND ADVERTISEMENTS FOR THE MERCHANT SITE UNTIL SUCH TIME AS THE
CONTENT IN QUESTION IS NO LONGER DISPLAYED. MERCHANT WILL COOPERATE WITH
AOL'S REASONABLE REQUESTS TO THE EXTENT AOL ELECTS TO IMPLEMENT ANY OF THE
FOREGOING ACCESS RESTRICTIONS.
5. PROMOTIONAL PLACEMENT. MERCHANT ACKNOWLEDGES THAT THE SOLE
OBLIGATION OF AOL IS TO DISPLAY THE PROMOTION IN
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THE SHOPPING CHANNEL IN ACCORDANCE WITH THE TERMS AND CONDITION OF THE
AGREEMENT. THE SPECIFIC POSITIONING OF THE PROMOTION ON ANY SCREEN IN THE
SHOPPING CHANNEL SHALL BE AS DETERMINED BY AOL CONSISTENT WITH THE EDITORIAL
COMPOSITION OF SUCH SCREEN AND THE NATURE OF THE PROMOTION BEING PURCHASED BY
MERCHANT. AOL RESERVES THE RIGHT TO REJECT, CANCEL OR REMOVE AT ANY TIME THE
PROMOTION FOR ANY REASON WITH FIFTEEN (15) DAYS PRIOR NOTICE TO MERCHANT, AND
AOL WILL REFUND TO MERCHANT A PRO-RATA PORTION OF THE FEE ALLOCABLE TO THE
DISPLAY OF THE PROMOTION BASED ON THE NUMBER OF DAYS THAT THE PROMOTION WAS
DISPLAYED. AOL WILL NOT BE LIABLE IN ANY WAY FOR ANY REJECTION, CANCELLATION
OR REMOVAL OF THE PROMOTION. AOL RESERVES THE RIGHT TO REDESIGN OR MODIFY
THE ORGANIZATION, NAVIGATION, STRUCTURE, "LOOK AND FEEL" AND OTHER ELEMENTS
OF THE AOL SERVICE, AOL.COM AND THE COMPUSERVE SERVICE, AT ITS SOLE
DISCRETION AT ANY TIME WITHOUT PRIOR NOTICE. IN THE EVENT SUCH MODIFICATIONS
MATERIALLY AFFECT THE PLACEMENT OF THE PROMOTION, AOL WILL NOTIFY MERCHANT
AND WILL WORK WITH MERCHANT TO DISPLAY THE PROMOTION IN A COMPARABLE LOCATION
AND MANNER. IF AOL AND MERCHANT CANNOT REACH AGREEMENT ON A SUBSTITUTE
PLACEMENT, MERCHANT WILL HAVE THE RIGHT TO CANCEL THE PROMOTION, UPON SIXTY
(60) DAYS ADVANCE WRITTEN NOTICE TO AOL. IN SUCH CASE, MERCHANT WILL ONLY BE
RESPONSIBLE FOR THE PRO-RATA PORTION OF PAYMENTS ATTRIBUTABLE TO THE PERIOD
FROM THE EFFECTIVE DATE THROUGH THE END OF THE SIXTY (60) DAY NOTICE PERIOD.
MERCHANT MAY NOT RESELL, TRADE, EXCHANGE, BARTER OR BROKER TO ANY THIRD PARTY
ANY PROMOTIONAL OR ADVERTISING SPACE WHICH IS THE SUBJECT OF THIS AGREEMENT.
MERCHANT WILL NOT BE ENTITLED TO ANY REFUND OR PRORATION FOR DELAYS CAUSED BY
MERCHANT'S FAILURE TO DELIVER TO AOL ANY MATERIALS RELATING TO THE PROMOTION.
6. PRODUCT OFFERING. MERCHANT WILL ENSURE THAT THE MERCHANT SITE
GENERALLY INCLUDES ALL OF THE PRODUCTS AND OTHER CONTENT (INCLUDING, WITHOUT
LIMITATION, ANY FEATURES, OFFERS, CONTESTS, FUNCTIONALITY OR TECHNOLOGY) THAT
ARE THEN MADE AVAILABLE BY OR AN BEHALF OF MERCHANT THROUGH ANY ADDITIONAL
MERCHANT SITE.
7. PRICING AND TERMS. MERCHANT WILL ENSURE THAT (I) THE PRICES
FOR PRODUCTS IN THE MERCHANT SITE GENERALLY DO NOT EXCEED THE PRICES FOR THE
PRODUCTS OFFERED BY OR ON BEHALF OF
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MERCHANT THROUGH ANY ADDITIONAL MERCHANT CHANNEL; AND (II) THE TERMS AND
CONDITIONS RELATED TO PRODUCTS IN THE MERCHANT SITE ARE GENERALLY NO LESS
FAVORABLE IN ANY RESPECT TO THE TERMS AND CONDITIONS FOR THE PRODUCTS OFFERED
BY OR ON BEHALF OF MERCHANT THROUGH ANY ADDITIONAL MERCHANT CHANNEL. FOR
PURPOSE OF THIS AGREEMENT MERCHANT CHANNEL MEANS ANY OTHER DISTRIBUTION
CHANNEL (E.G., AN INTERACTIVE SERVICE OTHER THAN AOL) THROUGH WHICH MERCHANT
MAKES AVAILABLE AN OFFERING COMPARABLE IN NATURE TO THE MERCHANT SITE.
8. SPECIAL OFFERS. MERCHANT WILL PROMOTE A REASONABLE NUMBER OF
SPECIAL OFFERS THROUGH THE MERCHANT SITE (E.G., OFFERS ENABLING AOL USERS TO
PURCHASE SPECIFIED PRODUCT(S) AT A SUBSTANTIAL DISCOUNT FROM PRICE OFFERED BY
MERCHANT THROUGH OTHER SALES CHANNELS, FREE GIFTS TO AOL USERS UPON THE
PURCHASE OF PRODUCT(S), THE AVAILABILITY OF PRODUCT(S) PRIOR TO THEIR
AVAILABILITY THROUGH OTHER SALES CHANNELS, AND AOL-BRANDED REWARD OR FREQUENT
PURCHASER POINTS TO AOL USERS FOR THE PURCHASE OF PRODUCT(S)) (THE "SPECIAL
OFFERS"). MERCHANT WILL PROVIDE AOL WITH REASONABLE PRIOR NOTICE OF SPECIAL
OFFERS SO THAT AOL CAN MARKET THE AVAILABILITY OF SUCH SPECIAL OFFERS IN THE
MANNER AOL DEEMS APPROPRIATE IN ITS EDITORIAL DISCRETION.
9. CUSTOMER SERVICE. IT IS THE SOLE RESPONSIBILITY OF MERCHANT
TO PROVIDE CUSTOMER SERVICE TO PERSONS OR ENTITIES PURCHASING PRODUCTS
THROUGH THE AOL SERVICE, AOL.COM OR THE COMPUSERVE SERVICE ("CUSTOMERS").
MERCHANT WILL BEAR FULL RESPONSIBILITY FOR ALL CUSTOMER SERVICE, INCLUDING
WITHOUT LIMITATION, ORDER PROCESSING, BILLING, FULFILLMENT, SHIPMENT,
COLLECTION AND OTHER CUSTOMER SERVICE ASSOCIATED WITH ANY PRODUCTS OFFERED,
SOLD OR LICENSED THROUGH EACH MERCHANT SITE, AND AOL WILL HAVE NO OBLIGATIONS
WHATSOEVER WITH RESPECT THERETO. MERCHANT WILL RECEIVE ALL EMAILS FROM
CUSTOMERS VIA A COMPUTER AVAILABLE TO MERCHANT'S CUSTOMER SERVICE STAFF AND
GENERALLY RESPOND TO SUCH EMAILS WITHIN ONE BUSINESS DAY OF RECEIPT.
MERCHANT WILL RECEIVE ALL ORDERS ELECTRONICALLY AND GENERALLY PROCESS ALL
ORDERS WITHIN ONE BUSINESS DAY OF RECEIPT, PROVIDED PRODUCTS ORDERED ARE NOT
ADVANCE ORDER ITEMS. MERCHANT WILL ENSURE THAT ALL ORDERS OF PRODUCTS ARE
RECEIVED, PROCESSED, FULFILLED AND DELIVERED ON A TIMELY AND PROFESSIONAL
BASIS. MERCHANT WILL OFFER AOL USERS WHO PURCHASE PRODUCTS THROUGH SUCH THE
MERCHANT SITE A MONEY-
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BACK SATISFACTION GUARANTEE. MERCHANT WILL BEAR ALL RESPONSIBILITY FOR
COMPLIANCE WITH FEDERAL, STATE AND LOCAL LAWS IN THE EVENT THAT PRODUCTS ARE
OUT OF STOCK OR ARE NO LONGER AVAILABLE AT THE TIME AN ORDER IS RECEIVED.
MERCHANT WILL ALSO COMPLY WITH THE REQUIREMENTS OF ANY FEDERAL, STATE OR
LOCAL CONSUMER PROTECTION OR DISCLOSURE LAW. PAYMENT FOR PRODUCTS WILL BE
COLLECTED BY MERCHANT DIRECTLY FROM CUSTOMERS. MERCHANT'S ORDER FULFILLMENT
OPERATION WILL BE SUBJECT TO AOL'S REASONABLE REVIEW.
10. LAUNCH DATES. IN THE EVENT THAT ANY TERMS CONTAINED HEREIN
RELATE TO OR DEPEND ON THE COMMERCIAL LAUNCH DATE OF THE ONLINE AREA OR OTHER
PROPERTY CONTEMPLATED BY THIS AGREEMENT (THE "LAUNCH DATE"), THEN IT IS THE
INTENTION OF THE PARTIES TO RECORD SUCH LAUNCH DATE IN A WRITTEN INSTRUMENT
SIGNED BY BOTH PARTIES PROMPTLY FOLLOWING SUCH LAUNCH DATE; PROVIDED THAT, IN
THE ABSENCE OF SUCH A WRITTEN INSTRUMENT THE LAUNCH DATE WILL BE AS
REASONABLY DETERMINED BY AOL BASED ON THE INFORMATION AVAILABLE TO AOL.
11. MERCHANT CERTIFICATION PROGRAM. MERCHANT WILL PARTICIPATE IN
ANY GENERALLY APPLICABLE "CERTIFIED MERCHANT" PROGRAM OPERATED BY AOL OR ITS
AUTHORIZED AGENTS OR CONTRACTORS. SUCH PROGRAM MAY REQUIRE MERCHANT
PARTICIPANTS ON AN ONGOING BASIS TO MEET CERTAIN REASONABLE STANDARDS
RELATING TO PROVISION OF ELECTRONIC COMMERCE THROUGH THE AOL SERVICE, AOL.COM
AND THE COMPUSERVE SERVICE AND MAY ALSO REQUIRE THE PAYMENT OF CERTAIN
REASONABLE CERTIFICATION FEES TO AOL OR ITS AUTHORIZED AGENTS OF CONTRACTORS
OPERATING THE PROGRAM. MERCHANT AGREES TO (I) PARTICIPATE IN THE
BIZRATE-REGISTERED TRADEMARK- PROGRAM, A SERVICE OFFERED BY BINARY COMPASS
ENTERPRISES, INC. (BCE), WHICH PROVIDES OPT-IN SATISFACTION SURVEYS TO USERS
WHO PURCHASE PRODUCTS THROUGH SUCH MERCHANT SITE, OR SUCH OTHER PROVIDER OF
SUCH SERVICES AS AOL MAY DESIGNATE OR APPROVE FROM TIME TO TIME, AND (II)
PROVIDE A LINK TO BIZRATE'S THEN-CURRENT STANDARD SURVEY FORMS. OR SUCH OTHER
SURVEY FORMS OFFERED BY ANY OTHER PARTY THAT AOL MAY REASONABLY DESIGNATE OR
APPROVE FROM TIME TO TIME. MERCHANT PARTICIPATION SHALL BE BASED UPON A
SEPARATE WRITTEN AGREEMENT WHICH MERCHANT WILL ENTER INTO WITH BCE, OR OTHER
SUCH PARTY REASONABLY DESIGNATED OR APPROVED BY AOL. MERCHANT HEREBY
AUTHORIZES BCE TO PROVIDE TO AOL ANY AND ALL
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REPORTS PROVIDED TO MERCHANT BY BCE, OR OTHER THIRD PARTY PROVIDING SUCH
SERVICES. AND AGREES TO PROVIDE WRITTEN NOTICE OF SUCH AUTHORIZATION TO BCE,
OR SUCH OTHER THIRD PARTY.
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EXHIBIT C
STANDARD LEGAL TERMS AND CONDITIONS
1. PRODUCTION AND TECHNICAL SERVICES. UNLESS EXPRESSLY PROVIDED
FOR ELSEWHERE IN THE SHOPPING CHANNEL PROMOTIONAL AGREEMENT WHICH HAS BEEN
EXECUTED BY AOL AND MERCHANT (THE "PROMOTIONAL AGREEMENT" AND COLLECTIVELY
WITH THESE STANDARD LEGAL TERMS AND CONDITIONS THE "AGREEMENT") AGREEMENT,
(I) AOL WILL HAVE NO OBLIGATION TO PROVIDE ANY CREATIVE, DESIGN, TECHNICAL OR
PRODUCTION SERVICES TO MERCHANT AND (II) THE NATURE AND EXTENT OF ANY SUCH
SERVICES WHICH AOL MAY PROVIDE TO MERCHANT WILL BE AS DETERMINED BY AOL IN
ITS SOLE DISCRETION. THE TERMS REGARDING ANY CREATIVE DESIGN, TECHNICAL OR
PRODUCTIONS SERVICES PROVIDED BY AOL TO MERCHANT WILL BE AS MUTUALLY AGREED
UPON BY THE PARTIES IN A SEPARATE WRITTEN WORK ORDER.
2. AOL ACCOUNTS. TO THE EXTENT MERCHANT HAS BEEN GRANTED ANY AOL
ACCOUNTS, MERCHANT WILL BE RESPONSIBLE FOR THE ACTIONS TAKEN UNDER OR THROUGH
ITS ACCOUNTS, WHICH ACTIONS ARE SUBJECT TO AOL'S APPLICABLE TERMS OF SERVICE
AND FOR ANY SURCHARGES, INCLUDING, WITHOUT LIMITATION, ALL PREMIUM CHARGES,
TRANSACTION CHARGES, AND ANY APPLICABLE COMMUNICATION SURCHARGES INCURRED BY
ANY ACCOUNT ISSUED TO MERCHANT. UPON THE TERMINATION OF THIS AGREEMENT, ALL
SUCH ACCOUNTS, RELATED SCREEN NAMES AND ANY ASSOCIATED USAGE CREDITS OR
SIMILAR RIGHTS WILL AUTOMATICALLY TERMINATE. AOL WILL HAVE NO LIABILITY FOR
LOSS OF ANY DATA OR CONTENT RELATED TO THE PROPER TERMINATION OF ANY SUCH
ACCOUNT.
3. TAXES. MERCHANT WILL COLLECT AND PAY AND INDEMNIFY AND HOLD
AOL HARMLESS FROM, ANY SALES, USE, EXCISE, IMPORT OR EXPORT VALUE ADDED OR
SIMILAR TAX OR DUTY NOT BASED ON AOL'S NET INCOME, INCLUDING ANY PENALTIES
AND INTEREST, AS WELL AS ANY COSTS ASSOCIATED WITH THE COLLECTION OR
WITHHOLDING THEREOF, INCLUDING ATTORNEYS' FEES.
4. PROMOTIONAL MATERIALS/PRESS RELEASES. EACH PARTY WILL SUBMIT
TO THE OTHER PARTY, FOR ITS PRIOR WRITTEN APPROVAL, WHICH WILL NOT BE
UNREASONABLY WITHHELD OR DELAYED, ANY MARKETING, ADVERTISING, AND ALL OTHER
PROMOTIONAL MATERIALS
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RELATED TO THE MERCHANT SITE AND/OR REFERENCING THE OTHER PARTY AND/OR ITS
TRADE NAMES, TRADEMARKS, AND SERVICE MARKS; PROVIDED, HOWEVER, THAT (A)
EITHER PARTY'S USE OF SCREEN SHOTS OF THE MERCHANT SITE FOR PROMOTIONAL
PURPOSES AND (B) EITHER PARTY'S REFERENCE TO THE FACT OF THE PARTIES'
CONTRACTUAL RELATIONSHIP RELATING TO THE SHOPPING CHANNEL WILL NOT REQUIRE
THE APPROVAL OF THE OTHER PARTY SO LONG AS, IN THE CASE OF (A), THE AOL
SERVICE, AOL.COM AND THE COMPUSERVE SERVICE (AS APPLICABLE) IS CLEARLY
IDENTIFIED AS THE SOURCE OF SUCH SCREEN SHOTS. MERCHANT WILL NOT (I) ISSUE
ANY PRESS RELEASE, PROMOTIONS OR PUBLIC STATEMENTS CONCERNING THE EXISTENCE
OR TERMS OF THE AGREEMENT OR (II) USE, DISPLAY OR MODIFY AOL'S TRADEMARKS,
TRADENAMES OR SERVICEMARKS IN ANY MANNER, ABSENT AOL'S EXPRESS PRIOR WRITTEN
APPROVAL. NOTWITHSTANDING THE FOREGOING, (A) EITHER PARTY MAY ISSUE PRESS
RELEASES AND OTHER DISCLOSURES AS REQUIRED BY LAW, OR AS REASONABLY ADVISED
BY LEGAL COUNSEL WITHOUT THE CONSENT OF THE OTHER PARTY AND IN SUCH EVENT,
PROMPT NOTICE THEREOF WILL BE PROVIDED TO THE OTHER PARTY AND (B) FOLLOWING
THE INITIAL PUBLIC ANNOUNCEMENT OF THE BUSINESS RELATIONSHIP BETWEEN THE
PARTIES IN ACCORDANCE WITH THE APPROVAL AND OTHER REQUIREMENTS CONTAINED
HEREIN, EITHER PARTY'S SUBSEQUENT FACTUAL REFERENCE TO THE EXISTENCE OF A
BUSINESS RELATIONSHIP BETWEEN THE PARTIES WILL NOT REQUIRE THE APPROVAL OF
THE OTHER PARTY.
5. REPRESENTATIONS AND WARRANTIES. EACH PARTY REPRESENTS AND
WARRANTS TO THE OTHER PARTY THAT: (I) SUCH PARTY HAS THE FULL CORPORATE
RIGHT, POWER AND AUTHORITY TO ENTER INTO THE AGREEMENT AND TO PERFORM THE
ACTS REQUIRED OF IT HEREUNDER; (II) THE EXECUTION OF THE AGREEMENT BY SUCH
PARTY, AND THE PERFORMANCE OF SUCH PARTY OF ITS OBLIGATIONS AND DUTIES
HEREUNDER DO NOT AND WILL NOT VIOLATE ANY AGREEMENT TO WHICH SUCH PARTY IS A
PARTY OR BY WHICH IT IS OTHERWISE BOUND; (III) WHEN EXECUTED AND DELIVERED BY
SUCH PARTY, THE AGREEMENT WILL CONSTITUTE THE LEGAL, VALID AND BINDING
OBLIGATION OF SUCH PARTY, ENFORCEABLE AGAINST SUCH PARTY IN ACCORDANCE WITH
ITS TERMS; AND (IV) SUCH PARTY ACKNOWLEDGES THAT THE OTHER PARTY MAKES NO
REPRESENTATIONS, WARRANTIES OR AGREEMENTS RELATED TO THE SUBJECT MATTER
HEREOF THAT ARE NOT EXPRESSLY PROVIDED FOR THE AGREEMENT.
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6. LICENSE. MERCHANT HEREBY GRANTS AOL A NON-EXCLUSIVE WORLDWIDE
LICENSE TO MARKET, LICENSE, DISTRIBUTE, REPRODUCE, DISPLAY, PERFORM, TRANSMIT
AND PROMOTE THE MERCHANT SITE AND ALL CONTENT PRODUCTS AND SERVICES OFFERED
THEREIN OR OTHERWISE PROVIDED BY MERCHANT IN CONNECTION HEREWITH (E.G.,
OFFLINE OR ONLINE PROMOTION CONTENT, PROMOTIONS, ETC.) THROUGH THE AOL
SERVICE, AOL.COM AND THE COMPUSERVE SERVICE AND THROUGH ANY OTHER PRODUCT OR
SERVICE OWNED, OPERATED, DISTRIBUTED OR AUTHORIZED TO BE DISTRIBUTED BY OR
THROUGH AOL ON ITS AFFILIATES WORLDWIDE THROUGH WHICH SUCH PARTY ELECTS TO
OFFER THE MERCHANT SITE (WHICH MAY INCLUDE, WITHOUT LIMITATION, INTERNET
SITES PROMOTING AOL PRODUCTS AND SERVICES AND ANY "OFFLINE" INFORMATION
BROWSING PRODUCTS OF AOL OR ITS AFFILIATES). USERS OF THE AOL SERVICE,
AOL.COM AND THE COMPUSERVE SERVICE (AS APPLICABLE) ("AOL USERS") WILL HAVE
THE RIGHT TO ACCESS AND USE THE MERCHANT SITE. SUBJECT TO SUCH LICENSE,
MERCHANT RETAINS ALL RIGHT, TITLE TO AND INTEREST IN THE MERCHANT SITE.
DURING THE TERM, AOL WILL HAVE THE RIGHT TO USE MERCHANT'S TRADEMARKS, TRADE
NAMES AND SERVICE MARKS IN CONNECTION WITH PERFORMANCE OF THIS AGREEMENT,
SUBJECT TO ANY WRITTEN GUIDELINES PROVIDED IN WRITING TO AOL.
7. CONFIDENTIALITY. EACH PARTY ACKNOWLEDGES THAT CONFIDENTIAL
INFORMATION MAY BE DISCLOSED TO THE OTHER PARTY DURING THE COURSE OF THIS
AGREEMENT. EACH PARTY AGREES THAT IT WILL TAKE REASONABLE STEPS, AT LEAST
SUBSTANTIALLY EQUIVALENT TO THE STEPS IT TAKES TO PROJECT ITS OWN PROPRIETARY
INFORMATION, DURING THE TERM OF THIS AGREEMENT, AND FOR A PERIOD OF THREE
YEARS FOLLOWING EXPIRATION OR TERMINATION OF THIS AGREEMENT, TO PREVENT THE
DUPLICATION OR DISCLOSURE OF CONFIDENTIAL INFORMATION OF THE OTHER PARTY,
OTHER THAN BY OR TO ITS EMPLOYEES OR AGENTS WHO MUST HAVE ACCESS TO SUCH
CONFIDENTIAL INFORMATION TO PERFORM SUCH PARTY'S OBLIGATIONS HEREUNDER, WHO
WILL EACH AGREE TO COMPLY WITH THIS PROVISION. "CONFIDENTIAL INFORMATION"
MEANS ANY INFORMATION RELATING TO OR DISCLOSED IN THE COURSE OF THE
AGREEMENT, WHICH IS OR SHOULD BE REASONABLY UNDERSTOOD TO BE CONFIDENTIAL OR
PROPRIETARY TO THE DISCLOSING PARTY, INCLUDING, BUT NOT LIMITED TO, THE
MATERIAL TERMS OF THIS AGREEMENT, INFORMATION ABOUT AOL USERS, TECHNICAL
PROCESSES AND FORMULAS, SOURCE CODES, PRODUCT DESIGNS, SALES, COST AND OTHER
UNPUBLISHED FINANCIAL INFORMATION, PRODUCT AND BUSINESS PLANS, PROJECTIONS,
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<PAGE>
AND MARKETING DATA. "CONFIDENTIAL INFORMATION" WILL NOT INCLUDE INFORMATION
(A) ALREADY LAWFULLY KNOWN TO OR INDEPENDENTLY DEVELOPED BY THE RECEIVING
PARTY, (B) DISCLOSED IN PUBLISHED MATERIALS, (C) GENERALLY KNOWN TO THE
PUBLIC, (D) LAWFULLY OBTAINED FROM ANY THIRD PARTY, OR (E) REQUIRED OR
REASONABLY ADVISED TO BE DISCLOSED BY LAW.
8. LIMITATION OF LIABILITY; DISCLAIMER; INDEMNIFICATION.
(A) LIABILITY. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES), ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS,
THE USE OR INABILITY TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM, THE
COMPUSERVE SERVICE OR THE MERCHANT SITE, OR ARISING FROM ANY OTHER PROVISION
OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR
ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES");
PROVIDED THAT EACH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT
ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO
INDEMNIFICATION PURSUANT TO PARAGRAPH (C) BELOW. EXCEPT AS PROVIDED TO
PARAGRAPH (C) BELOW, (I) LIABILITY ARISING UNDER THIS AGREEMENT WILL BE
LIMITED TO DIRECT, OBJECTIVELY MEASURABLE DAMAGES, AND (II) AOL WILL NOT BE
LIABLE TO MERCHANT UNDER THE AGREEMENT FOR MORE THAN THE AMOUNTS THEN PAID TO
AOL BY MERCHANT HEREUNDER.
(B) NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH
IN THE AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY
DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING
AOL.COM, THE AOL SERVICE OR NETWORK, THE COMPUSERVE SERVICE OR THE MERCHANT
SITE, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL
SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING (I) THE PROFITABILITY OF THE
MERCHANT SITE, (II) THE NUMBER OF PERSONS WHO WILL ACCESS OR "CLICK THROUGH"
THE PROMOTION, (III) ANY BENEFIT MERCHANT MIGHT OBTAIN FROM INCLUDING THE
PROMOTION WITHIN THE AOL SERVICE, AOL.COM OR THE COMPUSERVE SERVICE OR (IV)
THE FUNCTIONALITY,
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<PAGE>
PERFORMANCE OR OPERATION OF THE AOL OR COMPUSERVE SERVICES WITH RESPECT TO
THE PROMOTION.
(C) INDEMNITY. Either Party will defend, indemnify, save and
hold harmless the other Party and the officers, directors, agents,
affiliates, distributors, franchisees and employees of the other Party from
any and all third party claims, demands, liabilities, costs or expenses,
including reasonable attorneys' fees ("Liabilities"), resulting from the
indemnifying Party's material breach of any duty, representation, or warranty
of the Agreement, except where Liabilities result from the gross negligence
or knowing and willful misconduct of the other Party.
(D) CLAIMS. If a Party entitled to indemnification hereunder
(the "Indemnified Party") becomes aware of any matter it believes is
indemnifiable hereunder involving any claim, action, suit, investigation,
arbitration or other proceeding against the Indemnified Party by any third
party (each an "Action"), the Indemnified Party will give the other Party
(the "Indemnifying Party") prompt written notice of such Action. Such notice
will (i) provide the basis on which indemnification is being asserted and
(ii) be accompanied by copies of all relevant pleadings, demands, and other
papers related to the Action and in the possession of the Indemnified Party.
The Indemnifying Party will have a period of ten (10) days after delivery of
such notice to respond. If the Indemnifying Party elects to defend the
Action or does not respond within the requisite ten (10) day period, the
Indemnifying Party will be obligated to defend the Action, at its own
expense, and by counsel reasonably satisfactory to the Indemnified Party.
The Indemnified Party will cooperate, at the expense of the Indemnifying
Party, with the Indemnifying Party and its counsel in the defense and the
Indemnified Party will have the right to participate fully, at its own
expense, in the defense of such Action. If the Indemnifying Party responds
within the required ten (10) day period and elects not to defend such Action,
the Indemnified Party shall be free, without prejudice to any of the
Indemnified Party's rights hereunder, to compromise or defend (and control
the defense of) such Action. In such case, the Indemnifying Party will
cooperate, at its own expense, with the Indemnified Party and its counsel in
the defense against such Action and the Indemnifying Party will have the
right to participate fully, at its own expense, in the defense of such
Action. Any compromise or settlement of an Action will require the prior
written consent of both Parties hereunder, such consent not to be
unreasonably withheld or delayed.
(E) ACKNOWLEDGMENT. AOL and MERCHANT each acknowledge that
the provisions of this Agreement were negotiated to reflect an informed,
voluntary allocation between them of all risks (both known and unknown)
associated with the transactions contemplated hereunder. The limitations and
disclaimers related to warranties and liability contained in the Agreement
are intended to limit the circumstances and extent of liability. The
provisions in paragraphs (a) through (d) above
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<PAGE>
and this paragraph (e) will be enforceable independent of and severable from
any other enforceable or unenforceable provision of this Agreement.
9. SOLICITATION OF SUBSCRIBERS.
(a) MERCHANT will not send unsolicited, commercial e-mail
through or into AOL's products or services, absent a Prior Business
Relationship. For purposes of this Agreement, a "Prior Business
Relationship" will mean that the AOL User to whom commercial e-mail is being
sent has voluntarily either (i) engaged in a transaction with MERCHANT or
(ii) provided information to MERCHANT through a contest, registration, on
other communication, which included notice to the AOL User that the
information provided could result in commercial e-mail being sent to that AOL
User by MERCHANT or its agents. More generally, any commercial e-mail to be
sent through or into AOL's products or service shall be subject to AOL's
then-standard restrictions on distribution of bulk e-mail (e.g., related to
the time and manner in which such e-mail can be distributed through the AOL
service in question) and the limitations set forth in Exhibit B.
(b) MERCHANT shall ensure that its collection, use and
disclosure of Information obtained from AOL Users under this Agreement ("User
Information") complies with (i) all applicable laws and regulations and (ii)
AOL's standard privacy policies, available on the AOL Service at the keyword
term "Privacy."
(c) MERCHANT will not disclose User Information to any third
party in a manner that identifies AOL User as end users of an AOL product or
service or use User Information collected under this Agreement to market an
interactive Service competitive with AOL; provided that the restrictions in
this subsection (c) shall not restrict MERCHANT's use of any information
collected independently of this Agreement. For the purpose of this
Agreement, the term "Interactive Service Provider" shall mean and refer to an
entity offering one or more of the following: (i) online or Internet
connectivity services (e.g., an Internet service provider); (ii) a broad
selection of aggregated third party interactive content (or navigation
thereto) (e.g., an online service or search and directory service); (iii)
communications software capable of serving as the principal means through
which a user creates, sends and receives electronic mail or real time online
messages.
10. AOL USER COMMUNICATIONS. TO THE EXTENT MERCHANT SENDS ANY
FORM OF COMMUNICATIONS TO AOL USERS, MERCHANT WILL PROMOTE THE MERCHANT SITE
AS THE LOCATION AT WHICH TO PURCHASE PRODUCTS (AS COMPARED TO ANY MORE
GENERAL OR OTHER SITE OR LOCATION). IN ADDITION, IN ANY COMMUNICATION TO AOL
USERS OR ON THE MERCHANT SITE, MERCHANT WILL NOT ENCOURAGE AOL USERS TO TAKE
ANY ACTION INCONSISTENT WITH THE SCOPE AND
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PURPOSE OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, THE FOLLOWING
ACTIONS: (A) USING INTERACTIVE SITES; OTHER THAN THE MERCHANT SITE; (B)
BOOKMARKING OF OTHER INTERACTIVE SITES, (C) CHANGING THE DEFAULT HOME PAGE ON
THE AOL BROWSER; OR (D) USING ANY INTERACTIVE SERVICE OTHER THAN THE AOL AND
COMPUSERVE SERVICES.
11. NAVIGATION TOOLS. THE KEYWORD-TM- ONLINE SEARCH TERMS MADE
AVAILABLE ON THE AOL SERVICE FOR USE BY AOL MEMBERS, COMBINING AOL'S
KEYWORD-TM- ONLINE SEARCH MODIFIER WITH A TERM OR PHRASE SPECIFICALLY RELATED
TO MERCHANT (AND DETERMINED IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT).
ANY KEYWORD SEARCH TERMS TO BE DIRECTED TO MERCHANT'S SITE SHALL BE (I)
SUBJECT TO AVAILABILITY AND (II) LIMITED TO THE COMBINATION OF THE
KEYWORD-TM- SEARCH MODIFIER COMBINED WITH A REGISTERED TRADEMARK OF MERCHANT.
AOL RESERVES THE RIGHT AT ANY TIME TO REVOKE MERCHANT'S USE OF ANY KEYWORDS
THAT ARE NOT REGISTERED TRADEMARKS OF MERCHANT. MERCHANT ACKNOWLEDGES THAT
ITS UTILIZATION OF A KEYWORD SEARCH TERM WILL NOT CREATE IN IT, NOR WILL IT
REPRESENT IT HAS, ANY RIGHT, TITLE OR INTEREST IN OR TO SUCH KEYWORD SEARCH
TERM, OTHER THAN THE RIGHT, TITLE AND INTEREST MERCHANT HOLDS IN MERCHANT'S
REGISTERED TRADEMARK INDEPENDENT OF THE KEYWORD SEARCH TERM. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, MERCHANT WILL NOT: (A) ATTEMPT TO
REGISTER OR OTHERWISE OBTAIN TRADEMARK OR COPYRIGHT PROTECTION IN THE KEYWORD
SEARCH TERM; OR (B) USE THE KEYWORD SEARCH TERM, EXCEPT FOR THE PURPOSES
EXPRESSLY REQUIRED OR PERMITTED UNDER THIS AGREEMENT. TO THE EXTENT AOL
ALLOWS AOL USERS TO "BOOKMARK" THE URL OR OTHER LOCATOR FOR THE MERCHANT
SITE, SUCH BOOKMARKS WILL BE SUBJECT TO AOL'S CONTROL AT ALL TIMES. UPON THE
TERMINATION OF THIS AGREEMENT, MERCHANT'S RIGHTS TO ANY KEYWORDS AND
BOOKMARKING WILL TERMINATE. FOR PURPOSES OF THIS AGREEMENT, "KEYWORD SEARCH
TERMS" SHALL MEAN THE KEYWORD-TM- ONLINE SEARCH TERMS MADE AVAILABLE ON THE
AOL SERVICE FOR USE BY AOL MEMBERS, COMBINING AOL'S KEYWORD-TM- ONLINE SEARCH
MODIFIER WITH A TERM OR PHRASE SPECIFICALLY RELATED TO MERCHANT (AND
DETERMINED IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT).
12. MISCELLANEOUS. NEITHER PARTY WILL BE LIABLE FOR, OR BE
CONSIDERED IN BREACH OF OR DEFAULT UNDER THE AGREEMENT ON ACCOUNT OF, ANY
DELAY OR FAILURE TO PERFORM AS REQUIRED BY THE
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<PAGE>
AGREEMENT (EXCEPT WITH RESPECT TO PAYMENT OBLIGATIONS) AS A RESULT OF ANY
CAUSES OR CONDITIONS WHICH ARE BEYOND SUCH PARTY'S REASONABLE CONTROL AND
WHICH SUCH PARTY IS UNABLE TO OVERCOME BY THE EXERCISE OF REASONABLE
DILIGENCE. MERCHANT'S RIGHTS, DUTIES, AND OBLIGATIONS UNDER THE AGREEMENT
ARE NOT TRANSFERABLE. THE PARTIES TO THE AGREEMENT ARE INDEPENDENT
CONTRACTORS. NEITHER PARTY IS AN AGENT, REPRESENTATIVE OR PARTNER OF THE
OTHER PARTY. NEITHER PARTY WILL HAVE ANY RIGHT, POWER OR AUTHORITY TO ENTER
INTO ANY AGREEMENT FOR OR ON BEHALF OF, OR INCUR ANY OBLIGATION OR LIABILITY
OF, OR TO OTHERWISE BIND, THE OTHER PARTY. THE FAILURE OF EITHER PARTY TO
INSIST UPON OR ENFORCE STRICT PERFORMANCE BY THE OTHER PARTY OF ANY PROVISION
OF THE AGREEMENT OR TO EXERCISE ANY RIGHT UNDER THE AGREEMENT WILL NOT BE
CONSTRUED AS A WAIVER OR RELINQUISHMENT TO ANY EXTENT OF SUCH PARTY'S RIGHT
TO ASSERT OR RELY UPON ANY SUCH PROVISION OR RIGHT IN THAT OR ANY OTHER
INSTANCE; RATHER, THE SAME WILL BE AND REMAIN IN FULL FORCE AND EFFECT.
SECTIONS 3, 4, 7, 8, 9, 10, 11 AND 12 OF THESE STANDARD LEGAL TERMS AND
CONDITIONS WILL SURVIVE THE COMPLETION, EXPIRATION, TERMINATION OR
CANCELLATION OF THE PROMOTIONAL AGREEMENT. EITHER PARTY MAY TERMINATE THE
AGREEMENT AT ANY TIME WITH WRITTEN NOTICE TO THE OTHER PARTY IN THE EVENT OF
A MATERIAL BREACH OF THE AGREEMENT BY THE OTHER PARTY, WHICH REMAINS UNCURED
AFTER THIRTY DAYS WRITTEN NOTICE THEREOF. ANY NOTICE, APPROVAL, REQUEST,
AUTHORIZATION, DIRECTION OR OTHER COMMUNICATION UNDER THIS AGREEMENT WILL BE
GIVEN IN WRITING AND WILL BE DEEMED TO HAVE BEEN DELIVERED AND GIVEN FOR ALL
PURPOSES (I) ON THE DELIVERY DATE IF DELIVERED BY ELECTRONIC MAIL ON AOL'S
NETWORK OR SYSTEMS (TO SCREENNAME "[email protected]" IN THE CASE OF AOL) OR
BY CONFIRMED FACSIMILE; (II) ON THE DELIVERY DATE IF DELIVERED PERSONALLY TO
THE PARTY TO WHOM THE SAME IS DIRECTED; (III) ONE BUSINESS DAY AFTER DEPOSIT
WITH A COMMERCIAL OVERNIGHT CARRIER, WITH WRITTEN VERIFICATION OF RECEIPT; OR
(IV) FIVE BUSINESS DAYS AFTER THE MAILING DATE, WHETHER OR NOT ACTUALLY
RECEIVED, IF SENT BY U.S. MAIL, RETURN RECEIPT REQUESTED, POSTAGE AND CHARGES
PREPAID, OR ANY OTHER MEANS OF RAPID MAIL DELIVERY FOR WHICH A RECEIPT IS
AVAILABLE. IN THE CASE OF AOL, SUCH NOTICE WILL BE PROVIDED TO BOTH THE
SENIOR VICE PRESIDENT FOR BUSINESS AFFAIRS (FAX NO. 703-265-1206) AND THE
DEPUTY GENERAL COUNSEL (FAX NO. 703-265-1105), EACH AT THE ADDRESS OF AOL SET
FORTH IN THE FIRST
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<PAGE>
PARAGRAPH OF THIS AGREEMENT. IN THE CASE OF MERCHANT, EXCEPT AS OTHERWISE
SPECIFIED HEREIN, THE NOTICE ADDRESS WILL BE THE ADDRESS FOR MERCHANT SET
FORTH IN THE FIRST PARAGRAPH OF THIS AGREEMENT WITH THE OTHER RELEVANT NOTICE
INFORMATION, INCLUDING THE RECIPIENT FOR NOTICE AND, AS APPLICABLE, SUCH
RECIPIENT'S FAX NUMBER OR AOL EMAIL ADDRESS, TO BE AS REASONABLY IDENTIFIED
BY AOL. THE AGREEMENT SETS FORTH THE ENTIRE AGREEMENT BETWEEN MERCHANT AND
AOL, AND SUPERSEDES ANY AND ALL PRIOR AGREEMENTS OF AOL OR MERCHANT WITH
RESPECT TO THE TRANSACTIONS SET FORTH HEREIN, BUT MAKES EXCEPTION FOR THE
CONTINUANCE OF THE TERMS ESTABLISHED IN THE ADDENDUM TO LICENSE STAR SOFTWARE
WHICH SHALL REMAIN IN FULL FORCE AND EFFECT FOR THE DURATION OF THIS
AGREEMENT. NO CHANGE, AMENDMENT OR MODIFICATION OF ANY PROVISION OF THE
AGREEMENT WILL BE VALID UNLESS SET FORTH IN A WRITTEN INSTRUMENT SIGNED BY
THE PARTY SUBJECT TO ENFORCEMENT OF SUCH AMENDMENT. MERCHANT WILL PROMPTLY
INFORM AOL OF ANY INFORMATION RELATED TO THE MERCHANT SITE WHICH COULD
REASONABLY LEAD TO A CLAIM, DEMAND, OR LIABILITY OF OR AGAINST AOL AND/OR ITS
AFFILIATES BY ANY THIRD PARTY. MERCHANT WILL NOT ASSIGN THIS AGREEMENT OR
ANY RIGHT, INTEREST OR BENEFIT UNDER THIS AGREEMENT WITHOUT THE PRIOR WRITTEN
CONSENT OF AOL. ASSUMPTION OF THE AGREEMENT BY ANY SUCCESSOR TO MERCHANT
(INCLUDING, WITHOUT LIMITATION, BY WAY OF MERGER, CONSOLIDATION OR SALE OF
ALL OR SUBSTANTIALLY ALL OF MERCHANT'S STOCK OR ASSETS) WILL BE SUBJECT TO
AOL'S PRIOR WRITTEN APPROVAL. SUBJECT TO THE FOREGOING, THIS AGREEMENT WILL
BE FULLY BINDING UPON, INURE TO THE BENEFIT OF AND BE ENFORCEABLE BY THE
PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. EXCEPT WHERE
OTHERWISE SPECIFIED HEREIN, THE RIGHTS AND REMEDIES GRANTED TO A PARTY UNDER
THE AGREEMENT ARE CUMULATIVE AND IN ADDITION TO, AND NOT IN LIEU OF, ANY
OTHER RIGHTS OR REMEDIES WHICH THE PARTY MAY POSSESS AT LAW OR IN EQUITY. IN
THE EVENT THAT ANY PROVISION OF THE AGREEMENT IS HELD INVALID BY A COURT WITH
JURISDICTION OVER THE PARTIES TO THE AGREEMENT, (I) SUCH PROVISION WILL BE
DEEMED TO BE RESTATED TO REFLECT AS NEARLY AS POSSIBLE THE ORIGINAL
INTENTIONS OF THE PARTIES IN ACCORDANCE WITH APPLICABLE LAW AND (II) THE
REMAINING TERMS, PROVISIONS, COVENANTS AND RESTRICTIONS OF THIS AGREEMENT
WILL REMAIN IN FULL FORCE AND EFFECT. THE AGREEMENT MAY BE EXECUTED IN
COUNTERPARTS, EACH
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OF WHICH WILL BE DEEMED AN ORIGINAL AND ALL OF WHICH TOGETHER WILL CONSTITUTE
ONE AND THE SAME DOCUMENT. THE AGREEMENT WILL BE INTERPRETED, CONSTRUED AND
ENFORCED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
VIRGINIA, EXCEPT FOR ITS CONFLICTS OF LAWS PRINCIPLES. MERCHANT HEREBY
IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE
COMMONWEALTH OF VIRGINIA AND THE FEDERAL COURTS THEREIN IN CONNECTION WITH
ANY ACTION ARISING UNDER THIS AGREEMENT.
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EXHIBIT D
OPERATIONS
1. CAPACITY. MERCHANT WILL BE RESPONSIBLE FOR ALL
COMMUNICATIONS, HOSTING AND CONNECTIVITY COSTS AND EXPENSES ASSOCIATED WITH
THE MERCHANT SITE. MERCHANT WILL PROVIDE ALL HARDWARE, SOFTWARE,
TELECOMMUNICATIONS LINES AND OTHER INFRASTRUCTURE NECESSARY TO MEET TRAFFIC
DEMANDS ON THE MERCHANT SITE FROM THE AOL SERVICE, AOL.COM AND THE COMPUSERVE
SERVICE, EXCEPT FOR THE PROPRIETARY CLIENT SOFTWARE NECESSARY TO ACCESS THE
AOL AND COMPUSERVE SERVICES. IN THE EVENT THAT MERCHANT FAILS TO PROVIDE THE
REQUISITE INFRASTRUCTURE, AOL WILL HAVE THE RIGHT TO REGULATE THE PROMOTIONS
IT PROVIDES TO MERCHANT HEREUNDER TO THE EXTENT NECESSARY TO MINIMIZE USER
DELAYS UNTIL SUCH TIME AS MERCHANT CORRECTS ITS INFRASTRUCTURE DEFICIENCIES.
IN THE EVENT THAT MERCHANT ELECTS TO CREATE A CUSTOM VERSION OF THE MERCHANT
SITE IN ORDER TO COMPLY WITH THE TERMS OF THIS AGREEMENT, MERCHANT WILL BEAR
RESPONSIBILITY FOR THE IMPLEMENTATION, MANAGEMENT AND COST OF SUCH MIRRORED
SITE.
2. OPTIMIZATION; SPEED. MERCHANT WILL USE COMMERCIALLY
REASONABLE EFFORTS TO ENSURE THAT: (A) THE FUNCTIONALITY AND FEATURES WITHIN
THE MERCHANT SITE ARE OPTIMIZED FOR THE CLIENT SOFTWARE THEN IN USE BY AOL
USERS; AND (B) THE MERCHANT SITE IS DESIGNED AND POPULATED IN A MANNER THAT
MINIMIZES DELAYS WHEN AOL USERS ATTEMPT TO ACCESS SUCH SITE. AT A MINIMUM,
MERCHANT WILL ENSURE THAT THE MERCHANT SITE'S DATA TRANSFERS INITIATE WITHIN
FEWER THAN FIFTEEN (15) SECONDS ON AVERAGE.
3. SERVICE LEVEL RESPONSE. MERCHANT AGREES TO USE COMMERCIALLY
REASONABLE EFFORTS TO ADDRESS MATERIAL TECHNICAL PROBLEMS (OVER WHICH
MERCHANT EXERCISES CONTROL) AFFECTING USE BY AOL USERS OF THE MERCHANT SITE
(A "MERCHANT TECHNICAL PROBLEM") PROMPTLY FOLLOWING NOTICE THEREOF. IN THE
EVENT THAT AOL HAS RECEIVED SUBSTANTIAL AOL MEMBER COMPLAINTS REGARDING A
MERCHANT TECHNICAL PROBLEM BASED ON MERCHANT'S FAILURE TO SATISFY A SITE
OPERATING STANDARD SPECIFIED IN THIS AGREEMENT (AND MERCHANT IS UNABLE TO
PROMPTLY RESOLVE SUCH MERCHANT TECHNICAL PROBLEM FOLLOWING NOTICE THEREOF),
AOL WILL HAVE THE RIGHT TO REGULATE THE
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<PAGE>
PROMOTIONS IT PROVIDES TO MERCHANT HEREUNDER UNTIL SUCH TIME AS MERCHANT
CORRECTS THE MERCHANT TECHNICAL PROBLEM AT ISSUE).
4. MONITORING. MERCHANT WILL ENSURE THAT THE PERFORMANCE AND
AVAILABILITY OF THE MERCHANT SITE IS MONITORED ON A CONTINUOUS BASIS.
MERCHANT WILL PROVIDE ESCALATION PROCEDURES (E.G., CONTACT NAMES AND
NOTIFICATION MECHANISMS) FOR USE IN CONNECTION WITH TECHNICAL PROBLEMS, AS
DESCRIBED MORE FULLY ABOVE.
5. SECURITY. MERCHANT WILL UTILIZE INTERNET STANDARD ENCRYPTION
TECHNOLOGIES (E.G., SECURE SOCKET LAYER -- SSL) TO PROVIDE A SECURE
ENVIRONMENT FOR CONDUCTING TRANSACTIONS AND/OR TRANSFERRING PRIVATE MEMBER
INFORMATION (E.G., CREDIT CARD NUMBERS, BANKING/FINANCIAL INFORMATION, AND
MEMBER ADDRESS INFORMATION). MERCHANT WILL FACILITATE PERIODIC REVIEWS OF
THE MERCHANT SITE BY AOL IN ORDER TO EVALUATE THE SECURITY RISKS OF SUCH
SITE. MERCHANT WILL FIX ANY SECURITY RISKS OR BREACHES OF SECURITY AS MAY BE
IDENTIFIED BY AOL'S OPERATIONS SECURITY.
6. TECHNICAL PERFORMANCE.
(i) MERCHANT will design the Merchant Site to support the
Windows version of the Microsoft Internet Explorer 3.0 and 4.0 browser, the
Macintosh version of the Microsoft Internet Explorer 3.0, and make
commercially reasonable efforts to support all other AOL browsers listed at:
"http://webmaster.info.aol.com/BrowTable.html."
(ii) To the extent MERCHANT creates customized pages on the
Merchant Site for AOL Members, MERCHANT will configure the server from which
it serves the site to examine the HTTP User-Agent field in order to identify
the "AOL Member-Agents" listed at
"http://webmaster.info.aol.com/Brow2Text.html."
(iii) MERCHANT will periodically review the technical
information made available by AOL at
http://webmaster.info.aol.com/CacheText.html."
(iv) MERCHANT will design its site to support HTTP 1.0 or
later protocol as defined in RFC 1945 (available at
"http:/ds.internic.net/rfc/rfc1945.text") and to adhere to AOL's parameters
for refreshing cached information listed at
http://webmaster.info.aol.com/CacheText.html.
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(v) PRIOR TO RELEASING MATERIAL, NEW FUNCTIONALITY OR
FEATURES THROUGH THE MERCHANT SITE ("NEW FUNCTIONALITY") MERCHANT WILL USE
COMMERCIALLY REASONABLE EFFORTS TO EITHER (i) TEST THE NEW FUNCTIONALITY TO
CONFIRM ITS COMPATIBILITY WITH AOL SERVICE CLIENT SOFTWARE OR (ii) PROVIDE
AOL WITH WRITTEN NOTICE OF THE NEW FUNCTIONALITY SO THAT AOL CAN PERFORM
TESTS OF THE NEW FUNCTIONALITY TO CONFIRM ITS COMPATIBILITY WITH THE AOL
SERVICE CLIENT SOFTWARE.
7. AOL INTERNET PRODUCTS PARTNER SUPPORT. AOL WILL PROVIDE MERCHANT
WITH ACCESS TO THE STANDARD ONLINE RESOURCES, STANDARDS AND GUIDELINES
DOCUMENTATION, TECHNICAL PHONE SUPPORT, MONITORING AND AFTER-HOURS ASSISTANCE
THAT AOL MAKES GENERALLY AVAILABLE TO SIMILARLY SITUATED WEB-BASED PARTNERS.
AOL SUPPORT WILL NOT, IN ANY CASE, BE INVOLVED WITH CONTENT CREATION ON
BEHALF OF MERCHANT OR SUPPORT FOR ANY TECHNOLOGIES, DATABASES, SOFTWARE OR
OTHER APPLICATIONS WHICH ARE NOT SUPPORTED BY AOL OR ARE RELATED TO ANY
MERCHANT AREA OTHER THAN THE MERCHANT SITE. SUPPORT TO BE PROVIDED BY AOL IS
CONTINGENT ON MERCHANT PROVIDING TO AOL DEMO ACCOUNT INFORMATION (WHERE
APPLICABLE), A DETAILED DESCRIPTION OF THE MERCHANT SITE'S SOFTWARE, HARDWARE
AND NETWORK ARCHITECTURE AND ACCESS TO THE MERCHANT SITE FOR PURPOSES OF SUCH
PERFORMANCE AND LOAD TESTING AS AOL ELECTS TO CONDUCT. AS DESCRIBED
ELSEWHERE IN THIS AGREEMENT, MERCHANT IS FULLY RESPONSIBLE FOR ALL ASPECTS OF
HOSTING AND ADMINISTRATION OF THE MERCHANT SITE AND MUST ENSURE THAT THE SITE
SATISFIES THE SPECIFIED ACCESS AND PERFORMANCE REQUIREMENTS AS OUTLINED IN
THIS EXHIBIT.
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CONSENT TO BINARY COMPASS ENTERPRISES, INC.
Online Specialty Retailing Inc. ("Merchant") hereby authorizes Binary
Compass Enterprises, Inc. (BCE) to provide to America Online, Inc. (AOL) any
and all reports provided to Merchant by BCE as part of MERCHANT's
participation in AOL's Merchant Certification Program.
Online Specialty Retailing Inc.
By: /s/ Benjamin C. Nourse
---------------------------------
Print Name: Benjamin C. Nourse
-------------------------
Title: Chairman
------------------------------
Date: August 4, 1998
-------------------------------
Tax ID/EIN#: 91-1694451
------------------------
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[***] indicates confidential treatment for omitted text has been requested.
EXHIBIT 10.12
Page 1 of Order 25473
<TABLE>
<S> <C>
ORDER # 25473 SALES CONTRACT Laura Bronson
CUSTOMER 17309 PHONE 408-616-3630
ORDER EMAIL [email protected]
REVISION 6 FAX 408-616-3701
DATE 10/29/1998
ADVERTISER GREAT FOOD ONLINE AGENCY
CAMPAIGN ADRESS
URL
ADDRESS 2030 First Avenue 3rd floor
seattle, WA 98121
CONTACT Ben Nourse CONTACT
PHONE (206)443-3346 PHONE
FAX (206)443-3314 FAX
</TABLE>
STARTDATE 01/01/1999 END DATE 12/31/1999
----------------------------------------
CONTRACT LENGTH 365 days BILL TO Advertiser
---------------------------------------------
<TABLE>
TOTAL IMPRESSIONS TOTAL AMOUNT
<S> <C> <C>
ORDER TOTALS [***] [***]
FREQUENCY DISCOUNT 10% [***]
SUB-TOTAL: [***]
AGENCY DISCOUNT 15%: [***]
SUB-TOTAL: [***]
------------------------
NET COST: [***]
------------------------
TERMS Due in Advance
BILLING MONTHLY
</TABLE>
MATERIALS: Banners; Banner requirements are posted at
http://www.yahoo.com/docs/advertising.
DELIVERY: All Materials and any changes must be delivered at least 4 business
days in advance to the email address specified for your region at
http://www.yahoo.com/docs/advertising/submit.html. A Yahoo! insertion order
number and flight dates must be referenced in all correspondence. Yahoo! will
not issue any credit or makegood due to late or incorrectly submitted
banners and/or late or incomplete information.
TERMS AND CONDITIONS: The insertion order is subject to the terms and
conditions ("Standard Terms") attached hereto as Exhibit A of this Insertion
Order, and such Standard Terms are made a part of this insertion order by
reference. The signatory of this Insertion Order represents that he has read
and agrees to such Standard Terms.
THIS INSERTION ORDER IS VALID FOR THREE (3) BUSINESS DAYS FROM THE DATE OF
THIS ORDER. THIS AGREEMENT IS NON-CANCELABLE.
<TABLE>
<S> <C> <C>
Authorized By: /S/ William Cuff Phone: 206-443-3346 ex 109 Date: 3/15/99
---------------------
Production Contact: Ben Nourse Phone: (206) 443-3346 Email: [email protected]
PLEASE RETURN TO YAHOO SALES OPERATIONS DEPT. YAHOO! INC.
FAX # 408-530-5130 408-616-3701 3400 CENTRAL EXPRESSWAY
- ------------------------------- SUITE 201
SANTA CLARA, CA 95051
</TABLE>
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CHAT
<TABLE>
<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
1 Future 01/01/1999 10/01/1999
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
2 CPI 01/05/1999 10/01/1999
Run Of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
3 CPI 01/06/1999 10/01/1999
Run Of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
4 CPI 01/06/1999 10/06/1999
Run Of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
5 CPI 01/11/1999 01/11/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
6 CPI 01/18/1999 01/18/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
7 CPI 01/25/1999 01/25/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
8 CPI 02/01/1999 02/01/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
9 CPI 02/08/1999 02/08/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
10 CPI 02/15/1999 02/15/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
11 CPI 02/22/1999 02/22/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
12 CPI 03/01/1999 03/01/1999
</TABLE>
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<TABLE>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
13 CPI 03/07/1999 10/01/1999
Run Of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
14 CPI 03/07/1999 10/01/1999
Run Of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
15 CPI 01/07/1999 10/01/1999
Run Of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
CHAT
16 CPI 01/13/1999 01/13/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
17 CPI 02/10/1999 02/10/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
18 CPI 03/01/1999 03/01/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
TOTAL FOR CHAT PROPERTY: [***] [***]
MESSAGEBOARDS
19 CPI 01/01/1999 04/30/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
20 CPI 01/01/1999 12/31/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
TOTAL FOR MESSAGEBOARDS PROPERTY: [***] [***]
MY
CPI
21 Run Of 01/01/1999 12/31/1999
/(N)
</TABLE>
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<TABLE>
<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
TOTAL FOR MY PROPERTY: [***] [***]
NETWORK
22 CPI 01/01/1999 01/01/1999
Run Of
/(N)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
TOTAL FOR NETWORK PROPERTY: 0 [***] [***]
SHOPPING
23 CPI 02/01/1999 02/03/1999
Run Of
/'(S)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
24 CPI 04/15/1999 05/09/1999
Run Of
/'(S)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
25 CPI 10/15/1999 12/31/1999
Run Of
/'(S)
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
TOTAL FOR SHOPPING PROPERTY: [***] [***]
YAHOO
26 CPI 01/01/1999 12/31/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
27 CPI 01/01/1999 12/31/1999
yahoo
27 CPI 01/01/1999 12/31/1999
Run of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
28 CPI 01/01/1999 12/31/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
29 CPI 01/01/1999 12/31/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
</TABLE>
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<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
30 CPI 01/01/1999 12/31/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
31 CPI 01/01/1999 12/31/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
32 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
33 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
34 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
35 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
36 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
37 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
38 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
39 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
40 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
41 CPI 01/01/1999 12/31/1999
Search Words
</TABLE>
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<TABLE>
<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
42 CPI 01/01/1999 12/31/1999
42 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
43 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
44 CPI 01/01/1999 03/11/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
45 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
46 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
47 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
48 CPI 01/01/1999 12/31/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
49 CPI 01/01/1999 12/31/1999
Run Of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
50 CPI 01/01/1999 12/31/1999
Run Of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
51 CPI 01/01/1999 12/31/1999
Run Of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
</TABLE>
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<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
52 CPI 01/01/1999 12/31/1999
Run Of
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
53 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
54 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
55 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
56 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
57 CPI 01/01/1999 12/31/1999
57 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
58 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
59 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
CPI
60 Search Words 01/01/1999 12/31/1999
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
61 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
62 CPI 01/01/1999 12/31/1999
Search Words
</TABLE>
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<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
63 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
64 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
65 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
66 CPI 01/01/1999 03/11/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
67 CPI 01/01/1999 03/11/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
68 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
69 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
70 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
71 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
72 CPI 01/01/1999 12/31/1999
72 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
73 CPI 01/01/1999 12/31/1999
Search Words
</TABLE>
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<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
74 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
75 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
76 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
77 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
78 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
79 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
80 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
81 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
82 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
83 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
84 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
85 CPI 01/01/1999 12/31/1999
</TABLE>
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<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
86 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
87 CPI 01/01/1999 12/31/1999
87 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
88 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
89 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
90 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
91 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
92 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
93 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
94 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
95 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
96 CPI 01/01/1999 12/31/1999
Search Words
</TABLE>
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<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
97 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
98 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
99 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
100 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
101 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
102 CPI 01/01/1999 12/31/1999
102 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
103 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
104 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
105 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
106 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
107 CPI 01/01/1999 12/31/1999
Search Words
</TABLE>
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- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
108 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
109 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
110 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
111 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
112 01/01/1999 12/31/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
113 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
114 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
115 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
116 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
117 01/01/1999 12/31/1999
117 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
118 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
</TABLE>
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<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
119 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
120 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
121 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
122 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
123 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
124 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
125 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
126 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
127 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
128 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
129 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
130 CPI 01/01/1999 12/31/1999
Search Words
</TABLE>
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<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
131 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
132 CPI 01/01/1999 12/31/1999
132 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
133 CPI 01/01/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
134 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
135 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
136 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
137 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
138 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
139 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
140 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
141 CPI 03/11/1999 12/31/1999
</TABLE>
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<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
142 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
143 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
144 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
145 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
146 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
147 CPI 03/11/1999 12/31/1999
147 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
148 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
149 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
150 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
151 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
152 CPI 03/11/1999 12/31/1999
Search Words
</TABLE>
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<CAPTION>
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- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
153 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
154 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
155 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
156 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
157 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
158 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
159 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
160 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
161 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
162 CPI 03/11/1999 12/31/1999
162 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
163 CPI 03/11/1999 12/31/1999
Search Words
</TABLE>
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[YAHOO LOGO] ADVERTISING INSERTION ORDER
http://www.yahoo.com
<TABLE>
<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
164 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
165 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
166 CPI 03/11/1999 12/31/1999
Search Words
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
TOTAL FOR YAHOO PROPERTY:
YELLOW PAGES [***] [***]
167 CPI 01/01/1999 03/11/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
168 CPI 01/01/1999 03/11/1999
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
169 CPI 01/01/1999 03/11/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
170 CPI 01/01/1999 03/11/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
171 CPI 01/01/1999 03/11/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
172 CPI 01/01/1999 03/11/1999
Categories
[***]
- ------------------------------- ------------------------------------- ----------- ------------ ------------ --------
TOTAL FOR YELLOW PAGES PROPERTY [***] [***]
</TABLE>
<TABLE>
<CAPTION>
TOTAL IMPRESSIONS TOTAL AMOUNT
<S> <S> <S>
ORDER TOTAL [***] [***]
</TABLE>
MONDAY MARCH 15, 1999 11:4 AM
<PAGE>
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Page 18 of Order 25473
[YAHOO LOGO] ADVERTISING INSERTION ORDER
http://www.yahoo.com
<TABLE>
<S> <S>
FREQUENCY DISCOUNT 10% [***]
SUB-TOTAL: [***]
AGENCY DISCOUNT 15%: [***]
SUB-TOTAL: [***]
-------------------
NET COST: [***]
-------------------
</TABLE>
COMMENTS:
MONDAY MARCH 15, 1999 11:4 AM
<PAGE>
Page 19 of Order 25473
[YAHOO LOGO] ADVERTISING INSERTION ORDER
http://www.yahoo.com
Standard Terms and Conditions for Yahoo! Advertising
The following terms and conditions (the "Standard Terms") shall be deemed to be
incorporated into the attached insertion order (the "Insertion Order"):
1. TERMS OF PAYMENT. Advertiser must submit completed credit application to
determine terms of payment. If no credit application is submitted or the request
for credit is denied by Yahoo! Inc. ("Yahoo") in its sole discretion, the
Insertion Order must be paid in advance of the advertisement start date. Major
credit cards (VISA, M/C and American Express) are accepted. If Yahoo approves
credit, Advertiser will be invoiced on the first day of the contract period set
forth on the Insertion Order and payment shall be made to Yahoo within thirty
(30) days from the date of invoice ("Due Date"). Amounts paid after the Due Date
shall bear interest at the rate of one percent (1%) per month (or the highest
rate permitted by law, if less). In the event Advertiser fails to make timely
payment, Advertiser will be responsible for all reasonable expenses (including
attorneys' fees) incurred by Yahoo in collecting such amounts. Yahoo reserves
the right to suspend performance of its obligations hereunder (or under any
other agreement with Advertiser) in the event Advertiser fails to make timely
payment hereunder or under any other agreement with Yahoo.
2. POSITIONING. Except as otherwise expressly provided in the Insertion Order,
positioning of advertisements within the Yahoo properties or on any page is at
the sole discretion of Yahoo.
3. USAGE STATISTICS. Unless specified in the Insertion Order, Yahoo makes no
guarantees with respect to usage statistics or levels of impressions for any
advertisements. Advertiser acknowledges that delivery estimates provided by
Yahoo are the official, definitive meaurements of Yahoo's performance on any
delivery obligations provided in the Insertion Order. The processes and
technology used to generate the statistics have been certified and audited by an
independent agency. No other measurements or usage statistics (including those
of Advertiser of a third party or server) shall be accepted by Yahoo or have
bearing on the Insertion Order. RENEWAL. Except as expressly set forth in the
Insertion Order, any renewal of the Insertion Order and acceptance of any
additional advertising order shall be at Yahoo's sole discretion. Pricing for
any renewal period is subject to change by Yahoo from time to time.
4. NO ASSIGNMENT OR RESALE OF AD SPACE. Advertiser may not resell, assign or
transfer any of its rights hereunder, and any attempt to resell, assign or
transfer such rights shall result in immediate termination of this contract,
without liability to Yahoo.
5. LIMITATIONS OF LIABILITY. In the event (i) Yahoo fails to publish an
advertisement in accordance with the schedule provided in the Insertion Order,
(ii) Yahoo fails to deliver the number of total page views specified by the
Insertion Order (if any) by the end of the specified period, or (iii) of any
other failure, technical or otherwise, of such advertisements to appear as
provided in the Insertion Order, the sole liability of Yahoo to Advertiser shall
be limited to, at Yahoo's sole discretion, a pro rata refund of the advertising
fee representing undelivered page views, placement of the advertisement at a
later time in a comparable position, or extension of the term of the Insertion
Order until total page views are delivered. In no event shall Yahoo be
responsible for any consequential, special, punitive or other damages,
including, without limitation, lost revenue or profit, in any way arising out of
or related to the Insertion Order/Standard Terms or publication of the
advertisement, even if Yahoo has been advised of the possibility of such
damages. Without limiting the foregoing, Yahoo shall have no liability for any
failure or delay resulting from any governmental action, fire, flood,
insurrection, earthquake, power failure, riot, explosion, embargo, strikes,
whether legal or illegal, labor or material shortage, transportation
interruption of any kind, work slowdown or any other condition beyond the
control of Yahoo affecting production or delivery in any manner.
6. ADVERTISERS REPRESENTATIVES' INDEMNIFICATION. Advertisements are accepted
upon the representation that Advertiser has the right to publish the contents of
the advertisement without infringing the rights of any third party and without
violating any law. In consideration of such publication, Advertiser agrees, at
its own expense, to indemnify, defend and hold harmless Yahoo and its employees,
representatives, agents and affiliates, against any and all expenses and losses
of any kind including reasonable attorneys' fees and expenses incurred by Yahoo
in conjunction with any claims, administrative proceedings or criminal
investigations of any kind arising out of publication of the advertisment and
any material of Capitalized Advertiser in which user can
<PAGE>
Page 20 of Order 25473
[YAHOO LOGO] ADVERTISING INSERTION ORDER
http://www.yahoo.com
link though the advertisement (including, without limitation, any claim of
trademark or copyright infringement, defamation, breach of confidentiality,
privacy violation, false or deceptive advertising or sales practices).
7. PROVISION OF ADVERTISING MATERIALS. Advertiser will provide all materials for
the advertisement in accordance with Yahoo's policies in effect from time to
time, including (without limitation) the number of transmissions to Yahoo and
the lead-time prior to publication of the advertisement. Yahoo will not be
required to publish any advertisement that is not received in accordance with
such policies and reserves the right to charge Advertiser, at the rate specified
in the Insertion Order, for inventory held by Yahoo pending receipt of
acceptable materials from Advertiser which are past due. Advertiser hereby
grants to Yahoo a non-exclusive, worldwide fully paid license to reproduce and
display advertisment and the content and brand-features contained therein) in
accordance herewith.
8. RIGHT TO REJECT ADVERTISEMENT. All contents of advertisements are subject
to Yahoo's approval. Yahoo reserves the right to reject or accept any
advertisment or URL link space reservation or position commitment, at any
time, for any reason whatsoever (including belief by Yahoo that placement of
advertisement, or URL link may subject Yahoo to criminal or civil liability).
9. CANCELLATION. Except as otherwise provided in the Insertion Order, the
Insertion Order is non-cancelable by Advertiser.
10. CONSTRUCTION. No conditions other than those set forth in the Insertion
Order or these Standard Terms shall be binding on Yahoo unless expressly agreed
to in writing by Yahoo. In the event of any inconsistency between the Insertion
Order and the Standard Terms, the Standard Terms shall control.
11. MISCELLANEOUS. These Standard Terms, together with the Insertion Order, (i)
shall be governed by and construed in accordance with the laws of the State of
California, without giving effect to principles or conflicts of law; (ii) may be
amended only by a written agreement executed by an authorized representative of
each party; and (iii) constitute the complete and entire expression of the
agreement between the parties, and shall supersede any and all other agreements,
whether written or oral, between the parties. Advertiser shall make no public
announcements regarding the existence or content of the Insertion Order without
Yahoo's written approval, which may be withheld at Yahoo's sole discretion. Both
parties consent to the jurisdiction of the courts of the State of California
with respect to any legal proceeding arising in connection with the Insertion
Order/Standard Terms.
<PAGE>
[***] indicates confidential treatment for omitted text has been requested.
EXHIBIT 10.13
CONFIDENTIAL
SPONSORSHIP AGREEMENT
This agreement ("Agreement") is entered into as of the 17th day of September,
1998 ("Effective Date"), by and between Excite, Inc., a Delaware corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and
Online Specialty Retailing Inc. dba Great Food Online, a Washington
corporation, located 2030 First Avenue, 3rd Floor, Seattle, Washington 98121
("Client").
RECITALS
A. Excite maintains a site on the Internet at http://www.excite.com
(the "Excite Site") and owns, manages or is authorized to place
advertising on affiliated sites on the Internet worldwide
(collectively, the "Excite Network") which, among other things,
allows its users to search for and access content and other sites
on the Internet. For purposes of this Agreement, the parties hereby
acknowledge that the Excite Network does not include the site on
the Internet located at http://home.netscape.com and/or other URLs
or locations designated by Netscape Communications Corporation.
B. Within the Excite Site, Excite currently organizes certain content
into topical channels (the "Channels") and provides Internet search
service ("Excite Search").
C. Client is engaged in the business of specialty food retailing and
distribution at its site on the Internet located at greatfood.com
(the "Client Site").
D. Client wishes to promote its business to users of the Excite
Network through promotions and advertising in various portions of
the Excite Network.
Therefore, the parties agree as follows:
1. SPONSORSHIP OF THE EXCITE SHOPPING AND LIFESTYLE CHANNELS
(a) Commencing on the Launch Date (as defined below), Client will be
promoted in the Excite Shopping Channel as follows:
(i) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Daily
Deals promotion, or its equivalent in the case of a change in
format, on the home page of the Excite Shopping Channel in
[***]
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CONFIDENTIAL
during the term of the Agreement, [***].
(ii) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Top
Merchants promotion, or its equivalent in the case of a change
in format, on the home page of the Excite Shopping Channel in
[***]during the term of the Agreement, [***]. Excite shall not
display the link described in this Section l(a)(ii) in the
same [***] in which it displays the link described in Section
l(a)(i) above.
(iii) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Hot
Deals promotion, or its equivalent in the case of a change in
format, on the first page of the Gourmet & Groceries
department on the Excite Shopping Channel in [***] the term of
the Agreement, [***].
(iv) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Hit
the Stores promotion, or its equivalent in the case of a
change in format, on the first page of the Gourmet & Groceries
department on the Excite Shopping Channel [***] the term of
the Agreement.
(v) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Hot
Deals promotion, or its equivalent in the case of a change in
format, on the first page of the Flowers & Gifts department on
the Excite Shopping Channel in [***] the term of the
Agreement, [***].
(vi) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Hit
the Stores promotion, or its equivalent in the case of a
change in format, on the first page of the Flowers & Gifts
department on the Excite Shopping Channel [***] the term of
the Agreement.
(b) Commencing on the Launch Date (as defined below), Client will be
promoted in the Excite Lifestyle Channel as follows:
A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Exciting
Stuff
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CONFIDENTIAL
promotion, or its equivalent in the case of a change in
format, on the first page of the Food & Drink department on
the Excite Lifestyle Channel [***] the term of the Agreement.
(c) Excite estimates, but does not guarantee, delivery of [***]
impressions of the Client promotional placements described in this
Section 1 during the term of this Agreement.
2. HOLIDAY GIFT GUIDE
During the term of the Agreement, Client will be included in Excite's
Holiday Gift guide promotion for the December holiday.
3. ADVERTISING ON THE EXCITE NETWORK
(a) During the term of the Agreement, Excite will display Client's
banner advertising on Excite Search results pages in response to
the keywords identified in Exhibit A, subject to availability.
During the term of the Agreement, Excite will also display Client's
banner advertising in the targeted channel/department inventory
identified in Exhibit B, subject to availability. Excite will use
commercially reasonable efforts to allocate the display of such
banner advertisements in accordance with the relative priority set
forth in Exhibits A and B. Excite estimates, but does not
guarantee, delivery of a total of [***]impressions of the
advertising banners described in this Section 3(a).
(b) During the term of the Agreement, Excite will display Client's
banner advertising in general rotation on the Excite Site. Excite
estimates, but does not guarantee, delivery of a total of [***]
impressions of the advertising banners described in this Section
3(b) during the term of this Agreement.
4. LAUNCH DATE, RESPONSIBILITY FOR EXCITE NETWORK AND REPORTING
(a) Client and Excite will use reasonable efforts to implement the
display of the promotional placements and advertising described in
the Agreement by September 30, 1998 (the "Scheduled Launch Date").
The parties recognize that the Scheduled Launch Date can be met
only if Client provides final versions of all graphics, text,
keywords, banner advertising, promotional placements, other
promotional media and valid URL links necessary to implement the
promotional placements and advertising described in the
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<PAGE>
CONFIDENTIAL
Agreement (collectively, "Impression Material") to Excite fourteen
(14) days prior to Scheduled Launch Date.
(b) In the event that Client fails to provide the Impression Material
to Excite fourteen (14) days in advance of the Scheduled Launch
Date, Excite may, at its sole discretion (i) reschedule the
Scheduled Launch Date at the earliest practicable date according to
the availability of Excite's engineering resources after delivery
of the complete Impression Material or (ii) commence delivery of
Impressions based on Impression Material in Excite's possession at
the time and/or reasonable placeholders created by Excite.
(c) Client and Excite agree that the day the promotional placements and
advertising described in this Agreement are first displayed on the
Excite Network will be the "Launch Date" for purposes of this
Agreement.
(d) Excite will have sole responsibility for providing, hosting and
maintaining, at its expense, the Excite Network. Excite will have
sole control over the "look and feel" of the Excite Network
including, but not limited to, the display, appearance and
placement of the parties' respective names and/or brands and the
promotional links.
(e) The banner advertisements described in this Agreement will be
served, tracked and reported by Excite's subsidiary, MatchLogic,
Inc. ("MatchLogic"). MatchLogic will also provide Client with
feedback as to comparisons of the performance the different
creative messages supplied by Client for the advertising banners
displayed on the Excite Network as set forth in this Agreement. As
part of the process of serving such banner advertisements,
MatchLogic will use frequency control to manage the number of times
a user on the Excite Network sees a particular creative message.
Client and MatchLogic will work together to determine the optimal
numbers of creative message display necessary for creative
frequency control of Client's banner advertisements on the Excite
Network. Through the implementation of MatchLogic's TruEffect
transaction reporting system on the Client Site, MatchLogic will
also report on correlations of user activity between the Client
Site and the Excite Network. Promotional placements, including text
links, will be served, tracked and reported by Excite. These
promotional placements will be tracked and reported by MatchLogic
when this implementation becomes available. Excite will provide
Client with monthly reports substantiating the number of
impressions of Client's
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CONFIDENTIAL
advertising banners and promotional placements displayed on the
Excite Network in accordance with the terms of this Agreement.
Excite will assign a partner services account manager to support
Client's participation in the sponsorship, advertising and
promotional programs set forth in this Agreement. At least monthly
during the term of the Agreement, Excite and Client will hold
reviews of the parties' performance and tactics under this
Agreement by telephone in accordance with a mutually agreeable
schedule. Excite and Client may conduct such monthly meetings in
person upon the mutual agreement of the parties.
5. SPONSORSHIP, ADVERTISING AND GIFT GUIDE FEES; REVENUE SHARE
(a) Client will pay Excite sponsorship and advertising fees of [***].
These fees will be paid in equal monthly installments of [***]. The
first monthly payment will be due upon the Launch Date. Subsequent
installments will be due on a monthly basis thereafter.
(b) Separate and apart from the sponsorship and advertising fees,
Client will pay Excite gift guide fee of [***]. The first
installment of [***] of this fee will be due on December 1, 1998.
The second payment of [***] will be due on January 1, 1999.
(c) Separate and apart from the sponsorship and advertising fees,
Client will pay Excite [***] of all net revenue recognized by
Client on all transactions conducted by users referred to the
Client Site from (i) the Excite Network during the term of the
Agreement or (ii) DeliverE communications sent by MatchLogic. For
purposes of this Agreement, "net revenue" means gross revenue minus
Client's actual costs of goods sold and taxes. Client will pay
Excite these transaction fees within thirty (30) days after the
close of the financial quarter in which Client recognizes the
revenue derived from these transactions.
(d) The sponsorship, advertising and gift guide fees, net revenue and
payments are net of any agency commissions to be paid by Client.
(e) Client will maintain accurate records with respect to the
calculation of all transaction payments due under this Agreement.
Once per year, the parties will review these records to verify the
accuracy and appropriate accounting of all payments made pursuant
to the Agreement. In addition, Excite may,
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CONFIDENTIAL
upon no less than thirty (30) days prior written notice to Client,
cause an independent Certified Public Accountant to inspect the
records of Client reasonably related to the calculation of such
payments during Client's normal business hours. The fees charged by
such Certified Public Accountant in connection with the inspection
will be paid by Excite unless the payments made to Excite are
determined to have been less than ninety-five percent (95%) of the
payments actually owed to Excite, in which case Client will be
responsible for the payment of the reasonable fees for such
inspection.
6. PUBLICITY; TRANSACTION INTEGRATION
(a) Unless required by law, neither party will make any public
statement, press release or other announcement relating to the
terms of or existence of this Agreement without the prior written
approval of the other, such approval not to be unreasonably
withheld. Notwithstanding the foregoing, either party may issue an
initial press release regarding the relationship between Excite and
Client, the timing and wording of which will be mutually agreed
upon.
(b) Client's online merchandise will be integrated with Excite's
one-click ordering and service registration systems. Within ten
(10) days of execution of this Agreement, Excite and Client will
use reasonable efforts to cooperatively produce an integration
timeline with the goal of completing the integration within sixty
(60) days of Excite's completion of these systems. Excite and
Client will cooperate in good faith to define a complete technical
specification for the integration as soon as reasonably practical
after the execution of this Agreement. Excite and Client will agree
in writing regarding how the costs of this integration will be
borne by the parties before work is commenced.
(c) Client will work with Excite to supply Excite with current online
merchandise data sufficient to enable presentation and one-click
ordering of Client's online merchandise. Merchandise data will
include price, product description and other mutually agreed
product attributes. Excite will only use this merchandise data for
the purposes of marketing and merchandising Client's online
merchandise and will not share Client's merchandise data with any
third parties without prior approval from Client.
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CONFIDENTIAL
7. TERM AND TERMINATION
(a) Unless terminated earlier in accordance with the specific terms of
this Agreement, the term of this Agreement will begin on the Launch
Date and will not end until Excite displays a total of [***]
impressions of the Client advertising banners and promotional
placements on the Excite Network as described in this Agreement.
(b) If Client has not realized a minimum of [***] transactions
consisting of Client's product sales conducted by users referred to
the Client Site from the Excite Network or the MatchLogic DeliverE
campaigns after the first six (6) months following the Launch Date
("Transaction Goal'), Client may suspend (but not eliminate) its
payments of the sponsorship and advertising fees specified in
Section 5 for a maximum of [***] during which Excite will deliver
make-good impressions (the "Make-Good Period"). If Client does not
achieve its Transaction Goal by the end of the Make-Good Period,
Client may then terminate this Agreement upon written notice within
ten (10) days of the end of the Make-Good Period. If Client
achieves its Transaction Goal at any time during the Make-Good
Period or if Client does not issue a written notice of termination
in accordance with this Section 7(b), the term of the Agreement
shall continue and Client shall immediately resume payment of all
sponsorship and advertising fees.
(c) Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach
remains uncured for thirty (30) days following the notice to the
breaching party of the breach.
(d) All undisputed payments that have accrued prior to the termination
or expiration of this Agreement will be payable in full within
thirty (30) days thereof.
(e) The provisions of Section 10 (Confidentiality and User Data),
Section 11 (Indemnity), Section 12 (Limitation of Liability) and
Section 13 (Dispute Resolution) will survive any termination or
expiration of this Agreement.
8. TRADEMARK OWNERSHIP AND LICENSE
(a) Client will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Excite hereunder.
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CONFIDENTIAL
(b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Client hereunder.
(c) Each party hereby grants to the other a non-exclusive, limited
license to use its trademarks, service marks or trade names only as
specifically described in this Agreement. All such use shall be in
accordance with each party's reasonable policies regarding
advertising and trademark usage as established from time to time.
(d) Upon the expiration or termination of this Agreement, each party
will cease using the trademarks, service marks and/or trade names
of the other except:
(i) As the parties may agree in writing; or
(ii) To the extent permitted by applicable law.
9. CONTENT OWNERSHIP
(a) Client will retain all right, title and interest in and to the
Client Site worldwide including, but not limited to, ownership of
all copyrights and other intellectual property rights therein.
(b) Excite will retain all right, title, and interest in and to the
Excite Network worldwide including, but not limited to, ownership
of all copyrights, look and feel and other intellectual property
rights therein.
10. CONFIDENTIALITY AND USER DATA
(a) For the purposes of this Agreement, "Confidential Information"
means information about the disclosing party's (or its suppliers')
business or activities that is proprietary and confidential, which
shall include all business, financial, technical and other
information of a party marked or designated by such party as
"confidential or "proprietary" or information which, by the nature
of the circumstances surrounding the disclosure, ought in good
faith to be treated as confidential.
(b) Confidential Information will not include information that (i) is
in or enters the public domain without breach of this Agreement,
(ii) the receiving party lawfully receives from a third party
without restriction on disclosure and without breach of a
nondisclosure obligation, (iii) the receiving party knew prior to
receiving such information from the disclosing party or (iv) the
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CONFIDENTIAL
receiving party develops independent of any information originating
from the disclosing party.
(c) Each party agrees (i) that it will not disclose to any third party
or use any Confidential Information disclosed to it by the other
except as expressly permitted in this Agreement and (ii) that it
will take all reasonable measures to maintain the confidentiality
of all Confidential Information of the other party in its
possession or control, which will in no event be less than the
measures it uses to maintain the confidentiality of its own
information of similar importance.
(d) The usage reports provided by Excite to Client hereunder will be
deemed to be the Confidential Information of Excite and thus
subject to all the restrictions set forth in this Agreement,
including the prohibitions against disclosure to third parties
contained in this Section 10. The usage reports provided by Client
to Excite hereunder will be deemed to be the Confidential
Information of Client and thus subject to all the restrictions set
forth in this Agreement, including the prohibitions against
disclosure to third parties contained in this Section 10.
(e) The terms and conditions of this Agreement will be deemed to be
Confidential Information and will not be disclosed without the
written consent of the other party.
(f) For the purposes of this Agreement, "User Data" means the aggregate
number of purchase requests requested by such users, the aggregate
number of purchase requests completed, the aggregate number of
purchases completed and the aggregate dollar value of completed
purchases. The parties hereby agree that "User Data" for purposes
of this Agreement shall not include any information submitted by
users referred to the Client Site from the Excite Network that
could be reasonably used to identify a specific named individual
("Individual Data"). The parties acknowledge that any individual
user of the Internet could be a user of Excite and/or Client
through activities unrelated to this Agreement and that user data
gathered independent of this Agreement, even from individuals who
are users of both parties' services, will not be deemed to be "User
Data" for the purposes of this Agreement.
(g) User Data, strictly as defined in Section 10(f) above, will be deemed
to be the joint property of the parties and, subject to the
limitations contained herein, both parties will retain all rights to
make use of such User Data . In addition, the parties hereby agree
that Individual Data, as defined in Section
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CONFIDENTIAL
10(f) above to mean any information submitted users referred to the
Client Site from the Excite Network that could be reasonably used
to identify a specific named individual, will be deemed to be the
sole property of Client and, subject to the limitations contained
herein, Client will retain all rights to make use of such
Individual Data.
(h) In order to facilitate optimization of Client's sponsorship program
and achievement of Client's Transaction Goals, Client will make
good faith efforts to develop tracking and reporting capabilities
on the Client Site to correlate information regarding transaction
activity by users referred to the Client Site from the Excite
Network to the various promotional placements and advertising
banners displayed on the Excite Network. Client will provide to
Excite all User Data and user transaction reports collected by
Client within thirty (30) days following the end of each calendar
month during the term of this Agreement in a mutually-determined
electronic format.
(i) Client will not use User Data or Individual Data to specifically
target any Excite users, as distinct from all users of the Client
Site, for solicitations (except as specifically provided in this
Agreement), either individually or in the aggregate, during the
term of this Agreement and for a period of twelve (12) months
following the expiration or termination of this Agreement.
(j) Neither party will sell, disclose, transfer or rent any User Data
which could reasonably be used to identify a specific named
individual ("Individual Data") to any third party nor will either
party use Individual Data on behalf of any third party without the
express permission of the individual user. Where user permission
for dissemination of Individual Data to third parties has been
obtained, each party will use commercially reasonable efforts to
require the third party recipients of Individual Data to provide an
"unsubscribe" feature in any email communications generated by, or
on behalf of, the third party recipients of Individual Data.
(k) Notwithstanding the foregoing, each party may disclose Confidential
Information or User Data (i) to the extent required by a court of
competent jurisdiction or other governmental authority or otherwise
as required by law or (ii) on a "need-to-know" basis under an
obligation of confidentiality to its legal counsel, accountants,
banks and other financing sources and their advisors.
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2. INDEMNITY
(a) Client will indemnify, defend and hold harmless Excite, its
affiliates, officers, directors, employees, consultants and agents
from any and all third party claims, liability, damages and/or
costs (including, but not limited to, attorneys fees) arising from:
(i) Its breach of any representation or covenant in this
Agreement; or
(ii) Any claim that Client's advertising banners infringe or
violate any third party's copyright, patent, trade secret,
trademark, right of publicity or right of privacy or contain
any defamatory content; or
(iii) Any claim arising from the Client Site.
Excite will promptly notify Client of any and all such claims and will
reasonably cooperate with Client with the defense and/or settlement
thereof; provided that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or prejudices or
detrimentally impacts Excite in any way and such obligation, liability,
prejudice or impact can reasonably be expected to be material, then such
settlement shall require Excite's written consent (not to be
unreasonably withheld or delayed) and Excite may have its own counsel in
attendance at all proceedings and substantive negotiations relating to
such claim.
(b) Excite will indemnify, defend and hold harmless Client, its
affiliates, officers, directors, employees, consultants and agents
from any and all third party claims, liability, damages and/or
costs (including, but not limited to, attorneys fees) arising from:
(i) Its breach of any representation or covenant in this
Agreement; or
(ii) Any claim arising from the Excite Network other than content
or services provided by Client.
Client will promptly notify Excite of any and all such claims and will
reasonably cooperate with Excite with the defense and/or settlement
thereof; provided that, if any settlement requires an affirmative
obligation of, results in any ongoing liability to or prejudices or
detrimentally impacts Client in any way and such obligation, liability,
prejudice or impact can reasonably be expected to be material, then such
settlement shall require Client's written consent (not to be
unreasonably withheld or delayed) and Client may have its own counsel in
attendance at all proceedings and substantive negotiations relating to
such claim.
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(c) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT
AND HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE REGARDING SUCH SUBJECT MATTER.
12. LIMITATION OF LIABILITY
EXCEPT UNDER SECTIONS 11(a) AND 11(b), IN NO EVENT WILL EITHER PARTY
BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGE. EXCEPT UNDER SECTIONS 11(a) AND 11(b),
THE LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER,
WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND
WILL NOT EXCEED, THE AMOUNTS TO BE PAID BY CLIENT TO EXCITE HEREUNDER.
13. DISPUTE RESOLUTION
(a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names,
confidentiality and/or User Data would result in irreparable injury
for which there is no adequate remedy at law. Therefore, in the
event of any breach or threatened breach of a party's obligations
regarding trademarks, service marks or trade names or
confidentiality, the aggrieved party will be entitled to seek
equitable relief in addition to its other available legal remedies
in a court of competent jurisdiction.
(b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks, service
marks or trade names, confidentiality and/or User Data, the parties
will first attempt to resolve the dispute(s) through good faith
negotiation. In the event that the dispute(s) cannot be resolved
through good faith negotiation, the parties will refer the
dispute(s) to a mutually acceptable mediator.
(c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks, service
marks or trade names,
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confidentiality and/or User Data, cannot be resolved through good
faith negotiation and mediation, the parties will refer the
dispute(s) to the American Arbitration Association for resolution
through binding arbitration by a single arbitrator pursuant to the
American Arbitration Association's rules applicable to commercial
disputes.
14. GENERAL
(a) ASSIGNMENT. Neither party may assign this Agreement, in whole or in
part, without the other party's written consent (which will not be
unreasonably withheld), except that no such consent will be
required in connection with (i) a merger, reorganization or sale of
all, or substantially all, of such party's assets or (ii) either
party's assignment and/or delegation of its rights and
responsibilities hereunder to a wholly-owned subsidiary or joint
venture in which the assigning party holds an interest. Any attempt
to assign this Agreement other than as permitted above will be null
and void.
(b) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of California,
notwithstanding the actual state or country of residence or
incorporation of Excite or Client.
(c) NOTICE. Any notice under this Agreement will be in writing and
delivered by personal delivery, express courier, confirmed
facsimile, confirmed email or certified or registered mail, return
receipt requested, and will be deemed given upon personal delivery,
one (1) day after deposit with express courier, upon confirmation
of receipt of facsimile or email or five (5) days after deposit in
the mail. Notices will be sent to a party at its address set forth
in this Agreement or such other address as that party may specify
in writing pursuant to this Section.
(d) NO AGENCY. The parties are independent contractors and will have no
power or authority to assume or create any obligation or
responsibility on behalf of each other. This Agreement will not be
construed to create or imply any partnership, agency or joint
venture.
(e) FORCE MAJEURE. Any delay in or failure of performance by either
party under this Agreement will not be considered a breach of this
Agreement and will be excused to the extent caused by any
occurrence beyond the reasonable control of such party including,
but not limited to, acts of God, power outages and governmental
restrictions.
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(f) SEVERABILITY. In the event that any of the provisions of this
Agreement are held to be unenforceable by a court or arbitrator,
the remaining portions of the Agreement will remain in full force
and effect.
(g) ENTIRE AGREEMENT. This Agreement is the complete and exclusive
agreement between the parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement may
only be modified, or any rights under it waived, by a written
document executed by both parties.
(h) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will serve to evidence the parties' binding agreement.
ONLINE SPECIALTY RETAILING INC. EXCITE, INC.
DBA GREAT FOOD ONLINE
By: /s/ BENJAMIN C. NOURSE By: /s/ ROBERT C. HOOD
--------------------------- -----------------------
Name: BENJAMIN C. NOURSE Name: ROBERT C. HOOD
---------------------- --------------
Title: CHAIRMAN Title: EVP-CFO
---------------------- -------
Date: SEPTEMBER 17, 1998 Date: SEPTEMBER 21, 1998
---------------------- ------------------
2030 First Ave., 3rd Floor 555 Broadway
Seattle, Washington 98121 Redwood City, California 94063
650.568.6000 (voice)
650.568.6030 (fax)
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EXHIBIT A
KEYWORDS
This is the "A" list. These are the words that are the highest on Client's
priority list. The "A" list includes:
[***]
This is the "B" list. These are the words that are next on Client's priority
list. They would then be included along with the "A" list. The "B" list
includes:
[***]
This is the "C" list. These are the words that are not a top priority for
Client at this time, although they are of some interest. The "C" list
includes:
[***]
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EXHIBIT B
TARGETED INVENTORY
This is the "A" list. These are the departments that Client considers to be
its highest priority. The "A" list for the departments include:
[***]
This is the "B" list. These are the departments that Client considers to be
next in priority. They would then be included along with the "A" list. The
"B" list for the departments include:
[***]
This is the "C" list. These are the departments that are not a top priority
for Client at this time, although somewhat interested in them. The "C" list
for the departments include:
[***]
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CONFIDENTIAL
SPONSORSHIP AGREEMENT
This agreement ("Agreement") is entered into as of the 17th day of
September, 1998 ("Effective Date"), by and between Excite, Inc., a
Delaware corporation, located at 555 Broadway, Redwood City, California
94063 ("Excite"), and Online Specialty Retailing Inc. dba Great Food
Online, a Washington corporation, located 2030 First Avenue, 3rd Floor,
Seattle, Washington 98121 ("Client").
RECITALS
A. Excite has obtained the right to program certain content and sell
and display advertising on the site on the Internet maintained by
Netscape Communications Corporation ("Netscape") located at
http://home.netscape.com and/or other URLs or locations designated
by Netscape (the "Excite Portion of the Netscape Site") pursuant to
an agreement dated April 29, 1998 ("the Netcenter Agreement")
which, among other things, allow Netscape's users to search for and
access content and other sites on the Internet.
B. Within the Excite Portion of the Netscape Site, Excite currently
organizes certain content into topical channels (the "Netcenter
Channels") and provides Internet search service ("Netscape Search"),
C. Client is engaged in the business of specialty food retailing and
distribution at its site on the Internet located at greatfood.com
(the "Client Site").
D. Client wishes to promote its business to Netscape's users through
promotions and advertising in various portions of the Excite
Portion of the Netscape Site.
Therefore, the parties agree as follows:
1. SPONSORSHIP OF THE NETCENTER SHOPPING AND LIFESTYLE CHANNELS
(a) Commencing on the Launch Date (as defined below), Client will be
promoted in the Netcenter Shopping Channel on the Excite Portion of
the Netscape Site as follows:
(i) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Daily
Deals promotion, or its equivalent in the case of a change in
format, on the
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CONFIDENTIAL
home page of the Netcenter Shopping Channel in [***] during
the term of the Agreement, [***].
(ii) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Top
Merchants promotion, or its equivalent in the case of a change
in format, on the home page of the Netcenter Shopping Channel
in [***] during the term of the Agreement, [***]. Excite shall
not display the link described in this Section 1(a)(ii) in the
same [***] in which it displays the link described in Section
1(a)(i) above.
(iii) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Hot
Deals promotion, or its equivalent in the case of a change in
format, on the Shopping Channel in [***] during the term of
the Agreement, [***].
(iv) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Hit
the Stores promotion, or its equivalent in the case of a
change in format, on the first page of the Gourmet & Groceries
department on the Netcenter Shopping Channel [***] term of the
Agreement.
(v) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Hot
Deals promotion, or its equivalent in the case of a change in
format, on the first page of the Flowers & Gifts department on
the Netcenter Shopping Channel in [***] during the term of the
Agreement, [***].
(vi) A link to the Client Site (consistent with the format used on
similar links on the same page) will be displayed in the Hit
the Stores promotion, or its equivalent in the case of a
change in format, on the first page of the Flowers & Gifts
department on the Netcenter Shopping Channel [***] term of the
Agreement.
(b) Commencing on the Launch Date (as defined below), Client will be
promoted in the Netcenter Lifestyle Channel on the Excite Portion
of the Netscape Site as follows:
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A link to the Client Site (consistent with the format used on similar
links on the same page) will be displayed in the Exciting Stuff
promotion, or its equivalent in the case of a change in format, on the
first page of the Food & Drink department on the Netcenter Lifestyle
Channel [***] term of the Agreement.
(c) Subject to the Netcenter Agreement remaining in effect, Excite
estimates, but does not guarantee, delivery of [***] impressions of
the Client promotional placements on the Excite Portion of the
Netscape Site described in this Section 1 during the term of this
Agreement.
2. ADVERTISING ON THE EXCITE PORTION OF THE NETSCAPE SITE
(a) During the term of the Agreement, Excite will display Client's
banner advertising on Netscape Search results pages in response to
the keywords identified in Exhibit A, subject to availability.
During the term of the Agreement, Excite will also display Client's
banner advertising in the targeted channel/department inventory on
the Excite Portion of the Netscape Site identified in Exhibit B,
subject to availability. Excite will use commercially reasonable
efforts to allocate the display of such banner advertisements in
accordance with the relative priority set forth in Exhibits A and
B. Subject to the Netcenter Agreement remaining in effect, Excite
estimates, but does not guarantee, delivery of a total of [***]
impressions of the advertising banners described in this Section
2(a).
(b) During the term of the Agreement, Excite will display Client's
banner advertising in general rotation on the Excite Portion of the
Netscape Site. Subject to the Netcenter Agreement remaining in
effect, Excite estimates, but does not guarantee, delivery of a
total of [***]impressions of the advertising banners described in
this Section 2(b) during the term of this Agreement.
3. LAUNCH DATE, RESPONSIBILITY AND REPORTING
(a) Client and Excite will use reasonable efforts to implement the
display of the promotional placements and advertising described in
the Agreement by September 30, 1998 (the "Scheduled Launch Date").
The parties recognize that the Scheduled Launch Date can be met
only if Client provides final versions of all graphics, text,
keywords, banner advertising, promotional placements, other
promotional media and valid URL links necessary to implement the
promotional placements and advertising described in the Agreement
(collectively, "Impression Material") to Excite fourteen (14) days
prior to Scheduled Launch Date.
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(b) In the event that Client fails to provide the Impression Material
to Excite fourteen (14) days in advance of the Scheduled Launch
Date, Excite may, at its sole discretion (i) reschedule the
Scheduled Launch Date at the earliest practicable date according to
the availability of Excite's engineering resources after delivery
of the complete Impression Material or (ii) commence delivery of
Impressions based on Impression Material in Excite's possession at
the time and/or reasonable placeholders created by Excite.
(c) Client and Excite agree that the day the promotional placements and
advertising described in this Agreement are first displayed on the
Excite Portion of the Netscape Site will be the "Launch Date" for
purposes of this Agreement.
(d) Excite and Netscape will have sole responsibility for providing,
hosting and maintaining, at its expense, the Excite Portion of the
Netscape Site. Excite will have sole control over the "look and
feel" of the Excite Portion of the Netscape Site including, but not
limited to, the display, appearance and placement of the parties'
respective names and/or brands and the promotional links.
(e) The banner advertisements described in this Agreement will be
served, tracked and reported by Excite's subsidiary, MatchLogic,
Inc. ("MatchLogic"). MatchLogic will also provide Client with
feedback as to comparisons of the performance of the different
creative messages supplied by Client for the advertising banners
displayed on the Excite Portion of the Netscape Site as set forth
in this Agreement. As part of the process of serving such banner
advertisements, MatchLogic will use frequency control to manage the
number of times a user on the Excite Portion of the Netscape Site
sees a particular creative message. Client and MatchLogic will work
together to determine the optimal numbers of creative message
display necessary for creative frequency control of Client's banner
advertisements on the Excite Portion of the Netscape Site. Through
the implementation of MatchLogic's TruEffect transaction reporting
system on the Client Site, MatchLogic will also report on
correlations of user activity between the Client Site and the
Excite Portion of the Netscape Site. Promotional placements,
including text links, will be served, tracked and reported by
Excite. These promotional placements will be tracked and reported
by MatchLogic when this implementation becomes available. Excite
will provide Client with monthly reports substantiating the number
of impressions of Client's advertising banners and promotional
placements
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CONFIDENTIAL
displayed on the Excite Portion of the Netscape Site in accordance
with the terms of this Agreement.
(f) Excite will assign a partner services account manager to support
Client's participation in the sponsorship, advertising and
promotional programs set forth in this Agreement. At least monthly
during the term of the Agreement, Excite and Client will hold
reviews of the parties' performance and tactics under this
Agreement by telephone in accordance with a mutually agreeable
schedule. Excite and Client may conduct such monthly meetings in
person upon the mutual agreement of the parties.
4. SPONSORSHIP AND ADVERTISING FEES; REVENUE SHARE
(a) Client will pay Excite sponsorship and advertising fees of [***].
These fees will be paid in equal monthly installments of [***]. The
first monthly payment will be due upon the Launch Date. Subsequent
installments will be due on a monthly basis thereafter.
(b) Separate and apart from the sponsorship and advertising fees,
Client will pay Excite [***] of all net revenue recognized by
Client on all transactions conducted by users referred to the
Client Site from the Excite Portion of the Netscape Site during the
term of the Agreement. For purposes of this Agreement, "net
revenue" means gross revenue minus Client's actual costs of goods
sold and taxes. Client will pay Excite these transaction fees
within thirty (30) days after the close of the financial quarter in
which Client recognizes the revenue derived from these transactions.
(c) The sponsorship, advertising and gift guide fees, net revenue and
payments are net of any agency commissions to be paid by Client.
(d) Client will maintain accurate records with respect to the
calculation of all transaction payments due under this Agreement.
Once per year, the parties will review these records to verify the
accuracy and appropriate accounting of all payments made pursuant
to the Agreement. In addition, Excite may, upon no less than thirty
(30) days prior written notice to Client, cause an independent
Certified Public Accountant to inspect the records of Client
reasonably related to the calculation of such payments during
Client's normal business hours. The fees charged by such Certified
Public Accountant in connection with the inspection will be paid by
Excite unless the payments made to Excite are determined to have
been less than ninety- five percent (95%) of the payments actually
owed to Excite, in which case
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Client will be responsible for the payment of the reasonable fees
for such inspection.
5. PUBLICITY
Unless required by law, neither party will make any public statement,
press release or other announcement relating to the terms of or
existence of this Agreement without the prior written approval of the
other, such approval not to be unreasonably withheld, Notwithstanding
the foregoing, either party may issue an initial press release regarding
the relationship between Excite and Client, the timing and wording of
which will be mutually agreed upon.
6. TERM AND TERMINATION
(a) Unless terminated earlier in accordance with the specific terms of
this Agreement, the term of this Agreement will begin on the Launch
Date and will not end until the later of: (i) the date on which
Excite has displayed a total of [***] impressions of the Client
advertising banners and promotional placements on the Excite
Portion of the Netscape Agreement as described in this Agreement;
or (ii) the one year anniversary of the Launch Date.
Notwithstanding the foregoing, this Agreement will terminate upon
termination or expiration of the Netcenter Agreement and the
parties agree to negotiate in good faith to resolve all outstanding
promotional and financial issues.
(b) If Client has not realized a minimum of [***] transactions
consisting of Client's product sales conducted by users referred to
the Client Site from the Excite Portion of the Netscape Site after
the first six (6) months following the Launch Date ("Transaction
Goal"), Client may suspend (but not eliminate) its payments of the
sponsorship and advertising fees specified in Section 4 for a
maximum of [***] during which Excite will deliver make-good
impressions (the "Make-Good Period"). If Client does not achieve
its Transaction Goal by the end of the Make-Good Period, Client may
then terminate this Agreement upon written notice within ten (10)
days of the end of the Make-Good Period. If Client achieves its
Transaction Goal at any time during the Make-Good Period or if
Client does not issue a written notice of termination in accordance
with this Section 6(b), the term of the Agreement shall continue
and Client shall immediately resume payment of all sponsorship and
advertising fees.
(c) Either party may terminate this Agreement if the other party
materially breaches its obligations hereunder and such breach
remains uncured for thirty (30) days following the notice to the
breaching party of the breach.
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(d) All undisputed payments that have accrued prior to the termination
or expiration of this Agreement will be payable in full within
thirty (30) days thereof.
(e) The provisions of Section 9 (Confidentiality and User Data),
Section 10 (Indemnity), Section 11 (Limitation of Liability) and
Section 12 (Dispute Resolution) will survive any termination or
expiration of this Agreement.
7. TRADEMARK OWNERSHIP AND LICENSE
(a) Client will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Excite hereunder.
(b) Excite will retain all right, title and interest in and to its
trademarks, service marks and trade names worldwide, subject to the
limited license granted to Client hereunder.
(c) Each party hereby grants to the other a non-exclusive, limited
license to use its trademarks, service marks or trade names only as
specifically described in this Agreement. All such use shall be in
accordance with each party's reasonable policies regarding
advertising and trademark usage as established from time to time.
(d) Upon the expiration or termination of this Agreement, each party
will cease using the trademarks, service marks and/or trade names
of the other except:
(i) As the parties may agree in writing; or
(ii) To the extent permitted by applicable law.
8. CONTENT OWNERSHIP
(a) Client will retain all right, title and interest in and to the
Client Site worldwide including, but not limited to, ownership of
all copyrights and other intellectual property rights therein.
(b) Excite and Netscape will retain all right, title, and interest in
and to the Excite Portion of the Netscape Site worldwide including,
but not limited to, ownership of all copyrights, look and feel and
other intellectual property rights therein.
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9. CONFIDENTIALITY AND USER DATA
(a) For the purposes of this Agreement, "Confidential Information"
means information about the disclosing party's (or its suppliers')
business or activities that is proprietary and confidential, which
shall include all business, financial, technical and other
information of a party marked or designated by such party as
"confidential or "proprietary" or information which, by the nature
of the circumstances surrounding the disclosure, ought in good
faith to be treated as confidential.
(b) Confidential Information will not include information that (i) is
in or enters the public domain without breach of this Agreement,
(ii) the receiving party lawfully receives from a third party
without restriction on disclosure and without breach of a
nondisclosure obligation, (iii) the receiving party knew prior to
receiving such information from the disclosing party or (iv) the
receiving party develops independent of any information originating
from the disclosing party.
(c) Each party agrees (i) that it will not disclose to any third party
or use any Confidential Information disclosed to it by the other
except as expressly permitted in this Agreement and (ii) that it
will take all reasonable measures to maintain the confidentiality
of all Confidential Information of the other party in its
possession or control, which will in no event be less than the
measures it uses to maintain the confidentiality of its own
information of similar importance.
(d) The usage reports provided by Excite to Client hereunder will be
deemed to be the Confidential Information of Excite and thus
subject to all the restrictions set forth in this Agreement,
including the prohibitions against disclosure to third parties
contained in this Section 9. The usage reports provided by Client
to Excite hereunder will be deemed to be the Confidential
Information of Client and thus subject to all the restrictions set
forth in this Agreement, including the prohibitions against
disclosure to third parties contained in this Section 9.
(e) The terms and conditions of this Agreement will be deemed to be
Confidential Information and will not be disclosed without the
written consent of the other party.
(f) For the purposes of this Agreement, "User Data" means the aggregate
number of purchase requests requested by such users, the aggregate
number of purchase requests completed, the aggregate number of
purchases completed and the aggregate dollar value of completed
purchases. The
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parties hereby agree that "User Data" for purposes of this
Agreement shall not include any information submitted by users
referred to the Client Site from the Excite Portion of the Netscape
Site that could be reasonably used to identify a specific named
individual ("individual Data"). The parties acknowledge that any
individual user of the Internet could be a user of Excite, Netscape
and/or Client through activities unrelated to this Agreement and
that user data gathered independent of this Agreement, even from
individuals who are users of both parties' services, will not be
deemed to be "User Data" for the purposes of this Agreement.
(g) User Data, strictly as defined in Section 9(f) above, will be
deemed to be the joint property of the parties and, subject to the
limitations contained herein, both parties will retain all rights
to make use of such User Data. In addition, the parties hereby
agree that Individual Data, as defined in Section 9(f) above to
mean any information submitted users referred to the Client Site
from the Excite Portion of the Netscape Site that could be
reasonably used to identify a specific named individual, will be
deemed to be the sole property of Client and, subject to the
limitations contained herein, Client will retain all rights to make
use of such Individual Data.
(h) In order to facilitate optimization of Client's sponsorship program
and achievement of Client's Transaction Goals, Client will make
good faith efforts to develop tracking and reporting capabilities
on the Client Site to correlate information regarding transaction
activity by users referred to the Client Site from the Excite
Portion of the Netscape Site to the various promotional placements
and advertising banners displayed on the Excite Network. Client
will provide to Excite all User Data and user transaction reports
collected by Client within thirty (30) days following the end of
each calendar month during the term of this Agreement in a
mutually-determined electronic format.
(i) Client will not use User Data or Individual Data to specifically
target any Excite or Netscape users, as distinct from all users of
the Client Site, for solicitations (except as specifically provided
in this Agreement), either individually or in the aggregate, during
the term of this Agreement and for a period of twelve (12) months
following the expiration or termination of this Agreement.
(j) Neither party will sell, disclose, transfer or rent any User Data
which could reasonably be used to identify a specific named
individual ("Individual Data") to any third party nor will either
party use Individual Data on behalf of any third party without the
express permission of the individual user.
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Where user permission for dissemination of Individual Data to third
parties has been obtained, each party will use commercially
reasonable efforts to require the third party recipients of
Individual Data to provide an "unsubscribe" feature in any email
communications generated by, or on behalf of, the third party
recipients of Individual Data.
(k) Notwithstanding the foregoing, each party may disclose Confidential
Information or User Data (i) to the extent required by a court of
competent jurisdiction or other governmental authority or otherwise
as required by law or on a "need-to-know" basis under an obligation
of confidentiality to its legal counsel, accountants, banks and
other financing sources and their advisors; and Excite may disclose
Confidential Information to Netscape as required under the terms of
the Netcenter Agreement.
10. INDEMNITY
(a) Client will indemnify, defend and hold harmless Excite, Netscape,
their affiliates, officers, directors, employees, consultants and
agents from any and all third party claims, liability, damages
and/or costs (including, but not limited to, attorneys fees)
arising from:
(i) Its breach of any representation or covenant in this
Agreement; or
(ii) Any claim that Client's advertising banners infringe or
violate any third party's copyright, patent, trade secret,
trademark, right of publicity or right of privacy or contain
any defamatory content; or
(iii) Any claim arising from the Client Site.
Excite will promptly notify Client of any and all such claims
and will reasonably cooperate with Client with the defense
and/or settlement thereof; provided that, if any settlement
requires an affirmative obligation of, results in any ongoing
liability to or prejudices or detrimentally impacts Excite in
any way and such obligation, liability, prejudice or impact
can reasonably be expected to be material, then such
settlement shall require Excite's written consent (not to be
unreasonably withheld or delayed) and Excite may have its own
counsel in attendance at all proceedings and substantive
negotiations relating to such claim.
(b) Excite will indemnify, defend and hold harmless Client, its
affiliates, officers, directors, employees, consultants and agents
from any and all third
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party claims, liability, damages and/or costs (including, but not
limited to, attorneys fees) arising from:
(i) Its breach of any representation or covenant in this
Agreement; or
(ii) Any claim arising from the Excite Portion of the Netscape Site
other than content or services provided by Client.
Client will promptly notify Excite of any and all such claims and will
reasonably cooperate with Excite with the defense and/or settlement thereof;
provided that, if any settlement requires an affirmative obligation of,
results in any ongoing liability to or prejudices or detrimentally impacts
Client in any way and such obligation, liability, prejudice or impact can
reasonably be expected to be material, then such settlement shall require
Client's written consent (not to be unreasonably withheld or delayed) and
Client may have its own counsel in attendance at all proceedings and
substantive negotiations relating to such claim.
(c) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT
AND HEREBY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING ALL
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE REGARDING SUCH SUBJECT MATTER.
11. LIMITATION OF LIABILITY
EXCEPT UNDER SECTIONS 10(a) AND 10(b), IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING
NEGLIGENCE) OR OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGE. EXCEPT UNDER SECTIONS 10(a) AND 10(b),
THE LIABILITY OF EITHER PARTY FOR DAMAGES OR ALLEGED DAMAGES HEREUNDER,
WHETHER IN CONTRACT, TORT OR ANY OTHER LEGAL THEORY, IS LIMITED TO, AND
WILL NOT EXCEED, THE AMOUNTS TO BE PAID BY CLIENT TO EXCITE HEREUNDER.
12. DISPUTE RESOLUTION
(a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade names,
confidentiality and/or User Data would result in irreparable injury
for which there is no adequate remedy at law. Therefore, in the
event of any breach or threatened breach
11
<PAGE>
CONFIDENTIAL
of a party's obligations regarding trademarks, service marks or
trade names or confidentiality, the aggrieved party will be
entitled to seek equitable relief in addition to its other
available legal remedies in a court of competent jurisdiction.
(b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks, service
marks or trade names, confidentiality and/or User Data, the parties
will first attempt to resolve the dispute(s) through good faith
negotiation. In the event that the dispute(s) cannot be resolved
through good faith negotiation, the parties will refer the
dispute(s) to a mutually acceptable mediator.
(c) In the event that disputes between the parties arising from or
concerning in any manner the subject matter of this Agreement,
other than disputes arising from or concerning trademarks, service
marks or trade names, confidentiality and/or User Data, cannot be
resolved through good faith negotiation and mediation, the parties
will refer the dispute(s) to the American Arbitration Association
for resolution through binding arbitration by a single arbitrator
pursuant to the American Arbitration Association's rules applicable
to commercial disputes.
13. GENERAL
(a) ASSIGNMENT. Neither party may assign this Agreement, in whole or in
part, without the other party's written consent (which will not be
unreasonably withheld), except that no such consent will be
required in connection with (i) a merger, reorganization or sale of
all, or substantially all, of such party's assets or (ii) either
party's assignment and/or delegation of its rights and
responsibilities hereunder to a wholly-owned subsidiary or joint
venture in which the assigning party holds an interest. Any attempt
to assign this Agreement other than as permitted above will be null
and void.
(b) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of California,
notwithstanding the actual state or country of residence or
incorporation of Excite or Client.
(c) NOTICE. Any notice under this Agreement will be in writing and
delivered by personal delivery, express courier, confirmed
facsimile, confirmed email or certified or registered mail, return
receipt requested, and will be deemed given upon personal delivery,
one (1) day after deposit with express courier, upon confirmation
of receipt of facsimile or email or five (5) days after deposit in
the mail. Notices will be sent to a party at its address set
12
<PAGE>
CONFIDENTIAL
forth in this Agreement or such other address as that party may
specify in writing pursuant to this Section.
(d) NO AGENCY. The parties are independent contractors and will have no
power or authority to assume or create any obligation or
responsibility on behalf of each other. This Agreement will not be
construed to create or imply any partnership, agency or joint
venture.
(e) FORCE MAJEURE. Any delay in or failure of performance by either
party under this Agreement will not be considered a breach of this
Agreement and will be excused to the extent caused by any
occurrence beyond the reasonable control of such party including,
but not limited to, acts of God, power outages and governmental
restrictions.
(f) SEVERABILITY. In the event that any of the provisions of this
Agreement are held to be unenforceable by a court or arbitrator,
the remaining portions of the Agreement will remain in full force
and effect.
(g) ENTIRE AGREEMENT. This Agreement is the complete and exclusive
agreement between the parties with respect to the subject matter
hereof, superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement may
only be modified, or any rights under it waived, by a written
document executed by both parties.
(h) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which will serve to evidence the parties' binding agreement.
ONLINE SPECIALTY RETAILING INC. EXCITE, INC.
DBA GREAT FOOD ONLINE
By: /s/ Benjamin C. Nourse By: /s/ Robert C. Hood
-------------------------- ------------------
Name: Benjamin C. Nourse Name: Robert C. Hood
-------------------------- ------------------
Title: Chairman Title: EVP-CFO
-------------------------- ------------------
Date: September 17, 1998 Date: September 21, 1998
-------------------------- ------------------
2030 First Avenue, 3rd Floor 555 Broadway
Seattle, WA 98121 Redwood City, CA 94063
(650) 568-6000 (voice)
13
<PAGE>
CONFIDENTIAL
(650) 568-6030 (fax)
14
<PAGE>
[***] indicates confidential treatment for omitted text has been requested.
CONFIDENTIAL
EXHIBIT A
KEYWORDS
This is the "A" list. These are the words that are the highest on Client's
priority list. The "A" list includes:
[***]
This is the "B" list. These are the words that are next on Client's priority
list. They would then be included along with the "A" list. The "B" list
includes:
[***]
This is the "C" list. These are the words that are not a top priority for
Client at this time, although they are of some interest. The "C" list
includes:
[***]
15
<PAGE>
[***] indicates confidential treatment for omitted text has been requested.
CONFIDENTIAL
EXHIBIT B
TARGETED INVENTORY
This is the "A" list. These are the departments on the Excite Portion of the
Netscape Site that Client considers to be its highest priority. The "A" list
for the departments include:
[***]
This is the "B" list. These are the departments that Client considers to be
next in priority. They would then be included along with the "A" list. The
"B" list for the departments include:
[***]
This is the "C" list. These are the departments that are not a top priority
for Client at this time, although somewhat interested in them. The "C" list
for the departments include:
[***]
16
<PAGE>
PANDESIC AGREEMENT EXHIBIT 10.16
CONTRACT DATE: CONTRACT NUMBER:
------------------------------- ----------------
- --------------------------------------------------------------------------------
MERCHANT INFORMATION
- --------------------------------------------------------------------------------
ONLINE SPECIALTY RETAILING, INC
COMPANY NAME:. D.B.A GREATFOOD.COM CONTACT NAME: BEN NOURSE
--------------------------------- -------------------
BILLING ADDRESS: 2030 1ST AVENUE, 3RD FLOOR PHONE: (206) 443-3346 X 108
------------------------------ --------------------------
SEATTLE, WA 98121 FAX: (206) 443-3314
- ---------------------------------------------- ----------------------------
E-MAIL: [email protected]
- ---------------------------------------------- -------------------------
BILLING CONTACT: BEN NOURSE TECHNICAL CONTACT: BEN NOURSE
------------------------------ --------------
PHONE: (206) 443-3346 X 108 PHONE: (206) 443-3346 X 108
---------------------------------------- --------------------------
FAX: (206) 443-3314 FAX: (206) 443-3314
------------------------------------------ ----------------------------
E-MAIL: [email protected] E-MAIL: [email protected]
--------------------------------------- -------------------------
Merchant hereby orders the Pandesic E-Business Solution Service from PANDESIC
LLC ("PANDESIC"). This Order Form is subject to the Terms and Conditions and
the Pandesic reference documents referred to herein (collectively, the
"Agreement"). This Agreement is valid when accepted by an authorized
representative of PANDESIC.
The Pandesic E-Business Solution Service consists of (i) the installation,
implementation, hosting and administration of Merchant's e-commerce web site
(the "Hosting Services") on computers and system software (the "Pandesic
Equipment") operated by PANDESIC or its hosting partner (the "Hosting
Partner"), and (ii) licenses of associated Pandesic and third party
("Supplier") application software (the "Software") for such purposes.
Other services provided hereunder include (i) training on the operation of
the Pandesic E-Business Solution Service, and (ii) maintenance and support
services (the "Maintenance Services"), all as described from time to time in
PANDESIC reference documents. The Pandesic E-Business Solution Service and
the other services are referred to collectively as the "Services."
MERCHANT HAS READ AND AGREES TO BE BOUND BY THE TERMS AND CONDITIONS OF THIS
AGREEMENT. MERCHANT AND PANDESIC AGREE THAT THE TERMS AND CONDITIONS OF THIS
AGREEMENT REPLACE AND SUPERSEDE ALL PROPOSALS, WRITTEN OR ORAL, AS WELL AS
OTHER COMMUNICATIONS BETWEEN MERCHANT AND PANDESIC RELATING TO THIS AGREEMENT.
- -------------------------------------------------------------------------------
ACCEPTANCE
- -------------------------------------------------------------------------------
ACCEPTED BY MERCHANT: ACCEPTED BY PANDESIC LLC:
SIGNATURE: /S/ BENJAMIN C. NOURSE SIGNATURE: /S/ PETER WOLCOTT
---------------------------------- ---------------------
PRINT NAME: BENJAMIN C. NOURSE PRINT NAME: PETER WOLCOTT
--------------------------------- --------------------
TITLE: CHAIRMAN TITLE: PRESIDENT
-------------------------------------- -------------------------
DATE: MARCH 10, 1999 DATE: MARCH 18, 1999
--------------------------------------- --------------------------
- -------------------------------------------------------------------------------
TRH 121698 Pandesic Agreement -- Order Form Page 1
<PAGE>
[***] indicates confidential treatment for omitted text has been requested.
PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
RATE SHEET
- -------------------------------------------------------------------------------
INITIAL SET-UP CHARGE
- -------------------------------------------------------------------------------
- - Merchant shall pay an initial set-up charge of [***], payable upon
acceptance of this Agreement.
- -------------------------------------------------------------------------------
MONTHLY TRANSACTION FEES
- -------------------------------------------------------------------------------
- - The Monthly Base Fee shall be [***].
- - Monthly Transaction Fees will be calculated using the Monthly Base Fee plus
a percentage of monthly revenue (defined as gross sales plus freight
revenue, excluding taxes) generated by the sale or other distribution of
products or services provided by Merchant through use of the Pandesic
E-Business Solution.
- - Monthly Transaction Fees commence upon the Technical Installation (the date
that the Pandesic software is loaded on the servers and the servers are
ready to accept Merchant's configuration and functional installation of its
products), at the site of Pandesic's Hosting Partner ("").
- -------------------------------------------------------------------------------
ALTERNATIVE MINIMUM FEES
- -------------------------------------------------------------------------------
- - Merchant shall pay to Pandesic the greater of the Alternate Minimum Fees or
the Monthly Transaction Fees (as calculated above) in any month of the
term. The Alternate Minimum Fees shall be calculated as [***] per active
server page presented that month plus [***] times the number of `hits'to
Merchant's web site.
- -------------------------------------------------------------------------------
FEE SCHEDULE
- -------------------------------------------------------------------------------
Monthly Transaction Fees shall be determined in accordance with the following
table:
<TABLE>
<CAPTION>
- --------------------- ----------------------- ---------------------------- -----------------------------------------------
MERCHANT MONTHLY SALES MONTHLY TRANSACTION FEE
- --------------------- ----------------------- ---------------------------- -----------------------------------------------
FROM TO BASE FEE INCREMENTAL TRANSACTION %
- --------------------- ----------------------- ---------------------------- -----------------------------------------------
<S> <C> <C> <C>
[***] [***] [***] Plus [***] of the amount of [***]
- --------------------- ----------------------- ---------------------------- -----------------------------------------------
[***] [***] [***] Plus [***] of the amount over [***]
- --------------------- ----------------------- ---------------------------- -----------------------------------------------
</TABLE>
For example, a merchant that transacts [***] of monthly gross sales and [***] of
freight revenue would be responsible for a Monthly Transaction Fee of [***].
Monthly Base Fee for [***] in Monthly Sales [***]
[***] of [***] (amount over [***]) [***]
Total owed to Pandesic [***]
- -------------------------------------------------------------------------------
GRR 121898 Pandesic Agreement -- Rate Sheet Page 2
<PAGE>
PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
RATE SHEET
- -------------------------------------------------------------------------------
ACCEPTANCE
- -------------------------------------------------------------------------------
ACCEPTED BY MERCHANT: ACCEPTED BY PANDESIC LLC:
SIGNATURE: /S/ BENJAMIN C. NOURSE SIGNATURE: /S/ PETER WOLCOTT
---------------------------------- ---------------------
PRINT NAME: BENJAMIN C. NOURSE PRINT NAME: PETER WOLCOTT
--------------------------------- --------------------
TITLE: CHAIRMAN TITLE: PRESIDENT
-------------------------------------- -------------------------
DATE: MARCH 10, 1999 DATE: MARCH 18, 1999
--------------------------------------- --------------------------
- -------------------------------------------------------------------------------
GRR 121898 Pandesic Agreement -- Rate Sheet Page 3
<PAGE>
PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
TERMS AND CONDITIONS
The following terms and conditions (these "Terms") govern the provisions by
Pandesic LLC ("Pandesic") of the Services described on the Pandesic E-Business
Solution Service Order Form ("Order Form") to the company ("Merchant")
identified on the Order Form.
- -------------------------------------------------------------------------------
1. OBLIGATIONS OF PANDESIC
- -------------------------------------------------------------------------------
1.1 Pandesic will provide, deploy, support and maintain the
Pandesic E-Business Solution Service.
1.2 Pandesic hereby grants to Merchant a non-exclusive and
non-assignable license to use the Software in the United
States for the purpose of conducting business over the
Internet.
- -------------------------------------------------------------------------------
2. OBLIGATIONS OF MERCHANT
- -------------------------------------------------------------------------------
2.1 Merchant shall comply with all of the terms of this Agreement,
including but not limited to, the Acceptable Use Policy (the
"Use Policy"), as the Use Policy may be modified from time to
time during the term of this Agreement.
2.2 Merchant may use the Services for the purpose of conducting
electronic commerce activities, including processing third
party data, solely in connection with products and services
offered via Merchant's website. Subject to the foregoing
Merchant shall not offer, for a fee or free of charge,
services consisting of the processing of data through the use
of the Services for, or for the benefit of, any person other
than Merchant.
- -------------------------------------------------------------------------------
3. PAYMENT
- -------------------------------------------------------------------------------
3.1 Merchant shall pay the fees set out in the Rate Sheet,
attached hereto.
3.2 All payments shall be made in U.S. Dollars. In all cases,
payments are due upon receipt by Merchant of the applicable
monthly invoices.
3.3 Payments and any additional charges, including, but not
limited to, any early cancellation charges, accrued interest
and late fees shall be invoiced in arrears and shall appear on
the monthly invoices for Services or separate invoices, as
determined by Pandesic in its sole discretion.
3.4 In addition to any other remedies that may be available to
Pandesic under this Agreement (including, but not limited to,
those in connection with the termination of this Agreement
pursuant to Section 13 below) or applicable law, invoices that
are not paid in full thirty (30) days after receipt by
Merchant (a "Payment Default") will be subject to interest
charges of the lesser of one and one-half percent (1.5%) per
month or portion thereof and the highest amount permitted by
law, which interest shall accrue daily.
3.5 Merchant shall be liable for all amounts owed to Pandesic
pursuant to this Agreement, irrespective of the termination of
this Agreement. Merchant also shall pay to Pandesic all
expenses incurred by Pandesic in exercising any of its rights
under this Agreement or applicable law with respect to the
collection of a Payment Default, including, but not limited
to, reasonable attorneys'fees and the fees of any collection
agency retained by Pandesic.
- -------------------------------------------------------------------------------
GRR 022699 Pandesic Agreement -- Terms and Conditions Page 1
<PAGE>
PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
TERMS AND CONDITIONS
3.6 Merchant shall be liable for, and shall reimburse Pandesic and
indemnify and hold Pandesic harmless from all local, state,
federal and non-United States taxes or similar assessments or
charges (including any interest and penalties imposed
thereon), other than taxes based on the net income of
Pandesic, arising out of or relating to this Agreement or the
provision of the Services hereunder.
- -------------------------------------------------------------------------------
4. MAINTENANCE
- -------------------------------------------------------------------------------
4.1 Pandesic designates time periods ("Scheduled Maintenance
Windows") during which it may limit or suspend the
availability of the Pandesic Equipment and/or Software
involved in providing its Services (an "Outage") to perform
necessary maintenance or updates. Scheduled Maintenance
Windows currently are each Tuesday and Friday between the
hours of 4:00 a.m. and 8:00 a.m. and the third Saturday of
each month between the hours of 4:00 a.m. and 12 noon Pacific
Standard Time.
4.2 If planned maintenance has the possibility of making the
Pandesic Equipment used by Merchant inaccessible to the
Internet during a Scheduled Maintenance Window, Pandesic will
provide not less than twenty-four (24) hours prior electronic
mail or other notice to Merchant of the Scheduled Maintenance
Window during which the Outage is planned.
4.3 In addition, Pandesic reserves the right to perform any
required maintenance work or updates outside of the Scheduled
Maintenance Window with a minimum of seven (7) days prior
notice to Merchant. Pandesic also may perform at any time any
maintenance or updates it believes is necessary to preserve
the integrity of Pandesic's network and services offered
regardless of whether it has provided any notice to Merchant
thereof. Pandesic shall perform any upgrades to the Software
at times mutually acceptable to both parties.
4.4 Merchant agrees that Pandesic, its Hosting Partner and its
third party service providers shall have access to its intenet
commerce system and web site for the purposes contemplated in
this Agreement.
- -------------------------------------------------------------------------------
5. CONFIDENTIALITY
- -------------------------------------------------------------------------------
5.1 In the course of business dealing, both parties will be
releasing valuable trade secrets and other confidential
information to the other including, in Pandesic's case,
information about the Services and Software provided by
Pandesic, Hosting Partner and Suppliers, and in Merchant's
case, its customer business data. Each party recognizes that
such information constitutes valuable trade secrets of the
other.
5.2 Accordingly, each party agrees that (i) the provisions of this
Agreement, (ii) any information whatsoever with respect to the
Services and the Software, (iii) the course of dealing between
Pandesic and Merchant hereunder, (iv) Merchant's data, and (v)
all other non-public information (whether technical or
otherwise) made available or disclosed to such party (the
"recipient") by the other (the "disclosing party")
(collectively, the "Confidential Information") shall be
treated by recipient on a confidential basis and shall not be
reproduced, reduced to writing, or disclosed to any employee
or contractor except as necessary to provide or use the
Services, or to any other person or entity without the prior
written consent of disclosing party.
5.3 Upon termination of this Agreement, any documentation
reflecting any Confidential Information of the other party
shall be returned promptly to such party. Disclosure of
information pursuant to applicable statutes or regulations
(collectively, "Laws") shall be excepted from the provisions
of this Section 5; provided, however, that prior to any
disclosure by the recipient pursuant to any Laws, recipient
will assert the confidential nature of the Confidential
Information and will
- -------------------------------------------------------------------------------
GRR 022699 Pandesic Agreement -- Terms and Conditions Page 2
<PAGE>
PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
TERMS AND CONDITIONS
cooperate fully with the disclosing party, at the disclosing
party's expense, in protecting against any such disclosure
including, but not limited to, obtaining a protective order
or similar order narrowing the scope of such disclosure of
the Confidential Information. In the event such protection is
not obtained, the recipient shall disclose the Confidential
Information only to the extent necessary to comply with the
Laws.
- -------------------------------------------------------------------------------
6. PROPRIETARY RIGHTS INDEMNIFICATION
- -------------------------------------------------------------------------------
6.1 Merchant agrees to indemnify and hold harmless Pandesic, all
individuals or entities controlling, controlled by or under
common control with Pandesic (each, a "Pandesic Affiliate"),
Hosting Partner, and the officers, directors and employees of
Pandesic, Pandesic Affiliates and Hosting Partner (an
"Indemnified Party") against any losses, claims, damages,
liabilities, penalties, actions, proceedings or judgements
(collectively "Losses") to which an Indemnified Party may
become subject, related to or arising out of any infringement
or misappropriation or alleged infringement or
misappropriation of any United States copyright, trade secret
or other proprietary right related to any hardware or software
(other than the Pandesic Equipment and the Software) utilized
by Merchant in connection with any of the Services or to any
Merchant data distributed via the Pandesic E-Business Solution
Service and will reimburse such Indemnified Party for all
legal and other expenses, including reasonable aftorneys'fees
incurred by such Indemnified Party in connection with
investigating, defending or settling any Loss, whether or not
in connection with pending or threatened litigation in which
such Indemnified Party is a party.
6.2 Pandesic agrees to indemnify and hold harmless Merchant
against any Losses to which Merchant may become subject,
related to or arising out of any infringement or
misappropriation or alleged infringement or misappropriation
of any United States patent, copyright, trade secret or other
proprietary right related to the Pandesic Equipment or the
Software and will reimburse Merchant for all legal and other
expenses, including reasonable aftorneys' fees incurred by
Merchant in connection with investigating, defending or
settling any Loss, whether or not in connection with pending
or threatened litigation in which Merchant is a party. This
indemnification does not relate to the Merchant data or
matters that arise from Merchant data or conduct. The
provisions of this Agreement relating to indemnification shall
survive termination of this Agreement.
6.3 In the event of any claim of infringement or misappropriation
under paragraph 6.2, above, Pandesic may, at its option and
expense either (i) procure for Merchant the right to continue
using the Pandesic Equipment or the Software, (ii) replace
such Pandesic Equipment or Software with non-infringing
equipment or software, (iii) modify the same so as to make it
non-infringing, or (iv) terminate the Agreement as to the
infringing Pandesic Equipment or Software and refund to
Merchant any of the unused portion of the fees paid for
Services prior to such termination.
- -------------------------------------------------------------------------------
7. INDEMNIFICATION
- -------------------------------------------------------------------------------
7.1 In addition to other indemnification provided herein, and
except as to matters covered by paragraph 6.2, above. Merchant
agrees to indemnify and hold harmless Pandesic, Pandesic
Affiliates, Hosting Partner, and the officers, directors and
employees of Pandesic, Pandesic Affiliates, and Hosting
Partner (each an "Indemnified Party") against any Losses to
which an Indemnified Party may become subject and which Losses
arise out of, or relate to this Agreement or Merchant's use of
the Services, and will reimburse an Indemnified Party for all
legal and other expenses, including reasonable attorneys'fees
incurred by such Indemnified Party in connection with
investigating, defending or settling any Loss whether or not
in connection with pending or threatened litigation in which
such Indemnified Party is a party.
- -------------------------------------------------------------------------------
GRR 022699 Pandesic Agreement -- Terms and Conditions Page 3
<PAGE>
PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
TERMS AND CONDITIONS
- -------------------------------------------------------------------------------
8. OTHER MERCHANT ASSURANCES
- -------------------------------------------------------------------------------
8.1 During any time period when Merchant is provided access to any
facilities, hardware or other property owned or leased by, or
otherwise under the control of Pandesic or Hosting Partner
(collectively "Pandesic Property") pursuant to this Agreement,
Merchant shall (i) maintain insurance, with Pandesic and
Hosting Partner as a named payee, covering any damage or
destruction to Pandesic Property (collectively `Damage'); and
(ii) reimburse Pandesic for all expenses incurred by Pandesic
in replacing or repairing, as the case may be, any Damage
caused by Merchant.
8.2 Merchant shall not attempt to copy, modify, alter,
disassemble, decompile, translate or convert into human
readable form, or reverse engineer, all or any part of the
Software and shall not use the Software to develop any
derivative works or any functionally compatible or competitive
software, except to the extent permitted under applicable law.
However, Merchant may create interfaces to the Software or
modify the provided interfaces to permit interfacing with
Merchant's legacy database systems solely for Merchant's use
in connection with the Services provided pursuant to this
Agreement. Merchant shall not separate the Software into its
component parts, nor incorporate any component files into any
product, nor shall it remove any proprietary, trademark or
copyright markings or confidentiality legends within the
Software.
8.3 Merchant shall not use the Services in any manner which
violates any law or regulation, is for a fraudulent purpose,
contravenes public policy, or may cause Pandesic or its
Suppliers to be subject to investigations prosecution or legal
action. Merchant shall only use the Services to process sales
transactions which, to the best of its knowledge, are genuine
and do not arise out of fraudulent or illegal activities in
the sale of goods, information or services. Merchant agrees,
represents and warrants that Merchant's web site shall not
contain any content or materials that infringe on the rights
of any other party or violate any applicable law or regulation
or any proprietary, contract, moral, privacy or other third
party right, or which would expose Pandesic, its Hosting
Partner or its Suppliers to any civil or criminal liability or
otherwise would affect Pandesic's or its Hosting Partner's
business. Merchant shall indemnify and save Pandesic, Pandesic
Affiliates, Hosting Partner, and the officers, directors and
employees of Pandesic harmless (each an "Indemnified Party")
against any claim, liabilities and costs to which an
Indemnified Party may become subject to and which arise out
of, or relate to any content contained on Merchant's web site
or which result from the use of the Services in contravention
of this section. Merchant shall (a) acquire all authorizations
necessary in respect of any hyperlinks to its commerce web
site, and (b) provide Pandesic and its Hosting Partner with
accurate information concerning descriptive claims,
warranties, guarantees, nature of its business and the
addresses where its business is conducted.
8.4 Merchant appoints Pandesic as its agent to accept customer
relationships with certain of its Suppliers (such as
CyberCash, Inc.) as more fully described in the reference
documents.
- -------------------------------------------------------------------------------
9. USE OF MERCHANT'S NAME
- -------------------------------------------------------------------------------
9.1 Pandesic shall be permitted to use Merchant's name in
connection with proposals to prospective merchants and
otherwise in print and in electronic form for marketing or
other purposes, including, but not limited to, use in
connection with (i) compliance with applicable laws or
regulations; and (ii) the protection of any rights relating to
Pandesic or its business.
- -------------------------------------------------------------------------------
10. USE OF PANDESIC'S NAME
- -------------------------------------------------------------------------------
10.1 Merchant may use the name "PANDESIC(TM)" in connecton with the
Services or otherwise only with the prior written consent of
Pandesic. Pandesic shall be permitted to place an image of its
- -------------------------------------------------------------------------------
GRR 022699 Pandesic Agreement -- Terms and Conditions Page 4
<PAGE>
PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
TERMS AND CONDITIONS
logo on Merchant's web site in order to identify Pandesic as
the e-business solution provider to Merchant. The parties
shall jointly agree the size and location of such logo.
10.2 Except as set forth herein, Merchant shall have no right to
use or display the trademarks of Pandesic, Hosting Partner or
Suppliers.
- -------------------------------------------------------------------------------
11. WARRANTY
- -------------------------------------------------------------------------------
11.1 Subject to Section 4, Pandesic will use its reasonable
commercial best efforts to assure that the Services will be
available twenty-four (24) hours a day, seven (7) days a week.
If the Services are unavailable for more than a total of 4
hours in any week, other than as a result of the maintenance
activities described in Section 4, Merchant's sole and
exclusive remedy shall be that, in the event the Fees are
below the Monthly Base Fee in the month of availability, the
fees shall be waived on a pro rata basis for the period of
unavailability.
11.2 For purposes of this Agreement, a week shall be considered to
run from Sunday to Saturday and the Services shall be deemed
to be unavailable if (i) the system network is incapable of
transmitting data (subject to Section 15 below); or (ii)
Pandesic's standard hardware, software, or operating system is
functioning in a manner that prevents http, ftp, or mail
access to the Internet server or the software is unable to
process standard functions of the Pandesic E-Business Solution
Service ("Unavailability").
11.3 Notwithstanding the foregoing, Pandesic shall not be in breach
of this warranty for any period of unavailability which
results from Merchant's action or inaction, including, but not
limited to, Merchant's use of Merchant owned, non-standard, or
unsupported hardware and/or software installed by the Merchant
(or by Pandesic at the Merchant's request).
11.4 Pandesic warrants that the Maintenance Services will be
performed in accordance with generally accepted industry
standards for comparable services. Merchant's sole and
exclusive remedy for any breach of the foregoing warranty
shall be to provide Pandesic with notice of such nonconformity
within thirty (30) days of the defective performance and
Pandesic shall re-perform such Maintenance Services.
11.5 YEAR 2000 COMPLIANCE
11.5.1 The Pandesic-owned portion of the Software shall be
Year 2000 Compliant as of September 30, 1999.
11.5.2 In this regard, "Year 2000 Compliant" shall mean
that the software shall continue to function before,
during and after January 1, 2000 without error
related to, or the product of, date data which
represents or references different centuries, and,
more specifically, (a) correctly manages and
manipulates data involving dates, including
single-century formulae and multi-century formulae,
(b) correctly identifies the year 2000 as a leap
year, (c) does not include any default references
to year 99 or otherwise use any date data field to
indicate any information other than a specific
date, and (d) uses four digits to indicate the year
in storage, use and communication of all date data
date-related functions.
11.5.3 The Software also includes third party Software. In
some cases, the Year 2000 capabilities of such third
party Software are unwarranted by the Suppliers of
such Software. Pandesic shall test the third party
Software for Year 2000 Compliance and shall use its
reasonable commercial best efforts to cause such
Software to be made Year 2000 Compliant by their
Suppliers.
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PANDESIC AGREEMENT
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TERMS AND CONDITIONS
11.5.4 Pandesic is not responsible for errors resulting from
third-party systems or devices, which directly access
the database and overwrite the database date fields
or from the improper integration of non-Year 2000
Compliant systems by Merchant.
11.6 EXCEPT AS SET FORTH HEREIN, PANDESIC, HOSTING PARTNER AND
SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
11.7 PANDESIC DOES NOT WARRANT THE ACCURACY OF THE TAX DATA AND
OTHER TAX CALCULATIONS MADE BY THE SOFTWARE. MERCHANT BEARS
FULL RESPONSIBILITY FOR THE DETERMINATION OF THE ACCURACY AND
APPLICABILITY OF THE OUTPUT FROM THE SOFTWARE AND ACKNOWLEDGES
AND UNDERSTANDS THAT TAX CALCULATIONS OFTEN INVOLVE
INTERPRETATIONS AND THAT THE DATA OF MANY JURISDICTIONS CAN
CHANGE RAPIDLY. MERCHANT UNDERSTANDS THAT PANDESIC IS NOT
PROVIDING SPECIFIC TAX, LEGAL, ACCOUNTING OR OTHER EXPERT
ADVICE AND MERCHANT SHOULD OBTAIN THE ADVICE OF QUALIFIED
PROFESSIONALS IN THE AREA.
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12. LIMITATION OF LIABILITY
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12.1 NEITHER PANDESIC, HOSTING PARTNER NOR SUPPLIERS SHALL BE
LIABLE FOR (i) ANY INDIRECT, INCIDENTAL, SPECIAL,
CONSEQUENTIAL OR EXEMPLARY DAMAGES, OR FOR ANY LOSS OF
PROFITS, LOSS OF REVENUE OR BUSINESS INTERRUPTION OR LOSS OF
BUSINESS INFORMATION RESULTING FROM THE SERVICES, THE PANDESIC
EQUIPMENT OR THE SOFTWARE EVEN IF PANDESIC HAS BEEN ADVISED OF
THE POSSIBILITY THEREOF OR (ii) ANY LOSS OF DATA RESULTING
FROM DELAYS, NON-DELIVERIES, MISDELIVERIES OR SERVICE
INTERRUPTIONS CAUSED BY PANDESIC OR MERCHANT. In no event
shall Pandesic's aggregate cumulative liability for any
damages whatsoever to Merchant, its employees, officers,
directors, agents or contractors arising out of or related to
this Agreement exceed the fees paid by Merchant to Pandesic,
during the term, with respect to the Services.
12.2 Neither Pandesic nor any of its officers, directors,
employees, contractors or agents shall be liable for any
damage or destruction of equipment or other materials
belonging to, leased by, or otherwise under the control of
Merchant, whether or not any such equipment or Materials are
at any time located in facilities owned or operated by
Pandesic, except where such damage or destruction is a direct
result of the gross negligence, recklessness or willful
misconduct of Pandesic or any of its officers, directors,
employees, contractors and agents.
12.3 The limitations of liability provided in this section shall
inure to the benefit of Pandesic, Pandesic Affiliates, Hosting
Partner, Suppliers and to all of the respective officers,
directors, employees and agents of Pandesic and such other
entities ("Limited Liability Parties").
12.4 The limitations of liability in this Agreement shall apply
whether (i) the action in which recovery is sought is based in
contract, tort (including, but not limited to, negligence or
strict liability), statute or otherwise; or (ii) a Limited
Liability Party is alleged to be liable jointly with one or
more parties or otherwise.
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13. TERM AND TERMINATION
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13.1 The initial term of this Agreement shall commence on the
Contract Date and shall continue for [***] from the date that
the Pandesic software is loaded on the servers and the servers
are ready to
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PANDESIC AGREEMENT
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TERMS AND CONDITIONS
accept Merchant's configuration and functional
installation of its products, ("Technical Installation"),
following which it shall automatically renew for successive
[***] terms at the charges in effect at the commencement of
each such terms, unless written notice of non-renewal by
either party is delivered to the other party at least ninety
(90) days prior to the end of the then-current term.
13.2 TERMINATION BY PANDESIC
13.2.1 In addition to any other rights it may have under
this Agreement or applicable law, Pandesic may, at
its option, immediately terminate this Agreement,
upon (i) a Payment Default, which is not cured within
ten (10) business days of notice of such default,
(ii) Merchant's failure to comply with any other
obligation of Merchant under this Agreement
including, but not limited to, its failure to comply
with any of the terms of the Use Policy, which is
not cured within ten (10) business days of notice of
such default, (iii) Merchant ceasing to do business
in the normal course, becoming or being declared
insolvent or bankrupt, being the subject of any
proceeding relating to liquidation or insolvency
which is not dismissed within ninety (90) calendar
days or making an assignment for the benefit of its
creditors, (iv) any attempt by Merchant to derive
any source code from the Software, (v) breach of
Merchant's obligations under Section 5 hereto, or
(vi) Pandesic, Hosting Partner or any Supplier
becomes the subject of an investigation by a law
enforcement agency or threatened with prosecution as
a result of Merchant's use of the Services.
13.2.2 Pandesic may, at its option, terminate this Agreement
and retain the initial set-up charge paid by Merchant
in the event that Merchant does not complete its
pre-work obligations to permit deployment of the
Pandesic E-Business Solution Service by Pandesic
within six (6) months of the Contract Date.
13.3 TERMINATION BY MERCHANT
13.3.1 Merchant may terminate this Agreement in the event
of a material breach by Pandesic of its obligations
under this Agreement which breach is not cured
within ten (10) business days after written notice
thereof is received by Pandesic (a "Permissible
Termination"), other than breaches that have defined
remedies associated therewith. In the event of a
Permissible Termination, Merchant shall pay a
pro-rated Monthly Transaction Fee based on the
number of days Pandesic provided Services prior to
the date of termination of this Agreement by
Merchant under this Section 13.3, if the level of
Fees for such month would fall within the Monthly
Base Fee.
13.3.2 If Merchant terminates this Agreement other than in a
Permissible Termination, Merchant agrees that it
would be impractical and/or extremely difficult to
fix or establish the actual damage sustained by
Pandesic as a result of such termination and agrees
that Merchant shall pay to Pandesic as liquidated
damages an amount equal to all unpaid Monthly Base
Fees for the remainder of the then-current term of
this Agreement.
13.4 Upon termination of this Agreement, Pandesic and Merchant
shall have no obligations to each other except as provided in
this Agreement. Upon termination of this Agreement, Merchant
shall (i) pay all amounts due and owing to Pandesic, (ii)
remove from Pandesic's and Hosting Partner's premises all
property owned by Merchant in respect of the Services
provided, and (iii) return to Pandesic all equipment,
documentation, software, access keys and any other property
provided to Merchant by Pandesic under this Agreement. Any
property of Merchant not removed from Pandesic's and Hosting
Partner's premises within ten (10) days after such termination
shall become the property of Pandesic, which may, among other
things, dispose of such property without the payment of any
compensation to Merchant. Pandesic shall return to Merchant
all of its data residing on the Pandesic Equipment. The rights
and obligations of the parties hereto
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GRR 022699 Pandesic Agreement -- Terms and Conditions Page 7
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PANDESIC AGREEMENT
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TERMS AND CONDITIONS
which by their nature would continue beyond the termination
or cancellation of this Agreement (including, without
limitation, those relating to confidentiality, payment of
charges, limitations of liability and indemnification) shall
survive any such termination or cancellation.
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14. DISPUTE RESOLUTION
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14.1 If a dispute or difference of any kind whatsoever (a "Dispute"
shall arise between Pandesic and Merchant in connection with,
relating to or arising out of this Agreement, including the
interpretation, performance, non-performance, or termination
hereof, the parties shall attempt to settle such Dispute in
the first instance by mutual discussions. If such Dispute has
not been resolved within thirty (30) days by mutual
discussions, the parties shall endeavor to settle the Dispute
by mediation under the Mediation Rules of the American
Arbitration Association prior to any recourse to arbitration
pursuant to Section 14.2 below.
14.2 If such Dispute cannot be settled within thirty (30) days
after submission to mediation pursuant to Section 14.1 above
(the "Mediation Period"), such Dispute shall be settled by an
arbitral tribunal (the "Tribunal") under the Arbitration Rules
of the American Arbitration Association (the "Arbitration
Rules"). Each party shall appoint an arbitrator within thirty
(30) days after the expiration of the Mediation Period, which
arbitrators shall then jointly appoint a third arbitrator
within thirty (30) days after the appointment of the first two
arbitrators, to act as president of the Tribunal. Arbitrators
not so appointed shall be appointed pursuant to the
Arbitration Rules. The costs of the arbitration shall be borne
by the parties as determined by the Tribunal. The award
rendered in any arbitration commenced hereunder shall be final
and conclusive and judgment thereon may be entered in any
court having jurisdiction for its enforcement. Neither party
shall (i) appeal to any court from the decision of the
Tribunal; or (ii) have any right to commence or maintain any
suit or legal proceeding concerning a Dispute until such
Dispute has been determined in accordance with the arbitration
procedure provided for herein, and then only for enforcement
of the award rendered in such arbitration.
14.3 Notwithstanding the foregoing, nothing in Sections 14.1 or
14.2 shall be deemed as preventing either party from seeking
injunctive relief from the courts pursuant to Section 14.4
below. All mediation and arbitration proceedings pursuant to
this Agreement shall take place in Santa Clara County,
California.
14.4 Notwithstanding the foregoing, each party acknowledges that
violation of Section 5.2 will cause irreparable harm to the
other not adequately compensable by monetary damages. In
addition to other relief, each party agrees that injunctive
relief shall be available to the other in the event of such
violations without necessity of posting bond to prevent any
actual or threatened violation of such section.
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15. GENERAL
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15.1 Pandesic shall not be deemed to be in default of any provision
of this Agreement or be liable for any delay, failure of
performance or interruption of the provision of Services to
Merchant resulting, directly or indirectly, from any (i)
weather conditions, natural disasters or other acts of God,
(ii) action of any governmental or military authority, (iii)
failure caused by telecommunication or other Internet provider
(but not including Hosting Partner), or (iv) any other force
or occurrence beyond its control, including any termination of
the agreement between Pandesic and the Hosting Partner.
15.2 Hosting Partner and Suppliers are third-party beneficiaries to
this Agreement to the extent that this Agreement contains
provisions which relate to Merchant's use of Hosting Partner's
services or the Supplier Software. Such provisions are made
for the benefit of such third parties and are enforceable by
them in addition to Pandesic.
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PANDESIC AGREEMENT
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TERMS AND CONDITIONS
15.3 Unless otherwise specified herein, any notices or other
communications required or permitted hereunder shall be
sufficiently given if in writing and delivered personally or
sent by facsimile transmission, email, internationally
recognized overnight courier, registered or certified mail
(postage prepaid with return receipt requested), to the
address or facsimile number of Merchant as set forth in the
Order Form or Pandesic as set forth below. Such notices or
other communications shall be deemed received (i) on the date
delivered, if delivered personally; (ii) on the date that
return confirmation is received, if sent by facsimile; (iii)
on the business day after being sent by an internationally
recognized overnight air courier; or (iv) five (5) days after
being sent, if sent by first class registered mail, return
receipt requested.
Pandesic LLC
990 Almanor Avenue
Sunnyvale, California 94086
Attention: Director of Law & Corporate Affairs
Facsimile Number: (408) 616-1920
15.4 Any claims arising out of or related to this Agreement must
be brought no later than one year after it has accrued.
15.5 Nothing in this Agreement or in the course of dealing between
Pandesic and Merchant pursuant hereto shall be deemed to
create between Pandesic and Merchant (including their
respective directors, officers, employees and agents) a
partnership, joint venture, association, employment
relationship or any other relationship other than that of
independent contractors with respect to each other.
15.6 This Agreement shall be governed by and construed in
accordance with the laws of the State of California without
regard to choice of law provisions that would cause the
application of the law of another jurisdiction.
15.7 Failure by either Pandesic or Merchant to enforce any of the
provisions of this Agreement or any rights with respect hereto
shall not be considered to be waiver of such provisions or
rights, or to in any way affect the validity of this
Agreement.
15.8 If one or more of the provisions contained in this Agreement
are found to be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the
remaining provisions shall not be affected.
15.9 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.10 Pandesic may change its Hosting Partner at any time in its
sole discretion.
15.11 Upon reasonable notice and in a manner which does not unduly
interfere with Merchant's operations, Pandesic shall have the
right to audit and inspect Merchant's use of the Pandesic
E-Business Solution Service and the sales records associated
therewith in order to verify compliance with the terms of this
Agreement. In the event there is a discrepancy of five percent
(5%) or more in the accounts, Merchant shall be responsible
for and shall pay the reasonable costs of such audit to
Pandesic.
15.12 Pandesic, as part of its E-Business Solutions Services
provides certain equipment to Merchant for use in connection
with the said Services. Merchant holds such equipment subject
and subordinate to the rights of Pandesic. Merchant will keep
such equipment free from any liens or encumbrances whatsoever
and will indemnify and hold Pandesic harmless from it failure
to do so. Merchant will maintain such equipment in good
operating order, protect such from deterioration
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PANDESIC AGREEMENT
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TERMS AND CONDITIONS
other than normal wear and tear and will not use such for
any purposes other than contemplated herein.
15.13 This Agreement constitutes the entire agreement of the parties
and supersedes all oral negotiations and prior writings with
respect thereto. Except as set forth in Section 13 above, this
Agreement may not be amended, modified or terminated unless it
is in writing signed by both parties hereto.
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16. SPECIAL TERMS
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16.1 Notwithstanding any other provision in this Agreement, it is
hereby agreed as follows:
16.1.1 Merchant shall be permitted to have, for no
additional Fees, up to [***]warehouses (suppliers
and/or supplier locations). Merchant shall be
responsible for the costs of all equipment required
at such warehouse locations, as well as all
telecommunication costs associated therewith.
Pandesic shall initially train Merchant in the
implementation of the Service at such location and
thereafter all such implementations shall be the
responsibility of Merchant.
16.1.2 Merchant may have multiple web sites as the front end
of the Pandesic Service, provided that all
transactions from such web sites are processed
through Merchant's Pandesic Service transaction
servers and that all customer revenues are captured
by the Pandesic Service (and Fees are paid in respect
thereof. Pandesic acknowledges and agrees that such
arrangement shall not be deemed as breaching
Merchant's obligations set out in Section 2.2 of
these Terms and Conditions.
16.1.3 The time periods for cure of a breach by the parties
of their obligations provided for in Sections 13.2.1
and 13.3.1 shall be thirty (30) days instead of ten
(10) days.
16.1.4 Section 10 hereof shall be amended such that any use
of either party's name by the other shall require the
approval of the party whose name is in question,
which approval shall not be unreasonably withheld.
16.1.5 If, at the end of the Planning, Analysis and Design
Phase of the deployment period Merchant concludes
that the Service will not meet its needs to an
acceptable level, Merchant has the option of
terminating the Agreement and Pandesic shall refund
[***] to Merchant.
16.1.6 Merchant may transfer or assign this Agreement as a
result of the sale of all or substantially all of
the assets of Merchant or a merger with or into a
third party, except in the event that such transfer
or assignment is to a competitor of Pandesic or, in
Pandesic's view, is not otherwise conducive to
Pandesic's business interests. In such case Pandesic
does not deem transfer or assignment in Pandesic's
interest, Merchant shall be allowed to continue
operation of the Pandesic system for six months
as long as Merchant runs Pandesic system solely with
Merchant's then current employees who were operating
the system prior to the transfer or assignment. No
training or knowledge transfer to the acquiring
company regarding the Pandesic solution is permitted.
16.1.7 Pandesic agrees to not sign certain other entities
to the Pandesic Service, subject to ecommerce sales
by Merchant through the Pandesic Service being
greater than [***] in 1999 and [***] for 2000. This
exclusivity shall not affect any current Pandesic
merchants. Subject to the above, Pandesic shall not
sign any (i) named drop-ship suppliers of Merchant,
(ii) named companies selling over the internet which
have at least [***] of their sales being similar
goods as are offered by Merchant and who use the
drop-
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PANDESIC AGREEMENT
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TERMS AND CONDITIONS
ship model, and (iii) [***] or [***]. The named
companies shall be set out in a letter from Merchant
to Pandesic contemporaneously with the execution of
this Agreement.
16.1.8 Should a sale or transfer in assets to a third party
as described in 16.1.6 occur, the Merchant has the
option of decreasing the length of the initial term
of this Agreement from 24 months to 12 months. All
other provisions of Section 13.1 shall remain the
same. In such case, Merchant will give Pandesic six
months notice.
16.1.9 Pandesic shall add server and bandwidth capacity
commensurate with the business requirements of
Merchant and its customers. Said server and bandwidth
capacity shall be such that system performance and
transaction response times shall be in line with
industry norms.
16.1.10 Merchant shall be permitted to procure, on its own
account and expense, additional servers for purposes
that relate to its e-commerce site. In such event, if
Merchant wants to co-locate servers at DIGEX,
Pandesic shall work with Merchant to assist in
receiving best possible terms from DIGEX for such
additional servers.
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ACCEPTANCE
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ACCEPTED BY ONLINE SPECIALITY RETAILING, INC.
DBA GREATFOOD.COM: ACCEPTED BY PANDESIC LLC:
SIGNATURE: /S/ BENJAMIN C. NOURSE SIGNATURE: /S/ PETER WOLCOTT
----------------------------------- ---------------------
PRINT NAME: BENJAMIN C. NOURSE PRINT NAME: PETER WOLCOTT
---------------------------------- --------------------
TITLE: CHAIRMAN TITLE: PRESIDENT
--------------------------------------- -------------------------
DATE: MARCH 10, 1999 DATE: MARCH 18, 1999
---------------------------------------- --------------------------
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GREATFOOD.COM
March 10, 1999
Pandesic LLC
990 Almanor Avenue
Sunnyvale, CA 94086
Dear Sirs:
The following lists are provided per paragraph 16.1.7 of the Pandesic Agreement
GRRO22699 -- Terms and Conditions. These lists may be updated from time to time
during the course of our agreement:
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1. NAMED DROP-SHIP SUPPLIERS OF GREATFOOD.COM
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<TABLE>
<CAPTION>
COMPANY PRODUCTS COMPANY PRODUCTS
- ------- -------- ------- --------
<S> <C> <C> <C>
[***]
</TABLE>
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2. NAMED COMPANIES SELLING SPECIALTY FOOD PRODUCTS OVER THE INTERNET
USING DROP-SHIP SUPPLIERS
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<TABLE>
<CAPTION>
COMPANY COMPANY
- ------- -------
<S> <C>
[***]
</TABLE>
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ACCEPTANCE
- -------------------------------------------------------------------------------
ACCEPTED BY ONLINE SPECIALTY RETAILING, INC.
DBA GREATFOOD.COM: ACCEPTED BY PANDESIC LLC:
SIGNATURE: /S/ BENJAMIN C. NOURSE SIGNATURE: /S/ PETER WOLCOTT
---------------------------------- ---------------------
PRINT NAME: BENJAMIN C. NOURSE PRINT NAME: PETER WOLCOTT
--------------------------------- --------------------
TITLE: CHAIRMAN TITLE: PRESIDENT
-------------------------------------- -------------------------
DATE: MARCH 10, 1999 DATE: MARCH 18, 1999
--------------------------------------- --------------------------
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EXHIBIT 10.18
PEAPOD MARKETING PARTNERS
AGREEMENT
This Peapod Marketing Partners Agreement (this "Agreement") is
entered into as of October 5, 1998, between Peapod Inc., a Delaware
corporation ("Peapod"), and Online Specialty Retailing, Inc. d.b.a. Great
Food Online, a Washington corporation ("Great Food").
WHEREAS, Peapod provides a Peapod-branded Internet grocery shopping
and delivery service in several local metropolitan markets (the "Peapod Local
Service"), and has announced its intention to provide a Peapod-branded
Internet food information and shopping service for shipping on a national
basis (the "Peapod National Service," collectively the "Peapod Service");
WHEREAS, Great Food provides an Internet service which sells
certain specialty food products (the "Products"); and
WHEREAS, pursuant to the terms of this Agreement, Great Food will
make the Products available to Peapod customers in connection with the Peapod
Service.
NOW, THEREFORE, the parties agree as follows:
1. HOLIDAY PROMOTION. As soon as practical after October 1,
1998, and lasting through December 31, 1998, Peapod and Great
Food will conduct a promotional program pursuant to which
Peapod will market the GreatFood.com Web site to Peapod
Service customers ("Holiday Promotion"). The Holiday
promotion will consist of promotion on order confirmation
email, hyperlinks on order exit pages of the Internet versions
of the Peapod Service, direct mail, and other activities to be
mutually agreed between Peapod and Great Food. Great Food
will supply all marketing materials, including, direct mail
inserts and HTML content, at its cost, for inclusion in the
Holiday Promotion, and all such materials shall be subject to
the mutual approval of Great Food and Peapod.
(a) Peapod and Great Food will cooperate to design methods to
reasonably track the orders on GreatFood.com that result
directly from the Holiday Promotion, such as promotional
coding on direct mail and temporary cookies on Web
promotions. Great Food will pay Peapod a commission on
all Product purchases resulting directly from the Holiday
Promotion equal to [***] of the retail price of such
Products. Great Food will pay such commissions not later
than the 10th day of each of November, December and
January with respect to Product sales in the prior month,
less any reductions for
<PAGE>
returns or other credits consistent with Great Food's
customer service policies. Great Food shall remit such
payments together with a report substantiating the amount
of payment.
(b) All orders generated from the Holiday Promotion will be
placed with GreatFood.com, and Great Food will ensure
fulfillment, provide customer service, collect funds and
perform such other functions consistent with its current
standard operating procedures.
2. ONLINE SERVICES. Peapod will provide the Peapod Service to
consumers in accordance with the standards and practices
determined by Peapod from time to time. Peapod will feature
and offer for sale Great Food's Products in the Peapod Service.
(a) Great Food will develop and maintain a customized website
for Peapod ("Customized Site") containing content and
Product offerings consistent with the GreatFood.com Web
site. Great Food will, so long as requested by Peapod,
host the Customized Site in its data center, and link the
Customized Site to the Peapod Service in a manner which
is as "seamless" as possible from the perspective of the
end user. Peapod may, upon its request and at its
expense, host the Customized Site at an alternative data
center or integrate specific data fields from the
GreatFood.com site into its Customized Site rather than
simply link to a duplicate of the Great Food site. Great
Food will cooperate with Peapod to facilitate these
requests. So long as Great Food hosts the Customized
Site, it will do so in a commercially reasonable
manner to ensure that the site performs comparably to the
GreatFood.com site and other Internet retailing services.
So long as Peapod hosts the Customized Site, it will
likewise do so in a commercially reasonable manner to
ensure that the site performs comparably to the
GreatFood.com site.
(b) Great Food will cooperate with Peapod to customize the
Customized Site to a form consistent with the look and
feel and other branding strategies of the Peapod Service.
The Great Food brand (which may include Great Food's
business name, trademarks, logos and domain name) will be
included and credited in the Customized Site, but the
extent of co-branding will be determined by Peapod based
on the design and content integration strategies of such
site. Great Food shall have the right from time to time
to review and approve the use of the Great Food brand in
connection with the Customized Site, and
-2-
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may, in its discretion, direct that some or all of the
Great Food brand identifiers be removed from the
Customized Site.
(c) Great Food will perform the necessary programming to
implement and maintain the Customized Site. This will
include initial product template development and content
re-purposing as well as ongoing product data and site
updates. Peapod will pay Great Food a non-recurring
engineering charge up to [***] to cover initial
development costs for development of the Customized Site.
Significant changes to the programming or layout of the
Customized Site will be made only at Peapod's expense,
including the payment of any additional non-recurring
engineering fees to Great Food. Great Food must approve
of the use its brand in connection with any such
significant change.
(d) Great Food and Peapod will cooperate to provide Peapod
Service customers with accurate and timely online product
information reflective of merchandising and pricing
strategies appropriate to the Peapod Service. The
Customized Site must offer the complete Product selection
available from time-to-time on GreatFood.com and at
retail prices no greater than those appearing on
GreatFood.com, except that Great Food may create
short-term specials and promotions unique to the
GreatFood.com marketing efforts. Great Food shall notify
Peapod of any Product, price or shipping charge change no
later than one week in advance of such change, and Peapod
and Great Food shall attempt to ensure that the
Customized Site and the GreatFood.com site pricing
schedules are synchronized on a frequent basis (e.g.,
daily, if appropriate).
(e) Upon mutual consent, and subject to available resources,
Great Food shall consult with Peapod regarding seasonal
and other promotional merchandising opportunities and
shall cooperate with Peapod in developing any new
Products which may be appropriate to the Peapod Service.
3. CUSTOMER SUPPORT SERVICES. Upon initial commercial launch of
the Customized Site, Great Food will provide first-line
telephonic customer support with respect to Products ordered
via the Peapod Service. Peapod and Great Food will cooperate
to develop a process for forwarding service calls from Peapod
to Great Food, and to make such service appear seamless to
Peapod Service customers. As soon as a transition can
reasonably be implemented, Peapod will assume such first-line
customer support, and
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Great Food will then provide second-level support to Peapod,
and will directly assist customers of the Customized Site only
when Peapod is reasonably unable to do so.
4. MARKETING SERVICES.
(a) Upon launch of the Peapod National Service, Great Food
will promote Peapod on its site, in mutually agreeable
locations and time periods. Peapod will pay the
following bounty fees to Great Food for transactions
conducted by new Peapod customers upon being referred
directly to the Peapod Service from the Great Food site:
(i) [***] for the initial grocery order by a new Peapod
customer pursuant to the Peapod Local Service, and
[***]for the third grocery order pursuant to the
Peapod Local Service by the same customer
(ii) [***] for the initial order by a new Peapod
customer pursuant to the Peapod National Service,
and [***] for the third order pursuant to the Peapod
National Service by the same customer
(iii) No bounty will be paid with respect to orders
containing exclusively Products or free promotional
products
(iv) Peapod shall implement accurate and reliable
procedures to identify such customers and track such
orders, and shall track such orders and remit
payment to Great Food on a quarterly basis together
with a report substantiating the amount of payment.
(v) Upon Peapod's request, and subject to mutual
agreement, Great Food will enter into Peapod's
standard Affiliate Program Agreement containing
terms not inconsistent with this Agreement
(b) Beginning upon the launch of the Peapod National Service,
Peapod shall have a right to approve all literature that
is included in Product packages shipped to Peapod Service
customers. Such literature shall specifically promote
the Products available from the Customized Site. Great
Food will use commercially reasonable efforts to develop
agreements and procedures by which its Product vendors
will include Peapod promotional literature in Products
purchased by
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[***] indicates confidential treatment for omitted text has been requested.
Peapod Service customers. Peapod will supply such
literature to Great Food vendors at Peapod's expense.
(c) Peapod will cooperate with Great Food in the event that
Great Food wishes to promote the Customized Site to
Peapod customers who have previously purchased from such
Site. Any such promotion shall be executed by Peapod at
Great Food's expense, and the timing, promotional content
and other tactics of any promotion shall be subject to
the prior review and approval of Peapod, which approval
will not be unreasonably withheld.
5. PRODUCTS AND FULFILLMENT SERVICES.
(a) Great Food will use commercially reasonable efforts to
obtain a broad selection of quality Products and related
product information from appropriate vendors, and to make
such Products available via the Customized Site.
(b) Great Food shall use commercially reasonable efforts to
(i) cause vendors of Products to maintain appropriate
stocking levels of such Products necessary to satisfy
orders from the Customized Site in a timely manner, and
(ii) secure satisfactory arrangements with one or more
shipping companies such that Products ordered via the
Customized Site are shipped in a high quality and timely
manner.
(c) Peapod will collect orders from Peapod Service customers
in its order processing system, and forward such orders
to Great Food for fulfillment. Great Food shall be
responsible for fulfilling such orders through its
vendors and shipping agents. Peapod will be deemed to
have purchased Products from Great Food in connection
with any order from the Customized Site, and resold such
Products to the ordering customer. Great Food shall, as
between Great Food and Peapod, maintain the risk of loss
of all Products until such Products are accepted by the
ordering customer.
6. PRODUCT PRICING AND PAYMENT. Upon launch of the Customized
Site, Peapod will collect funds from the ordering customer
through its standard ordering procedures, and bear
responsibility for credit card authorization and collection
and fraud. Upon shipment, Great Food will invoice Peapod an
amount equal to [***] of the then current Great Food standard
retail price plus [***] of shipping charges per Great Food's
then current shipping charge schedule. Peapod will pay such
invoices on a monthly basis, not
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later than the 10th day of the month following receipt of
invoice, less any reductions for returns or other credits
consistent with Great Food's customer service policies.
7. RECORD KEEPING AND AUDIT.
(a) Each party shall keep complete and accurate records of
its performance under this Agreement and of the amounts
payable hereunder. Peapod shall collect payment from
Peapod Service customers and provide accounting services
according to mutually determined policies and procedures.
(b) During the term of this Agreement and for six (6) months
after the expiration or any termination of this
Agreement, an independent third-party representative of
Great Food, reasonably acceptable to Peapod, upon
reasonable notice and during Peapod's normal business
hours, shall have the right to conduct an audit of the
relevant portions of Peapod's books of account to verify
compliance with this Agreement. Peapod shall immediately
pay any overdue payments revealed by such audit(s),
together with interest thereon at the rate of 1.5% per
month (or the maximum permitted by applicable law, if
less) from the due date until paid. Great Food shall
bear the costs of the audit; provided, however, if the
audit reveals overdue payments in excess of five percent
(5%) of the total amount payable for the period subject
to the audit, then Peapod shall pay the costs of such
audit
8. EXCLUSIVITY. For the term of this agreement, and for a period
of six months following expiration or termination by either
party, Great Food agrees not to enter into any business
relationship with Netgrocer.com. For the term of this
agreement, and for a period of six months following expiration
or termination by either party, Peapod agrees not to enter
into any business relationship with any Great Food supplier.
9. TERM OF AGREEMENT. This Agreement shall commence as of the
date hereof and continue until December 31, 2000 unless
terminated in accordance with the terms herein.
(a) Either party may terminate this Agreement upon 60 days
prior written notice in the event of a breach by the
other party of a material term of this Agreement,
provided that the breaching party fails to cure such
breach within 60 days after receiving such notice.
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[***] indicates confidential treatment for omitted text has been requested.
(b) The agreement may be terminated by either party upon 60
days prior written notice in the event that revenues for
Great Food generated by Peapod from aggregate Product
sales under paragraphs 1 and 6 (not including shipping
charges) through December 31, 1999 are less than [***].
(c) Upon expiration of the original term of this Agreement,
this Agreement may be extended by mutual agreement for
additional one year periods. In the absence of such
extension, this Agreement shall automatically renew on a
month-to-month basis until terminated by either party
upon 60 days prior written notice to the other party.
(d) Upon termination or expiration of this Agreement, the
operation of the Customized Site shall be discontinued,
and each party shall discontinue the use of the other
party's trademarks, trade names, domain names and
marketing materials. Each party shall return or destroy
any Confidential Information of the other party. Within
thirty (30) days of such termination or expiration,
Peapod shall pay to Great Food all sums due under this
Agreement.
10. INDEMNIFICATION AND INSURANCE.
(a) BY PEAPOD. Peapod agrees to indemnify and hold Great
Food, and any assignee or successor thereto, harmless
from and against any and all claims, costs, expenses,
damages and liabilities, including reasonable attorney's
fees, (i) arising out of the performance or lack of
performance by Peapod of its obligations contemplated by
this Agreement, or (ii) for infringement of patent,
copyright, trademark, trade secret or other intellectual
property rights of a third party arising out of (A) the
operation by Peapod of the Peapod Service, (B) any Peapod
contributions to the Customized Site, or (C) any Peapod
contributions to marketing or promotional materials.
(b) BY GREAT FOOD. Great Food agrees to indemnify and hold
Peapod, and any assignee or successor thereto, harmless
from and against any and all claims, costs, expenses,
damages and liabilities, including reasonable attorney's
fees, (i) arising out of the quality or fitness of any
Product delivered to a customer, or the failure by Great
Food, its vendors or shipping agents to honor a customer
order, (ii) arising out of the performance or lack of
performance by Great Food of its other obligations
contemplated by this Agreement, or (iii) for infringement
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of patent, copyright, trademark, trade secret or other
intellectual property rights of a third party arising out
of (A) the operation by Great Food of the GreatFood.com
online service, (B) any Great Food contributions to the
Customized Site, or (C) any Great Food contributions to
marketing or promotional materials. Great Food shall, at
its own expense, carry product liability insurance during
the term of this Agreement in amounts and against risks
customarily insured against by direct mail food vendors.
11. RESERVATION OF PROPERTY RIGHTS. Neither Peapod nor Great Food
will use the name or mark of the other in advertising or
marketing materials or on web sites without the other's prior
approval, which approval shall not be unreasonably withheld.
Each party expressly reserves all right, title and interest in
its respective name, domain name, logo and other trademarks
and service marks, and all night, title and interest in the
content, software and information comprising their respective
services. Nothing herein shall be deemed a conveyance of any
such right, title or interest, or any part thereof. Great Food
shall own the programming code implementing the Customized
Site to the extent that such code constitutes original or
derivative works of Great Food intellectual property. Prior
to any modification to the programming, code implementing the
Customized Site, the parties shall agree on the intellectual
property rights thereto.
12. TITLE TO GOODS; RISK OF LOSS. Upon launch of the Customized
Site, Great Food will sell Products to Peapod, and Peapod will
in turn sell such Products to customers of the Peapod Service.
The Products shall be held at Great Food risk and expense
with respect to loss and damage from any cause, including,
Acts of God and force majeure, spoilage and shrinkage, and
taxes and charges of any kind until such time as the Products
are delivered to Peapod customers, excluding sales and other
taxes arising out of the retail sale of Products.
13. RESOLUTION OF DISPUTES. Any controversy or claim arising out
of or relating to this contract, or the breach thereof, shall
be settled by arbitration administered by the American
Arbitration Association in accordance with its Commercial
Rules, and judgment on the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. The
arbitration proceedings shall be conducted at an agreed-upon
neutral site or sites designated by the arbitrator. The
arbitrator shall have the authority to award any remedy or
relief that a court of competent jurisdiction could order or
grant including, without limitation, the issuance of an
injunction. However, either party may, without inconsistency
with this arbitration
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provision, apply to any court having jurisdiction hereof and
seek interim injunctive relief, to the extent that the
arbitrator is not lawfully empowered to award such relief,
until the arbitration award is rendered or the controversy is
otherwise resolved. Except as necessary in court proceedings
to enforce this arbitration provision or an award rendered
hereunder, or to obtain interim injunctive relief, neither a
party nor an arbitrator may disclose the existence, content,
or results of any arbitration hereunder without the prior
written consent of both parties. The parties acknowledge that
this Agreement evidences a transaction involving interstate
commerce. Notwithstanding any choice of law provision included
in this Agreement, the United States Federal Arbitration Act
shall govern the interpretation and enforcement of this
arbitration provision.
14. ISSUANCE OF WARRANTS. In connection with the execution of
this Agreement, the parties have entered into a warrant
agreement in the form attached hereto as Schedule A. The terms
of such warrant agreement shall survive any termination of
this Agreement.
15. GENERAL PROVISIONS.
(a) CONFIDENTIALITY. The obligations of the parties with
respect to Confidential Information are set forth in the
Confidentiality Agreement attached hereto as Schedule B.
(b) ENTIRE AGREEMENT; MODIFICATIONS. Peapod and Great Food
acknowledge that there are no oral or written agreements
or understandings between Peapod and Great Food with
respect to the subject matter of this Agreement other
than as set forth herein and that this Agreement reflects
the entire agreement between the parties with respect
thereto. Any modification or amendment to this Agreement
shall be binding only if in writing, and signed by the
respective parties hereto.
(c) RELATIONSHIP OF THE PARTIES. The relationship of Peapod
and Great Food shall be that of independent contractors,
and nothing contained herein shall create an agency,
partnership, joint venture, franchise, fiduciary or other
relationship.
(d) ASSIGNMENT. This Agreement shall be binding upon, and
shall inure to the benefit of, Peapod, Great Food and
their respective successors and permitted assigns;
provided, however, that neither Peapod nor Great Food may
assign this Agreement without the other party's
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prior written consent, which consent shall not be
unreasonably withheld, except that consent shall not be
required in connection with a merger, reorganization or
acquisition of substantially all of the assets of a party.
(e) NOTICES. Any written notice provided for herein shall be
sent via certified or registered mail as follows:
If to Peapod, to:
Peapod Inc.
Woods Drive
Skokie, Illinois 60077
Attention: President
Tel: 847-583-9400
Fax: 847-583-9494
with a copy to:
Peapod Inc.
9933 Woods Drive
Skokie, Illinois 60077
Attention: Chief Financial Officer
Tel: 847-583-9400
Fax: 847-583-9494
If to Great Food, to
Online Specialty Retailing, Inc. dba Great Food Online
2030 First Avenue
Seattle, WA 98121
Attention: President
Tel: (206) 443-2246
Fax: (206) 443-3314
with a copy to:
Online Specialty Retailing, Inc. dba Great Food Online
2030 First Avenue
Seattle, WA 98121
Attention: Chairman
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Tel: (206) 443-2246
Fax: (206) 443-3314
(f) FORCE MAJEURE. Any delay or failure of either party to
perform hereunder solely as a result of a labor
organization or dispute, governmental action or other
event or condition outside of such party's control shall
not constitute a breach of this Agreement.
Notwithstanding the foregoing, if Great Food is delayed
or is unable to perform hereunder for more than 60 days,
Peapod may seek another preferred supplier for products
that will replace the Products and may terminate this
Agreement in whole or in part.
(g) GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of
Illinois, without regard to principles of conflict of
laws.
(h) AUTHORITY. Each of the parties hereto represents and
warrants that (i) it has the power and authority to enter
into this Agreement and to perform its obligations
hereunder, (ii) the execution and delivery by such party
of this Agreement and its performance hereunder have been
duly authorized by all necessary action on its part, and
(iii) this Agreement constitutes the legal, valid and
binding agreement of such party, enforceable in
accordance with its terms.
(i) PARTIAL INVALIDITY. If any one or more provisions
contained herein is held to be invalid, illegal or
unenforceable in any respect, such provision shall be
ineffective to the extent of such invalidity,
illegality or unenforceability without invalidating the
remainder of such invalid, illegal or unenforceable
provision or provisions or any other provision hereof.
(j) WAIVERS. Any term or provision of this Agreement may be
waived by the party entitled to the benefit thereof. Any
such waiver shall be validly and sufficiently authorized
for the purposes of this Agreement, as to any party, if
it is in writing and signed by an authorized
representative of such party. The failure of any party
hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such
provision, nor in any way to affect the validity of this
Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to
constitute a waiver of any other or subsequent breach.
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IN WITNESS WHEREOF, the parties hereto have caused their respective
names to be subscribed by their duly authorized representatives.
PEAPOD, INC. ONLINE SPECIALTY RETAILING, INC.
dba Great Food Online
By: /s/ John C. Walden By: /s/ Benjamin C. Nourse
----------------------------------- ----------------------------------
Name: John C. Walden Name: Benjamin C. Nourse
--------------------------------- --------------------------------
Title: Chief Operating Officer Title: Chairman
-------------------------------- -------------------------------
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SCHEDULE A
TO THE PEAPOD MARKETING PARTNERS
AGREEMENT
DATED AS OF OCTOBER 5, 1998
WARRANT AGREEMENT
(ATTACHED)
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SCHEDULE B
TO THE PEAPOD MARKETING PARTNERS
AGREEMENT
DATED AS OF OCTOBER 5, 1998
CONFIDENTIALITY AGREEMENT
(ATTACHED)
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