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As filed with the Securities and Exchange Commission on September 20, 1999
Registration No. 333-78885
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
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)
--------------------------
COPIES TO:
THOMAS S. HODGE, ESQ. BRUCE ALAN MANN, ESQ.
NOELLE E. COOPER, ESQ. JAMES H. LAWS, ESQ.
SOFIA S. MICHELAKIS, ESQ. Morrison & Foerster LLP
Heller Ehrman White and McAuliffe 425 Market Street
6100 Columbia Center San Francisco, CA 94105-2482
701 Fifth Avenue (415) 268-7000
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.
--------------------------
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. /X/
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. / /
--------------------------
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>
OFFERING PROSPECTUS
SUBJECT TO COMPLETION, SEPTEMBER
20, 1999
2,500,000 SHARES OF SERIES D CONVERTIBLE, REDEEMABLE PREFERRED STOCK
$ PER SHARE
[LOGO]
GreatFood.com is selling 2,500,000 shares of its Series D Convertible,
Redeemable Preferred Stock. Each share of Series D preferred stock is
convertible into one share of common stock as more fully described in this
prospectus.
Dividends on the Series D preferred stock are cumulative and will cumulate and
accrue on a semi-annual basis, at the annual rate of 8% of the purchase price,
from the date of issuance.
Upon the liquidation of GreatFood.com, holders of shares of Series D preferred
stock will have the right, together with holders of shares of GreatFood.com's
Series C preferred stock, to receive their purchase price plus all accrued but
unpaid dividends on such shares, prior to any assets being distributed to
holders of common stock or other series of preferred stock. Holders of Series D
preferred stock will also share, together with holders of Series C preferred
stock, in the remaining assets distributed to holders of common stock, after
payment is made to holders of other series of preferred stock, as more fully
described in this prospectus.
If requested by holders of a majority of the outstanding shares of Series D
preferred stock at any time after October , 2004, GreatFood.com will redeem
all outstanding shares of Series D preferred stock at a price equal to the
purchase price paid for such shares plus all accrued and unpaid dividends. The
redemption will be done in three equal annual installments beginning on the date
stated in the request.
We expect the price in this offering to be between $4.00 and $5.00 per share.
The securities will not be listed on any national securities exchange or the
Nasdaq Stock Market. No public market currently exists for our stock and we do
not expect a public market to develop.
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PER SHARE TOTAL
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Public price........................................................................... $ 4.00 $ 10,000,000
Placement agent commissions............................................................ $ $
Proceeds to GreatFood.com.............................................................. $ $
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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 6.
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 an agreement with WR Hambrecht & Company, LLC to act as a
placement agent with respect to this offering. WR Hambrecht is not required to
sell a specific number or dollar amount of securities. WR Hambrecht and some of
our existing shareholders have indicated an interest in purchasing $4,500,000 of
the Series D preferred stock, but they are not obligated to do so.
[LOGO]
, 1999
<PAGE>
[INSIDE FRONT COVER ART DESCRIPTION]
[GREATFOOD.COM LOGO]
[Images depict pages of the GreatFood.com Web site, including the GreatFood.com
home page at www.greatfood.com and a page from GreatFood.com retail shop. The
images incorporate logos of Verisign and Truste.]
From our home page, visitors can access several different areas of our site,
each designed to enhance the browsing and shopping experience for its intended
audience. The retail shop offers a variety of products for sale to retail
customers. The corporate gifts area offers selected products and etiquette tips
specifically geared for corporate gifting. Our wholesale area offers products by
the case at wholesale prices to registered specialty shops, gift basket
companies, caterers and restaurants. About greatfood.com provides information
about our company history, policies, becoming a supplier, testimonials and
awards we have won.
Site navigation tabs on every page allow visitors to move easily between the
different areas of the site.
Our electronic shopping cart and online credit card processing make the ordering
process simple, convenient and secure.
We emphasize special selections which change regularly, including our Express
Shoppe, Special Offers, and Seasonal Suggestions.
We make it easy to shop for our wide variety of specialty food products by
offering customers the ability to browse products by food category, meal
occasion, price range or brand. Or they can search for something specific by
typing in a keyword.
It's easy to access food related information, including product reviews written
by our in-house food expert, recipes, and an online message forum with comments
and suggestions from other visitors.
We emphasize customer service throughout the site. Frequently asked questions,
shipping costs and policies, contract phone numbers and security information are
all readily accessible.
<PAGE>
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 Series D preferred 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.
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary......................................................................................... 1
The Offering............................................................................................... 2
Summary Financial Data..................................................................................... 5
Risk Factors............................................................................................... 6
Special Note Regarding Forward Looking Statements.......................................................... 17
Use of Proceeds............................................................................................ 18
Dividend Policy............................................................................................ 18
Capitalization............................................................................................. 19
Dilution................................................................................................... 20
Selected Financial Data.................................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 22
Business................................................................................................... 31
Management................................................................................................. 47
Relationships with GreatFood.com and Related Transactions.................................................. 53
Principal Shareholders..................................................................................... 55
Description of Capital Stock............................................................................... 57
Shares Eligible For Future Sale............................................................................ 62
Plan of Distribution....................................................................................... 63
Legal Matters.............................................................................................. 64
Experts.................................................................................................... 64
Where to Find Additional Information About GreatFood.com................................................... 64
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.
Information contained on our Web site does not constitute a part of this
prospectus.
i
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION DESCRIBED MORE FULLY ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY.
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.
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 both retail and wholesale customers.
As a result of these factors, we believe electronic commerce
provides opportunities to improve the specialty food shopping
experience and selection in both the retail and wholesale
markets.
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;
- take advantage of the relationship between retail and
wholesale distribution channels;
- acquire leading market share to leverage economies of scale;
and
- expand internationally.
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.
While we believe this model provides significant advantages, it
also presents challenges associated with ensuring timely
shipment and packaging which is consistent with our brand
identity.
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1
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Our Marketing:............. We target potential online customers, both retail and
wholesale, in a proactive manner. We have entered into
promotional agreements or partnering arrangements with Peapod,
America Online and Excite. We use a mix of traditional and
online marketing techniques, including online and print
advertising, direct mail, public relations and trade shows.
Our Competition:........... Although there is no dominant retailer in the gourmet and
specialty food market, the specialty food market is extremely
competitive. We face competition from traditional physical
store and catalog retailers, as well as other online retailers.
Moreover, we expect more online competitors in the future as
barriers to entry are low.
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 approximately 1.6 million "unique
visits" in the first six months of 1999.
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THE OFFERING
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Securities Offered........................... 2,500,000 shares of Series D Convertible,
Redeemable Preferred Stock.
Dividends.................................... Dividends will be cumulative and will
cumulate and accrue on a semi-annual basis,
without interest, at the annual rate of 8% of
the purchase price per share from the date of
issuance. The Series D preferred stock is
ranked equally with GreatFood.com's Series C
preferred stock and senior to GreatFood.com's
Series A and B preferred stock and common
stock in its right to receive dividends.
Liquidation Preference....................... The Series D preferred stock is ranked
equally with GreatFood.com's Series C
preferred stock and senior to GreatFood.com's
Series A and B preferred stock and common
stock in liquidation preference. Upon the
liquidation, dissolution or winding up of
GreatFood.com, GreatFood.com's assets will be
distributed as follows:
-If the net proceeds from the liquidation
event are equal to or less than the aggregate
price paid for the outstanding shares of
Series C and D preferred stock, plus all
accrued and unpaid dividends on such shares,
then the net proceeds will be distributed
among all holders of Series C and D
preferred stock in proportion to the
liquidation value of their shares;
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2
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-If the net proceeds are greater than the
aggregate price paid for the outstanding
shares of Series C and D preferred stock
plus all accrued and unpaid dividends on
such shares, then the net proceeds will be
distributed as follows:
(1) an amount equal to the aggregate price
paid for the outstanding shares of Series
C and D preferred stock plus all accrued
and unpaid dividends on such shares will
be distributed to all holders of Series C
and D preferred stock in proportion to
the liquidation value of their shares;
(2) the remainder of the net proceeds will be
distributed (a) first to the holders of
Series A and B preferred stock to return
their purchase price in proportion to the
liquidation value of their shares, (b)
second to all holders of common stock to
return their cost, and (c) third to all
holders of common stock and holders of
Series C and D preferred stock as if such
shares were converted to common stock.
Voting Rights................................ The holders of Series D preferred stock will
be entitled to vote on all matters submitted
to GreatFood.com's shareholders and will be
entitled to one vote for each share of common
stock into which the Series D preferred stock
is convertible. Also, a number of corporate
actions will require the approval of at least
a majority of the outstanding shares of
Series D preferred stock as more fully
described in "Description of Capital Stock --
Preferred Stock" on page 57.
Conversion Rights............................ The Series D preferred stock is convertible
into common stock, at the option of the
holder, at any time, at an initial conversion
rate of one share of common stock for each
share of Series D preferred stock. The
conversion rate will be adjusted if there is
a stock split, stock dividend, combination of
shares or other change in GreatFood.com's
common stock or GreatFood.com makes a
dilutive issuance of common stock, as more
fully described in "Description of Capital
Stock -- Preferred Stock" on page 57.
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3
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GreatFood.com may require the conversion of
all outstanding shares of Series D preferred
stock either (a) upon completion of an
underwritten public offering with net
proceeds of at least $15,000,000 and a price
per share of at least $8.00 or (b) if the
holders of a majority of the outstanding
shares of Series D preferred stock elect to
convert.
Redemption Rights............................ If requested by the holders of a majority of
outstanding shares of Series D preferred
stock at any time after October , 2004,
GreatFood.com will redeem all outstanding
shares of Series D preferred stock at a price
per share equal to the price paid for the
shares plus all accrued and unpaid dividends
as follows:
- one third of the shares will be redeemed on
the date stated in the written request;
- an additional one third of the shares will
be redeemed on the first anniversary of such
date; and
- the final one third of the shares will be
redeemed on the second anniversary of such
date.
Common stock equivalents to be outstanding
after this offering........................ 6,552,532 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 18 for more
information.
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- ------------------------------
(1) This includes 4,948,368 shares of common stock to be issued upon conversion
of all outstanding shares of Series A, B and C preferred stock and 2,500,000
shares of Series D preferred stock. This also does not include 1,632,888
shares reserved as of August 31, 1999 for future issuance as follows: (a)
991,000 shares of common stock reserved for issuance pursuant to outstanding
options granted under our 1997 Stock Incentive Plan; (b) 318,811 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
become exercisable on January 31, 2000 if GreatFood.com has not completed an
underwritten public offering with an aggregate offering price of at least
$10,000,000 and a price per share of at least $10.00 by that date. If these
warrants become exercisable, they will reduce the effective price for the
shares of Series C preferred stock from $5.00 to $3.25 per share. This also
does not include 609,000 shares reserved as of August 31, 1999 for issuance
pursuant to future grants under our 1997 Stock Incentive Plan.
GreatFood.com's principal offices are located at 2731 Eastlake Avenue East,
Seattle, WA 98102.
4
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SUMMARY FINANCIAL DATA
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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SIX
FISCAL YEAR ENDED MONTHS ENDED
DECEMBER 31, JUNE 30,
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1996 1997 1998 1998 1999
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STATEMENT OF OPERATIONS DATA:
Net revenues............................ $ 18 $ 120 $ 748 $ 65 $ 410
Gross profit............................ 4 28 143 12 64
Loss from operations.................... (61) (83) (1,493) (145) (2,524)
Net loss................................ (40) (82) (1,463) (145) (2,488)
Basic and diluted net loss per share.... (0.04) (0.06) (0.93) (0.09) (1.58)
</TABLE>
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AS OF JUNE 30, 1999
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ACTUAL AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents......................... $3,438 $ 13,098
Total assets...................................... 4,210 13,870
Mandatorily redeemable convertible preferred
stock........................................... 2,993 12,653
Total shareholders' equity........................ 396 396
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The as adjusted information above gives effect to our receipt of the
estimated net proceeds from the sale of 2,500,000 shares of Series D preferred
stock in this offering at an assumed price of $4.00 per share.
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND ALL OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS BEFORE YOU DECIDE TO BUY OUR STOCK. ADDITIONAL
RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM
IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING
RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS
COULD BE MATERIALLY AND ADVERSELY AFFECTED. IF THIS OCCURS, THE VALUE OF OUR
STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY
OUR 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. As of
June 30, 1999 we had generated total revenues of $1,295,000 since inception.
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 information systems 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 22 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 June 30, 1999, we had an accumulated
deficit of $4.0 million. We incurred net losses of $2.5 million during the first
six months 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;
6
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- expansion of our retail product offerings and Web site content;
- 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 22 for more information on our
operating history.
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, are sufficient to meet our anticipated working capital and
capital expenditure requirements only until the middle of the year 2000. As a
result, we will need to raise a significant amount of additional capital after
the first half of the year 2000. Prior to raising this capital, the limited
amount of our capital resources may limit our ability to:
- fund more rapid expansion;
- respond to competitive pressures;
- 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 and may have to curtail operations
significantly.
OUR OPERATING RESULTS ARE VOLATILE AND DIFFICULT TO PREDICT.
Our operating results have fluctuated on a quarterly basis in the past and
may fluctuate significantly in the future. Many of the factors which could cause
these fluctuations are outside of our control. 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, marketing
relationships which would give us exposure to traffic on other Web sites;
and
- the amount and timing of operating costs and capital expenditures relating
to expansion of our operations.
7
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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 the times of the year
when our sales are lower. 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, the value of our stock could 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 significant
expense. See "Use of Proceeds" on page 18. 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 an initial version of 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 only generated limited revenue. Certain
aspects of our business model may limit the growth of our wholesale business.
These include:
- retailers' unfamiliarity with Internet commerce;
- 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
8
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- 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 22.
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 in other countries;
- complying with local regulations;
- 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.
9
<PAGE>
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 to fulfill orders in a timely manner, which caused
us to experience customer complaints on approximately 3% of the orders placed
with us during that season and, in some cases, lost sales.
WE MAY CHOOSE TO ESTABLISH DISTRIBUTION CENTERS AND STOCK SOME NON-PERISHABLE
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 a number of
reasons which are described more fully in "Business -- Supplier Relationships"
beginning on page 38.
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 offerings 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 face the risk that these carriers
may not always be able to promptly deliver products to our customers. For
example, these carriers' delivery capabilities may be affected adversely by
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.
10
<PAGE>
WE MAY BE HELD LIABLE IF CUSTOMERS ARE HARMED BY ANY OF 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 of $2 million.
OUR CONVERSION TO A NEW ORDER PROCESSING SYSTEM MAY NOT BE SUCCESSFUL AND
CONSEQUENTLY 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 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 43 for more
information.
YEAR 2000 READINESS ISSUES OF OUR MATERIAL SYSTEMS OR THOSE OF OUR SUPPLIERS OR
OTHER THIRD PARTIES MAY PREVENT US FROM OPERATING OUR WEB SITE EFFECTIVELY OR
CONDUCTING OTHER FUNDAMENTAL ASPECTS OF OUR BUSINESS.
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 October 31, 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 October 31, 1999. 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 other systems. If we are not able to properly complete the
replacement 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 28 for more detailed
information.
11
<PAGE>
WE ARE GROWING RAPIDLY AND MAY HAVE DIFFICULTY MANAGING OUR GROWTH EFFECTIVELY.
We have increased the number of our employees from 2 as of March 31, 1996 to
33 as of August 31, 1999. In addition, we have increased the number of our
suppliers from approximately 10 to 86 in the same time period. We 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 EXPECT TO ISSUE ADDITIONAL SECURITIES TO FUND OUR CAPITAL REQUIREMENTS WHICH
WOULD DILUTE OUR SHAREHOLDERS' INTEREST.
We expect to issue equity or convertible debt securities to fund future
capital requirements. As a result, 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.
THE EXERCISE OF OUTSTANDING WARRANTS MAY SUBSTANTIALLY DILUTE YOUR INTEREST IN
GREATFOOD.COM
In connection with our recent sale of Series C preferred stock, we issued
warrants to purchase an additional 323,077 shares of Series C preferred stock at
a nominal price. These warrants will become exercisable on January 31, 2000 if
we do not complete a public offering with an aggregate price of at least
$10,000,000 and a per share offering price of at least $10.00 before that date.
If these warrants become exercisable they will reduce the effective price for
the shares of Series C preferred stock from $5.00 to $3.25 per share. As a
result, the interest of other shareholders in GreatFood.com, including the
holders of Series D preferred stock, will be diluted.
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.
12
<PAGE>
RISKS RELATED TO GREATFOOD.COM'S INTERNET BUSINESS AND PROSPECTS
THE SUCCESS OF OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF INTERNET COMMERCE,
WHICH GROWTH MAY NOT OCCUR.
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 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 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, commerce over the
Internet could be harmed 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.
13
<PAGE>
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, as of June 30, 1999, we had suffered total losses of
approximately $19,000 since we began operations as a result of orders placed
with fraudulent credit card data. We may suffer these types of losses in greater
amounts in the future.
WE MAY NOT BE ABLE TO RESPOND EFFECTIVELY TO RAPID TECHNOLOGICAL CHANGES IN A
MANNER NECESSARY TO REMAIN COMPETITIVE.
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 stop shopping in our online store and use those
of our competitors. Developing our Web site and other proprietary technology
will require significant technical expertise. We may be unable to develop this
expertise. As a result 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, WHICH WOULD CAUSE US TO LOSE SALES
AND POSSIBLY HARM OUR BUSINESS.
Substantially all of our computer and communications hardware operations for
our Web site is located in a single facility operated by Exodus Communications
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.
Since we began operations, our Web site has experienced slower response
times or decreased traffic for periods ranging from a few minutes to several
hours for a variety of reasons approximately one or two times a month. In
addition, although we are unable to accurately estimate the frequency, we
believe that 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.
14
<PAGE>
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 profit 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;
- 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 45.
MARKETING AGREEMENTS 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 agreements 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 Web sites of
these other companies. These arrangements may not generate the expected number
of new customers. Our current agreements with 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 Internet companies to enter into similar agreements with us, 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.
15
<PAGE>
WE MAY FACE LEGAL 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 face 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 are held liable for the content
on our Web site, 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 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 stock will, in the aggregate, own approximately 56%
of our outstanding voting securities. 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.
16
<PAGE>
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 Series D preferred
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 and product offering, and general corporate purposes.
Accordingly, our management will have significant flexibility in applying the
net proceeds of this offering. See "Use of Proceeds" on page 18.
THERE WILL NOT BE A PUBLIC MARKET FOR OUR STOCK.
No class of our stock will be listed for trading on any securities exchange
or the Nasdaq National Market. Accordingly, there will be no public trading
market for our stock and we do not expect a market to develop in the future. We
do not intend to apply to list our stock on the Nasdaq National Market, or any
other securities exchange until we complete an underwritten public offering.
Even if we do complete an underwritten public offering, a trading market may not
develop for our stock, or if a market does develop, our stock may be difficult
to trade. As a result of these factors, you may not be able to resell your
shares for an indefinite period of time.
YOU WILL EXPERIENCE IMMEDIATE DILUTION.
The price in this offering is higher than the pro forma net tangible book
value per share of the outstanding common stock immediately after the offering.
Accordingly, purchasers of stock in this offering will experience immediate
dilution of approximately $2.00 in net tangible book value per share, or
approximately 50% of the assumed offering price of $4.00 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. See "Dilution" at page 20.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains "forward looking statements." 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 until the middle of the year 2000; 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.
17
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds of $9,660,000 from the sale of
the 2,500,000 shares of Series D preferred stock offered hereby, at an assumed
offering price of $4.00 per share and after deducting estimated placement agent
commissions and offering expenses. We currently intend to use:
- approximately $3 to $4 million of the net proceeds of this offering to
expand advertising, promotion and marketing of the GreatFood.com brand and
product offering;
- approximately $500,000 to implement a new order processing system linking
us with our suppliers;
- approximately $500,000 to continue the development of our wholesale and
international programs; and
- approximately $750,000 for continued development of our Web site.
The remainder of the net proceeds will be used for working capital and
general corporate purposes or be allocated to the above categories as deemed
appropriate. 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 allocations described above are only an estimate and the amounts that we
actually spend on these items and the cost, timing and amount of funds we need
cannot be precisely determined at this time. Our expenditures and need for funds
will be based on numerous factors, including our future revenue growth, the
amount of cash generated by our operations, the frequency and timing of the need
for advertising expenditures and the need for additional or upgraded systems and
technology. 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.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. Our
capitalization is presented:
- on an actual basis; and
- on an as adjusted basis to reflect (a) the increase of our authorized
preferred stock to 10,000,000 shares immediately prior to completion of
this offering and (b) our receipt of the estimated net proceeds from the
sale of 2,500,000 shares of Series D preferred stock in this offering at
an assumed offering price of $4.00 per share, after deducting estimated
placement agent commissions and estimated offering expenses.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
--------- -----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT
SHARE DATA)
Long term debt--including current portion................................................. $ 87 $ 87
--------- -----------
Mandatorily redeemable convertible preferred stock, no par value, 1,384,615 shares
authorized and 600,000 shares issued and outstanding (actual); 3,884,615 shares
authorized and 3,100,000 shares issued and outstanding (as adjusted).................... 2,993 12,653
Shareholders' equity
Preferred stock, no par value; 5,000,000 shares authorized (including 1,384,615 shares
of mandatorily redeemable convertible preferred stock) and 1,848,368 shares issued and
outstanding (actual); 10,000,000 shares authorized (including 3,884,615 shares of
mandatorily redeemable convertible preferred stock) and 1,848,368 shares outstanding
(as adjusted)......................................................................... 4,069 4,069
Common stock, no par value; 20,000,000 shares authorized (actual and as adjusted); and
1,604,164 shares issued and outstanding (actual and as adjusted)...................... 421 421
Deferred compensation................................................................... (143) (143)
Accumulated deficit..................................................................... (3,951) (3,951)
--------- -----------
Total shareholders' equity.............................................................. 396 396
--------- -----------
Total capitalization...................................................................... $ 3,476 $ 13,136
--------- -----------
--------- -----------
</TABLE>
The common stock outstanding as shown above is based on shares outstanding
as of August 31, 1999 and excludes: (a) 991,000 shares of common stock reserved
for issuance under outstanding options
granted under our 1997 Stock Incentive Plan; (b) 609,000 shares of common stock
reserved for issuance under future grants under our 1997 Stock Incentive Plan;
and (c) 318,811 shares of common stock reserved for issuance under outstanding
warrants. 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 granted to the purchasers of
our Series C preferred stock in connection with that offering. These warrants
will become exercisable on January 31, 2000 if we have not completed an
underwritten public offering with an aggregate offering price of at least
$10,000,000 and a price per share of at least $10.00 by that date. If these
warrants become exercisable, they will reduce the effective price for the shares
of Series C preferred stock from $5.00 to $3.25 per share.
19
<PAGE>
DILUTION
Our net tangible book value as of June 30, 1999 was approximately
$3,389,000, or $0.84 per share of outstanding common stock equivalents. 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
equivalents which includes 2,448,368 shares of preferred 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 the sale of the 2,500,000 shares of Series D
preferred stock in this offering at an assumed offering price of $4.00 per share
(after deducting the estimated fee payable to the placement agents and offering
expenses payable by us), our as adjusted net tangible book value at June 30,
1999 would have been approximately $13,049,000, or $2.00 per share. This
represents an immediate dilution of $2.02 per share to new investors purchasing
shares in this offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share.............................................. $ 4.00
Net tangible book value per share as of June 30, 1999....................... $ 0.84
Increase per share attributable to new investors............................ $ 1.16
---------
As adjusted net tangible book value after this offering....................... $ 2.00
---------
Dilution per share to new investors in this offering.......................... $ 2.00
---------
</TABLE>
The following table summarizes, on a pro forma basis 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 in this prospectus assuming an
offering price of $4.00 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% $ 7,232,083 42% $ 1.80
New investors....................................... 2,500,000 38 10,000,000 58
---------- --- ------------- ---
Total............................................. 6,527,532 100% $ 17,232,083 100%
---------- --- ------------- ---
---------- --- ------------- ---
</TABLE>
This information is based on pro forma shares outstanding as of June 30,
1999 and does not include (a) 884,000 shares of common stock reserved for
issuance under outstanding options granted under our 1997 Stock Incentive Plan;
(b) 716,000 shares of common stock reserved for issuance under future grants
under our 1997 Stock Incentive Plan; and (c) 343,811 shares of common stock
reserved for issuance under outstanding warrants which were reserved as of that
date. 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 granted to the purchasers of our Series
C preferred stock in connection with that offering. These warrants will become
exercisable on January 31, 2000 if we have not completed an underwritten public
offering with an aggregate offering price of at least $10,000,000 and a price
per share of at least $10.00 by that date. If these warrants become exercisable,
they will reduce the effective price for the shares of Series C preferred stock
from $5.00 to $3.25 per share.
20
<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 June 30, 1999 and for the six month periods ended
June 30, 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 six month periods ended June
30, 1998 and 1999 and the balance sheet data as of December 31, 1995 and June
30, 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 six months ended June 30, 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 June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SIX
AUGUST 31, 1995 MONTHS
(INCEPTION) TO FISCAL YEAR ENDED DECEMBER 31, ENDED
DECEMBER 31, JUNE 30
----------------- ------------------------------- ---------
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 $ 65
Cost of goods sold............................................. 0 14 92 605 53
----- --------- --------- --------- ---------
Gross profit................................................... 0 4 28 143 12
Operating expenses:
Sales and marketing.......................................... 0 11 36 1,102 48
Product and site development................................. 0 1 9 84 8
General and administrative................................... 8 53 66 450 101
----- --------- --------- --------- ---------
Total operating expenses....................................... 8 65 111 1,636 157
----- --------- --------- --------- ---------
Loss from operations........................................... (8) (61) (83) (1,493) (145)
Other income, net.............................................. 6 21 1 30 --
----- --------- --------- --------- ---------
Net loss....................................................... $ (2) $ (40) $ (82) $ (1,463) $ (145)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Basic and diluted net loss per share........................... $ (.01) $ (.04) $ (.06) $ (.93) $ (.09)
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
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
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
<CAPTION>
1999
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................................... $ 410
Cost of goods sold............................................. 346
---------
Gross profit................................................... 64
Operating expenses:
Sales and marketing.......................................... 1,709
Product and site development................................. 153
General and administrative................................... 725
---------
Total operating expenses....................................... 2,587
---------
Loss from operations........................................... (2,523)
Other income, net.............................................. 35
---------
Net loss....................................................... $ (2,488)
---------
---------
Basic and diluted net loss per share........................... $ (1.60)
---------
---------
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share................. 1,579
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE
AS OF DECEMBER 31, 30, 1999
---------------------------------------------- -----------
1995 1996 1997 1998 ACTUAL
----- ----- --------- --------- -----------
BALANCE SHEET DATA (IN THOUSANDS):
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents....................................... $ 5 $ 14 $ 124 $ 678 $ 3,438
Working capital................................................. 0 (1) 51 633 3,079
Total assets.................................................... 33 55 161 1,428 4,210
Total long term liabilities (including current portion)......... 0 15 13 47 87
Mandatorily redeemable convertible preferred stock.............. 2,993
Total shareholders' equity...................................... 28 25 74 716 396
<CAPTION>
AS ADJUSTED
-------------
BALANCE SHEET DATA (IN THOUSANDS):
<S> <C>
Cash and cash equivalents....................................... $ 13,098
Working capital................................................. 12,739
Total assets.................................................... 13,870
Total long term liabilities (including current portion)......... 87
Mandatorily redeemable convertible preferred stock.............. 12,653
Total shareholders' equity...................................... 396
</TABLE>
The as adjusted information above gives effect to our receipt of the
estimated net proceeds from the sale of 2,500,000 shares of Series D preferred
stock in this offering at an assumed offering price of $4.00 per share.
21
<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, 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 THESE FORWARD LOOKING
STATEMENTS. THE PRINCIPAL FACTORS THAT COULD CAUSE OR CONTRIBUTE TO DIFFERENCES
IN OUR ACTUAL RESULTS ARE 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 participation in shopping programs conducted by other
Internet sites, recruiting personnel, developing our wholesale and corporate
gift programs and exploring a variety of strategic partnerships which take
advantage of our specialty food oriented products and services. 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
have initiated a 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 extended 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 who follow our specifications and
procedures. This reduces procurement and carrying costs, as well as costs of
shipping to a distribution center, and risks of spoilage and oversupply which
are 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, a Vice President of Finance and
Administration in April 1999, a Vice President of Information
22
<PAGE>
Technology and Site Development and a Vice President of Wholesale Programs in
June 1999 and a Vice President of Business Development in September 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 June 30, 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 credit or extended payment 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 many 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 credit and extended payment terms and improve our shipping cost
structure. We are also working to increase Internet familiarity among specialty
food retailers by making them aware of the opportunity to order products over
the Internet and educating them about the online ordering process. We are
increasing awareness of the Internet opportunities through advertising, direct
marketing campaigns and discussions at industry trade shows. We are also
instituting training programs and providing incentives to try our entire
service.
We incurred net losses of $2.5 million in the six months ended June 30,
1999, $1.4 million in 1998, $81,937 in 1997, and $39,833 in 1996. At June 30,
1999 we had an accumulated deficit of $4.0 million. We expect operating losses
and negative cash flow to continue for at least the next 2 years. 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 implement a new order processing 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 obtain sufficient
operating capital, 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.
23
<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>
SIX MONTHS
FISCAL YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
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 81.9 84.5
--------- --------- --------- --------- ---------
Gross profit....................... 23.1 23.5 19.1 18.1 15.5
Operating expenses:
Sales and marketing.............. 62.9 30.3 147.4 74.6 417.2
Product and site development..... 4.0 7.4 11.2 11.3 37.4
General and administrative....... 301.3 54.9 60.1 156.2 177.0
--------- --------- --------- --------- ---------
Total operating expenses........... 368.2 92.6 218.7 242.1 631.6
--------- --------- --------- --------- ---------
Loss from operations............... (345.1) (69.1) (199.6) (224.0) (616.1)
Other income (expense), net........ 117.9 0.6 4.0 (0.7) 8.7
--------- --------- --------- --------- ---------
Net loss........................... (227.2)% (68.5)% (195.6)% (224.7)% (607.4)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 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 $409,628 for
the six months ended June 30, 1999 from $64,560 for the six months ended June
30, 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 and first half of
1999.
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 $345,940 for the six months ended June 30, 1999 from
$52,877 for the six months ended June 30, 1998. This $293,063 increase was
primarily attributable to our increased sales volume. Our gross profit margin
decreased to 15.5% of net revenues for the six months ended June 30, 1999 from
18.1% of net revenues for the six months ended June 30, 1998. This decrease in
gross profit margin was due to a number of factors. During the first quarter of
1999, we offered many products at promotional prices to increase sales after the
holiday season. In addition, during the first quarter of 1999, 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. We
also experienced substantial demand in the first quarter of 1999 for products
for which our prices did not allow us to recoup our shipping costs. During the
second quarter of 1999, we increased our prices for these products and made
other adjustments to our pricing structure. However, while we attempt to price
products in a manner to absorb product and shipping 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 $1,709,127, or 417.2% of net revenues, for the
six months ended June 30, 1999, from $48,184, or 74.6% of net revenues, for the
six months
24
<PAGE>
ended June 30, 1998. This increase in actual dollars expended and as a
percentage of net revenues is 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 six months
ended June 30, 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 $153,283, or 37.4% of net revenues, for the six months ended June
30, 1999, from $7,258, or 11.3% of net revenues, for the six months ended June
30, 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
$725,193, or 177.0% of net revenues, for the six months ended June 30, 1999,
from $100,838, or 156.2% of net revenues, for the six months ended June 30,
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 $35,712 for the
six months ended June 30, 1999 from other expense of $494 for the six months
ended June 30, 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 and our sale of $3.0
million of Series C preferred stock on May 17, 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
25
<PAGE>
to changes in product mix and a reduction made in the second half of 1998 in the
amounts charged to customers for outbound shipping.
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 $449,623, or 60.1% 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 seven quarters ended June 30, 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.
26
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------
DECEMBER
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, 31, MARCH 31, JUNE 30,
1997 1998 1998 1998 1998 1999 1999
------------- ----------- ----------- ------------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues.................... $ 97 $ 28 $ 37 $ 43 $ 640 $ 168 $ 242
Cost of goods sold.............. 76 22 31 34 518 147 199
----- ----- ----- ------ ----------- ----------- ---------
Gross profit.................... 21 6 6 9 122 21 43
Operating expenses:
Sales and marketing........... 31 23 25 241 813 565 1,144
Product and site
development................. 4 1 7 26 50 44 109
General and administrative.... 15 20 81 143 206 280 445
----- ----- ----- ------ ----------- ----------- ---------
Total operating expenses........ 50 44 113 410 1,069 889 1,698
----- ----- ----- ------ ----------- ----------- ---------
Loss from operations............ (29) (38) (107) (401) (947) (868) (1,655)
Other income, net............... 1 0 0 16 14 5 30
----- ----- ----- ------ ----------- ----------- ---------
Net loss........................ $ (28) $ (38) $ (107) $ (385) $ (933) $ (863) (1,625)
----- ----- ----- ------ ----------- ----------- ---------
----- ----- ----- ------ ----------- ----------- ---------
Basic and diluted net loss per
share......................... $ (.02) $ (.02) $ (.07) $ (.24) $ (.59) $ (.55) $ (1.05)
----- ----- ----- ------ ----------- ----------- ---------
----- ----- ----- ------ ----------- ----------- ---------
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 1,579
----- ----- ----- ------ ----------- ----------- ---------
----- ----- ----- ------ ----------- ----------- ---------
</TABLE>
Our operating expenses have increased significantly in the four most recent
quarters, most notably in the quarter just ended, as we have increased our
spending on marketing, advertising and promotional efforts and product and site
development following our sales of preferred stock in July 1998, March 1999 and
May 1999. We expect operating expenses will continue to increase in the future
as we expand our advertising and marketing campaigns, pursue product line
expansion and new channels of distribution such as our wholesale and
international programs and undertake other 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.
27
<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 August 31,
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 one share of 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 $5.1 million in the first half of 1999 consisted
primarily of net proceeds from the sale of preferred stock.
As of August 31, 1999 we had approximately $792,000 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 August 31, 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 August 31, 1999, our remaining commitments
under these agreements were approximately $1.1 million during 1999 and
approximately $1.2 million through the third quarter 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 until the middle of the year 2000. As a
result, we will need to raise a significant amount of capital after the first
half of the year 2000. However, we may be unable to raise sufficient funds
through the issuance of common stock, in which case we may issue other equity,
equity related or debt securities that have rights, preferences or privileges
senior to those of the rights of our outstanding securities. As a result, 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
additional 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 and may be compelled to curtail operations significantly. 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 order processing system for
reasons unrelated to the year 2000 problem. However, we have been advised by the
supplier of our existing order processing system and the company that processes
our credit card orders that this system is not fully year 2000 compliant. Also,
the company which processes our credit card orders has indicated that it will
not support our current order processing system after October 31, 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. We
have begun transferring our operations to the new system and expect this
transfer to be completed prior to October 31, 1999. Until the transfer is
complete, we will continue to run our existing system in parallel with this
system. However, if installation of the new order processing system is not
completed by October 31, 1999, we may be unable to operate our Web site or
process customer orders until such installation 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 fourth quarter 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 August 31, 1999, we have spent no funds explicitly
to address year 2000 issues. However, we have invested approximately $25,000 in
technology upgrades which are year 2000 compliant, as discussed above. 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 are in the process of seeking
assurances from suppliers of products which represent a material portion of our
sales that their systems are year 2000 compliant. However, we believe that the
nature and size of our suppliers' operations makes it 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. Since this network consists of unrelated parties located throughout the
world, we do not believe any entity has the ability to manage the year 2000
compliance of the entire network and our ability to assess the year 2000 issues
associated with this network is limited to publicly available information
contained in news reports and other similar media.
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
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compliant could prevent us from operating our Web site effectively, taking
product orders, making product deliveries or conducting other fundamental parts
of our business.
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 for purchase.
Traffic on our Web site reached 1.2 million "unique visits" in 1998 and
approximately 1.6 million "unique visits" in the first six months of 1999.
"Unique visits" are defined as periods of time in which a person (or in some
cases, a computer, automatically) views one or more screens of the GreatFood.com
Web site. A unique visit ends when a 30 minute period has gone by in which that
person or computer has not viewed any additional screens of the GreatFood.com
site.
INDUSTRY OVERVIEW
The following discussion of GreatFood.com's industry contains market
projections prepared by various research firms. These market projections may not
be achieved.
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 sales by businesses to
consumers over the Internet will increase from over $50 billion worldwide at the
end of 1998 to approximately $1.3 trillion worldwide by the end of 2003.
Further, according to a 1997 report by Jupiter Communications, another market
research firm, an estimated 70% of adult Internet users will make purchases
online by the year 2002, as compared to an estimated 22% that did so in 1997.
Several factors are driving the growth in sales to both consumers and businesses
over the Internet. These factors include:
- increasing familiarity with the Internet;
- broadening consumer acceptance of online shopping;
- increasing acceptance of online distribution relationships by businesses;
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- improved online network security;
- the growing base of personal computers and improved hardware, software and
services to access the Internet; and
- expanded ability of computer systems to process larger amounts of data at
higher speeds.
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 this 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.
We select products for our Web site through a formal review process which
involves review of the supplier background and the details of their product
line. Our product review committee then samples representative products from
each supplier and rates the products by standardized criteria.
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 Packaged Facts, 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;
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- television shopping channels; and
- discount warehouse 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.
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 updated as inventory level or consumer demand
changes 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 easy
browsing by our customers;
- 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;
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- 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.
In addition, GreatFood.com's individual suppliers ship goods directly to
customers. By using this supplier direct fulfillment 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 August 31, 1999, we offered
products from 86 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 an early entrant to online specialty food
retailing, 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 the
recognition and visibility of the GreatFood.com brand. 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 tie together
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
gathering place or "community" for people with interests related to specialty
food. Additionally, we believe GreatFood.com provides 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 system. 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 43 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.
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TAKE ADVANTAGE OF THE RELATIONSHIP BETWEEN RETAIL AND WHOLESALE DISTRIBUTION
CHANNELS. We have established supplier relationships with 86 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 purchase these products in
bulk quantities. Additionally, by building our overall 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 take advantage of 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 an arrangement with
Peapod in which GreatFood.com products will be offered to Peapod customers on a
special area of the Peapod site which includes both GreatFood.com and Peapod
branding logos. In addition, we have been selected to be a regularly featured,
or "tenant," merchant on both the America Online and Excite networks and have
entered into targeted marketing arrangements with Yahoo!, Lycos and other
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 these
opportunities, 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 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.
</TABLE>
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<TABLE>
<S> <C>
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 limited to retailers who
register with us and are issued a password. Once a password is issued, these
customers can view products and pricing 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 using 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
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also click through to "Featured Brand" pages and browse through our seasonal
"Express Shoppes," 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 etiquette" which offers guidance on appropriate occasions for business-
related gifts.
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 "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, the customer may be 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 use 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 43 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 through which GreatFood will replace or provide a refund for any
product for which a customer is not 100% satisfied. 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 the full amount of each
shopper's personal liability for unauthorized credit card usage.
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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 $48 per visit in the first six months of 1999, including shipping
charges. According to surveys conducted among a limited number of our customers
in the 1998 calendar year by BizRate.com, a market research firm:
- 65% of our customers were female;
- 75.3% 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 $87,000.
We are highly committed to excellent customer service with the goal of
providing a positive ordering experience that will capture the customer for
repeat visits. The BizRate.com survey indicated that 89% of the customers
responding were highly or very highly satisfied with their shopping 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 4,100 products from 86 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 site 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 August 31, 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
Big Daddy's Fabulous Fudge -- BELGIAN CHOCOLATE AND FUDGE
Blue Crab Bay Company -- SOUPS, CRACKERS AND BLOODY MARY MIX FROM THE
CHESAPEAKE BAY AREA
Brown & Haley -- ALMOND ROCA AND OTHER FINE CHOCOLATES
Buckhead Gourmet -- MEAT SAUCES
Caffe Appassionato -- SPECIALTY COFFEE
California Harvest (Grapevine Trading) -- TAPENADES, FRUIT VINEGARS AND
OLIVE OIL FROM
CALIFORNIA
Calio Groves -- OLIVE OILS FROM CALIFORNIA
Carpe Diem -- SUPERIOR COFFEE
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
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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
David Rio -- TEA AND CHAI
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
Essence of India -- INDIAN SPICES
Farm Country Specialties -- FRENCH TOAST BATTER MIX
The Famous Pacific Dessert Company -- CHOCOLATE DECADENCE, TORTES AND
BROWNIES
Formula 9 -- GOURMET KETCHUP
Fox's Fine Foods -- RELISHES AND PESTOS
Frontera -- CHEF-CREATED SALSAS
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
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
Hot Licks -- HOT SAUCES
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
Mendocino Mustard -- FLAVORED MUSTARDS
Michel Cluizel -- FRENCH CHOCOLATE
Mo Hotta Mo Betta -- HOT SAUCES
Moonshine Trading -- HONEYS AND NUT BUTTERS
My Favorite Muffin -- MUFFIN BASKETS
Native Kjalii -- FRESH CUT TORTILLA CHIPS
Nell Baking Company -- SHOO-FLY PIE AND CHEESECAKE
Omaha Steaks -- CORN FED MIDWEST BEEF
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
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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
Restaurant Lulu -- VINEGARS, SAUCES AND SEASONINGS
Ristorante Teatro -- FLAVORED VINEGARS AND OILS
Scharffen Berger -- CHOCOLATES
The Sideboard, Inc. -- SMOKED MEAT
SWEET dreamz -- COOKIES, BROWNIES AND TEA CAKES
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 the timing or amount of purchases causes our significant suppliers to
be unable to deliver to our customers in a timely manner;
- if we determine it is necessary or beneficial to be able to consolidate
orders, particularly from wholesale customers, to reduce shipping costs or
achieve other cost savings;
- if we determine that it would be worthwhile in order to enable us to
purchase products in bulk at a discount from wholesale prices and obtain
the resulting higher profit margin on sales of these products; and
- if we begin experiencing problems maintaining consistent quality of
packaging and order fulfillment.
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 Web
sites called "portals" 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
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innovative programs within these sites. We intend to continue to pursue
distribution arrangements with additional portals and other leading Internet
sites to further broaden awareness of the GreatFood.com brand and drive more
users to our Web site. Our current aggregate obligations under these promotional
agreements are approximately $1.1 million through the end of 1999 and
approximately $1.2 million through the third quarter 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 regularly featured
merchant 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. This contract with America Online extends through December 1999. In
August 1999, we entered into a new contract with America Online which
effectively expanded the 1998 contract. This contract provides for several
sponsorship positions within America Online's Shopping Channel as well as
additional advertising and promotional placement within America Online and other
affiliated sites. 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 a sponsorship agreement with Excite.
Under this agreement, links to our Web site and promotional materials have been
placed on several areas of the Excite Web site including the Gourmet and
Groceries department of the Excite 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 reorder without having to re-enter their
credit card number. Our agreement with Excite extends 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 search "keywords" under our agreement with Yahoo! where we
expect to show GreatFood.com advertising banners 110 million times to viewers of
the Yahoo! site. Our agreement with Yahoo! extends until December 31, 1999. In
addition, we purchase advertising space or structure promotional arrangements
with a variety of other Web sites which we believe are appropriately targeted to
our customers.
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. We expect to significantly increase our customer base
through these programs.
THE PRIVATE LABEL, CO-BRANDED PROGRAM. We team with marketing partners that
maintain Web sites which target 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 these "co-branded"
relationships with Peapod, Wells Fargo and YourSchoolShop.com, among others.
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PRINT ADVERTISING. We have conducted a print advertising campaign aimed at
gourmet and mail order consumers. During 1998 and the first six months of 1999,
we have placed ads in the following publications:
<TABLE>
<S> <C>
Better Homes and Gardens The New York Times Magazine
Bon Appetit The New Yorker
Country Living The Puget Sound Business Journal
Eating Well Saveur
Fine Cooking Southern Living
Food and Wine Sunset
Gourmet Town and Country
House Beautiful The Wall Street Journal
</TABLE>
CATALOGS. GreatFood.com has produced a 32 page color catalog designed to
attract new customers and encourage repeat customers. This catalog is expected
to be distributed to approximately 1.2 million households during the remainder
of 1999.
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 these 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.
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
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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
software. We are currently focusing 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.
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 28.
We have recently completed an internal evaluation of our electronic commerce
systems for customer interaction, transaction processing, order fulfillment and
customer service. As a result, we have begun a major upgrade of our systems to:
- provide capacity for added order volume;
- enable us to offer state of the art online shopping technology; and
- tie together internal order processing systems to more fully automate the
business processes related to fulfilling and monitoring orders generated
through our online sales.
To effect this upgrade, we have chosen a commercially available e-commerce
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
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electronic commerce requirements. Additionally, the Pandesic system will provide
servers, networking equipment and connection to the Internet, which will replace
our current system. Hardware will be located at a third party facility operated
by Digex, Inc. in Sunnyvale, CA, which will provide several servers dedicated to
the GreatFood.com site, communications lines and emergency power backup.
The Pandesic system is intended to provide advantages to both our ordering
customers and our order processing and fulfillment departments. For our
customers the Pandesic system is expected to facilitate online order tracking,
recommendations of alternative or related products and processing of gift
certificates and coupons. In support of GreatFood.com's wholesale program, the
Pandesic system also will be used to automate account management functions:
setting up accounts, providing credit terms and credit limits. For our order
processing and fulfillment departments, the Pandesic system is expected to
provide an Internet based means for transferring orders to suppliers, 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. We have begun installation and testing of the system
as well as introduction of the features that will affect our customers. Once
this installation and testing is completed, we expect to introduce the portions
of the system which will assist our order processing and fulfillment departments
with a small group of our key suppliers during the fourth quarter of 1999 and,
assuming the availability of sufficient working capital, 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" which will consist 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.
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.
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Our failure to adapt to changes in our market 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 technology.
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.
There are other online specialty food retailers which sell products or offer
content that compete with discreet portions of our business including Virtual
Vineyards, Tavolo and Cooking.com. However, we are not aware of any significant
online specialty food stores dedicated to selling a broad line of specialty food
products. To a lesser extent, we also 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.
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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 diminished brand recognition. New technologies and the
expansion of existing technologies may increase the competitive pressures on us.
EMPLOYEES
As of August 31, 1999, we had 33 full-time employees, including 8 in product
and site development, 14 in sales and marketing and 11 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. We have
entered into a one year agreement to lease an additional 5,800 square feet with
a monthly rental expense of $13,533. We have an option to renew our lease for
this space for an additional 18 months at a monthly rental rate of $14,742.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
GreatFood.com's executive officers, key employees and directors and their
ages as of August 31, 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
Ronald Pankiewicz................................... 47 Vice President of Information Technology and Site
Development
Noel Thompson....................................... 47 Vice President of Wholesale Programs
Scott Ellis......................................... 36 Director of Operations
Stacey L. True...................................... 30 Vice President of Business Development
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
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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 Seventeen Magazine. She holds a
bachelor's degree in Home Economics from Plattsburgh State University. Mr. and
Mrs. Nourse are husband and wife.
RON PANKIEWICZ joined GreatFood.com as our Vice President of Information
Technology and Site Development in June 1999. From March 1996 until joining us,
Mr. Pankiewicz was the Director of Information Systems Development for Advanced
Radio Telecom. From January 1995 to March 1996, he was the Manager of
Applications Software for NORCOM Networks Corporation. Prior to that time, from
March 1993 to January 1995, he was a Lead Software Developer for NavGuard, Inc.
Before joining NavGuard, he was employed for 13 years by Fluke Corporation, a
manufacturer of electronic instrumentation. Mr. Pankiewicz holds a bachelor's
degree in Applied Mathematics from the University of Washington, a Masters in
Computer Science from Massachusetts Institute of Technology and a Masters in
Management Science from the Sloan School of Management of Massachusetts
Institute of Technology.
NOEL THOMPSON joined GreatFood.com as our Vice President of Wholesale
Programs in June 1999. From September 1994 until joining us, Mr. Thompson was
the general manager of The Newmarket Co., a specialty foods distributor. From
1986 to 1994, Mr. Thompson served as a Vice President and National Sales Manager
for Select Origins, a cooking ingredient and condiment manufacturer. Prior to
joining Select Origins, he was employed in Sales Management positions at The
Silver Palate and Dean and Deluca Imports. Mr. Thompson holds a bachelor's
degree in German from Dartmouth College.
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.
STACEY L. TRUE joined GreatFood.com as our Vice President of Business
Development in September 1999. From May 1998 until joining us, Ms. True was
Brand Manager, Strategic Alliances Pepsi Joint Venture, for Starbucks Coffee
Company. From 1997 to 1998, Ms. True was Associate Product Manager, New Ventures
at Frito Lay, Inc. She attended the University of Chicago in 1996 and 1997 and
worked in marketing at M & M Mars, Inc. in the summer of 1996. Prior to that,
Ms. True managed marketing campaigns for various entities as an independent
contractor, from 1993 to 1996. Ms. True holds a bachelor's degree in Political
Sciences from University of Colorado, a Master of Science in Broadcast
Journalism from Northwestern University, and a Masters in Business
Administration from the University of Chicago.
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.
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<PAGE>
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. Each director is
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.
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 the compensation committee and Messrs. Rush, Wyman and Koulogeorge
are the sole members of the audit committee. The compensation committee makes
recommendations to the board concerning salaries and incentive 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
"Relationships with Greatfood.com and Related Transactions" on page 53 and
"Principal Shareholders" on page 55.
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<PAGE>
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 $ 145,921 $ 250,124
President 100,000(5) 18.4 0.30 4/13/08 145,921 250,124
300,000(6) 55.2 1.75 4/13/08 330,170 836,715
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.
50
<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 August 31, 1999, no shares had been issued upon the exercise of
options granted under the plan, options to purchase 991,000 shares of common
stock were outstanding with a weighted average exercise price of $2.88 and
609,000 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, the transfer of which is restricted and which may be forfeited
in the manner determined by the compensation committee. 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
51
<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 of this successor.
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, except as
otherwise provided in the Washington Business Corporation Act, no director or
officer will 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 to our shareholders; 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, 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 indemnify them against 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 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.
52
<PAGE>
RELATIONSHIPS WITH GREATFOOD.COM 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
beginning 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 52 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.
R. Stockton Rush, III, one of our directors, purchased 50,000 shares of
common stock for $10,000 in December 1996, 75,000 shares of common stock for
$15,000 in March 1997, and 83,333 shares of common stock for $25,000 in
September 1997. 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 March 1998, Geoffrey T. Barker, one of our directors, purchased 8,333
shares of Series B preferred stock for $24,999.
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,
Wyman and Barker, WYNOT Investments, and Mr. Rush III, his trust, his sister,
his father and his brother-in-law. Under the terms of this agreement, we may
become obligated to effect a registration under the Securities Act of 1933 of
shares of common stock held by these holders or obtained upon the conversion of
their preferred stocks. See "Description of Capital Stock -- Registration
Rights" on page 61 for more information on this agreement and when this
obligation arises.
In exchange for a warrant (which vests ratably over a period of 36 months if
the conditions to its vesting 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 and the warrant was exercised on July 23, 1999. Mr. Barker,
one of our directors, is the
53
<PAGE>
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 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 a member of the
limited liability company which is the direct general partner of The
Productivity Fund IV, L.P. and is also a member of 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 to sell additional shares of
Series C preferred stock. 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 entitle it to purchase up to
284,307 shares; the warrants issued to The Productivity Fund IV, L.P. entitle it
to purchase up to 32,308 shares and the warrants issued to Mr. Koulogeorge
entitle him to purchase up to 5,385 shares. These share amounts would be
proportionately increased if we exercise our option to sell 300,000 additional
shares of Series C preferred stock. These warrants will become exercisable 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 these warrants
become exercisable, they will reduce the effective price for the Series C
preferred stock from $5.00 to $3.25. 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. First Analysis has also indicated an
interest in purchasing approximately $1,500,000 of the Series D preferred stock
to be sold in this offering, but they are not obligated to do so. See
"Description of Capital Stock -- Registration Rights" on page 61 for more
information.
We are a party to a Merchant Agreement, dated December 20, 1995, which
obligates us to honor 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 describes the beneficial ownership of GreatFood.com's
common stock as of August 31, 1999 and as adjusted to reflect the sale of the
shares of common stock offered in this prospectus 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 or as may otherwise be determined by applicable community
property laws, the persons named in the table have sole voting and investment
power over 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 4,052,532 shares of
common stock outstanding as of August 31, 1999 (assuming the conversion of all
outstanding shares of preferred stock), and 6,552,532 shares outstanding
immediately following the completion of this offering. Beneficial ownership is
determined according to the rules of the SEC. Shares of common stock which are
issuable upon the exercise of options or warrants that are presently exercisable
or exercisable within 60 days of August 31, 1999 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 the exercise of options, warrants or other
rights to acquire GreatFood.com's common stock that are presently outstanding or
which may be granted in the future or reserved for future issuance under
GreatFood.com's stock plans, the percentage ownership of new public investors
will be reduced.
<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 27.0% 16.7%
William Cuff................................... 287,856 7.1 4.4
R. Stockton Rush, III.......................... 344,999 8.5 5.3
Geoffrey Barker................................ 43,333 1.1 *
David E. Wyman................................. 216,094 5.3 3.3
Mark Koulogeorge............................... 598,000 14.8 14.8
All directors and executive officers as a group
(10 persons)................................. 2,585,757 63.8 45.2
5% SHAREHOLDERS
Furman C. and Susan R. Moseley................. 700,000 17.3 10.7
411 University Street, Suite 1200
Seattle, Washington 98101
First Analysis Corporation..................... 588,000 14.5 14.7
9500 Sears Tower
Chicago, IL 60606
</TABLE>
- ------------------------
* Less than one percent.
55
<PAGE>
Shares listed as held by Mr Cuff include 14,286 shares of common stock
issuable upon exercise of a warrant currently exercisable and 239,999 shares
subject to options exercisable within 60 days of August 31, 1999.
Shares listed as held by Mr. Rush III include 10,000 shares of common stock
issuable upon exercise of an option currently exercisable and 126,666 shares of
preferred stock 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
issued upon the exercise of a warrant issued to The Cobalt Group of which Mr.
Barker is the Co-Chief Executive Officer, a director and a significant
shareholder and 10,000 shares of common stock issuable upon exercise of 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 preferred
stock held by Riverside Partnership and 60,000 shares of preferred stock held by
The Productivity Fund IV, L.P. The percentage of shares outstanding after the
offering listed as held by Mr. Koulogeorge include 375,000 shares of Series D
preferred stock which First Analysis Corporation has indicated an interest in
purchasing in this offering, although it has no obligation to do so. Mr.
Koulogeorge is a member of a limited liability company which is the direct
general partner of The Productivity Fund IV, L.P. and is also a member of 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. The percentage of shares outstanding
after the offering listed as held by First Analysis Corporation include 375,000
shares of Series D preferred stock which First Analysis has indicated an
interest in purchasing in this offering, although it has no obligation to do so.
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 also holds a majority ownership in another limited liability
company which is the indirect general partner of Riverside Partnership.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, we will be authorized to issue up to
20,000,000 shares of common stock, and 10,000,000 shares of preferred stock. The
following discussion summarizes key provisions of the common stock and preferred
stock. You should also refer to our articles of incorporation and bylaws, which
are included as exhibits to the Registration Statement, of which this prospectus
is a part, and to the provisions of applicable Washington law.
COMMON STOCK
As of August 31, 1999, there were outstanding 1,604,164 shares of common
stock and 2,448,368 shares of preferred stock which are each convertible into
one share of common stock at the holder's option, held of record by 47
shareholders. Following this offering, there will be 6,552,532 shares of common
stock outstanding, including 4,948,368 shares of preferred stock which are each
convertible into one share of common stock at the holder's option. 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. After payment is made to holders of outstanding shares of preferred
stock which have preferential rights to dividends, 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 August 31, 1999, there were 2,448,368 shares of preferred stock
outstanding as follows:
- 1,142,847 shares of Series A preferred stock,
- 705,521 shares of Series B preferred stock, and
- 600,000 shares of Series C preferred stock.
In addition, the board of directors has authorized the issuance of 294,479
additional shares of Series B preferred stock and 784,615 additional shares of
Series C preferred stock. Following this offering, there will be 4,948,368
shares of preferred stock outstanding which will consist of the shares of Series
A, B and C preferred stock listed above and 2,500,000 shares of Series D
preferred stock to be issued in this offering.
Under our articles of incorporation, our board of directors is authorized to
issue up to 3,972,538 additional 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 ability to issue 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.
57
<PAGE>
The following chart summarizes the principal terms of the Series A, B, C,
and D preferred stock:
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
<S> <C> <C> <C>
Ranking with Equal with Series B Equal with Series A Equal with Series D preferred
respect to preferred stock and any preferred stock and any stock
dividends and future class or series future class or series Senior to common stock, Series A
liquidation of stock designated to of stock designated to preferred stock and Series B
preference be equal in rank be equal in rank preferred stock
Senior to common stock Senior to common stock
and any future class or and any future class or
series of stock series of stock
designated to be junior designated to be junior
in rank in rank
Junior to Series C and Junior to Series C and
D preferred stock and D preferred stock and
any future class or any future class or
series of stock series of stock
designated to be senior designated to be senior
in rank in rank
Dividends None unless declared by None unless declared by Dividends cumulate and accrue on
the Board the Board a semi-annual basis at the annual
rate of 8% of the average
purchase price of the shares of
Series C preferred stock
Liquidation Upon the liquidation, Upon the liquidation, Upon the liquidation, dissolution
Preference dissolution or winding dissolution or winding or winding up of GreatFood.com,
up of GreatFood.com, up of GreatFood.com, GreatFood.com's assets will be
the holders will the holders will distributed as follows:
receive $1.75(1) per receive $3.00(1) per -If the net proceeds from the
share before payment is share before payment is liquidation event are equal to
made to holders of made to holders of or less than the aggregate price
securities ranked securities ranked paid for the outstanding shares
junior to this series junior to this series of Series C and D preferred
stock plus all accrued and
unpaid dividends on such shares,
then the net proceeds will be
distributed among all holders of
outstanding shares of Series C
and D preferred stock in
proportion to the liquidation
value of their shares
-If the net proceeds are greater
than the aggregate price paid
for the outstanding shares of
Series C and D preferred stock
plus all accrued and unpaid
dividends on such shares, then
the net proceeds will be
distributed as follows:
(1) an amount equal to the
aggregate price paid for the
outstanding shares of Series
C and D preferred stock plus
all accrued and unpaid
dividends on such shares will
be distributed to all holders
of shares of Series C and D
preferred stock in proportion
to the liquidation value of
their shares
<CAPTION>
SERIES D
<S> <C>
Ranking with Equal with Series C preferred
respect to stock
dividends and Senior to common stock, Series A
liquidation preferred stock and Series B
preference preferred stock
Dividends Dividends cumulate and accrue on
a semi-annual basis at the annual
rate of 8% of the purchase price
in this offering
Liquidation Upon the liquidation, dissolution
Preference or winding up of GreatFood.com,
GreatFood.com's assets will be
distributed as follows:
-If the net proceeds from the
liquidation event are equal to
or less than the aggregate price
paid for the outstanding shares
of Series C and D preferred
stock plus all accrued and
unpaid dividends on such shares,
then the net proceeds will be
distributed among all holders of
outstanding shares of Series C
and D preferred stock in
proportion to the liquidation
value of their shares
-If the net proceeds are greater
than the aggregate price paid
for the outstanding shares of
Series C and D preferred stock
plus all accrued and unpaid
dividends on such shares, then
the net proceeds will be
distributed as follows:
(1) an amount equal to the
aggregate price paid for the
outstanding shares of Series
C and D preferred stock plus
all accrued and unpaid
dividends on such shares will
be distributed to all holders
of shares of Series C and D
preferred stock in proportion
to the liquidation value of
their shares
</TABLE>
(1) These amounts will be adjusted if there is a stock dividend, stock split,
combination, reorganization, reclassification or similar event involving a
change in GreatFood.com's capital structure.
58
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SERIES A SERIES B SERIES C
(2) the remaining net assets will
be distributed (a) first to
the holders of Series A and B
preferred stock to return
their purchase price in
proportion to the liquidation
value of their shares, (b)
second to all holders of
common stock to return their
cost, and (c) third to all
holders of common stock and
holders of shares of Series C
and D preferred stock as if
such shares were converted
into common stock
Voting rights Votes on an as- Votes on an as- Votes on an as-converted basis on
converted basis on all converted basis on all all matters submitted to
matters submitted to matters submitted to shareholders
shareholders shareholders Entitled to elect one director as
Entitled to elect one Consent of a majority a class
director as a class of outstanding shares Consent of a majority of
Consent of a majority is required for any outstanding shares is required
of outstanding shares corporate action which for any amendment, modification
is required for any would change any of the or waiver of the terms of this
corporate action which rights, preferences, or series (other than changes to the
would change any of the privileges of, or amount of redemption payment, the
rights, preferences, or limitations provided timing of redemption or the
privileges of, or for the benefit of, conversion rate which require the
limitations provided this series consent of 90% of the outstanding
for the benefit of, shares)
this series So long as 25% of the series
remains outstanding, consent of a
majority of outstanding shares is
required for (i) dividends and
distributions, (ii) redemptions
of equity securities, (iii)
issuances of securities which are
senior or equal with respect to
proceeds from liquidation, (iv)
mergers, consolidations or sales
of substantially all assets, (v)
engagement in a different type of
business, (vi) increase in board
size above seven members, (vii)
incurrence of funded indebtedness
and (viii) specific increases in
officer compensation.
<CAPTION>
SERIES D
(2) the remainder will be
distributed (a) first to the
holders of Series A and B
preferred stock to return
their purchase price in
proportion to the liquidation
value of their shares, (b)
second to all holders of
common stock to return their
cost, and (c) third to all
holders of common stock and
holders of shares of Series C
and D preferred stock as if
such shares were converted
into common stock
Voting rights Votes on an as-converted basis on
all matters submitted to
shareholders
Consent of a majority of
outstanding shares is required
for any amendment, modification
or waiver of the terms of this
series (other than changes to the
amount of redemption payment, the
timing of redemption or the
conversion rate which require the
consent of 90% of the outstanding
shares)
So long as 25% of the series
remains outstanding, consent of a
majority of outstanding shares is
required for (i) dividends and
distributions, (ii) redemptions
of equity securities, (iii)
issuances of securities which are
senior or equal with respect to
proceeds from liquidation, (iv)
mergers, consolidations or sales
of substantially all assets, (v)
engagement in a different type of
business, (vi) increase in board
size above seven members, (vii)
incurrence of funded indebtedness
and (viii) specific increases in
officer compensation.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
<S> <C> <C> <C>
Conversion Convertible into common Convertible into common Convertible into common stock at
Rights stock at the initial stock at the initial the initial rate of one to one(2)
rate of one to one(2) rate of one to one(2) May be converted at the holder's
May be converted at the May be converted at the option at any time
holder's option at any holder's option at any GreatFood.com may require
time time conversion either (a) upon
Will be automatically Will be automatically completion of an underwritten
converted upon a firm converted upon a firm public offering in which the net
commitment underwritten commitment underwritten proceeds are at least $10,000,000
public offering or public offering or and the per share offering price
conversion of 50% or conversion of 50% or is at least twice the average
more of outstanding more of outstanding purchase price of these shares or
shares of this series shares of this series (b) if the holders of a majority
of the outstanding shares of
Series C preferred stock elect to
convert
Redemption None None If requested by the holders of a
Rights majority of outstanding shares of
Series C preferred stock at any
time after May 14, 2004,
GreatFood.com will redeem all
shares of Series C preferred
stock at a price per share equal
to the price paid for these
shares plus all accrued and
unpaid dividends as follows:
-one third of the shares will be
redeemed on the date stated in
the written request;
-an additional one third of the
shares will be redeemed on the
first anniversary of such date;
and
-the final one third of such
shares will be redeemed on the
second anniversary of such date
Additional GreatFood.com is GreatFood.com is GreatFood.com is required to
rights required to provide required to provide provide monthly and annual
quarterly and annual quarterly and annual financial information, an annual
financial information financial information budget, notice of defaults under
any material agreement and any
other reports provided to
shareholders
Holders of 25% of the outstanding
shares have rights to visit
GreatFood.com's properties and
examine its records
<CAPTION>
SERIES D
<S> <C>
Conversion Convertible into common stock at
Rights the initial rate of one to one(2)
May be converted at the holder's
option at any time
GreatFood.com may require
conversion either (a) upon
completion of an underwritten
public offering in which the net
proceeds are at least $15,000,000
and the per share offering price
is at least twice the purchase
price of these shares or (b) if
the holders of a majority of the
outstanding shares of Series D
preferred stock elect to convert
Redemption If requested by the holders of a
Rights majority of outstanding shares of
Series D preferred stock at any
time after October , 2004,
GreatFood.com will redeem all
shares of Series D preferred
stock at a price per share equal
to the price paid for these
shares plus all accrued and
unpaid dividends as follows:
-one third of the shares will be
redeemed on the date stated in
the written request;
-an additional one third of the
shares will be redeemed on the
first anniversary of such date;
and
-the final one third of such
shares will be redeemed on the
second anniversary of such date
Additional GreatFood.com is required to
rights provide monthly and annual
financial information, an annual
budget, notice of defaults under
any material agreement and any
other reports provided to
shareholders
Holders of 25% of the outstanding
shares have rights to visit
GreatFood.com's properties and
examine its records
</TABLE>
(2) The conversion rate will be adjusted to protect the holders from the
dilutive effect of stock dividends, stock splits, combinations of common
stock or other specified issuances of common stock at a price less than the
purchase price for that series.
60
<PAGE>
STOCK INCENTIVE PLAN
As of August 31, 1999, (1) options to purchase a total of 991,000 shares of
common stock were outstanding, and (2) up to 609,000 additional shares of common
stock are reserved for issuance under options granted in the future under the
1997 Stock Incentive Plan. See "Management -- 1997 Stock Incentive Plan" on page
51.
WARRANTS
As of August 31, 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 14,286 shares of common stock at an exercise price of $1.75 per
share that is held by William Cuff, our President; (3) warrants issued to an
entity to purchase up to 2,858 shares of common stock at an exercise price of
$1.75 per share and up to 1,667 shares of common stock at an exercise price of
$3.00 per share; and (4) warrants to purchase up to a total of 323,077 shares of
Series C preferred stock at an exercise price of $0.01 per share which will
become exercisable 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) and (4) above, see "Relationships with GreatFood.com and Related
Transactions" at page 53.
REGISTRATION RIGHTS
After this offering, the holders of 4,027,532 shares of common and preferred
stock will be entitled to 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
of SEC registration statement available for use by us. All of these registration
rights are limited by the terms and conditions of our agreements with these
shareholders, 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.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
There has been no public market for our common stock and one will not
develop after this offering.
After this offering, we will have outstanding 6,552,532 shares of common
stock (including preferred stock convertible into common stock), assuming no
exercise of outstanding warrants and options, which as of August 31, 1999 were
vested for an aggregate of 323,380 shares of common stock and will vest for up
to an additional 1,157,008 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 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 4,052,532 shares of common and preferred 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.
After this offering 2,551,179 shares will be eligible for sale under Rule
144 but will be limited by the Rule 144 volume restrictions and 170,832 shares
will be eligible for sale under Rule 144(k). The remaining 1,330,521 restricted
shares will be eligible for sale under Rule 144 on the expiration of various one
year holding periods.
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
6,552,532 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 must be made in "broker's transactions" and comply with
the notice requirements in that Rule and to the Rule's requirement that there be
current public information available about GreatFood.com. It will be difficult
for holders to sell their shares in broker's transactions if a public market
does not develop for our stock. Further, it is unlikely that adequate current
public information will be available once we are no longer required to file
periodic reports with the SEC. 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 1,600,000 shares of common stock reserved
for issuance under the 1997 Stock Incentive Plan. The registration statement
will become effective automatically upon filing. Shares issued under this plan,
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 and to vesting restrictions imposed by us.
In addition, following this offering, the holders of 4,027,532 shares of
outstanding common and preferred stock will have rights to require us to
register their shares for future sale. See "Description of Capital Stock --
Registration Rights" on page 61.
62
<PAGE>
PLAN OF DISTRIBUTION
GreatFood.com entered into a placement agency agreement with WR Hambrecht &
Company, LLC under which WR Hambrecht agrees to offer the shares of Series D
preferred stock to potential investors on a non-exclusive "best efforts" basis.
WR Hambrecht will not be required to purchase any of the Series D preferred
stock for its own account or for the accounts of others, or to sell a specific
number or dollar amount of shares. GreatFood.com may also offer the shares to
its existing shareholders and other potential investors directly. In addition,
WR Hambrecht and First Analysis Corporation, have indicated an interest in
purchasing up to $4,500,000 of shares of Series D preferred stock, although they
are not obligated to do so.
Under the placement agency agreement, GreatFood.com has agreed to pay WR
Hambrecht a cash fee equal to a percentage of the gross proceeds received from
investors in this offering. No fee will be payable to WR Hambrecht on the gross
proceeds received from existing shareholders or investors solicited by
GreatFood.com or parties other than WR Hambrecht unless WR Hambrecht undertakes
negotiations with these new investors on behalf of GreatFood.com. GreatFood.com
has also agreed to reimburse WR Hambrecht for expenses incurred in connection
with this offering. The placement agency agreement also provides that
GreatFood.com will indemnify WR Hambrecht against specified liabilities,
including liabilities under the Securities Act, or contribute to payments that
WR Hambrecht may be required to make as a result of these liabilities.
The shares are being offered only to "accredited investors" within the
meaning of Rule 501(a) under the Securities Act, at the offering price set forth
on the cover page of this prospectus. The sale of the shares will be made under
a purchase agreement between GreatFood.com and the purchasers in this offering.
The purchase agreement will contain customary financial and business
representations and warranties of GreatFood.com, including a representation
concerning the accuracy of the information about GreatFood.com's business in
this prospectus and that there has been no material adverse change in
GreatFood.com's business prior to the closing of the offering. The purchase
agreement will also contain covenants of GreatFood.com which will provide the
purchasers of Series D preferred stock with specific rights including the right
to consent to specified corporate transactions, receive periodic reports from
GreatFood.com and inspect GreatFood.coms records, as more fully described in
"Description of Capital Stock -- Preferred Stock -- Voting Rights" and "--
Additional Rights" on pages 58 and 59.
The sale of the shares of Series D preferred stock will occur in one or more
closings. The initial closing will be held at any time after subscriptions for
$4,500,000 or more of Series D preferred stock have been received. After the
initial closing, GreatFood.com may continue the offering and schedule subsequent
closings at their discretion until the full amount of the offered shares has
been sold.
WR Hambrecht is an investment banking firm formed as a limited liability
company in February 1998. In addition to this offering, WR Hambrecht has engaged
in the business of public and private equity investing and financial advisory
services since its inception. The manager of WR Hambrecht, William R. Hambrecht,
has 40 years of experience in the securities industry. Persons affiliated and
associated with WR Hambrecht beneficially own an aggregate of 116,666 shares of
GreatFood.com's common stock issuable upon the conversion of preferred stock.
63
<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. We have
omitted information which the SEC does not require to be included in this
prospectus 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 be required to file with the SEC
periodic reports and other information required by the Exchange Act for all
periods ending prior to January 1, 2000. Such periodic reports 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.
64
<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 June 30, 1999 (unaudited).......... F-3
Statement of Operations for the Years Ended December 31, 1996, 1997 and 1998 and for
the
Six Months Ended June 30, 1999 and 1998 (unaudited)................................. F-4
Statement of Changes in Shareholders' Equity for the Years Ended December 31, 1996,
1997, 1998 and for the Six Months Ended June 30, 1999 (unaudited)................... F-5
Statement of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998 and for
the
Six Months Ended June 30, 1999 and 1998 (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>
DECEMBER 31, JUNE 30,
---------------------- 1999
1997 1998 (UNAUDITED)
--------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................................................... $ 124,092 $ 678,096 $ 3,437,628
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 13,120
Prepaid expenses.................................................................. 140,270 403,067
--------- ----------- -----------
126,023 1,318,450 3,853,815
Property and equipment, net......................................................... 34,626 99,594 255,877
Other assets........................................................................ 10,363 100,328
--------- ----------- -----------
Total assets.................................................................... $ 160,649 $ 1,428,407 $ 4,210,020
--------- ----------- -----------
--------- ----------- -----------
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS'
EQUITY
Current liabilities
Accounts payable.................................................................. $ 73,768 $ 625,982 $ 720,003
Accrued payroll and related benefits.............................................. 38,934 13,858
Current portion of shareholder loans payable...................................... 1,489
Current portion of capital lease obligation....................................... 20,391 41,143
--------- ----------- -----------
75,257 685,307 775,004
--------- ----------- -----------
Noncurrent portion of shareholder loans payable..................................... 11,791
---------
Noncurrent portion of capital lease obligation...................................... 27,012 45,584
----------- -----------
Commitments and contingencies (Note 5)
Series C mandatorily redeemable convertible preferred stock, no par value; 1,384,615
(unaudited) shares authorized in 1999; 600,000 (unaudited) shares issued and
outstanding in 1999; liquidation value of $5.00 per share plus unpaid dividends... 2,993,045
-----------
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); 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;
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..................................... 197,043 314,891 421,604
Deferred compensation............................................................... (100,203) (143,244)
Accumulated deficit................................................................. (123,442) (1,462,666) (3,950,869)
--------- ----------- -----------
73,601 716,088 396,387
--------- ----------- -----------
Total liabilities, mandatorily redeemable convertible preferred stock and
shareholders' equity........................................................... $ 160,649 $ 1,428,407 $ 4,210,020
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
GREATFOOD.COM, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
--------- --------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues............................ $ 17,530 $ 119,633 $ 747,860 $ 64,560 $ 409,628
Cost of goods sold...................... 13,484 91,550 605,140 52,877 345,940
--------- --------- ---------- --------- ----------
Gross profit............................ 4,046 28,083 142,720 11,683 63,688
Operating expenses
Sales and marketing................... 11,028 36,264 1,102,062 48,184 1,709,127
Product and site development.......... 706 8,801 84,000 7,258 153,283
General and administrative............ 52,815 65,707 449,623 100,838 725,193
--------- --------- ---------- --------- ----------
Total operating expenses.............. 64,549 110,772 1,635,685 156,280 2,587,603
--------- --------- ---------- --------- ----------
Loss from operations.................... (60,503) (82,689) (1,492,965) (144,597) (2,523,915)
Other income (expense)
Other income.......................... 24,500 3,200 793
Interest income....................... 63 164 33,298 506 39,426
Interest expense...................... (3,893) (2,612) (3,792) (1,000) (3,714)
--------- --------- ---------- --------- ----------
Net loss................................ $ (39,833) $ (81,937) $(1,462,666) $(145,091) $(2,488,203)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Net loss available to common
shareholders.......................... $ (39,833) $ (81,937) $(1,462,666) $(145,091) $(2,519,151)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Basic and diluted net loss per share.... $ (0.04) $ (0.06) $ (0.93) $ (0.09) $ (1.60)
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
Weighted average shares outstanding..... 1,007,432 1,273,915 1,579,164 1,579,164 1,579,164
--------- --------- ---------- --------- ----------
--------- --------- ---------- --------- ----------
</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..................................................
Conversion from S corporation to C corporation............ (123,442)
Proceeds from issuance of stock, net...................... 1,142,847 1,964,066 33,333 10,000
Issuance of stock options to employees.................... 196,134
Issuance of warrants...................................... 35,156
Amortization of deferred compensation.....................
--------- --------- --------- --------- --------- ---------
Balances at December 31, 1998............................. 1,142,847 1,964,066 -- -- 1,579,164 314,891
Net loss (unaudited)......................................
Proceeds from issuance of stock, net (unaudited).......... 705,521 2,104,830
Issuance of stock options to employees (unaudited)........ 126,205
Issuance of warrants (unaudited).......................... 11,456
Amortization of deferred compensation (unaudited).........
Accretion of mandatorily redeemable convertible preferred
stock (unaudited)....................................... (948)
Dividends on mandatorily redeemable convertible preferred
stock (unaudited)....................................... (30,000)
--------- --------- --------- --------- --------- ---------
Balances at June 30, 1999 (unaudited)..................... 1,142,847 $1,964,066 705,521 $2,104,830 1,579,164 $ 421,604
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<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.................................................. (1,462,666) (1,462,666)
Conversion from S corporation to C corporation............ 123,442
Proceeds from issuance of stock, net...................... 1,974,066
Issuance of stock options to employees.................... (196,134) --
Issuance of warrants...................................... 35,156
Amortization of deferred compensation..................... 95,931 95,931
------------ ------------ ----------
Balances at December 31, 1998............................. (100,203) (1,462,666) 716,088
Net loss (unaudited)...................................... (2,488,203) (2,488,203)
Proceeds from issuance of stock, net (unaudited).......... 2,104,830
Issuance of stock options to employees (unaudited)........ (126,205) --
Issuance of warrants (unaudited).......................... 11,456
Amortization of deferred compensation (unaudited)......... 83,164 83,164
Accretion of mandatorily redeemable convertible preferred
stock (unaudited)....................................... (948)
Dividends on mandatorily redeemable convertible preferred
stock (unaudited)....................................... (30,000)
------------ ------------ ----------
Balances at June 30, 1999 (unaudited)..................... $ (143,244) $(3,950,869) $ 396,387
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
GREATFOOD.COM, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- -----------------------
<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) $(1,462,666) $ (145,091) $(2,488,203)
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation and amortization................... 14,004 14,577 24,827 8,729 32,319
Amortization of deferred compensation........... 95,931 18,752 83,164
Expense related to the issuance of stock options
and warrants.................................. 5,953 7,737 1,268 11,456
Changes in:
Accounts receivable........................... (1,931) (498,153) 1,931 486,964
Prepaid expenses.............................. (140,270) (262,797)
Other assets.................................. (5,802) (91,260)
Accounts payable.............................. 10,549 58,329 552,214 (49,576) 94,021
Accrued payroll and related benefits.......... 38,934 16,313 (25,076)
--------- --------- ----------- ---------- -----------
Net cash used in operating activities......... (15,280) (5,009) (1,387,248) (147,674) (2,159,412)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment............... (25,923) (8,510) (34,022) (11,806) (133,336)
--------- --------- ----------- ---------- -----------
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 10,000 5,066,927
Proceeds from preferred stock subscriptions....... 486,000
Proceeds from issuance of shareholder loan
payable......................................... 15,000 60,000 40,000 100,000
Payments of shareholder loan payable.............. (330) (1,390) (73,280) (810) (100,000)
Payment of capital lease obligation............... (8,370) (14,647)
--------- --------- ----------- ---------- -----------
Net cash provided by financing activities..... 50,670 123,610 1,975,274 535,190 5,052,280
--------- --------- ----------- ---------- -----------
Net increase in cash and cash equivalents........... 9,467 110,091 554,004 375,710 2,759,532
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 $ 499,802 $ 3,437,628
--------- --------- ----------- ---------- -----------
--------- --------- ----------- ---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest.............................. $ 3,893 $ 2,612 $ 3,792 $ 1,000 $ 3,790
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchased under capital
leases............................................ $ 55,773 $ 53,971
Conversion from S corporation to C corporation...... $ 123,442 $ 123,442
Issuance of stock warrants.......................... $ 27,419
Issuance of stock options........................... $ 15,625 $ 196,134 $ 126,205
Accretion of mandatorily redeemable convertible
preferred stock................................... $ 948
Dividends on mandatorily redeemable convertible
preferred stock................................... $ 30,000
</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 six months ended June 30, 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 six months ended June 30, 1998 and June 30,
1999, these five suppliers provided 46% and 28% (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,
capital lease obligations and mandatorily redeemable convertible preferred
stock. Except for capital lease obligations and mandatorily redeemable
convertible preferred stock, 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
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)
June 30, 1999 (unaudited) is not materially different from the carrying amount,
based on interest rates available to the Company for similar types of
arrangements. The fair value of the mandatorily redeemable convertible preferred
stock at June 30, 1999 is equal to the estimated initial public offering price
of the common stock into which it is convertible plus unpaid dividends
(unaudited).
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.
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.
ADVERTISING COSTS
The Company utilizes print and online advertising, direct mail, trade shows
and online promotions to expand brand and product awareness. The Company's
online advertising contracts include contracts for presence on third party Web
sites and Internet page impressions. These contracts require either monthly or
quarterly payments and range in length from one to sixteen months. Costs
incurred for online advertising contracts are recognized ratably over the term
of the arrangements. All other advertising costs are expensed as incurred.
Advertising costs for 1996, 1997 and 1998 were $11,028,
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)
$26,864 and $1,044,591, respectively, and for the six months ended June 30, 1998
and June 30, 1999 were $27,779 and $1,623,787 (unaudited), respectively. At
December 31, 1998 and June 30, 1999, the Company has recorded in prepaid
expenses $138,602 and $28,558 (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 551,000 and 3,999,256 (unaudited)
for the six months ended June 30, 1998 and June 30, 1999, respectively, were
excluded from diluted net loss per share due to their anti-dilutive effect.
There were no potentially dilutive securities during 1996.
The following table sets forth the computation of the numerators in the
basic and diluted net loss per share calculation for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
--------- --------- ----------- ---------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss........................................ $ (39,833) $ (81,937) $(1,462,666) $ (145,091) $(2,488,203)
Dividends on mandatorily redeemable convertible
preferred stock............................... (30,000)
Accretion of mandatorily redeemable convertible
preferred stock............................... (948)
--------- --------- ----------- ---------- -----------
Net loss available to common
shareholders.................................. $ (39,833) $ (81,937) $(1,462,666) $ (145,091) (2,519,151)
--------- --------- ----------- ---------- -----------
--------- --------- ----------- ---------- -----------
</TABLE>
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)
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 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.
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)
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial data as of June 30, 1999 and for the six months ended
June 30, 1999 and June 30, 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 June 30, 1999 and the results of its operations and cash flows
for the six months ended June 30, 1999 and 1998.
2. PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment........................................................... $ 40,108 $ 88,149 $ 171,271
Furniture and office equipment............................................... 1,461 42,445 124,896
Software..................................................................... 22,337 23,107 33,235
Leasehold improvements....................................................... 11,606
---------- ---------- -----------
63,906 153,701 341,008
LESS: Accumulated depreciation and amortization.............................. (29,280) (54,107) (85,131)
---------- ---------- -----------
$ 34,626 $ 99,594 $ 255,877
---------- ---------- -----------
---------- ---------- -----------
</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 $109,747
(unaudited) at December 31, 1998 and June 30, 1999, respectively. Accumulated
amortization for these items was $6,247 and $20,309 (unaudited) at December 31,
1998 and June 30, 1999, respectively.
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
F-11
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
4. SHAREHOLDERS' EQUITY (CONTINUED)
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.
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
F-12
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
4. SHAREHOLDERS' EQUITY (CONTINUED)
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 $95,931 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.
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) $ (1,462,666)
Pro forma......................................................................... $ (82,903) $ (1,502,441)
Basic and diluted net loss per share
As reported....................................................................... $ (0.06) $ (0.93)
Pro forma......................................................................... $ (0.07) $ (0.95)
</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.
F-13
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
4. SHAREHOLDERS' EQUITY (CONTINUED)
The following summarizes the activity under the Plan:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED- WEIGHTED-
SHARES UNDER AVERAGE AVERAGE
OPTION EXERCISE GRANT DATE
AGREEMENTS PRICE FAIR VALUE
------------ ----------- -----------
<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.
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>
F-14
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
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.
Operating lease expense was $0, $1,413 and $5,631 in 1996, 1997 and 1998,
respectively, and $997 and $10,675 (unaudited) for the six months ended June 30,
1998 and June 30, 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
F-15
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
5. COMMITMENTS (CONTINUED)
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
which have been generated since becoming a C corporation 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.
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..................................... 35,000
Allowance for doubtful accounts................................ 1,000
Accrued liabilities............................................ 3,000
---------
497,000
---------
Deferred income tax liabilities:
Depreciation and amortization.................................. (1,000)
---------
496,000
Valuation allowance.............................................. (496,000)
---------
$ --
---------
---------
</TABLE>
F-16
<PAGE>
GREATFOOD.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
6. INCOME TAXES (CONTINUED)
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............................................ $(497,306)
Nondeductible items.............................................. 1,306
Change in valuation allowance.................................... 496,000
---------
$ --
---------
---------
</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
are convertible into common stock on a one-for-one basis and 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. Between January 1, 1999 and May 17, 1999, the
Company issued 214,000 common stock options to employees at a weighted average
exercise price of $4.05 per share.
F-17
<PAGE>
[LOGO]
Until , 1999, which is 90 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.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee.............................................................. $ 10,790
Blue Sky fees and expenses........................................................ 10,000
Printing and engraving expenses................................................... 20,000
Legal fees and expenses........................................................... 30,000
Accounting fees and expenses...................................................... 15,000
Miscellaneous expenses............................................................ 4,210
----------
Total......................................................................... 90,000
----------
----------
</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. Article VIII 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 1996, the registrant has issued and sold unregistered securities
as follows:
(1) 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.
(2) 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.
II-1
<PAGE>
(3) 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.
(4) On July 17, 1998, 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.
(5) 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.
(6) 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.
(7) 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.
(8) 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.
(9) 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).
(10) From September 1997 through August 31, 1999, the registrant granted
stock options to purchase an aggregate of 991,000 shares of common stock to
employees, executive officers, consultants and directors with exercise prices
ranging from $0.30 to $11.00 per share pursuant to the registrant's 1997 Stock
Incentive Plan in consideration for services.
(11) On July 23, 1999, the registrant issued 25,000 shares to The Cobalt
Group for an aggregate price of $5,000 pursuant to the exercise of the warrant
issued to them on March 15, 1997.
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 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.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1++ Form of Placement Agency 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.
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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
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.
10.25++ Form of Series D Preferred Stock Purchase Agreement
10.26 Advertising Insertion Order, dated August 24, 1999, between the registrant and America Online, Inc.
10.27 Lease Agreement, dated July 27, 1999, between the registrant and Blume Eastlake Limited Partnership.
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).
23.3+ Consent of Jupiter Communications.
23.4+ Consent of International Data Corporation.
23.5+ Consent of Kalorama Information LLC (with respect to Packaged Facts study).
23.6+ Consent of BizRate.com.
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 described in Item 14 above,
or otherwise, GreatFood.com has been advised that in the opinion of the
II-4
<PAGE>
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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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 16th day of September, 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 September 16, 1999
Benjamin Nourse (Principal Executive Officer)
*
- ------------------------------------ President and Director September 16, 1999
William Cuff
Vice President of Finance and
* Administration and Chief
- ------------------------------------ Financial Officer (Principal September 16, 1999
Gayle Stetson Financial and
Accounting Officer)
*
- ------------------------------------ Director September 16, 1999
R. Stockton Rush, III
*
- ------------------------------------ Director September 16, 1999
Geoffrey Barker
*
- ------------------------------------ Director September 16, 1999
David E. Wyman
*
- ------------------------------------ Director September 16, 1999
Mark Koulogeorge
*By: /s/ BENJAMIN NOURSE
------------------------------
Benjamin Nourse
(ATTORNEY-IN-FACT)
</TABLE>
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1++ Form of Placement Agency 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.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
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.
10.25++ Form of Series D Preferred Stock Purchase Agreement.
10.26 Advertising Insertion Order, dated August 24, 1999, between the registrant and America Online, Inc.
10.27 Lease Agreement, dated July 27, 1999, between the registrant and Blume Eastlake Limited Partnership.
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).
23.3+ Consent of Jupiter Communications.
23.4+ Consent of International Data Corporation.
23.5+ Consent of Kalorama Information LLC (with respect to Packaged Facts study).
23.6+ Consent of BizRate.com.
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.
<PAGE>
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT, AND NON-PUBLIC INFORMATION HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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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CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT, AND NON-PUBLIC INFORMATION HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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,
18
<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
20
<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
22
<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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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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CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT, AND NON-PUBLIC INFORMATION HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
[***] 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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<TABLE>
<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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<TABLE>
<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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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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<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<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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<TABLE>
<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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<TABLE>
<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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<TABLE>
<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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<TABLE>
<CAPTION>
Line Line Type Start Date End Date Page Views Amount
- ----- --------- ---------- -------- ---------- ------
<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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<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>
[***] indicates confidential treatment for omitted text has been requested.
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>
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT, AND NON-PUBLIC INFORMATION HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
[***] 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
[***]
<PAGE>
[***] indicates confidential treatment for omitted text has been requested.
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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<PAGE>
[***] indicates confidential treatment for omitted text has been requested.
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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[***] indicates confidential treatment for omitted text has been requested.
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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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:
[***]
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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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CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT, AND NON-PUBLIC INFORMATION HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.14
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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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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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>
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT, AND NON-PUBLIC INFORMATION HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
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.
- -------------------------------------------------------------------------------
GRR 022699 Pandesic Agreement -- Terms and Conditions Page 5
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PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
12. LIMITATION OF LIABILITY
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
13. TERM AND TERMINATION
- -------------------------------------------------------------------------------
13.1 The initial term of this Agreement shall commence on the
Contract Date and shall continue for twenty-four months from
the date that the Pandesic software is loaded on the servers
and the servers are ready to
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PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
TERMS AND CONDITIONS
accept Merchant's configuration and functional
installation of its products, ("Technical Installation"),
following which it shall automatically renew for successive
twenty-four month 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
<PAGE>
PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
14. DISPUTE RESOLUTION
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
15. GENERAL
- -------------------------------------------------------------------------------
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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GRR 022699 Pandesic Agreement -- Terms and Conditions Page 8
<PAGE>
PANDESIC AGREEMENT
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
16. SPECIAL TERMS
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------
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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GRR 022699 Pandesic Agreement -- Terms and Conditions Page 11
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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:
- -------------------------------------------------------------------------------
1. NAMED DROP-SHIP SUPPLIERS OF GREATFOOD.COM
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY PRODUCTS COMPANY PRODUCTS
- ------- -------- ------- --------
<S> <C> <C> <C>
Ackerman & Cooke Prime beef steaks and roasts Harry & David Fruits, gift baskets
Advantage International Imported cheeses Harbor Sweets Hand-make gift chocolates
Bella Cucina Artful Food Pasta, sauces, olive oil Hickory Farms Cheeses, sausages, gift baskets
Blue Crab Bay Company Soups, crackers and Bloody Highland Sugarworks Vermont maple syrup and
Mary mix from the breakfast gift packs
Chesapeake Bay area
Brown & Haley Almond Roca-TM- and other Hogue Farms Pickled vegetables
fine chocolates for appetizers and snacks
Caffe Appassionato Speciality coffee John Wm. Macy Cheesesticks Gourmet cheesesticks
Calio Groves California olive oils Killer Pecans Twice-cooked junior mammoth
pecan halves
Celebration Speciality Birthday and occasion cakes, Kim & Scott's Gourmet Pretzels
Foods tarts, pastries Pretzels
Carson's Ribs Barbecue ribs from Chicago Les Encore Cookies
Charlie Palmer Foods Cooking sauces Lobster Gram Live Maine lobster dinners
Chef's Pride Fresh turkeys Melissa's Exotic fruit
Chewy's Rugulach Pastries Mo Hotta Mo Betta Hot sauces
Chukar Cherry Company Dried fruits and candies, Moonshine Trading Honeys and nut butters
gift baskets
Cibo Fresh Specialities Fresh herb butters, cheeses Omaha Steak Company Steaks and other beef products
and pestos
Cinnabar Speciality Chutneys and sauces Oregon Orchard Hazelnuts and chocolate coated
Foods, Inc. hazelnuts
Cinnabon Cinnamon rolls Pacific Cookie Company Oatmeal, chocolate chip and
other cookies
Cornfields Gourmet popcorn Paul Proudhomme's Magic Spice mixes
Seasoning Blends
Crinklaw Farms Wreaths, dried flowers, Partners Crackers Crackers
garlic braids
Da Vinci Gourmet Flavored syrups Patti's Plum Puddings Plum pudding
D'Artagnan Pates, sausages, specialty meats Perugina Chocolates
Edible Eats Gourmet cheesecakes Petrossian Cavier Imported caviar
Elena's Pasta and pasta sauces Port Chatham Smoked Salmon Smoked salmon and gift packs
The Famous Pacific Chocolate Decadence, tortes Quality Citrus Packs Extra fancy Sunkist oranges and
Dessert Company and brownies grapefruit
Fox's Fine Foods Relishes and pestos Reward Specialty Food Gourmet granola
Company
Goldwater's Foods of Arizona All natural hot and fruit salsas Torn Ranch Dried fruits and nuts, gift packs
Grafton Village Cheese Vermont cheddar cheeses Tortuga Rum cakes
Graysmarsh Farms Jams and preserves Two Buddies BBQ BBQ sauces and marinades
Greenwich Bay Clams Rhode Island littleneck clams Ultimate Baking Company Gourmet biscotti
Grimaud Farms Muscovy Duck, rabbit, goose Ultimate Basket Gift baskets
Hagerty Foods Sauces and pickled vegetables Walker's Shortbreads Imported shortbread from Scotland
Ham I Am! Hickory-smoked hams, turkeys,
quail and beef brisket
</TABLE>
- -------------------------------------------------------------------------------
2. NAMED COMPANIES SELLING SPECIALTY FOOD PRODUCTS OVER THE INTERNET
USING DROP-SHIP SUPPLIERS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY COMPANY
- ------- -------
<S> <C>
[***]
</TABLE>
- -------------------------------------------------------------------------------
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
--------------------------------------- --------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AOL ADVERTISING INSERTION ORDER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONTRACT #:
AOL SALESPERSON: BRANDON BERGMARK
SALES COORDINATOR: ALEX THIESEN / / CREDIT APPROVAL RECEIVED
EFFECTIVE DATE: AUGUST 24, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Advertiser ("Advertiser") Advertising Agency
- --------------------------------------------------------------------------------
<S> <C> <C>
Contact Person Ben Nourse
Company Name GreatFood.com
Address-Line 1 2731 Eastlake Avenue East
Address-Line 2 Seattle, Washington 98102
Phone # 206-322-7539
Fax# (206) 322-7639
Email [email protected]
SIC Code
Advertiser IAB Category
- --------------------------------------------------------------------------------
Billing Information
- --------------------------------------------------------------------------------
Send Invoices to (choose one) /X/ Advertiser / / Agency
Advertiser or Agency Billing Ben Nourse
Contact Person
Company Name GreatFood.com
Billing Address-Line 1 2731 Eastlake Avenue East
Billing Address-Line 2 Seattle, Washington 98102
Billing Phone # 206-322-7539
Billing Fax# (206) 322-7639
Billing Email Address [email protected]
P.O. #, if applicable
- --------------------------------------------------------------------------------
</TABLE>
BILLING & PAYMENT SCHEDULE (SELECT ONE):
/ / If total payment due is less than or equal to $5,000 and the Bank is new to
America Online, Inc. ("AOL"), payment is due upon signing* and must be received
by AOL prior to ad flight.
/ / If total payment due is greater than $5,000, an Bank new to AOL must have a
favorable D&B credit rating (as determined by AOL). If the new Bank does not
receive a favorable credit rating or no D&B credit rating is available, payment
is due* in advance of display start date.
/ / Given a favorable credit rating for a new Bank or a positive payment history
for a current Bank, invoices will be due monthly commencing on the display start
date, due net 30. A current Bank with invoices past due to AOL must pay
outstanding debts prior to new display start date.
/X/ As set forth on Exhibit A attached hereto.
* PAYMENT INFORMATION IF PAYMENT IS DUE TO AOL UPON SIGNING OR PRIOR TO DISPLAY
START DATE (SELECT ONE):
/X/ Payment due is greater than or equal to $100,000, please wire funds to: Acct
Title: America Online, Inc., ABA: 021000021, Acct#: 323070752, The Chase
Manhattan Bank, 1 Chase Manhattan Bank, New York, NY 10081.
/X/ Payment due is less than $1000,000, please mail checks to: America Online,
Inc., Attn: Accounts Receivable, General Post Office, P.O. Box 5696, New York NY
10087-5696.
ALL AMOUNTS NOT PAID WHEN DUE AND PAYABLE WILL BEAR INTEREST FROM THE DUE DATE
AT THE PRIME RATE IN EFFECT AT SUCH TIME. IN THE EVENT OF NONPAYMENT, AOL
RESERVES THE RIGHT TO IMMEDIATELY TERMINATE THIS INSERTION ORDER AGREEMENT WITH
WRITTEN NOTICE TO ADVERTISER
<PAGE>
INVENTORY TYPE (CHOOSE ONE): / / AOL SERVICE ONLY
/ / AOL AFFILIATE ONLY (E.G. AOL.com)
/ / AOL SERVICE & AOL AFFILIATE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
AOL SERVICE
- --------------------------------------------------------------------------------
INVENTORY
- --------------------------------------------------------------------------------
AOL SERVICE DISPLAY DISPLAY # OF AD SLOTS TOTAL
INVENTORY/DEMOGRAPHIC* START STOP AD PURCHASED TOTAL GROSS IMPRESSIONS
PURCHASED DATE DATE TYPE PRICE
- ---------------------- ---------- --------- ------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
See Exhibit C attached hereto
TOTAL
*Attached completed AOL Demographic Profile Worksheet TOTALS
</TABLE>
- --------------------------------------------------------------------------------
ART
- --------------------------------------------------------------------------------
All necessary artwork and active URL's must be provided by advertiser 3 business
days prior to start date.
ARTWORK REQUIRED FROM ADVERTISER/AGENCY:
/ / 234x60 IAB Standard/ / / 145x30 Standard/ / / 120 x60 Shopping/10k Max
10k Max 10k Max
/ / 175x45 Chat/Mail in-box/ / / 197 x 40 PF Area / / Special ___
10k Max 10k Max
* STATIC BANNERS ONLY, NO ANIMATION *
Linking URL: The HTTP/URL address to be connected to the Advertisement shall be:
HTTP: www.greatfood.com (or any successor or other site promoted by AOL or
linked to from the AOL Network pursuant to this Agreement, the "Affiliated
Advertiser Site"). Advertiser shall be responsible for any hosting or
communication costs associated with the Affiliated Advertiser Site.
PLEASE SEND ARTWORK AND URL TO (CHOOSE ONE):
/ / [email protected] / / [email protected]
AOL reserves the right toimmediately cancel anyadvertising flight in the event
of a material change to the nature or content of the site linked to the
Advertisement.
2
<PAGE>
<TABLE>
<CAPTION>
AOL AFFILIATE (E.G. AOL.com)
- --------------------------------------------------------------------------------
INVENTORY
- --------------------------------------------------------------------------------
AOL AFFILIATE DISPLAY DISPLAY # OF AD SLOTS TOTAL TOTAL
INVENTORY/DEMOGRAPHIC* START STOP AD PURCHASED GROSS IMPRESSIONS
PURCHASED DATE DATE TYPE PRICE
- ---------------------- ---------- ------- ------- ------------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
SEE EXHIBIT C
AOL.com:
SUBTOTAL
DIGITAL CITY:
SUBTOTAL
COMPUSERVE SERVICE:
SUBTOTAL
</TABLE>
*See attached package description for any AOL.com package purchases TOTALS:
- --------------------------------------------------------------------------------
ART
- --------------------------------------------------------------------------------
All necessary artwork and active URL's must be provided by Advertiser 3 business
days prior to start date.
ARTWORK REQUIRED FROM ADVERTISER/AGENCY:
/ /468x60 NF Reviews, Search Terms, My News & Hometown/10k Max/animation OK
/ / 100x70 AOL.com Home Page/3k / / 120x60 NF Home Page/2k Max/No animation
Max/No animation
/ / 120x60 Shopping /4k / / 234x60 NF Kids Only & Hometown/5k
Max/No animation Max/animation OK
/ / 120 x 60 Instant Messenger/7.5 Max/ animation OK
LINKING URL: THE HTTP/URL ADDRESS TO BE CONNECTED TO THE ADVERTISEMENT SHALL BE
THE SAME ADDRESS AS THAT OF THE ADVERTISER SITE.
PLEASE SEND ARTWORK AND URL TO (CHOOSE ONE):
/ / [email protected] / / [email protected]
AOL reserves the right to immediately cancel any advertising flight in the event
of a material change to the nature or content of the site linked to the
Advertisement.
3
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Advertising Purchase Summary
- ----------------------------------------------------------------------------------------------------------------
TOTAL PRICE TOTAL IMPRESSIONS CPM
------------------ ----------------- --------------
<S> <C> <C> <C>
AOL Networks SEE EXHIBIT C SEE EXHIBIT C
AOL Affiliate
Total Purchase Price
(Less Agency Discount)
NET PURCHASE PRICE TOTAL IMPRESSIONS
$1,498,990 54,537,400
------------------ ----------------- --------------
</TABLE>
The products and/or services to be offered or promoted by Advertiser in the
Advertisements are as follows: Gourmet foods and directly related products (the
"Advertiser Products").
IMPRESSIONS COMMITMENT. In the event AOL delivers the impression commitment
provided for hereunder prior to the Display Stop Date, AOL may, at its option,
discontinue display at such earlier time. Any guarantees are to impressions (as
measured by AOL in accordance with its standard methodologies and protocols),
not "click-throughs." In the event there is (or will be in AOL's reasonable
judgment) a shortfall in impressions as of the end of a display period (a
"Shortfall"), such Shortfall shall not be considered a breach of the Agreement
by AOL: instead, AOL will provide Advertiser, as its sole remedy, with
"makegood" impressions (subject to availability) on the AOL Network which have a
total value, based on AOL's then-current advertising rate card; equal to the
value of the Shortfall. To the extent impressions commitments are identified
without regard to specific placements, such placements will be as mutually
agreed upon by AOL and Advertiser during the course of the display period. AOL
reserves the reasonable right to alter Advertiser flight dates to accommodate
trafficking needs or other operational needs. In such cases, AOL will make
available to Advertiser reasonably equivalent flight(s).
NAVIGATION. Advertiser shall provide continuous navigational ability for AOL or
users to return to an agreed-upon point on the AOL Network (for which AOL shall
supply the proper address) from the Affiliated Advertiser Site (e.g., the point
on the AOL Network from which the Affiliated Advertiser Site is linked), which,
at AOL's option, may be satisfied through the use of a hybrid browser format.
Advertiser will ensure that navigation back to the AOL Network, whether through
a particular pointer or link, the "back" button on an Internet browser, the
closing of an active window, or any other return mechanism, shall not be
interrupted by Advertiser through the use of any intermediate screen or other
device not specifically requested by the user, including without limitation
through the use of any html popup window or any other similar device.
Additionally, in cases where an AOL user performs a search for Advertiser or any
Advertiser product through any search or navigational tool or mechanism that is
accessible or available through the AOL Network (e.g., promotions, keyword
search terms, or any other promotions or navigational tools), AOL shall have the
right to direct such AOL user to the Affiliated Advertiser Site, or any other
Advertiser site determined by AOL in its reasonable discretion.
STANDARD TERMS AND CONDITIONS. This Insertion Order incorporates by reference
AOL's standard advertising terms and conditions (the "Standard Terms"),
including terms related to advertising material, payment modifications,
cancellation rights, usage data, limitations of liability, disclaimers,
indemnifications, use of AOL member information and miscellaneous legal terms.
Among other things, the Standard Terms provide AOL the right to cancel this
Insertion Order on thirty days notice to Advertiser (or upon such shorter notice
as may be designated by AOL in the event that AOL believes that further display
of the Advertisement will expose AOL to liability or other adverse
consequences), in which case Advertiser shall only be responsible for the
pro-rata portion of payments attributable to the period preceding such
termination. The Standard Ad Terms appear at keyword "Standard Ad Terms4" on the
U.S. based America Online brand service and at"HTTP://mediaspace.aol.
com/adterms4.html." A hard copy of the Standard Ad Terms will be provided to
advertiser upon request. ADVERTISER ACKNOWLEDGES THAT IT HAS BEEN PROVIDED AN
OPPORTUNITY TO REVIEW THE STANDARD TERMS AND AGREES TO BE BOUND BY THEM.
4
<PAGE>
AUTHORIZED SIGNATURES
In order to bind the parties to this Insertion Order Agreement, their duly
authorized representatives have signed their names below on the dates indicated.
This Agreement (including (i) the Standard Terms, and (ii) the operational
provisions on Exhibit B attached hereto; in each case, incorporated herein by
reference and made a part hereof shall be binding on both parties when signed on
behalf of each party and delivered to the other party (which delivery may be
accomplished by facsimile transmission of the signature pages hereto).
AOL ADVERTISER
By: By: /s/ William Cuff
--------------------------------- ------------------------------------
(signatures) (signatures)
Print Name: Print Name: William Cuff
------------------------- ----------------------------
Title: Title: President
------------------------------ ---------------------------------
(Print or Type) (Print or Type)
Date: Date: 8/26/99
---------------------- -------------------------
5
<PAGE>
EXHIBIT A
ADDITIONAL TERMS
1. PAYMENTS. Bank shall pay AOL a non-refundable guaranteed payment of One
Million Four Hundred Ninety Eight Thousand Nine Hundred Ninety Dollars
(US $1,498,990.00), payable as follows:
(a) upon the execution date hereof, Three Hundred Seventy Six
Thousand Nine Hundred Ninety Dollars (US $376,990.00); and
(b) on each of the three (3) month, six (6) month, and nine (9)
month anniversaries hereof three equal payments of Three
Hundred Seventy Four Thousand Dollars (US $374,000.00)
2. CONTENT OF AFFILIATED SITE. The Advertisements will only promote the
Advertiser Products. Additionally, the Affiliated Advertiser Site will
only offer the Advertiser's Products and content related thereto
(except to the extent otherwise mutually agreed upon by the parties).
Advertiser will ensure that the prices, terms and conditions for the
Products in the Affiliated Advertiser Site are generally no less
favorable than the prices, terms and conditions on which the Products
or substantially similar products are offered by or on behalf of
Advertiser through any other distribution channels.
3. THIRD PARTY ADS WITHIN THE AFFILIATED ADVERTISER SITE. In the event
that Advertiser intends to include third party advertisements, links,
pointers, sponsorships, buttons, banners, navigation, or any other
placements or promotions or similar services or rights
("Advertisements') on the Affiliated Advertiser Site, the parties
shall establish a mutually agreed advertising program which shall
expressly set forth the available advertising inventory available on
the Affiliated Advertiser Site. In any event, (i) all sales of
Advertisements by Advertiser on the Affiliated Advertiser Site will be
subject to AOL's then-existing generally applicable advertising
policies, and (ii) no Interactive Service (other than AOL or its
affiliates) will be promoted in the Affiliated Advertiser Site.
4. SPECIAL OFFERS/MEMBER BENEFITS. Advertiser will generally promote
through the Affiliated Advertiser Site any special or promotional
offers made available by or on behalf of Advertiser through any other
distribution channels. In addition, Advertiser shall promote through
the Affiliated Advertiser Site from time to time, special offers
exclusively available to AOL Users (the "AOL Special Offers"). AOL
Special Offers made available by Advertiser shall provide a substantial
benefit to AOL Users, either by virtue of a meaningful price discount,
product enhancement, unique service benefit or other special feature.
Advertiser will provide AOL with reasonable prior notice of AOL Special
Offers so that AOL can market the availability of such AOL Special
Offers in the manner AOL deems appropriate in its editorial discretion.
5. CROSS PROMOTION.
(a) ONLINE. Within Advertiser's web sites on the World Wide Web
portion of the Internet (each an "Advertiser Web Site"),
Advertiser shall include the following (collectively, the "AOL
Promos"): a prominent promotional banner or button, with the
size to be reasonably determined by Advertiser and appearing
above or below the fold, at Advertisers option (provided that
such promotion shall be at least as prominent as any other
third party's promotion on such screen) on the first screen of
the Advertiser Web Site, to promote such AOL products or
services as AOL may designate (for example, the AOL Service,
the CompuServe Service, the AOL.com-Registered Trademark-
site, any of the Digital City services or the AOL Instant
Messenger-TM-service). AOL will provide the creative content
to be used in the AOL Promos (including designation of links
from such content to other content pages). Advertiser shall
post (or update, as the case may be) the creative content
supplied by AOL within the spaces for the AOL Promos within
five days of its receipt of such content from AOL. Without
limiting any other reporting obligations of the Parties
contained herein, Advertiser shall provide AOL with monthly
written reports specifying the number of impressions to the
pages containing the AOL Promos during the prior month. In the
event that AOL elects to serve the AOL Promos to the
Advertiser Web Site from an ad server controlled by AOL or its
agent, Advertiser shall take all reasonable operational steps
necessary to facilitate such ad serving
<PAGE>
arrangement including, without limitation, inserting HTML code
designated by AOL on the pages of the Advertiser Web Site on
which the AOL Promos will appear. In addition, within each
Advertiser Web Site, Advertiser shall provide prominent
promotion for the keywords granted to Advertiser hereunder (if
any).
(b) OFFLINE. In Advertiser'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 Advertiser exercises at least partial editorial control,
Advertiser will use commercially reasonable efforts to include
specific references or mentions (verbally where possible) of
the availability of the Affiliated Advertiser Site through the
AOL Service, which are at least as prominent as any references
that Advertiser makes to any Advertiser Web Site (by way of
site name, related company name, URL or otherwise); provided
that AOL shall receive promotion of at least equal prominence
to that for any other internet service provider or internet
portal or other online service in such Advertiser out of home
advertisements, publications, programs, features and other
such media. Without limiting the generality of the foregoing,
Advertiser's listing of the "URL" for any Advertiser Web Site
will be accompanied by an equally prominent listing of the
"keyword" term on AOL for the Affiliated Advertiser Site.
Advertiser will not implement or authorize any promotion
similar in any respect (including, without limitation, in
scope, purpose, amount, prominence or regularity) to the
promotion required or provided by Advertiser pursuant to this
Agreement for any other entity reasonably construed to be
competitive to AOL.
6. SHOPPING CHANNEL PROVISIONS
(a) AOL QUICK CHECKOUT AND AOL PRODUCT SEARCH. Advertiser will
take all reasonable steps necessary to conform its promotion
and sale of products through the Affiliated Advertiser Site to
the then-existing commerce technologies made available to
Advertiser 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 Advertiser for order fulfillment
("AOL Quick Checkout") and AOL's "product search" tool
technology which allows AOL Users to run a customized search
among Advertiser's detailed inventory data ("AOL Product
Search"); provided however that in the event that Advertiser
declines participation in these programs then AOL reserves the
right to reduce or prohibit Advertiser's participation in any
other incremental merchandising programs offered through the
Shopping Channel. At Advertiser's request, AOL will make all
reasonable efforts to provide the tools for the Advertiser (i)
to enable the Affiliated Advertiser Site with the AOL Quick
Checkout technology and functionality and (ii) to allow
integration of Advertiser's detailed inventory data into AOL's
Search Product database. Collection, storage and disclosure of
AOL Quick Checkout information which Advertiser provides to
AOL, will be subject to AOL's privacy policy and all
confidentiality requirements hereunder. To the extent that the
Affiliated Advertiser Site includes AOL's Quick Checkout,
Advertiser will ensure that the AOL Quick Checkout is of equal
placement and promotion prominence to other available payment
options.
(b) MERCHANT CERTIFICATION PROGRAM. Advertiser will participate in
any generally applicable "Certified Merchant" program operated
by AOL or its authorized agents or contractors. Such program
may require Advertiser participants on an ongoing basis to
meet certain reasonable standards relating to provision of
electronic commerce through the AOL Service, AOL.com, the
CompuServe Service and the Netscape Netcenter and may also
require the payment of certain reasonable certification fees
to AOL or its authorized agents or contractors operating the
program.
(c) BIZRATE SURVEY. Advertiser 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
Affiliated Advertiser 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
<PAGE>
or approve from time to time. Advertiser's participation shall
be based upon a separate written agreement which Advertiser
will enter into with BCE, or other such party reasonably
designated or approved by AOL. Advertiser hereby authorizes
BCE to provide to AOL any and all reports provided to
Advertiser 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.
(d) SPECIFIC CUSTOMER SERVICE REQUIREMENTS. It is the sole
responsibility of Advertiser to provide customer service to
persons or entities purchasing Products through the AOL
Service, AOL.com, the CompuServe Service, the Netscape
Netcenter or the AOL Network ("Customers"). Advertiser 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 the
Affiliated Advertiser Site, and AOL will have no obligations
whatsoever with respect thereto. Affiliated Advertiser Site
shall include clear and conspicuous disclosure of its customer
service policies and a phone number and an email or street
address at which customers may contact Advertiser. Advertiser
shall provide a name of a customer service contact for use by
AOL and a telephone number and email or street address to
which AOL may forward or refer customer inquiries or
complaints relating to Advertiser. Advertiser will receive all
emails from Customers via a computer available to Advertiser's
customer service staff and generally respond to such emails
within one business day of receipt. Advertiser will receive
all orders electronically and generally process all orders
within one business day of receipt, provided Products ordered
are not advance order items. Advertiser will ensure that all
orders of Products are received, processed, fulfilled and
delivered on a timely and professional basis. Advertiser will
offer AOL Users who purchase Products through the Affiliated
Advertiser Site a money-back satisfaction guarantee.
Advertiser 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. Advertiser will also comply with the requirements
of any federal, state or local consumer protection or
disclosure law. Payment for Products will be collected by
Advertiser directly from customers. Advertiser's order
fulfillment operation will be subject to AOL's reasonable
review.
(e) REPORTS TO AOL. Advertiser will provide AOL with reports, in a
form reasonably satisfactory to AOL, which detail the number
of daily items, orders and gross sales through the Advertiser
Site, broken down by traffic from the relevant AOL property
(such as the AOL Service, AOL.com, the CompuServe Service and
the Netscape Netcenter (as applicable)). Advertiser will use
commercially reasonable efforts to deliver such reports to AOL
monthly, and in any event will deliver such reports no less
frequently than quarterly (broken down by month).
7. TAXES. Advertiser 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.
8. TERM. The effective term hereof shall begin on the date hereof and end
on the date which is one (1) year after such date (the "Initial Term"),
unless otherwise terminated prior thereto.
<PAGE>
EXHIBIT B
OPERATIONS
1. AFFILIATED ADVERTISER SITE INFRASTRUCTURE. Advertiser will be
responsible for all communications, hosting and connectivity costs and
expenses associated with the Affiliated Advertiser Site. Advertiser
will provide all hardware, software, telecommunications lines and other
infrastructure necessary to meet traffic demands on the Affiliated
Advertiser Site from the AOL Network. Advertiser will design and
implement the network between the AOL Service and Affiliated Advertiser
Site such that (i) no single component failure will have a materially
adverse impact on AOL Members seeking to reach the Affiliated
Advertiser Site from the AOL Network and (ii) no single line will run
at more than 70% average utilization for a 5 minute peak in a daily
period. In this regard, Advertiser will provide AOL, upon request, with
a detailed network diagram regarding the network infrastructure
supporting the Affiliated Advertiser Site. In the event that Advertiser
elects to create a custom version of the Affiliated Advertiser Site in
order to comply with the terms of this Agreement, Advertiser will bear
responsibility for all aspects of the implementation, management and
cost of such customized site.
2. OPTIMIZATION; SPEED. Advertiser will use commercially reasonable
efforts to ensure that: (a) the functionality and features within the
Affiliated Advertiser Site are optimized for the client software then
in use by AOL Members; and (b) the Affiliated Advertiser Site is
designed and populated in a manner that minimizes delays when AOL
Members attempt to access such site. At a minimum, Advertiser will
ensure that the Affiliated Advertiser Site's data transfers initiate
within fewer than fifteen (I 5) seconds on average. Prior to commercial
launch of any material promotions described herein, Advertiser will
permit AOL to conduct performance and load testing of the Affiliated
Advertiser Site (in person or through remote communications), with such
commercial launch not to commence until such time as AOL is reasonably
satisfied with the results of any such testing.
3. USER INTERFACE. Advertiser will maintain a graphical user interface
within the Affiliated Advertiser Site that is competitive in all
material respects with interfaces of other similar sites based on
similar form technology. AOL reserves the right to review and approve
the user interface and site design prior to launch of the Promotions
and to conduct focus group testing to assess compliance with respect to
such consultation and with respect to Advertiser's compliance with the
preceding sentence.
4. TECHNICAL PROBLEMS. Advertiser agrees to use commercially reasonable
efforts to address material technical problems (over which Advertiser
exercises control) affecting use by AOL Members of the Affiliated
Advertiser Site (a "Advertiser Technical Problem") promptly following
notice thereof. In the event that Advertiser is unable to promptly
resolve a Advertiser Technical Problem following notice thereof from
AOL (including, without limitation, infrastructure deficiencies
producing user delays), AOL will have the right to regulate the
promotions it provides to Advertiser hereunder until such time as
Advertiser corrects the Advertiser Technical Problem at issue.
5. MONITORING. advertiser will ensure that the performance and
availability of the Affiliated Advertiser Site is monitored on a
continuous basis. Advertiser will provide AOL with contact information
(including e-mail, phone, pager and fax information, as applicable, for
both during and after business hours) for Advertiser's principal
business and technical representatives, for use in cases when issues or
problems arise with respect to the Affiliated Advertiser Site.
6. TELECOMMUNICATIONS. The Parties agree to explore encryption methodology
to secure data communications between the Parties' data centers. The
network between the Parties will be configured such that no single
component failure will significantly impact AOL Users. The network will
be sized such that no single line runs at more than 70% average
utilization for a 5-minute peak in a daily period.
7. SECURITY. Advertiser 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,
<PAGE>
banking/financial information, and member address information) to and
from the Affiliated Advertiser Site. Advertiser will facilitate
periodic reviews of the Affiliated Advertiser Site by AOL in order to
evaluate the security risks of such site. Advertiser will promptly
remedy any security risks or breaches of security as may be identified
by AOL's Operations Security team.
8. TECHNICAL PERFORMANCE.
i. Advertiser will design the Affiliated Advertiser Site to
support the AOL-client embedded versions of the Microsoft
Internet Explorer 3.0 and 4.0 browsers (Windows and
Macintosh), 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 Advertiser creates customized pages on the
Affiliated Advertiser Site for AOL Members, Advertiser 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. Advertiser will periodically review the technical information
made available by AOL at http://Webmaster.info.aol.com.
iv. Advertiser will design its site to support HTTP 1.0 or later
protocol as defined in RFC 1945 and to adhere to AOL's
parameters for refreshing cached information listed at
http://twebmaster.info.aol.com.
v. Prior to releasing material, new functionality or features
through the Affiliated Advertiser Site ("New Functionality"),
Advertiser 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.
9. AOL INTERNET SERVICES ADVERTISER SUPPORT. AOL will provide Advertiser
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 Advertiser or support for any
technologies, databases, software or other applications which are not
supported by AOL or are related to any Advertiser area other than the
Affiliated Advertiser Site. Support to be provided by AOL is contingent
on Advertiser providing to AOL demo account information (where
applicable), a detailed description of the Affiliated Advertiser Site's
software, hardware and network architecture and access to the
Affiliated Advertiser Site for purposes of such performance and load
testing as AOL elects to conduct.
<PAGE>
<TABLE>
<CAPTION>
GreatFood.com Exhibit C
Carriage Plan
TARGET IMPRESSIONS
--------------------------------
<S> <C>
SHOP@AOL* (LEVEL 1) 7,457,400
Food ^& Wine
Gourmet Gifts: GOLD
Gifts Department: GOLD
TARGETED INVENTORY (AOL SERVICE) (LEVEL 2) 4,810,000
300 Recipes to the Recipe Database
On The Menu Today Ticker*
Food--Holidays Sponsorship Button
Food--Holidays Banner
Food--Party Food Sponsorship Button
Food--Party Food Banner
Food--Food for Presents Sponsorship Button
Food--Food for Presents Banner
Food: Run of Channel
BRANDING AND BROAD REACH INVENTORY (LEVEL 3) 42,270,000
AOL Service ROS
My AOL (AOL Service)
AIM
AOL.com ROS
Digital City ROS
CompuServe ROS
Total 54,537,400
--------------------------------
* Shop@AOL Year 1=10 months from commercial launch of
shopping channel
</TABLE>
TIER EXCHANGE. Advertiser may elect to redistribute Promotions among Level 1,
Level 2, and Level 3 at the applicable ratios of numbers of Impressions in
accordance with the relative then standard rate cards for such inventory. All
redistribution of Advertiser Promotions shall be subject to availability, as
determined by AOL, and subject to all the terms and conditions hereof. In no
event may Advertiser exchange Level 2 or Level 3 Impressions for Level 1
Impressions, without written consent of AOL. Impressions may be exchanged in
blocks of a minimum of 1 00,000 Impressions. Requests by Advertiser to
redistribute Impressions may be placed no more frequently than once per quarter,
unless otherwise
<PAGE>
mutually agreed by the parties. For any Advertiser Promotion which Advertiser
decides to reallocate the associated Impressions to other promotional or
sponsorship areas, AOL shall have the right to resell such original inventory to
any party. For any reallocation of Impressions between or among Levels which
Advertiser chooses to make pursuant hereto, Advertiser agrees and acknowledges
that the reallocated Impressions may be delivered differently than as originally
described herein.
KEYWORDS. Advertiser shall, subject to all Keyword and other applicable policies
of AOL, receive the following Keywords: "GreatFood", "Great Food" and "Great
Foods". Advertiser hereby represents and warrants that Advertiser has all
consents, authorizations, approvals, licenses, permits or other rights necessary
for Advertiser to use such above specified Keywords. For purposes hereof, the
term "Keyword" shall mean the Keyword-TM- online search terms made available on
the AOL Service, available to AOL Members, combining AOL's Keyword-TM- online
search modifier with a term or phrase specifically related to Advertiser (and
determined in accordance with the terms of this Agreement). Any Keyword to be
directed to the Affiliated Advertiser Site shall be limited to the combination
of the Keyword-TM- search modifier combined with a registered trademark of
Advertiser (e.g. "AOL keyword: XYZ Company Name"). AOL reserves the right to
revoke at any time Advertiser's use of any Keyword which do not incorporate
registered trademarks of Advertiser. Advertiser acknowledges that its
utilization of a Keyword will not create in it, nor will it represent it has,
any right, title or interest in or to such Keyword, other than the right, title
and interest Advertiser holds in Advertiser's registered trademark independent
of the Keyword. Without limiting the generality of the foregoing, Advertiser
will not: (a) attempt to register or otherwise obtain trademark or copyright
protection in the Keyword; or (b) use the Keyword, 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 Affiliated Advertiser
Site, such bookmarks will be subject to AOL's control at all times. Upon the
termination of this Agreement, Advertiser's rights to any Keyword and
bookmarking will terminate. Notwithstanding the foregoing, AOL shall have the
right to suspend the use of any search term if AOL has reason to believe
continued use may subject AOL to liability or other adverse consequences.
<PAGE>
EASTLAKE CENTER
OFFICE LEASE AGREEMENT
Landlord: BLUME EASTLAKE LIMITED P.S.
Tenant: GREATFOOD.COM. INC.
Date: JULY 27,1999
<PAGE>
EASTLAKE CENTER
OFFICE LEASE AGREEMENT
THIS LEASE is made as of this 31st day of July, 1999, by and between
BLUME EASTLAKE LIMITED PARTNERSHIP, a Washington partnership (hereinafter
referred to as 'Landlord'), and GREATFOOD.COM, INC. a Washington corporation
(hereinafter referred to as 'Tenant').
LEASE SUMMARY
Section 1.1 THE BUILDING
(a) Name: Eastlake Center
(b) Address: 2815 Eastlake Avenue East
Seattle, WA 98102
(c) Total Rentable Area of Building 80,704 sq. ft.
THE PREMISES
(a) Total Rentable Area: 5,800 rentable sq. ft.
(approximately)
(b) Load Factor: 16 + or -
(b) Floor Location: Second Floor
(c) Suite Number: #230
Section 2.1 USE OF PREMISES AND TENANT'S TRADE NAME
(a) Tenant's Trade Name: Greatfood.Com
(b) Use of Premises: General Office
Section 3.1 LEASE TERM
(a) Twelve months fifteen days
(b) Target Lease Commencement Date: August 16, 1999
Section 4.1 BASIC RENT
<TABLE>
<CAPTION>
Rent Per Rentable
-----------------
Month(s) Monthly Rent Installment Sq. Ft. per year
-------- ------------------------ -----------------
<S> <C> <C>
1-12 $13,533.34 $28.00
Renewal Option Year
13-30 $14,741.67 $30.50
</TABLE>
(i)
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Section 4.2 OPERATING EXPENSES
(a) Tenant's Proportionate 8% of Total Rentable Area of
Share Building
(b) Base Year: 1999
Section 5.1 SECURITY DEPOSIT
(a) Security Deposit: $0.00
Section 5.2 PREPAID RENT
(a) Prepaid Rent: $27,066.68
(b) Month(s) to which the First and Last Month
Prepaid Rent is applied:
Section 19.1 ADDRESSES FOR NOTICES
(a) Landlord: (b) Tenant:
Gregory G. Blume Gayle Stetson
Eastlake Center Greatfood.Com, Inc.
2825 Eastlake Avenue East 2815 Eastlake Avenue East #230
#115 Seattle, Washington 98102
Seattle, Washington 98102
Section 21.13 BROKERS' COMMISSION
(a) Hans Kemp
(b) The Staubach Company
(ii)
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OFFICE LEASE AGREEMENT
ARTICLE I
PREMISES
SECTION 1.1 PREMISES DEFINED. Landlord hereby leases to Tenant, and
Tenant hereby leases from Landlord, upon the terms and conditions hereinafter
set forth, those certain premises and improvements consisting of the floor area
and the location described in the Lease Summary and shown outlined in red on the
plans attached hereto as EXHIBIT A (hereinafter referred to as the "Premises").
The Premises are located in the building known as the Eastlake Center building
(the "Building") which is situated in the City of Seattle, County of King, State
of Washington and located upon the real property described in EXHIBIT B (the
"Property").
SECTION 1.2 ALTERATIONS. Tenant acknowledges that EXHIBIT A sets forth
the floor plan for the floor of the Building on which the Premises is located
and the location of the Premises thereon. Landlord may in its sole discretion
increase, decrease, or change the number, locations and dimensions of any
hallways, lobby areas and other improvements shown on EXHIBIT A that are not
within the Premises as well as any of the hallways, lobby areas and other
improvements within the Building. Landlord reserves the right from time to time
upon reasonable notice, (a) to install, use, maintain, repair, relocate and
replace pipes, ducts, conduits, wires, and appurtenant meters and equipment for
service to the Premises or to other parts of the Building which are above the
ceiling surfaces, below the floor surfaces, within the walls and in the central
core areas of the Building which are located within the Premises or located
elsewhere in the Building; (b) to alter or expand the Building; and (c) to
alter, relocate or substitute any of the Common Areas, as defined in Section 1.4
below.
SECTION 1.3 CONDITION OF PREMISES. The Premises are leased by Landlord
and accepted by Tenant in an "as is" condition, subject to any improvements,
alterations or modifications to be made pursuant to Article VII below, and the
requirement of Landlord to complete the improvements specified therein.
SECTION 1.4 COMMON AREAS. So long as Tenant occupies the Premises
under the terms of this Lease, Tenant, its licensees, invitees, customers and
employees shall have the non-exclusive right to use all entrances, lobbies, and
other public areas of the Building (the "Common Areas") in common with Landlord,
other Building tenants, and their respective licensees, invitees, customers and
employees. The use of the Common Areas shall be subject to the terms and
conditions of this Lease.
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ARTICLE II
BUSINESS PURPOSE AND USE
SECTION 2.1 PERMITTED USES. Tenant shall use the Premises solely for
the purposes and under the trade name specified in the Lease Summary, and for no
other business or purpose without the prior written consent of the Landlord.
SECTION 2.2 PROHIBITED USES. Provided that Tenant is provided with
written Notice of activities which are prohibited, Tenant shall not do or permit
anything to be done in or about the Premises, nor bring or keep anything
therein, which will (a) in any way increase the existing rate of or affect any
policy of fire or other insurance upon the Building or any of its contents, or
cause a cancellation of any insurance policy covering any part thereof or any of
its contents; (b) obstruct or interfere in any way with the rights of other
tenants or occupants of the Building or injure or unreasonably annoy any of
them; or (c) use or allow the Premises to be used for any improper, unlawful or
objectionable purposes. Tenant shall not cause, maintain or permit any nuisance
in, on or about the Premises, nor shall Tenant commit or suffer to be committed
any waste in, on or about the Premises. Tenant shall not place upon or install
in windows or other openings any signs, symbols, drapes, or other material
without written approval of Landlord, which approval shall not be unreasonably
withheld, conditioned or delayed. Tenant shall not place any object or barrier
within, or otherwise obstruct, any of the Common Areas.
SECTION 2.3 COMPLIANCE WITH LAWS. Tenant shall at all times comply
with all laws, ordinances and any regulations promulgated by any governmental
authority having jurisdiction over the Building and/or the Premises; provided,
however, that Tenant shall not be required to make structural or other changes
to the Building and/or the Premises to comply with the Americans with
Disabilities Act or any other laws. To the extent Landlord is required by the
City of Seattle to maintain carpooling and public transit programs, Tenant shall
cooperate in the implementation and use of these programs by and among Tenant's
employees.
ARTICLE III
TERM
SECTION 3.1 TERM. The term of this Lease shall commence on August 16,
1999 (such day of the calendar month shall be referred to as the "Lease
Commencement Date"):
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(a) The date upon which Landlord has notified Tenant that the
Premises are complete and the Landlord tenders delivery of the Premises to
Tenant as provided in Section 3.3(a) below; or
(b) The date that Tenant takes possession or beneficial
occupancy of the Premises; provided, that if the first to occur of (a) or (b)
above falls on a day other than the first day of a calendar month, Tenants rent
and other obligations pursuant to this Lease for the first month of the Lease
Term (as defined below) shall be prorated based upon the number of days from and
including the first to occur of (a) or (b) above to the end of such first month.
From the Lease Commencement Date, the term of this Lease shall continue
for the time period specified in the Lease Summary, the expiration of which
shall be the Termination Date of this Lease, unless this Lease is sooner
terminated as hereinafter provided. The period between the Lease Commencement
Date and the Termination Date shall be referred to as the "Lease Term" or
"Term." The Landlord and Tenant acknowledge that certain obligations under the
provisions of this Lease may be binding upon them prior to the Lease
Commencement Date, such as, but not limited to, the provisions of EXHIBIT C, and
Landlord and Tenant shall be bound by such provisions prior to the Lease
Commencement Date.
SECTION 3.2 LEASE YEAR. "Lease Year" shall mean that period of twelve
(12) consecutive months which ends on December 31st of each year and which falls
within the Term of this Lease; PROVIDED, HOWEVER, the first Lease Year (which
may be a partial Lease Year) shall mean that period from the Lease Commencement
Date until the December 31st first occurring after the Lease Commencement Date
and the last Lease Year (which may be a partial Lease Year) shall mean that
period from the January 1st last occurring during the Term of this Lease until
the Termination Date.
SECTION 3.3 POSSESSION BY TENANT. Landlord shall deliver to Tenant,
and Tenant shall accept from Landlord, possession of the Premises, in its "as
is" condition, subject to a commercially reasonable completion of the
"Landlord's work" specified on Exhibit C.
ARTICLE IV
RENT
SECTION 4.1 BASIC RENT. Tenant shall pay to Landlord as minimum rental
for the use and occupancy of the Premises the "Basic Rent" as specified in the
Lease Summary. Basic Rent shall be payable in Monthly Rent Installments of the
amount specified in the Lease Summary, on or before the first day of each month
of the Lease Term beginning on the August 16, 1999 (the Lease Commencement
Date). Basic Rent for any partial
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year shall be prorated based upon the actual number of months left in such
partial year. The Monthly Rent Installment for any partial month shall be
prorated based upon the actual number of days in that partial month.
SECTION 4.2 OPERATING EXPENSES.
(a) This is a fully serviced, gross Lease. All Operating
Expenses (as hereafter defined below) shall be included in the Basic Rent from
the Lease Commencement Date through the Base Year. With respect to each Lease
Year following the Base Year, the Tenant shall pay, in monthly installments and
as "Additional Rent," an amount equal to the "Tenant's Proportionate Share" (as
hereinafter defined) of actual Operating Expenses minus Tenant's Proportionate
Share of actual Operating Expenses for the Base Year. The Base Year is as set
forth in the Lease Summary. Notwithstanding anything herein to the contrary,
Tenant shall in no event pay less than the Basic Rent in any calendar year.
(b) "Tenant's Proportionate Share" shall be computed by
dividing the Total Rentable Area of the Premises by the Total Rentable Area of
the Building. Tenant's Proportionate Share upon the Lease Commencement Date for
the entire Premises is as specified in the Lease Summary.
(c) "Rentable Area of the Building" and "Rentable Area of the
Premises" are defined as those areas obtained by measuring the Building and
Premises in accordance with the method of measuring rentable office space
specified in the 1996 American National Standards Institute Publication
(otherwise known as "BOMA Standard"). The Total Rentable Area of the Building
and Total Rentable Area of the Premises, as of the Lease Commencement Date, are
as specified in the Lease Summary. The Total Rentable Area of the Premises
exceeds the usable area of the Premises to include a pro rata share of hallways,
restrooms, and other common elements located on the floor on which the Premises
are located.
(d) Landlord shall provide Tenant with a written estimate of
Operating Expenses for the succeeding year within one hundred and eighty (180)
days after the start of each Lease Year during the Lease Term, following the
first Lease Year of the Lease Term. Tenant shall then pay to Landlord, monthly
in advance, one-twelfth (1/12) of Tenant's Proportionate Share of the estimated
Operating Expenses for the said Lease Year in excess of Tenant's Proportionate
Share of the Operating Expenses for the Base Year. In the event any item of
actual Operating Expenses, including without limitation those items identified
in subparagraph (f) below, increases five percent (5%) or more in price or cost
over any six (6) month period, Landlord shall have the option to pass through to
Tenant Tenant's Proportionate Share of any increase in the actual Operating
Expenses upon thirty (30) days' written notices from Landlord to Tenant.
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(e) Within one hundred eighty (180) days after the end of every
Lease Year during the Lease Term, Landlord shall provide the Tenant with a
written statement of the actual Operating Expenses for that Lease Year. If the
actual Operating Expenses should exceed the estimated amount with respect to
such Lease Year, then Tenant shall pay Landlord the additional amount due to the
Landlord within ten (10) days and, if actual Operating Expenses should be less
than the estimated Total Operating Expenses for that Lease Year, then Landlord
shall credit, against future Additional Rent due under this Article, the amount
of any overpayment by Tenant.
(f) "Operating Expenses" as used herein shall mean all costs,
expenses and other charges incurred by Landlord in connection with the
ownership, operation, repair and maintenance of the Property and the Building
including, but not limited to:
(i) Reasonable wages, salaries and fringe benefits of
all employees and contractors engaged in the operation, repair and maintenance
of the Property and/or the Building; employer's Social Security taxes,
unemployment taxes or insurance, and any other taxes which may be levied against
Landlord on those wages and salaries; and the cost to Landlord of disability and
hospitalization insurance and pension or retirement benefit for these employees;
(ii) Reasonable cost of all supplies and materials used
in the operation, repair and maintenance of the Property and/or the Building;
(iii) Reasonable cost of water and power, and cost of
healing, lighting, air conditioning and ventilating the Building, the Common
Areas and the Premises, which costs shall be based on either Tenant's
Proportionate Share or separately allocated to the Premises, at Landlord's
option, based upon either direct usage, if separately metered, or an appropriate
allocation among all tenants consuming those services as measured from the meter
monitoring this usage;
(iv) Reasonable cost of maintenance, repair, depreciation
and replacement of machinery, tools and equipment (if owned by Landlord) and for
rental paid for such machinery, tools and equipment (if rented) used in
connection with the operation or maintenance of the Building;
(v) Reasonable cost of all premiums and deductibles on
policies of compensation, public liability, property damage, automobile, garage
keepers, rental loss and any other policies of insurance maintained by Landlord
with respect to the Property, Building or any insurable interest therein. Cost
of casualty and liability insurance applicable to the Property and/or the
Building, the improvements therein, and Landlord's personal property used in
connection therewith;
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(vi) Reasonable cost of janitorial services, repairs,
replacements, and general maintenance of the Property and Building including
without limitation landscaping, window cleaning, and exterior and interior
painting;
(vii) Reasonable cost of any capital improvements made or
installed for purposes of saving labor or otherwise reducing applicable
operating costs amortized over the useful life of such improvements, as
determined by Landlord in accordance with generally accepted accounting
principles and practices in effect at the time of acquisition of the capital
item;
(viii) Reasonable costs in connection maintaining,
repairing and operating the parking areas and parking garage at the Building or
any other parking utilized in connection with the operation of the Building and
Landlord shall not be required to offset any such costs by parking related
revenues;
(ix) Reasonable cost of all taxes and assessments and
governmental charges whether federal, state, county or municipal and any other
taxes and assessments attributable to the Property and/or the Building
(including any parking facilities used in connection therewith) or its
operation, including without limitation real property taxes and assessments and
any tax or other levy, however denominated, on or measured by the rental
collected by the Landlord with respect to the Building, but excluding federal
and state taxes on income;
(x) The reasonable cost of maintaining any public
transit system, vanpool, or other public or semi-public transportation imposed
upon Landlord's ownership and operation of the Building;
(xi) Reasonable cost of all accounting and other
professional fees incurred in connection with the operation of the Property
and/or the Building;
(xii) A reasonable management fee, not to exceed 5% of
revenues or current market rates, which may be payable to the Landlord or to a
management company;
(xiii) Reasonable cost of replacing nonspecialty lamps,
bulbs, starters and ballast's used in the Building, other than those for which
the cost is billed directly to a tenant.
Operating Expenses shall not include expenses for which the Landlord is
reimbursed or indemnified (either by an insurer, condemnor, tenant or
otherwise); expenses incurred in leasing or procuring tenants (including,
without limitation, lease commissions, legal expenses, and expenses of
renovating space for tenants); legal expenses arising out of disputes with
tenants or the enforcement of the provisions of any
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<PAGE>
lease of space in the Building; interest or amortization payments on any
mortgage or mortgages, and rental under any ground or underlying lease or
leases; costs of any work or service performed for or facilities furnished to a
tenant at the tenants cost; the cost of construction defects (latent or
otherwise) in the construction of the Building, except those conditions (not
occasioned by construction defects) resulting from wear and tear shall not be
deemed defects; and costs of capital improvements and depreciation and
amortization (except as provided in Section 4.2(Q(vii) or otherwise above).
(g) Tenant shall have the right upon fulfillment of the
conditions set forth below, to conduct one (1) audit of the Landlord's books and
records covering the Operating Expenses for a particular calendar year to verify
the accuracy of the Landlord's determination of the Tenants Proportionate Share
of such Operating Expenses. The conditions which must be met before Tenant
shall have the right to audit the books and records of a particular calendar
year are as follows:
(1) Tenant must provide Landlord not less than thirty
(30) days' prior written notice of the Tenant's election to audit (the "Tenants
Notice of Audit"), together with the information concerning the auditor as
outlined in Subparagraph (4) below, which Tenant's Notice of Audit and
information must be delivered to Landlord within sixty (60) days after Tenant's
receipt of the Landlord's statement of actual Operating Expenses for a
particular calendar year.
(2) Tenant's audit must be undertaken and completed by
Tenant or its agents at reasonable times during Landlord's normal business hours
at the place where the Landlord's records are kept. Said audit must be
completed within ninety (90) days of Tenant's receipt of the Landlord's
statement of Operating Expenses for a particular calendar year.
(3) Tenant shall not be entitled to conduct an audit if
Tenant is in default under this Lease at the time Tenant gives its Tenant's
Notice of Audit or at the time the Tenant or its agent undertakes the audit.
(4) At the time the Tenant delivers its Tenant's Notice
of Audit to Landlord, the Tenant shall also provide evidence reasonably
acceptable to the Landlord that the audit will be a "fair and true audit." For
the purposes hereof, the term "fair and true audit" shall mean that the review
of the subject books and records shall be undertaken and completed by the
Tenant, its officers or employees, or by an independent accounting firm being
paid on an hourly basis and that in no event will the party auditing the books
(or that party's employer or principal) directly or indirectly base the
compensation or fees for such audit work upon a percentage of the savings found
or the return due the Tenant by reason of that audit.
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(h) The Tenant's rights to audit the Landlord's books and
records shall be strictly limited to the right set forth above and the Tenant
shall have no right to audit any of the Landlord's books or records for any
calendar year before or after the Lease Term or for any calendar year other than
the immediately preceding calendar year as set forth above. All costs and
expenses of the audit shall be borne solely by the Tenant.
(i) A true and correct copy of the audit shall be delivered to
the Landlord within fifteen (15) days of the completion of such audit if Tenant
requests a credit for overpayment. Any overpayment shown by such audit shall be
subject to the Landlord's verification within fifteen (15) days of such audit,
and, upon such verification, shall be given to the Tenant as a credit against
Operating Expenses next falling due or, if after the expiration of the Term,
shall be paid directly to Tenant.
SECTION 4.3 RENT. The terms "Rent" and "Rental" as used in this Lease
shall mean all amounts to be paid hereunder by Tenant whether those sums are
designated as Basic Rent or Additional Rent and as adjusted by the terms of this
Lease. Failure by Tenant to pay any sum of Rent due under this Article IV shall
entitle Landlord to pursue any or all remedies specified in this Lease as well
as remedies specified in RCW Chapter 59.12 or otherwise allowed by law.
SECTION 4.4 PLACE OF PAYMENT. All Rent shall be paid to the Landlord
on or before the first day of each calendar month at the address to which
notices to Landlord are to be given. All Rental payments to be made hereunder,
whether Basic Rent, or Additional Rent or otherwise, are to be made without
deduction, setoff, prior notice or demand by Landlord.
ARTICLE V
SECURITY DEPOSIT AND PREPAID RENT
SECTION 5.1 SECURITY DEPOSIT. Contemporaneously with Tenant's
execution of this Lease, Tenant shall pay to Landlord the sum set forth as the
Security Deposit in the Lease Summary as security for the full and faithful
performance of every provision of this Lease to be performed by Tenant. If
Tenant materially defaults with respect to any provision of this Lease,
including but not limited to the provisions relating to the payment of Rent the
repair of damage to the Premises caused by Tenant and/or cleaning the Premises
upon termination of this Lease, Landlord may reasonably use, apply or retain all
or any part of this Security Deposit for the payment of any Rent or any other
sum in default the repair of such damage to the Premises, the cost of cleaning
or for the payment of any other amount which Landlord may spend or become
obligated to spend by reason of Tenants default or to compensate Landlord for
any other loss or damage which Landlord may suffer by reason of Tenants default
to the full extent permitted by
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law. If any portion of said Security Deposit is so used or applied, Tenant
shall, within ten (10) days after written demand therefor, deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its original
amount and Tenant's failure to do so shall be a material breach of this Lease.
Landlord shall not be required to keep Tenant's Security Deposit separate from
its general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant shall fully and faithfully perform every provision of this
Lease to be performed by it the Security Deposit or any balance thereof shall be
returned to Tenant (or, at Landlord's option, to the last assignee of Tenant's
interest hereunder) within ten (10) days after the expiration of the Lease Term.
SECTION 5.2 PREPAID RENT. Contemporaneously with Tenant's execution of
this Lease, Tenant shall pay to Landlord the sum set forth as Prepaid Rent in
the Lease Summary to be applied to Basic Rent for the month during the Term
hereof as specified in the Lease Summary. In the event Tenant defaults under
the terms of this Lease prior to the application of the Prepaid Rent, such sums
shall be held as a Security Deposit to be disposed of in accordance with
Section 5.1 above.
ARTICLE VI
TAXES
SECTION 6.1 PERSONAL PROPERTY TAXES. Tenant shall pay before
delinquency all license fees, public charges, property taxes and assessments on
the furniture, fixtures, equipment and other property of or being used by Tenant
at any time situated on or installed in the Premises.
SECTION 6.2 BUSINESS TAXES. Tenant shall pay before delinquency all
taxes and assessments or license fees levied, assessed or imposed by law or
ordinance, by reason of the use of the Premises for the specific purposes set
forth in this Lease.
ARTICLE VII
MAINTENANCE, REPAIRS AND ALTERATIONS
SECTION 7.1 LANDLORD'S AND TENANTS. Landlord and Tenant shall, each at
its own expense, complete and install in a good and workmanlike manner within
the Premises those items specified as the "Landlord's Work" and "Tenants Work,"
respectively, specified on EXHIBIT C attached hereto.
SECTION 7.2 SERVICES TO BE FURNISHED BY LANDLORD. Landlord shall
provide the following services during standard hours of operation of the
Building. These standard hours of operation are 7 a.m. to 7 p.m., Monday
through Friday.
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(a) Public utilities shall be caused to furnish the Premises
with electricity and water utilized in operating any and all facilities serving
the Premises;
(b) Hot and cold water at those points of supply provided for
general use of other tenants in the Building, central heat and air conditioning
in season, at such times as Landlord normally furnishes these services to other
tenants in the Building and at temperatures and in amounts as are reasonably
considered by Landlord to be standard, but this service at times during the
weekdays at other than standard hours of operation for the Project on Saturday
afternoons, Sundays and holidays shall be furnished only upon request of Tenant,
who shall bear the entire costs thereof;
(c) Routine maintenance, painting and electric lighting service
for all Common Areas and special service areas of the Building in the manner and
to the extent reasonably deemed by Landlord to be standard and consistent with
the operation and maintenance of the Building as a first-class office building
in the Central Business District (CBD) of Seattle;
(d) Janitorial service on a five (5) day week basis, excluding
Fridays, Saturdays and legal holidays;
(e) Electrical facilities to provide .5 kilowatts per hour per
square foot. If any electrical equipment installed in the Premises requires air
conditioning capacity above that provided by the building standard system, then
the additional air conditioning installation and corresponding operating costs
will be the separate obligation of the Tenant;
(f) Building standard (as hereafter defined) lamps, bulbs,
starters and ballasts used within the Premises. "Building standard" as used in
the previous sentence shall mean 2 x 2 and 2 x 4 ceiling troffer fixtures only;
(g) Twenty-four hour security for the Building; PROVIDED,
HOWEVER, unless due to the willful misconduct or gross negligence of Landlord,
Landlord shall not be liable to Tenant or any employee, invitee, licensee or
sublessee of Tenant for losses due to theft or burglary, or for damages done by
unauthorized persons in the Building;
In the event Tenant desires any of the aforementioned services in amounts
in excess of those deemed by Landlord to be "standard" and in the event Landlord
elects to provide these additional services, Tenant shall pay Landlord as
Additional Rent hereunder the reasonable cost of providing these additional
services. Unless, due to the gross negligence or willful misconduct of
Landlord, Failure by Landlord to any extent to furnish any of the above
services, or any cessation thereof, resulting from causes beyond the control of
Landlord, shall not render Landlord liable in any respect for damages to either
person or property, nor shall that event be construed as an eviction of Tenant,
nor
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result in an abatement of Rent, nor relieve Tenant from any of Tenant's
obligations hereunder (including, but not limited to, the payment of Rent).
Should any of the equipment or machinery utilized in supplying the services
listed herein for any cause cease to function properly, Landlord shall use
reasonable care and diligence to repair that equipment or machinery promptly,
but Tenant shall have no right to terminate this Lease, and shall have no claim
for a reduction, abatement or rebate of Rent or damages on account of any
interruption in service occasioned thereby or resulting therefrom.
SECTION 7.3 TENANT'S MAINTENANCE AND REPAIRS. Tenant shall operate,
maintain and occupy the Premises in a good and first class manner, consistent
with the standards of tenants in a first class office building in downtown
Seattle. Tenant shall be obligated to maintain and to make all repairs,
replacements or additions of any kind whatsoever to all personal property
located within the Premises and to all trade fixtures, furnishings and carpet
located within the Premises. All maintenance and replacement of specialty
lamps, bulbs, starters and ballast's shall be performed by Landlord provided
that Tenant shall reimburse Landlord for the cost thereof.
SECTION 7.4 TENANT'S ALTERATIONS. Subject to Landlord's prior written
approval, which approval shall not be unreasonably withheld, Tenant may make, at
its expense, additional improvements or alterations to the Premises which it may
deem necessary or desirable. Any repairs or new construction by Tenant shall be
done in conformity with plans and specifications approved by Landlord and shall
be performed by a licensed contractor approved by Landlord. If requested by
Landlord, Tenant shall post a bond or other security satisfactory to Landlord to
protect Landlord against liens arising from work performed for Tenant. All work
performed shall be done in a workmanlike manner and with materials of the
quality and appearance as exist throughout the Building. Landlord may require
Tenant to remove and restore any improvements or alterations on the termination
of this Lease in accordance with Section 13.2 below.
SECTION 7.5 LIENS. Tenant shall keep the Premises and the Property
free from any liens arising out of any work performed, material furnished, or
obligations incurred by Tenant. If Tenant disputes the correctness or validity
of any claim of lien, Tenant shall, within ten (10) days after written request
by Landlord, post or provide security in a form and amount acceptable to
Landlord to insure that title to the Property remains free from the lien
claimed.
ARTICLE VIII
INSURANCE
SECTION 8.1 USE; RATE. Tenant shall not do anything in or about the
Premises which will in any way tend to increase insurance rates paid by Landlord
on policies of liability or casualty insurance maintained with respect to the
Building and/or Property.
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In no event shall Tenant carry on any activities which would invalidate any
insurance coverage maintained by Landlord.
SECTION 8.2 LIABILITY INSURANCE. Tenant shall during the Lease Term,
at its sole expense, maintain in full force a policy or policies of
comprehensive liability insurance. issued by one or more insurance carriers,
insuring against liability for injury to or death of persons and loss of or
damage to property occurring in or on the Premises and any portion of the Common
Area which is subject to Tenants exclusive control. Said liability insurance
shall be in an amount not less than $2,000,000.00 combined single limit for
bodily and personal injury and property damage.
SECTION 8.3 WORKERS' COMPENSATION INSURANCE. Tenant shall at all times
maintain Workers' Compensation Insurance in compliance with Washington law.
SECTION 8.4 CASUALTY INSURANCE. Tenant shall pay for and shall
maintain in full force and effect during the Term of this Lease a standard form
policy or policies of property and all all-risk coverage with an extended
coverage endorsement covering all interior and storefront glass, whether plate
or otherwise, stock in trade, trade fixtures, equipment, tenant improvements
installed at Tenants cost and expense, and other personal property located in
the Premises and used by Tenant in connection with its business.
SECTION 8.5 COMPLIANCE WITH REGULATIONS. Tenant shall, at its own
expense, comply with all requirements, including installation of fire
extinguishers, or automatic dry chemical extinguishing systems, required by
insurance underwriters or any governmental authority having jurisdiction
thereover, necessary for the maintenance of reasonable fire and extended
insurance for the Premises and/or Building.
SECTION 8.6 WAIVER OF SUBROGATION. Any property and all-risk coverage
insurance carried by Landlord or Tenant insuring, in whole or in part, the
Building and/or the Premises, including improvements, alterations and changes in
and to the Premises made by either of them, and Tenant's trade fixtures therein
shall be written in such a manner as to permit the waiver of rights of
subrogation prior to loss by either party against the other in connection with
loss or damage covered by the policies involved. So long as the policy or
policies can be so written and maintained in effect neither Landlord nor Tenant
shall be liable to the other for any such loss or damage. Either party shall,
upon request by the other party, furnish such other party evidence of its
compliance with this Section 8.6.
SECTION 8.7 GENERAL REQUIREMENTS.
(a) All policies of insurance required to be carried hereunder
by Tenant shall be written by companies licensed to do business in Washington
and which are
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rated A:XIII or better in the "Best's Key Rating Guide." Tenant shall, when
requested by Landlord, furnish Landlord with a certificate evidencing insurance
required to be maintained by Tenant pursuant to this Article VIII and shall
satisfy Landlord that each such policy is in full force and effect.
(b) The policy of public liability insurance required to be
carried under Section 8.2 above shall be primary and non-contributing with the
insurance carried by Landlord.
(c) Each policy required under Sections 8.2 and 8.4 shall
expressly include, severally and not collectively, as named or additionally
named insured thereunder, the Landlord and any person or firm designated by the
Landlord and having an insurable interest thereunder, hereinafter called
"Additional Insured," as their respective interests may appear.
(d) All insurance policies maintained by Tenant shall not be
subject to cancellation or reduction in coverage except upon at least thirty
(30) days' prior written notice to Landlord. The policies of insurance or duly
executed certificates evidencing them, together with satisfactory evidence of
the payment of premiums thereon, shall be deposited with Landlord on the Lease
Commencement Date and not less than thirty (30) days prior to the expiration of
the term of such coverage.
(e) If the Tenant fails to procure and maintain insurance as
required by this Article VIII, the Landlord may obtain such insurance and keep
it in effect and the Tenant shall pay to Landlord the reasonable premium cost
thereof, upon demand and as Additional Rent with interest as provided in
Section 21.7 below from the date of payment by the Landlord to the date of
repayment by the Tenant.
(f) The limits of any insurance maintained by Tenant pursuant
to this Article VIII shall in no way limit the liability of Tenant under this
Lease.
SECTION 8.8 BLANKET INSURANCE. The Tenant may fulfill its insurance
obligations hereunder by maintaining a so-called "blanket" policy or policies of
insurance in a form that provides by specific endorsement coverage not less than
that which is required hereunder for the particular property or interest
referred to herein; PROVIDED, HOWEVER, that the coverage required by this
Article VIII will not be reduced or diminished by reason of use of such blanket
policy of insurance.
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ARTICLE IX
DESTRUCTION AND CONDEMNATION
SECTION 9.1 TOTAL OR PARTIAL DESTRUCTION.
(a) In the event the Building and/or the Premises is damaged by
fire or other perils covered by Landlord's insurance, Landlord shall:
(i) In the event of total destruction, at Landlord's
option, as soon as reasonably possible thereafter, commence repair,
reconstruction and restoration of the Building and/or the Premises and prosecute
the same diligently to completion, in which event this Lease shall remain in
full force and effect or within sixty (60) days after such damage, elect not to
so repair, reconstruct or restore the building and/or the Premises, in which
event this Lease shall terminate. In either event Landlord shall give Tenant
written notice of its intention within said sixty (60) day period. In the event
Landlord elects not to restore the building, and/or the Premises, this Lease
shall be deemed to have terminated as of the date of such total destruction.
(ii) In the event of partial destruction of the Building
and/or the Premises, to an extent not exceeding twenty-five percent (25%) of the
full insurable value thereof, and if the damage thereto is such that the
Building and/or the Premises may be repaired, reconstructed or restored within a
period of ninety (90) days from the date of the happening of such casualty, and
if Landlord will receive insurance proceeds sufficient to cover the cost of such
repairs, then Landlord shall commence and proceed diligently with the work of
repair, reconstruction and restoration and this Lease shall continue in full
force and effect. If such work of repair, reconstruction and restoration shall
require a period longer than ninety (90) days or exceeds twenty-five percent
(25%) of the full insurable value thereof, or if said insurance proceeds will
not be sufficient to cover the cost of such repairs, then Landlord either may
elect to so repair, reconstruct or restore and the Lease shall continue in full
force and effect or Landlord may elect not to repair, reconstruct or restore and
the Lease shall then terminate. Under any of the conditions of this Section
9.1(a)(ii), Landlord shall give written notice to Tenant of its intention within
sixty (60) days after such partial destruction. In the event Landlord elects
not to restore the Building and/or the Premises, this Lease shall be deemed to
have terminated as of the date of such partial destruction.
(b) Upon any termination of this Lease under any of the
provisions of this Section 9.1, the parties shall be released without further
obligation to the other from the date possession of the Premises is surrendered
to Landlord except for items which have therefore accrued and are then unpaid.
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(c) In the event of repair, reconstruction and restoration by
Landlord as herein provided, the rental payable under this Lease shall be abated
proportionately with the degree to which Tenant's use of the Premises is
impaired during the period of such repair, reconstruction or restoration
provided that unless there is waiver of subrogation in effect pursuant to
Section 8.6, there shall be no abatement of rent if such damage is the result of
Tenant's negligence or intentional wrongdoing. Tenant shall not be entitled to
any compensation or damages for loss in the use of the whole or any part of the
Premises and/or any inconvenience or annoyance occasioned by such damage,
repair, reconstruction or restoration. Tenant shall not be released from any of
its obligations under this Lease except to the extent and upon the conditions
expressly stated in this Section 9.1. Notwithstanding anything to the contrary
contained in this Section 9.1, if Landlord is delayed or prevented from
repairing or restoring the damaged Premises within one (1) year after the
occurrence of such damage or destruction by reason of acts of God, war,
governmental restrictions, inability to procure the necessary labor or
materials, or other cause beyond the control of Landlord, Landlord, at its
option, may terminate this Lease, whereupon Landlord shall be relieved of its
obligation to make such repairs or restoration and Tenant shall be released from
its obligations under this Lease as of the end of said one year period.
(d) If damage is due to any cause other than fire or other
peril covered by extended coverage insurance, Landlord may elect to terminate
this Lease.
(e) If Landlord is obligated to or elects to repair or restore
as herein provided, Landlord shall be obligated to make repair or restoration
only of those portions of the Building and the Premises which were originally
provided at Landlord's expense, and the repair and restoration of items not
provided at Landlord's expense shall be the obligation of Tenant.
(f) Notwithstanding anything to the contrary contained in this
Section 9.1, Landlord shall not have any obligation whatsoever to repair,
reconstruct or restore the Premises when the damage resulting from any casualty
covered under this Section 9.1 occurs during the last twelve (12) months of the
Term of this Lease or any extension hereof.
(g) Landlord and Tenant hereby waive the provisions of any
statutes or court decisions which relate to the abatement or termination of
leases when leased property is damaged or destroyed and agree that such event
shall be exclusively governed by the terms of this Lease.
SECTION 9.2 CONDEMNATION. If the whole of the Property or the
Premises, or such portion thereof as shall be required for its reasonable use,
shall be taken by virtue of any condemnation or eminent domain proceeding, this
Lease shall automatically terminate
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as of the date of the condemnation, or as of the date possession is taken by the
condemning authority, whichever is later. Current Rent shall be apportioned as
of the date of the termination. In case of a taking of a part of the Premises
or a part of the Property not required for the reasonable use of the Premises,
then this Lease shall continue in full force and effect and the Rental shall be
equitably reduced based upon the proportion by which the Rentable Area of the
Premises is reduced. This Rent reduction shall be effective on the date of the
partial taking. No award, settlement in lieu of an award, or any partial or
entire taking shall be apportioned, and Tenant hereby assigns to Landlord any
award or settlement in lieu of an award which may be made in the taking or
condemnation proceeding, together with any and all rights of Tenant now or
hereafter arising in or to the same or any part thereof; provided that nothing
herein shall prevent Tenant from making a separate claim against the condemning
authority for the taking of Tenant's personal property, and/or moving costs so
long as such claim in no way affects the award to be received by Landlord.
SECTION 9.3 SALE UNDER THREAT OF CONDEMNATION. A sale by Landlord to
any authority having the power of eminent domain, either under threat of
condemnation or while condemnation proceedings are pending, shall be deemed to
be a taking under the power of eminent domain for all purposes under this
Article IX.
ARTICLE X
INDEMNITY AND WAIVER
SECTION 10.1 INDEMNITY.
(a) Tenant, as a material part of the consideration to be
rendered to Landlord, and subject to subsection 10.1(b) below, hereby agrees to
defend, indemnify, and hold Landlord harmless against any and all claims, costs,
and liabilities, including reasonable attorneys' fees and costs (including costs
and fees associated with any lawsuit or appeal), arising by reason of any injury
or claim of injury to person or property, of any nature and howsoever caused,
arising out of the use, occupation and/or control of the Premises, or from any
breach of the terms of this Lease, or any violation of any governmental or
insurance requirements by Tenant its sublessees, assignees, invitees, agents,
employees, contractors, or licensees, except and to the extent as may arise out
of the willful or negligent acts of Landlord or Landlord's agents, employees or
contractors; provided, however, that nothing contained herein shall make Tenant
liable to indemnify Landlord against any structural or other cost of complying
with the American Disabilities Act or any similarly laws.
(b) In the event of concurrent negligence of Tenant, its
sublessees, assignees, invitees, agents, employees, contractors, or licensees on
the one hand, and
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that of Landlord, its agents, employees, or contractors on the other hand, which
concurrent negligence results in injury or damage to persons or property of any
nature and howsoever caused, Tenant's obligation to indemnify Landlord as set
forth in this Section 10.1 shall be limited to the extent of Tenants negligence,
and that of Tenants sublessees, assignees, invitees, agents, employees,
contractors or licensees, including Tenants proportional share of costs,
attorneys' fees and expenses incurred in connection with any claim, action or
proceeding brought with respect to such injury or damage, Tenant and Landlord
shall indemnify each other for the extent of Tenant's or Landlord's respective
negligence, and that of its agents, employee's and contractor's. Landlord and
Tenant each agrees that it will not assert its industrial insurance immunity if
such assertion would be inconsistent with the indemnification rights to this
Section 10.1. The parties agree that this provision was mutually negotiated.
SECTION 10.2 WAIVER. All property kept stored or maintained on the
Premises shall be so kept, stored or maintained at the sole risk of Tenant.
Except in the case of Landlord's negligence or willful misconduct, Landlord
shall not be liable, and Tenant waives all claims against Landlord, for damages
to persons or property sustained by Tenant or by any other person or firm
resulting from the Building or by reason of the Premises or any equipment
located therein becoming out of repair, or through the acts or omissions of any
persons present in the Building (including the Common Areas) or renting or
occupying any part of the Building (including the Common Areas).
ARTICLE XI
DELAYS
SECTION 11.1 DELAYS. If either party is delayed in the performance of
any covenant of this Lease because of any of the following causes (referred to
elsewhere in this Lease as a "Delaying Cause"): acts of the other party, action
of the elements, war, hot, labor disputes, inability to procure or general
shortage of labor or materials in the normal channels of trade, delay in
transportation, delay in inspections, or any other cause beyond the reasonable
control of the party so obligated, whether similar or dissimilar to the
foregoing, financial inability excepted, then that performance shall be excused
for the period of the delay but shall in no way affect Tenants obligation to pay
Rent or the length of the Lease Term.
ARTICLE XII
ASSIGNMENT, SUBLEASE AND SUCCESSION
SECTION 12.1 CONSENT REQUIRED. Tenant shall neither assign this Lease
or any interest herein, nor sublet license, grant any concession, or otherwise
give permission to
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anyone other than Tenant to use or occupy all or any part of the Premises
without the prior written consent of Landlord, which approval shall not be
unreasonably withheld; provided, however, that Landlord hereby consents to a
sublease or assignment of all or any portion of the Premises from Tenant to an
affiliate of Tenant so long as Tenant remains liable to Landlord for payment and
performance of this Lease. In the event of any such assignment sublease or
succession, Landlord shall receive the increase in the Basic Rent payable
hereunder in an amount equal to any subrental or other consideration received by
Tenant as a result of the subletting or assignment which is in excess of the
Basic Rent provided for in Section 4.1 above. Except for an assignment or
sublease to an affiliate of Tenant, Landlord shall require a $250 payment to
cover its handling charges for each assignment or sublease it is requested to
approve. The sale, assignment transfer, sublease or disposition, whether for
value, by operation of law, gift, will, or intestacy, of (a) 25% or more of the
issued and outstanding stock of Tenant if Tenant is a corporation, or (b) 50% or
more of the interests of any general partners, joint venturers, or associates of
Tenant if Tenant is a partnership, joint venture, or association, shall be
deemed an assignment of this Lease under this Section 12.1.
SECTION 12.2 GENERAL CONDITIONS. In the event of any assignment or
sublease approved by Landlord pursuant to Section 12.1 above, Tenant shall
remain primarily liable on its covenants hereunder unless released in writing by
Landlord. In the event of any assignment or sublease, the assignee or sublessee
shall agree in writing to perform and be bound by all of the covenants of this
Lease required to be performed by Tenant Any one assignment or subletting
approved by Landlord pursuant to Section 12.1, shall not be deemed to allow any
further assignment or subletting without Landlord's prior written consent.
SECTION 12.3 SUCCESSION. Subject to any limitations on assignment and
subletting set forth herein, all the terms and provisions of this Lease shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties hereto.
ARTICLE XIII
SURRENDER OF POSSESSION
SECTION 13.1 SURRENDER. At the expiration of the Lease created
hereunder, whether by lapse of time or otherwise, Tenant shall surrender the
Premises to Landlord.
SECTION 13.2 CONDITION AT TIME OF SURRENDER. Furnishings, trade
fixtures and equipment installed by Tenant shall be the property of Tenant.
Upon termination of this Lease, Tenant shall remove any such property. Tenant
shall repair or reimburse Landlord for the cost of repairing any damage to the
Premises and/or Common Areas resulting from the installation or removal of
Tenants property, and Tenant shall deliver
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the Premises to Landlord in clean and good condition, except for reasonable wear
and tear.
ARTICLE XIV
HOLDING OVER
SECTION 14.1 HOLDING OVER. This Lease shall terminate without further
notice at the expiration of the Lease Term. Any holding over by Tenant without
the express written consent of Landlord shall not constitute the renewal or
extension of this Lease or give Tenant any rights in or to the Premises. In the
event of such a holding over by Tenant without the express written consent of
Landlord, the monthly Rent payments to be paid by Tenant shall be subject to
increase at the sole discretion of Landlord in an amount equal to 150% of the
then applicable Rental rate, PROVIDED, HOWEVER, no payment of such increased
Rental by Tenant shall be deemed to extend or renew the Term of this Lease, and
such Rental payments shall be fixed by Landlord only to establish the amount of
liability for payment of Rent on the part of Tenant during such period of
holding over. In the event Landlord shall give its express written consent to
Tenant to occupy the Premises beyond the expiration of the Term, that occupancy
shall be construed to be a month-to-month tenancy upon all the same terms and
conditions as set forth herein unless modified by Landlord in such written
consent provided that Rent charged during any period of holding over shall be as
stated above.
ARTICLE XV
ENTRY BY LANDLORD
SECTION 15.1 ENTRY BY LANDLORD. Landlord reserves, and shall at any and
all times with reasonable notice, have, the right to enter the Premises during
business hours to inspect the same, to show the Premises to prospective
purchasers or lessees, to post notices of nonresponsibility, to repair the
Premises and any portion of the Building that Landlord may deem necessary or
desirable, without abatement of Rent, and may for that purpose erect scaffolding
and other necessary structures where reasonably required by the character of the
work to be performed: provided, that the entrance to the Premises shall not be
blocked unreasonably thereby and, provided, further that the business of the
Tenant shall not be interfered with unreasonably. Tenant hereby waives any
claim for damages, injury or inconvenience to or interference with Tenants
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned by Landlord's exercise of its rights pursuant to this
Section 15.1, except and to the extent any such damage, injury or interference
results from the negligence of Landlord. Landlord shall at all times have and
retain a key with which to unlock all of the doors in, upon and about the
Premises, excluding Tenant's vaults, safes and files, and Landlord
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shall have the right to use any and all means which Landlord may deem proper to
open the doors to or in the Premises in an emergency, in order to obtain entry
to the Premises without liability to Tenant Any entry to the Premises obtained
by Landlord by any of these means, shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of,
the Premises, or an eviction of Tenant from the Premises or any portion thereof.
SECTION 15.2 FAILURE TO SURRENDER. If Tenant fails to surrender the
Premises upon the expiration or termination of this Lease, Tenant shall
indemnify and hold Landlord harmless from loss and liability resulting from that
failure, including, without limiting the generality of the foregoing, any claims
made by any succeeding Tenant.
ARTICLE XVI
SUBORDINATION
SECTION 16.1 LEASE SUBORDINATE TO MORTGAGES. This Lease shall
automatically be subordinate to existing mortgages or deeds of trust which
affect the Property, the Building and/or the Premises; to any first mortgages or
deeds of trust hereafter affecting the Property, the Building and/or the
Premises, and to all renewals, modifications, consolidations, replacements or
extensions thereof. This provision shall be self-operative and no further
instrument of subordination shall be required by any existing or first mortgagee
or beneficiary of a deed of trust, provided, that Tenant shall have the
continued enjoyment of the Premises free from any disturbance or interruption by
any existing or first mortgagee or beneficiary of a deed of trust, or any
purchaser at a foreclosure or private sale of the Property as a result of
Landlord's default under a mortgage or deed of trust, so long as Tenant is not
then in default under the terms and conditions of this Lease.
SECTION 16.2 ESTOPPEL CERTIFICATES. Tenant shall, within fifteen (15)
days of presentation, acknowledge and deliver to Landlord (a) any subordination
or non-disturbance agreement or other instrument that Landlord may require to
carry out the provisions of this Article, and (b) any estoppel certificate
requested by Landlord from time to time in the standard form of any mortgagee or
beneficiary of and deed of trust affecting the Building and Premises certifying,
if such be true, that Tenant is in occupancy, that this Lease is unmodified and
in full force and effect, or if there have been modifications, that the Lease as
modified is in full force and effect, and stating the modifications and the
dates to which the Rent and other charges shall have been paid, and that there
are no Rental offsets or claims.
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ARTICLE XII
DEFAULT AND REMEDY
SECTION 17.1 EVENTS OF TENANT'S DEFAULT. The occurrence of any one or
more of the following events shall constitute a material default in breach of
this Lease by Tenant:
(a) Vacation or abandonment of the Premises;
(b) Failure by Tenant to make any payment required as and when
due, where that failure shall continue for a period of five (5) days;
(c) Failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease, other than making any payment
when due, where that failure shall continue for a period of ten (10) days after
Landlord gives written notice to Tenant of that failure; and
(d) Making by Tenant of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Tenant of a
petition in bankruptcy, including reorganization or arrangement unless, in the
case of a petition filed against Tenant the petition is dismissed within sixty
(60) days; or the appointment of a trustee or receiver to take possession of
substantially all of Tenants assets located at the Premises, or of Tenant's
interest in this Lease.
SECTION 17.2 REMEDIES. In the event of any breach or default by Tenant
under the terms or provisions of this Lease, Landlord, in addition to any other
rights or remedies that it may have, shall have the immediate right of reentry.
Should Landlord elect to reenter or take possession of the Premises, it may
either terminate this Lease, or from time to time, without terminating this
Lease, relet the Premises or any part thereof for the account and in the name of
the Tenant or otherwise, for any term or terms and conditions as Landlord in its
sole discretion may deem advisable, with the right to complete construction of
or make alterations and repairs to the Premises and/or improvements installed by
Tenant. Tenant shall pay to Landlord in the event of reletting, as soon as
ascertained, the costs and expenses incurred by Landlord in the reletting,
completion of construction, or in making any alterations and repairs. Rentals
received by Landlord from any reletting shall be applied: first, to the payment
of any indebtedness, other than Rent, due hereunder from Tenant to Landlord;
second, to the payment of Rent due and unpaid hereunder and to any other
payments required to be made by the Tenant hereunder, and the residue, if any,
shall be held by Landlord as payment of future Rent or damages in the event of
termination as the same may become due and payable hereunder, and the balance,
if any, at the end of the Term of this Lease shall be paid to Tenant should
rental received from time to time from the reletting
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during any month be a lesser Rental than herein agreed to by Tenant the Tenant
shall pay the deficiency to Landlord. The Tenant shall pay the deficiency each
month as the amount thereof is ascertained by the Landlord.
SECTION 17.3 RELETTING. No reletting of the Premises by Landlord
permitted under Section 17.2 shall be construed as an election on Landlord's
part to terminate this Lease unless a notice of Landlord's intention to
terminate is given to Tenant or unless the termination of the Lease is decreed
by a court of competent jurisdiction. In the event of reletting without
termination, Landlord may at any time thereafter elect to terminate this Lease
for a previous breach, provided it has not been cured. Should Landlord at any
time terminate this Lease for any breach, in addition to any other remedy it may
have, it may recover from Tenant all damages it may incur by reason of that
breach.
SECTION 17.4 DEFAULT OF LANDLORD. Landlord shall not be in default
unless Landlord fails to perform its obligations under this Lease within thirty
(30) days after written notice by Tenant or if such failure is not reasonably
capable of being cured within such thirty (30) day period, Landlord shall not be
in default unless Landlord has failed to commence the cure within such thirty
(30) day period and thereafter diligently pursue the cure to completion. Not
withstanding the above, Landlord shall make its best efforts to complete repairs
associated with the maintenance and operations of the Premises within in 48
hours of receipt of Notice from Tenant.
SECTION 17.5 NON-WAIVER. Failure by Landlord to take action or declare
a default as a result of any breach of any term, covenant or condition herein
contained shall not be deemed to be a waiver of that term, covenant or
condition, or of any subsequent breach of any term, covenant or condition herein
contained. The subsequent acceptance of Rent hereunder by Landlord shall not be
deemed to be a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, other than the failure of Tenant to pay the particular
Rental so accepted, regardless of Landlord's knowledge of that preceding breach
at the time of acceptance of the Rent.
SECTION 17.6 MORTGAGEE PROTECTION. In the event of any uncured default
on the part of Landlord, which default would entitle Tenant to terminate this
Lease, Tenant shall not terminate this Lease unless Tenant has notified any
mortgagee or beneficiary of deed of trust whose address shall have been
furnished to Tenant, at least sixty (60) days in advance of the proposed
effective date of the termination. During the sixty (60) day period the
mortgagee or beneficiary shall be entitled to commence to cure the default If
the default is not capable of being cured with due diligence within the sixty
(60) day period, the Lease shall not be terminated if the mortgagee or
beneficiary of a deed of trust shall have commenced to cure the default within
the sixty (60) day period and shall pursue the cure with due diligence
thereafter. If the default is one which is not capable of cure by the mortgagee
or beneficiary of a deed of trust within the sixty (60) day
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period because the mortgagee or beneficiary of a deed of trust is not in
possession of the Building or Property, the sixty (60) day period shall be
extended to include the time needed to obtain possession of the Premises by the
mortgagee or beneficiary of a deed of trust by power of sale, judicial
foreclosure, or other legal action required to recover possession, provided that
these avenues are pursued with due diligence.
ARTICLE XVIII
LIMITATION OF LIABILITY
SECTION 18.1 LIMITATION OF LANDLORD'S LIABILITY. In consideration of
the benefits accruing hereunder, Tenant and all successors and assigns covenant
and agree that in the event of any actual or alleged failure, breach or default
hereunder by Landlord:
(a) The sole and exclusive remedy shall be against the
partnership which is the Landlord and its partnership assets;
(b) No partner of Landlord shall be sued or named as a party in
any suit or action (except as may be necessary to secure jurisdiction over the
partnership);
(c) No service of process shall be made against any partner of
Landlord (except as may be necessary to secure jurisdiction over the
partnership);
(d) No judgment will be taken against any partner of Landlord;
(e) No writ of execution will ever be levied against the assets
of any partner of Landlord other than the partnership assets; and
(f) These covenants and agreements are enforceable both by
Landlord and also by any partner of Landlord.
SECTION 18.2 APPLICABILITY. Tenant agrees that each of the covenants
and agreements contained in Section 18.1 above shall be applicable to any
covenant or agreement either expressly contained in this Lease or imposed by
statute or at common law.
ARTICLE XIX
NOTICES
SECTION 19.1 NOTICES. Any notice required or desired to be given under
this Lease shall be in writing with copies directed as indicated herein and
shall be personally served or given by mail. Any notice given by mail shall be
deemed to have been given
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when seventy-two (72) hours have elapsed from the time such notice was deposited
in the United States mail, certified mail, return receipt requested, and postage
prepaid, addressed to the party to be served at the last address given by that
party to the other party under the provisions of this section. As of the Lease
Commencement Date, the addresses of the Landlord and Tenant are as specified in
the Lease Summary.
ARTICLE XX
HAZARDOUS SUBSTANCES
SECTION 20.1 PRESENCE AND USE OF HAZARDOUS SUBSTANCES. Tenant shall
not, without Landlord's poor written consent, keep on or around the Premises,
Common Areas or Building, for use, disposal, transportation, treatment,
generation, storage or sale, any substances designated as, or containing
components designated as, hazardous, dangerous, toxic or harmful (collectively
referred to as "Hazardous Substances"), and/or are subject to regulation by any
federal, state or local law, regulation, statute or ordinance.
SECTION 20.2 CLEANUP COSTS, DEFAULT AND INDEMNIFICATION. Tenant shall
be fully and completely liable to Landlord for any and all cleanup costs and any
and all other charges, fees, penalties (civil and criminal) imposed by any
governmental authority with respect to Tenant's use, disposal, transportation,
treatment generation, storage and/or sale of Hazardous Substances, in or about
the Premises, Common Areas, or Building, whether or not consented to by
Landlord. Tenant shall indemnify, defend and hold Landlord harmless from any
and all of the costs, fees, penalties, liabilities and charges incurred by,
assessed against or imposed upon Landlord (as well as Landlord's attorneys' fees
and costs) as a result of Tenant's use, disposal, transportation, treatment
generation, storage and/or sale of Hazardous Substances.
ARTICLE XXI
MISCELLANEOUS
SECTION 21.1 HEADINGS. The headings used in this Lease are for
convenience only. They shall not be construed to limit or to extend the meaning
of any part of this Lease.
SECTION 21.2 AMENDMENTS. Any amendments or additions to this Lease
shall be in writing and signed by construed to limit the parties hereto, and
neither Tenant nor Landlord shall be bound by any verbal or implied agreements.
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SECTION 21.3 TIME OF THE ESSENCE. Time is expressly declared to be of
the essence of this Lease.
SECTION 21.4 ENTIRE AGREEMENT. This Lease contains the entire agreement
of the parties hereto with respect to the matters covered hereby, and no other
agreement statement or promise made by any party hereto, or to any employee,
officer or agent of any party hereto, which is not contained herein, shall be
binding or valid.
SECTION 21.5 LANGUAGE. The words "Landlord" and "Tenant," when used
herein, shall be applicable to one (1) or more persons, as the case may be, and
the singular shall include the plural and the neuter shall include the masculine
and feminine, and if there be more than one (1) the obligations hereof shall be
joint and several. The word .persons" whenever used shall include individuals,
firms, associations and corporations and any other legal entity, as applicable.
The language in all parts of this Lease shall in all cases be construed as a
whole and in accordance with its fair meaning, and shall not be construed
strictly for or against Landlord or Tenant.
SECTION 21.6 INVALIDITY. If any provision of this Lease shall be deemed
to be invalid, void or illegal, it shall in no way affect, impair or invalidate
any other provision hereof.
SECTION 21.7 LATE CHARGES. Tenant hereby acknowledges that late payment
by Tenant to Landlord of Rent or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, and the exact amount of the costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Landlord by the terms of any mortgage or deed
of trust covering the Premises. Therefore, in the event Tenant shall fail to
pay any installment of Rent or other sum due hereunder within five (5) days
after it due date, Tenant shall pay to Landlord as Additional Rent a late charge
equal to ten percent (10%) of each installment or the sum of $150.00 per month,
whichever is greater. A $150.00 charge will be paid by the Tenant to the
Landlord for each returned check. In the event Landlord pays any sum or expense
on behalf of Tenant which Tenant is obligated to pay hereunder, or in the event
Landlord expends any other sum or incurs any expense, or Tenant fails to pay any
sum due hereunder, Landlord shall be entitled to receive interest upon that sum
at the rate of twelve percent (12%) per annum until paid.
SECTION 21.8 RELOCATION. Deleted in its entirety.
SECTION 21.9 COMPUTATION OF TIME. The word "day" means "calendar day"
herein, and the computation of time shall include all Saturdays, Sundays and
holidays for purposes of determining time periods specified herein.
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SECTION 21.10 APPLICABLE LAW. This Lease shall be interpreted and
construed under and pursuant to the laws of the State of Washington.
SECTION 21.11 ATTORNEY FEES. In the event either party requires the
services of an attorney in connection with enforcing the terms of this Lease or
in the event suit is brought for the recovery of any Rent due under this Lease
for the breach of any covenant or condition of this Lease, or for the
restitution of the Premises to Landlord, and/or eviction of Tenant during the
Term of this Lease or after the expiration thereof, the prevailing party will be
entitled to a reasonable sum for attorneys' fees, witness fees, and other court
costs, both at trial and on appeal.
SECTION 21.12 TERMINATION. Upon the termination of this Lease by
expiration of time or otherwise, the rights and obligations of Tenant and all
persons claiming under Tenant in and to the Premises shall cease.
SECTION 21.13 BROKER'S COMMISSION. Each party represents and warrants
that it has incurred no liabilities or claims for brokerage commissions or
finder's fees in connection with the negotiation and/or execution of this Lease
and that it has not dealt with or has any knowledge of any real estate
broker/agent or salesperson in connection with this Lease except for those
identified in the Lease Summary. Upon Landlord's receipt of Tenant's first
monthly rent installment Landlord shall pay Tenants agent a real estate fee in
an amount equal to 5% of the gross Lease value, after the Lease Commencement.
Each party agrees to indemnify, defend, and hold the other party harmless from
and against all of such liabilities and claims (including, without limitation,
attorneys' fees and costs) made by any other broker/agent or salesperson
claiming to represent the indemnifying party in connection with this Lease.
SECTION 21.14 SIGNS OR ADVERTISING. The Tenant will not inscribe any
inscription or post, place, or in any manner display any sign, notice, picture
or poster or any advertising matter whatsoever, anywhere in or about the
Premises or Building which can be seen from outside the Premises, without first
obtaining Landlord's reasonable written consent thereto. Any consent so
obtained from Landlord shall be with the understanding and agreement that Tenant
will remove these items at the termination of the tenancy herein created and
repair any damage or injury to the Premises or the Building caused thereby.
Landlord will install and maintain an Office Tower directory of tenants in the
principal lobby entrances of the Building, and Landlord may, as it may determine
from time to time, publish or advertise the Office tenancy list of Landlord's
Building. Tenant shall not use photographs, drawings, or other renderings of
the Building, the Building logo or tradename, or any other proprietary name,
mark or symbol of Landlord without first obtaining Landlord's reasonable prior
written consent.
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SECTION 21.15 LANDLORD'S INTEREST. In the event Landlord transfers its
reversionary interest in the Premises or its rights under this Lease, other than
a transfer for security purposes only, Landlord shall be relieved of all
obligations occurring hereunder after the effective date of such transfer,
provided that Landlord's obligations are assumed by a transferee of equal or
greater net worth.
SECTION 21.16 COUNTERPARTS. This Agreement may be executed by the
parties in counterparts, and each counterpart Agreement shall be deemed to be an
original hereof.
SECTION 21.17 QUIET ENJOYMENT. Subject to the provisions of this Lease
and conditioned upon performance of all of the provisions to be performed by
Tenant hereunder, Landlord shall secure to Tenant during the Lease Term the
quiet and peaceful possession of the Premises and all rights and privileges
appertaining thereto.
SECTION 21.18 AUTHORITY. Each party hereto warrants that it has the
authority to enter into this Agreement and that the signatories hereto have the
authority to bind Landlord and Tenant, respectively.
SECTION 21.19 NAME OF BUILDING. In the event Landlord chooses to change
the name of the Building, Tenant agrees that such change shall not affect in any
way its obligations under this Lease, and that, except for the name change, all
terms and conditions of this Lease shall remain in full force and effect.
Tenant agrees further that such name change shall not require a formal amendment
to this Lease, but shall be effective upon Tenant's receipt of written
notification from Landlord of said change.
SECTION 21.20 RULES AND REGULATIONS. Tenant agrees to abide by and
adhere to any rules and regulations for the Building, and all amendments
thereto, which may be promulgated from time to time by Landlord which do not
materially change the provisions of this Lease. The rules and regulations
currently in effect upon the date of execution of this Lease are set forth as
EXHIBIT D attached hereto.
SECTION 21.21 CONSENTS. Landlord shall act reasonably when determining
whether to give any consents or approvals under the terms of this Lease.
SECTION 21.22 AGENCY DISCLOSURE. At the signing of this Lease, the
Leasing Representative(s) identified in the Lease Summary represented the party
noted therein. Each party signing this document confirms that prior oral and/or
written disclosure of agency was provided to him/her in this transaction (as
required by WAC 308-124D-040). The Broker, The City Group, represented this
Tenant.
SECTION 21.23 ADDENDUM AND EXHIBITS. The Lease Summary, set forth on
pages (i) and (ii) of the Lease, as well as any Addenda and Exhibits to this
Lease are hereby incorporated herein by reference.
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<PAGE>
SECTION 21.24 SURVIVAL. Those provisions of this Lease which, in order
to be given full effect require performance by either Landlord or Tenant
following the termination of this Lease shall survive the Termination Date.
SECTION 21.25 PARKING. Tenant shall have the right to lease, and
Landlord the obligation to provide, eleven (11) nonexclusive parking spaces at
$125 per stall per month for the initial term of this Lease. Landlord reserves
the right to alter, change or relocated the parking from time to time.
SECTION 21.26 RENEWAL OPTION. Tenant shall have the option for one (1)
additional eighteen month renewal term at the rental rate contemplated in the
Section 4.1 of the Lease Summary. Tenant shall provide to Landlord written
Notice of exercise at least six (6) months prior to the Lease Expiration.
SECTION 21.27 FINANCIAL STATEMENT DISCLOSURE. Tenant shall provide to
Landlord Financial Statements at its request within 10 days of Landlord's
written notice.
IN WITNESS WHEREOF, this Lease Agreement is executed on the day and year
first written above.
LANDLORD:
BLUME EASTLAKE LIMITED PARTNERSHIP,
A WASHINGTON PARTNERSHIP
BY
------------------------------------------
BRUCE M. BLUME,
MANAGING GENERAL PARTNER
TENANT:
GREATFOOD.COM, INC.
A WASHINGTON CORPORATION
BY: /s/ Gayle Stetson
------------------------------------------
GAYLE STETSON,
CHIEF FINANCIAL OFFICER
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STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
On this 31st day of July, 1999, before me personally appeared BRUCE M.
BLUME, to me known to be the Managing General Partner of BLUME EASTLAKE LIMITED
PARTNERSHIP, the Washington Partnership that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said partnership, for the uses and purposes therein mentioned,
and on oath stated that he was authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed the day and year first
above written.
-------------------------------------
(Signature)
-------------------------------------
(Typed or printed name)
NOTARY PUBLIC in and for the State of
Washington, residing at _____________
My appointment expires ______________
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that the person
appearing before me and making this acknowledgment is the person whose true
signature appears on this document.
On this 31st day of July, 1999, before me personally appeared GAYLE
STETSON, to me known to be the Chief Financial Officer of GREATFOOD.COM, INC.,
the Washington corporation that executed the within and foregoing instrument,
and acknowledged the said instrument to be the free and voluntary act and deed
of said partnership, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute said instrument.
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WITNESS my hand and official seal hereto affixed the day and year first
above written.
-------------------------------------
(Signature)
-------------------------------------
(Typed or printed name)
NOTARY PUBLIC in and for the State of
Washington, residing at _____________
My appointment expires_______________
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<PAGE>
EXHIBIT A
[FLOOR PLAN]
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
LOTS 16 THROUGH 22, INCLUSIVE, BLOCK 20, DENNY FUHRMAN ADDITION TO THE CITY OF
SEATTLE, ACCORDING TO THE PLAT THEREOF RECORDED IN VOLUME 7 OF PLATS, PAGE 34,
IN KING COUNTY, WASHINGTON; EXCEPT THAT PORTION OF SAID LOT 16, CONVEYED TO THE
CITY OF SEATTLE FOR STREET AND/OR ALLEY PURPOSES BY DEED RECORDED OCTOBER 25,
1985, UNDER RECORDING NUMBER 8510250370.
<PAGE>
EXHIBIT C
IMPROVEMENTS
Landlord shall deliver the Premises in an "as is" condition, free of all
dirt and debris.
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, halls, passages, elevators, stairways, exits and
entrances of the Building shall not be obstructed by Tenant or used by it for
any purpose other than for ingress and egress from the Premises. The halls,
passages, exits, entrances, elevators, retail arcade, escalators, balconies and
stairways are not for the use of the general public, and Landlord shall in all
cases retain the right to control and prevent access to those areas by all
persons whose presence in the judgment of Landlord would be prejudicial to the
safety, character, reputation and interests of the Building and its tenants,
provided that nothing in this Lease shall be construed to prevent access to
persons with whom Tenant normally deals in the ordinary course of its business,
unless those persons are engaged in illegal activities. Tenant shall not go
upon the roof of the Building, except in areas that Landlord may designate as
"Common Areas" from time to time.
2. The Premises shall not be used for lodging or sleeping. Unless
ancillary to a restaurant or other food service use specifically authorized in
Tenant's Lease, no cooking shall be done or permitted by Tenant on the Premises,
except that the preparation of hot beverages and use of microwave ovens for
Tenant and its employees shall be permitted.
3. Landlord shall clean the leased Premises as provided in the
Janitorial Schedule which is Sunday thru Thursday excluding holiday, and except
with the written consent of Landlord, no person or persons other than those
approved by Landlord will be permitted to enter the Building for such purpose,
but Tenant shall have the right to have an employee on the Premises for special
and/or extraordinary cleaning as desired by Tenant and at Tenant's expense.
Tenant shall not cause unnecessary labor by reason of Tenants carelessness and
indifference in the preservation of good order and cleanliness.
4. Tenant shall not alter any lock or install a new or additional
lock or any bolt on any door of the Premises without furnishing Landlord with a
key for any lock and obtaining Landlord's prior permission. Tenant upon the
termination of its tenancy, shall deliver to Landlord all keys and/or security
cards to doors in the Building and the Premises that shall have been furnished
to Tenant and in the event of loss of any keys and/or security cards so
furnished, shall pay Landlord for the lost keys and/or security cards and
changing of locks as a result of such loss.
5. The freight elevator shall be available for use by Tenant subject
to reasonable scheduling as Landlord shall deem appropriate. The persons
employed by Tenant to move equipment or other items in or out of the Building
must be acceptable to Landlord. Landlord shall have the right to prescribe the
weight size and position of all
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equipment, materials, supplies, furniture or other property brought into the
Building. No safes or other objects larger or heavier than the freight elevator
of the Building is limited to carry shall be brought into or installed on the
Premises without Landlord's prior written consent. Heavy objects shall, if
considered necessary by Landlord, stand on wood ships of thickness as is
necessary to properly distribute the weight of those objects. Landlord will not
be responsible for loss of or damage to any property from any cause, and all
damage done to the Building by moving or maintaining Tenant's property shall be
repaired at the expense of Tenant. The moving of heavy objects shall occur only
between those hours as may be designated by and only upon written notice to
Landlord and the persons employed to move heavy objects in or out of the
Building must be acceptable to Landlord.
6. Tenant shall not use or keep in the Premises or the Building any
kerosene, gasoline or flammable or combustible fluid or materials or use any
method of healing or air conditioning other than that supplied by Landlord.
Tenant shall not sweep or throw or permit to be swept or thrown from the
Premises any debts or other substance into any of the corridors, halls or
lobbies or out of the doors or windows or into the stairways of the Building and
Tenant shall not use, keep or permit to be used or kept any foul or noxious gas
or substance in the Premises. Tenant shall not use, keep or permit or suffer
the Premises to be occupied or used in a manner offensive or objectionable to
Landlord or other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other tenants or those having business
in the Building.
7. During non-business hours and on holidays access to the Building,
or to the halls, corridors or stairways in the Building, or to the Premises, may
be refused unless the person seeking access is known to the Building and has a
pass or is properly identified. Landlord shall in no case be liable for damages
for the admission to or exclusion from the Building of any person whom Landlord
has the right to exclude under Rule 1 above. In case of invasion, mob, hot
public excitement or other circumstances rendering that action advisable in
Landlord's opinion, Landlord reserves the right to prevent access to the
Building during the continuance of that activity by taking those actions that
Landlord may deem appropriate, including closing entrances to the Building.
8. Tenant shall see that the doors of the Premises are closed and
securely locked when Tenant's employees leave the Premises, after hours.
9. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be deposited in
any of them, and any damage resulting to them from Tenants misuse shall be paid
for by Tenant.
10. Except with the prior written consent of Landlord, Tenant shall
not sell, or permit the sale from the Premises of newspapers, magazines,
periodicals, theater tickets
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<PAGE>
or any other goods, merchandise or service, nor shall Tenant carry on, or permit
or allow any employee or other person to carry on, business in or from the
Premises for the service or accommodation of occupants of any other portion of
the Building, nor shall the Premises be used for manufacturing of any kind, or
for any business or activity other than that specifically provided for in
Tenant's Lease. No Tenant shall obtain for use upon the Premises ice, towel and
other similar services, or accept barbering or shoe polishing services in the
Premises, except from persons authorized by Landlord and at hours and under
regulations fixed by Landlord.
11. Tenant, without Landlord prior written consent, which shall not be
unreasonably withheld, shall not install any radio or television antenna,
loudspeaker or other device on the roof or exterior walls of the Building.
12. Tenant shall not use in any space, or in the Common Areas of the
Building, any handtrucks except those equipped with rubber fires and side guards
or other material handling equipment as Landlord may approve. No other vehicles
of any kind shall be brought by Tenant into the Building or kept in or about the
Premises. All mail carts shall be equipped with rubber guards to protect
elevators, doors and hallways.
13. No sign, advertisement or notice visible from the exterior of the
Premises shall be inscribed, painted or affixed by Tenant on any part of the
Building or the Premises without the prior written consent of Landlord. If
Landlord shall have consented at anytime, whether before or after the execution
of this Lease, that consent shall in no way operate as a waiver or release of
any of the provisions of this Rule 13 or of this Lease, and shall be deemed to
relate only to the particular sign, advertisement or notice so consented to by
Landlord and shall not be construed as dispensing with the necessity of
obtaining the specific written consent of Landlord with respect to each and
every such sign, advertisement or notice other than the particular sign,
advertisement or notice, as the case may be, so consented to by Landlord.
14. Except as shown in the design plan approved by Landlord, the
sashes, sash doors, windows, glass relights, and any lights or skylights that
reflect or admit light into the halls or other places of the Building shall not
be covered or obstructed and, there shall be no hanging plants or other similar
objects in the immediate vicinity of the windows or placed upon the window sills
or hung from the window heads.
15. No tenant shall lay linoleum or other similar floor covering so
that it is affixed to the floor of the Premises in any manner except by a paste,
or other material which may easily be removed with water, the use of cement or
other similar adhesive materials being expressly prohibited. The method of
affixing any linoleum or other similar floor covering to the floor, as well as
the method of affixing carpets or rugs to the Premises, shall be subject to
approval by Landlord. The expense of repairing any damage resulting from a
violation of this Rule 15 shall be borne by the Tenant by
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<PAGE>
whom, or by whose agents, clerks, employees or visitors, the damage shall have
been caused.
16. All loading, unloading, and delivery of merchandise, supplies,
materials and furniture to the Premises shall be made during reasonable hours
and in entryways and elevators as Landlord shall designate. In its use of the
building loading dock, Tenant shall not obstruct or permit the obstruction of
loading areas, and at no time shall Tenant park vehicles in the loading areas
except for loading and unloading.
17. Canvassing, soliciting, peddling or distribution of handbills or
any other written material in the Building is prohibited and Tenant shall
cooperate to prevent these activities.
18. Tenant shall not permit the use or the operation of any coin
operated machines on the Premises, including, without limitation, vending
machines, video games, pinball machines, or pay telephones without the
reasonable prior written consent of Landlord.
19. Landlord may direct the use of all pest extermination and
scavenger contractors throughout the Building and/or Premises at intervals as
Landlord may require.
20. If Tenant desires telephone or telegraph connections, Landlord
will direct service technicians as to where and how the wires are to be
introduced. No boring or cutting for wires or otherwise shall be made without
directions from Landlord.
21. Landlord reserves the right to select the name of the Building and
to change the name as it may deem appropriate from time to time, and Tenant
shall not refer to the Building by any name other than: (a) the names as
selected by Landlord (as that name may be changed from time to time), or (b) the
postal address, approved by the United States Post Office. Tenant shall not use
the name of the Building in any respect other than as an address of its
operation in the Building without the prior written consent of Landlord.
22. The requirements of Tenant will be attended to only upon
application by telephone or in person at the office of the Building manager.
Employees of Landlord shall not perform any work or do anything outside of their
regular duties unless under special instruction from Landlord.
23. Landlord may waive any one or more of the Rules and Regulations
for the benefit of any particular tenant or tenants, but no waiver by Landlord
shall be construed as a waiver of the Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any
Rules and Regulations against any or all of the tenants in the Building.
24. Wherever the word "Tenant" occurs in these Rules and Regulations,
it is understood and agreed that it shall mean Tenant's assigns, subtenants,
associates,
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agents, clerks, employees and visitors. Wherever the word "Landlord" occurs in
these Rules and Regulations, it is understood and agreed that it shall mean
Landlord's assigns, agents, clerks, employees and visitors.
25. These Rules and Regulations are in addition to, and shall not be
construed in any way to modify, alter or amend, in whole or part, the terms,
covenants, agreements and conditions of any Lease of Premises in the Building.
26. Landlord reserves the right to make additional rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building, and for the preservation of good order
therein.
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1/A of
our report dated May 17, 1999, relating to the financial statements of
GreatFood.com, Inc., which appears in such Registration Statement. We also
consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Seattle, Washington
September 17, 1999
