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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 8, 1999.
REGISTRATION NO. 333-79067
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CYBERGOLD, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7311 94-3212392
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2921 ADELINE STREET
BERKELEY, CALIFORNIA 94703
(510) 845-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
A. NATHANIEL GOLDHABER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CYBERGOLD, INC.
2921 ADELINE STREET
BERKELEY, CALIFORNIA 94703
(510) 845-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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CARLA S. NEWELL, ESQ. NORA L. GIBSON, ESQ.
ANDREW BAW, ESQ. LINDSAY C. FREEMAN, ESQ.
FRANK A. GRANT IV, ESQ. ELISA S. LEE, ESQ.
ERIC E. KEPPLER, ESQ. BROBECK, PHLEGER & HARRISON LLP
GUNDERSON DETTMER STOUGH SPEAR STREET TOWER
VILLENEUVE FRANKLIN & HACHIGIAN, LLP ONE MARKET
155 CONSTITUTION DRIVE SAN FRANCISCO, CA 94105
MENLO PARK, CALIFORNIA 94025 (415) 442-0900
(650) 321-2400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.0001 par value.................... $46,000,000 $12,788
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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[FRONT COVER OUTSIDE GATEFOLD
DESCRIPTION: Color reproduction of Cybergold web site home page with text
annotations and artwork describing various components of the home page.
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
- - Services to enhance Cybergold membership value
- - Cybergold presents to members a rotating set of featured incentive offers
- - "Spend" offers provide members with ability to purchase digital content using
Cybergold Micropayments
- - A set of changing "earn" offers provide members with opportunities to earn
cash for specific online behaviors
- - Extra member perks are sponsored by Cybergold merchants
- - Web surfers can open a free Cybergold account. No software downloads are
needed
- - Easy access to popular Internet content enhances member value
CYBERGOLD S-1
INSIDE FRONT COVER GATEFOLD
DESCRIPTION: 2-page spread color reproduction of three representative Cybergold
Web site pages, plus a rendering of a "bank" symbol and the VISA credit card
logo.
WEB SITE PAGE 1: Reproduction of the Cybergold "Earn" page.
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
- - TOP: Consumers earn cash for online activity.
- - NEAR TOP: Tabs enhance member navigation of the Cybergold web site.
- - RIGHT SIDE: Cybergold presents merchant offers for members to review and act
upon.
- - BOTTOM: Reward amounts vary according to the actions requested by merchants
and by the value of members' actions to the merchants.
- - LEFT BOTTOM: Members read summary descriptions of incentive offers. Clicking
on offers provides more information and instructions.
- - LEFT TOP: Listing by category provides additional navigational aid.
WEB SITE PAGE 2: Reproduction of the Cybergold "Account Management" page.
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
- - TOP: Account management screen enables members to review account status and
history.
- - BOTTOM RIGHT: Member balance.
- - BOTTOM LEFT: Consumer account history.
- - TOP LEFT: Account information.
UPPER RIGHT SIDE OF PAGE, SYMBOL 1: "bank" symbol annotated with Member
transfers Cybergold balance to personal bank account.
UPPER RIGHT SIDE OF PAGE, SYMBOL 2: Reproduction of "VISA" logo, annotated with:
Member transfers Cybergold balance to VISA account or Member loads Cybergold
account from VISA card.
<PAGE> 3
WEB SITE PAGE 3: Reproduction of the Cybergold "Spend" page.
RELATED TEXT ANNOTATIONS, CLOCKWISE FROM TOP:
TOP: Utilizing Cybergold Micropayments, member buys digital content, services
and products. Thousands of items are available.
NEAR TOP: log-in bar.
RIGHT SIDE 1: Cybergold's Multimedia Mart is a source for a wide variety of
digital content, services and products provided by merchants and hosted by
Cybergold.
RIGHT SIDE 2: CD World sells music CDs, DVDs, games and software.
RIGHT SIDE 3: BuyCollegeStuff provides college-branded screensaver software.
RIGHT SIDE 4: Epitonic is a vendor of independent MP3 music files.]
<PAGE> 4
PROSPECTUS SUMMARY
The following is only a summary. You should carefully read the more
detailed information contained in this prospectus, including our financial
statements and related notes. Our business involves significant risks. You
should carefully consider the information under the heading "Risk Factors."
Unless otherwise noted, all information in this prospectus: (1) assumes that all
outstanding shares of our preferred stock are converted into 14,453,186 shares
of common stock on the day that this offering is completed; (2) assumes that the
underwriters do not exercise their option to purchase additional shares, (3)
assumes the exercise of warrants to purchase 576,925 shares of Series D
Preferred Stock prior to the completion of this offering and the conversion of
such shares to common stock, (4) assumes our reincorporation in Delaware and (5)
does not reflect a for reverse stock split to be effected prior to the
consummation of the offering.
CYBERGOLD, INC.
We are a leading provider of online direct marketing and cash-based
incentive advertising solutions. We combine a variety of Internet-based direct
advertising and marketing services with cash-based online incentive programs to
provide flexible, cost-per-action incentive marketing solutions. Our payment
structure, in which our advertising and marketing clients are only charged when
our members execute specific predefined actions, provides these clients with a
known cost per yield for their advertising campaigns. By leveraging our
proprietary consumer member database and our targeting capabilities, we are able
to offer our clients customized, targeted advertising solutions designed to
improve advertisement response rates and reduce customer acquisition costs.
The unique capabilities of the Internet create significant opportunities
for advertisers, marketers and merchants to develop direct relationships with
consumers. Forrester Research estimates that Internet advertising expenditures
in 1998 were approximately $1.3 billion and projects Internet advertising
expenditures will increase to approximately $10.5 billion in 2003. To date, the
majority of Internet advertising has been in the form of passive banner
advertising. Decreasing consumer response to banner advertising has led
advertisers and marketers to seek alternative forms of online advertising to
increase the effectiveness and efficiency of their online marketing efforts. As
advertisers and marketers seek to increase the effectiveness and efficiency of
their online marketing efforts, they are turning to incentives-based programs,
which reward consumers for their attention or specific response to ads and
promotions. Most incentives-based programs offer consumers the ability to earn
"points" that are redeemable only for limited products, frequent flyer miles or
other non-cash, often restricted, rewards.
Our online Earn & Spend Community offers our 1.8 million consumer members a
broad array of cash-based incentive reward opportunities, whereby members are
compensated with cash, rather than non-cash incentives for responding to online
marketing offers. The cash earned by our members can be credited to either their
VISA or bank accounts from their Cybergold account or be used to purchase
digital content, services and products, including software, music, games, credit
reporting services and original artistic works and publications through our Earn
& Spend Community.
We have developed a proprietary micropayment system that enables the
cost-effective management of cash-based incentive programs on our Web site and
on other Web sites. Our system combined with our Earn & Spend incentives enables
the online exchange of inexpensive digital content, services and products which
has not previously been economically practical.
We believe our solution provides the following benefits:
Advertising and Marketing Client Benefits
- - Provides advertisers and marketers more flexible and effective marketing tools
to induce desired consumer behavior.
- - Provides a cost-per-action incentive marketing solution, reducing customer
acquisition costs and risk.
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- - Enables advertisers and marketers to better measure the effectiveness of their
online advertising campaigns, allowing the review and modification of
campaigns at any time to react to consumer response rates.
- - Enables our clients to leverage our proprietary member database to offer
customized and targeted campaigns.
Member Benefits
- - Members receive cash for their Internet activity, unlike other incentive
reward programs where consumers receive only frequent flier miles, specified
products or other non-cash, often restricted, incentive rewards.
- - Member choice is increased by enabling consumers to limit the number of
advertising and marketing offers they are exposed to and to respond only to
advertising and marketing for which they have an interest. Consumers, through
our Earn & Spend Community, can spend their cash rewards on a wide variety of
digital content, services or products or simply have their cash rewards
credited to their VISA or bank accounts.
Merchant Benefits
- - Enables Internet commerce on a pay-per-transaction basis, offering merchants
an alternative revenue source by providing them access to our broad membership
base.
- - Provides merchants with value-added services, including "non-hosted" and
"hosted" services. In "non-hosted" solutions, our micropayment transaction
system enables merchants to sell inexpensive items or services on their own
Web sites. In "hosted" solutions, we provide the merchants with a complete
outsourced suite of Web site hosting, systems administration, transaction
processing and integration services, while the merchant only provides the
content.
Since inception, a total of 144 advertising and marketing clients have
offered incentives using our system. Advertising and marketing clients that have
used our service include Ask Jeeves, Inc., autobytel.com inc., Cendant
Corporation (Netmarket), The Walt Disney Company (Disney Daily Blast, Disney
Store Online), Earthlink Network, Inc., GoTo.com, Inc., Interactive Coupon
Network (Cool Savings), LifeMinders.com, Inc., New Media and Qwest
Communications International Inc.
We have entered into strategic relationships with the First National Bank
of Omaha, MBNA America Bank, Earthlink Network, Inc., BuySafe.com and others
which have enabled us to offer our advertising and marketing clients and members
a broad range of incentives and online services. We intend to continue to enter
into strategic relationships in order to build our Earn & Spend Community,
generate additional traffic to our Web site, increase membership and establish
additional sources of revenue.
We were incorporated under the name Cyber-Bucks, Inc. in California in
October 1994. We subsequently changed our name to CyberGold, Inc. and intend to
reincorporate under the name Cybergold, Inc. in Delaware prior to this offering.
Our principal executive offices are located at 2921 Adeline Street, Berkeley,
California 94703, and our telephone number is (510) 845-5000. Cybergold is our
registered trademark. Cybergold Mint and Earn & Spend are our trademarks. This
prospectus also contains trademarks of other companies. Our Web site is
www.cybergold.com. Information contained on our website does not constitute part
of this prospectus.
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THE OFFERING
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Common Stock we are offering.................. shares
Common Stock to be outstanding after the shares
offering....................................
Underwriters' over-allotment option........... shares
Use of proceeds............................... For general corporate purposes, including working
capital and capital expenditures, and for potential
strategic acquisitions or investments. See "Use of
Proceeds."
Dividend policy............................... We do not anticipate paying cash dividends.
Proposed Nasdaq National Market symbol........ CGLD
</TABLE>
The number of shares of our common stock to be outstanding immediately
after the offering is based on the number of shares outstanding on May 18, 1999.
This number does not take into account:
- 1,875,957 shares of our common stock subject to options outstanding at a
weighted average exercise price of $0.19 per share and 1,824,043 shares
of common stock reserved for issuance under our stock option plans or
other option agreements at March 31, 1999;
- 185,000 shares of common stock issuable upon conversion of outstanding
options to purchase preferred stock;
- 1,500,000 shares of common stock reserved for issuance under our 1999
Omnibus Equity Incentive Plan;
- 300,000 shares of common stock reserved for issuance under our 1999
Employee Stock Purchase Plan; and
- outstanding warrants to purchase 272,500 shares of our common stock at a
weighted average exercise price of $0.30 per share.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary financial data is derived and qualified in its
entirety by our financial statements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues...................................... $ 1 $ 531 $1,005 $ 107 $ 503
Gross margin........................................ 0 238 539 72 258
Loss from operations................................ (2,579) (3,729) (4,683) (1,215) (1,737)
Net loss............................................ (2,569) (3,744) (4,604) (1,220) (1,726)
Basic and diluted net loss per common share......... $ (0.46) $ (0.63) $(0.87) $ (0.20) $ (0.33)
Shares used in computing basic and diluted net loss
per common share.................................. 5,618 5,969 6,031 6,020 6,079
</TABLE>
The following table presents our summary balance sheet at March 31, 1999,
which has been adjusted for the conversion of our preferred stock outstanding as
of March 31, 1999 into 11,373,263 shares of common stock, the issuance of
3,076,923 shares of Series D Preferred Stock on May 18, 1999 and the conversion
of these shares into an equal number of shares of common stock, the issuance of
576,925 shares of Series D Preferred Stock upon the exercise of warrants and the
conversion of these shares into an equal number of shares of common stock, and
our sale of shares of our common stock at an assumed public
offering price of $ per share in this offering. See "Use of Proceeds" and
"Capitalization."
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<CAPTION>
MARCH 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- ----------- -----------
(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,280 $
Current assets.............................................. 2,403
Total assets................................................ 2,893
Long-term obligations, net of current maturities............ 291
Convertible redeemable preferred stock...................... 6,671
Total stockholders' equity (deficit)........................ (5,978)
</TABLE>
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. You should also refer to the other information in this
prospectus, including our financial statements and the related notes. The risks
and uncertainties described below are not the only ones potentially affecting
our company. Additional risks and uncertainties that we are unaware of or that
we currently deem immaterial also may become important factors that affect our
company.
If any of the following risks occur, our business, results of operations or
financial condition could be materially harmed. As a result, the trading price
of our common stock could decline, and you could lose all or part of your
investment.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND EXPECT CONTINUED LOSSES FOR THE FORESEEABLE
FUTURE
We have not achieved profitability in any previous quarter, and given our
planned level of operating expenses, we expect to continue to incur operating
losses for the foreseeable future. Our retained deficit as of March 31, 1999 was
approximately $13.8 million. We plan to increase our operating expenses as we
continue to build brand and infrastructure and consequently, our losses will
increase in the future. Although we have experienced revenue growth in recent
quarters, we cannot be certain that revenues will increase at a rate sufficient
to achieve and maintain profitability. If our revenue growth is slower than we
anticipate or our operating expenses exceed our expectations, our losses will
significantly increase. We may never achieve profitability. Even if we were to
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more information on our operating history and results of operations.
WE CANNOT ASSURE YOU THAT WE WILL BE PROFITABLE BECAUSE WE HAVE OPERATED OUR
BUSINESS ONLY FOR A SHORT PERIOD OF TIME AND HAVE ONLY A LIMITED OPERATING
HISTORY UPON WHICH TO EVALUATE OUR BUSINESS
We were incorporated in October 1994 but did not begin to generate
meaningful revenues until March 1997. Accordingly, we have only a limited
operating history upon which to evaluate our business and prospects. Before
buying our common stock, you should carefully consider the risks and
difficulties that are frequently encountered by early stage companies in the
electronic commerce and direct marketing industries. These risks and
difficulties include any:
- inability to add new members to our program or retain members;
- failure by advertisers, marketers or consumers to adopt and accept online
direct marketing;
- failure to maintain, expand and develop relationships with advertisers,
marketers, partners, third-party Web sites and merchants;
- inability to increase awareness of the Cybergold brand;
- inability to expand the breadth and depth of services we offer;
- lack of broad acceptance of our method for making small payments over the
Internet;
- inability to develop and upgrade our technology to keep pace with the
demands of the electronic commerce, direct marketing and micropayments
industries;
- failure to enforce and protect our intellectual property rights;
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- inability to hire or retain key employees;
- inability to adapt to the changing advertising, marketing and Internet
markets; and
- inability to predict accurately future results of operations.
If we are unsuccessful in addressing these risks and uncertainties, our
business, results of operations and financial condition may be harmed. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" for detailed information on our historical operating results.
THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS OF OPERATIONS MAKES IT DIFFICULT
TO PREDICT OUR FINANCIAL PERFORMANCE AND MAY ADVERSELY AFFECT THE TRADING PRICE
OF OUR COMMON STOCK
Our quarterly results of operations have varied in the past and are likely
to vary significantly from quarter to quarter. A number of factors are likely to
cause these variations, some of which are outside of our control. These factors
include:
- changes in revenue levels resulting from the advertising and marketing
budget cycles of individual advertisers and marketers;
- changes in advertising and marketing costs that we incur to attract and
retain members;
- changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for Internet advertising and marketing generally;
- our rate of member acquisition and the level of activity of new and
existing members;
- the number and type of programs and development contracts established
with our advertising and marketing clients as well as the impact of the
fixed price portion of development contracts on gross margin;
- the introduction of new products and services by us or by our
competitors;
- unexpected costs and delays resulting from the expansion of our
operations; and
- the occurrence of technical difficulties or unscheduled system downtime.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising and marketing and consumer
purchasing, which are typically higher during the fourth calendar quarter and
lower in the following quarter. In addition, expenditures by advertisers and
marketers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns. Consequently, our results of operations could be
harmed by a downturn in the general economy or a shift in consumer buying
patterns.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful and you should not
rely upon them as an indication of our future performance. Our operating
expenses are based on expected future revenues and are relatively fixed in the
short term. If our revenues are lower than expected, we would incur greater than
expected losses. In addition, during future periods our operating results likely
will fall below the expectations of public market analysts and investors. In
this event, the market price of our common stock likely would decline. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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WE DEPEND ON THE INCREASED ACCEPTANCE OF ONLINE INCENTIVES-BASED DIRECT
MARKETING PROGRAMS
Our success depends in part on the increased acceptance of online
incentives-based direct marketing programs. Although incentive programs have
been used extensively in traditional marketing and sales channels, they have
only recently begun to be used online.
The success of online incentives-based direct marketing programs will
depend on the ability of these programs to attract and retain members,
advertising and marketing clients and merchants. Our ability to attract and
retain members, clients and merchants will depend on our marketing efforts and
on the quality of each member, client or merchant experience with our system.
The number and relevance of the direct marketing offers we provide and the
perceived value of the incentives we offer will be necessary to achieve future
success. Our ability to generate revenue from clients and merchants will depend
on our ability to differentiate ourselves through the services we provide and
technology solutions we offer, as well as our success in generating adequate
participation from consumers in our online incentives-based direct marketing
programs. The attractiveness of our program to consumers depends in large part
on the attractiveness of the incentives we offer. To the extent that our online
incentives-based direct marketing program does not achieve market acceptance
among members, clients and merchants, our business, results of operations and
financial condition would be harmed.
OUR SUCCESS DEPENDS ON OUR ABILITY TO MAINTAIN AND EXPAND AN ACTIVE MEMBERSHIP
BASE
Our success largely depends on our ability to maintain and expand an active
membership base. Although we currently have approximately 1.8 million members,
we generate the majority of our revenues from a small percentage of our members,
and we cannot assure you that the percentage of active members will increase. In
addition, approximately 360,000 of our members have requested not to receive
e-mail from us. Because our revenues are primarily driven by commissions paid by
advertisers and direct marketers based on specific actions taken by our members,
if we are unable to induce existing and new members to actively participate in
the Cybergold Earn & Spend Community, our business, results of operations and
financial condition will be harmed. Although our membership has grown in prior
periods, we cannot be certain that our membership growth will continue at
current rates or increase in the future. Currently, we attract the majority of
our members through co-registration agreements with online partners, whereby
registrants for those sites have the option to concurrently sign up for the
Cybergold Earn & Spend Community. We believe that the convenience afforded by
this co-registration capability is a significant factor in attracting new
members. If we were to lose these relationships with our online co-registration
partners, we would lose a significant source of new members, and our business,
results of operations and financial condition would be harmed.
IF OUR ABILITY TO DEPOSIT TO AND TRANSFER FUNDS FROM VISA ACCOUNTS WERE TO BE
DISCONTINUED OR IF THIS ABILITY WERE TO BE EXTENDED TO COMPETITORS, OUR BUSINESS
COULD BE HARMED
Cybergold has a relationship with the First National Bank of Omaha, an
acquiring bank for VISA International Service Association (VISA), that enables
the transfer of funds from individual Cybergold member accounts to their VISA
accounts, as well as from their VISA accounts to their Cybergold accounts. This
transaction processing capability required re-engineering of the First National
Bank of Omaha's VISA transaction processing system, and would be difficult to
replicate with another financial service provider if our relationship with the
First National Bank of Omaha were to deteriorate or terminate. The First
National Bank of Omaha can terminate the contract at any time with 30 days
notice. Currently, under the conditions of our contract, we cannot enter into
similar relationships with other credit card providers such as MasterCard,
American Express or Discover. However, the First National Bank of Omaha can at
its own discretion freely offer similar services to our existing and potential
competitors. If we were to lose this relationship with the First National Bank
of Omaha, or if
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they were to extend similar services to our competitors, our business, results
of operations and financial condition would be harmed.
IF WE ARE UNABLE TO ESTABLISH THE CYBERGOLD BRAND, OUR BUSINESS WOULD BE HARMED
Developing a strong brand is critical to our business. The reputation of
the Cybergold brand will largely depend on our ability to provide a high-quality
experience for our clients, members and merchants. We cannot assure you that we
will be successful in developing our brand. Any client, member or merchant
dissatisfaction with the quality of an experience with our company for reasons
within or outside of our control could damage our reputation. Any damage to our
reputation could have a material adverse effect on our business, results of
operations and financial condition. We intend to spend a portion of the proceeds
of this offering to further develop our brand. If we expend additional resources
to build the Cybergold brand and do not generate a corresponding increase in
revenues as a result of our branding efforts, or if we otherwise fail to promote
our brand successfully, our business, results of operations and financial
condition would be harmed.
IF THE INTERNET FAILS TO GAIN FURTHER ACCEPTANCE AS A MEDIUM FOR ADVERTISING AND
MARKETING, OUR BUSINESS WOULD BE HARMED
Our business depends on market acceptance of the Internet as a medium for
advertising and marketing. Advertisers, marketers and advertising and marketing
agencies that have historically relied on traditional forms of advertising and
marketing may be reluctant or slow to adopt online advertising and marketing.
Many advertisers and marketers have limited or no experience using the Internet
as an advertising and marketing medium. In addition, these advertisers and
marketers may have allocated only a limited portion of their budgets to online
advertising and marketing, or may find online advertising and marketing to be
less effective for promoting their products and services than traditional
advertising and marketing media, including television, radio and print.
Advertisers, marketers, and advertising and marketing agencies that have
invested substantial resources in traditional methods of advertising and
marketing may also be reluctant to reallocate their resources to online
advertising and marketing. The market for online advertising and marketing also
depends on the overall growth and acceptance of electronic commerce. If the
markets for online advertising and marketing and electronic commerce fail to
develop or develop more slowly than we expect, our business, results of
operations and financial condition would be harmed.
WE DEPEND ON CONSUMER DEMAND FOR MAKING SMALL PAYMENTS OVER THE INTERNET
We cannot assure you that the demand for and market acceptance of Internet
micropayment services will develop to a sufficient level to support our
continued operations or planned expansion, and we also cannot assure you that
consumers, Web sites or merchants will utilize a system for micropayment
transactions over the Internet. Currently, Internet content and service
providers typically use a subscription model to charge for content or services
they provide, if they charge consumers directly for their content or services at
all. We cannot assure you that these entities will ever adopt a method for
accepting small payments for their content or services over the Internet. In
addition, the development of a market for micropayments on the Internet may
depend on the eventual adoption of a standard micropayment system. There can be
no assurance that our micropayment system will be the system adopted by
consumers, Web sites, or merchants. If a widespread demand for micropayments
does not develop or if another method for micropayments is adopted as a
standard, our business, results of operations and financial condition will be
harmed.
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WE FACE SIGNIFICANT COMPETITION FROM ONLINE INCENTIVES-BASED ADVERTISING AND
MARKETING PROGRAMS AND PROVIDERS OF MICROPAYMENT SYSTEMS
We face significant competition from online incentives-based advertising
and marketing programs and providers of micropayment systems. We expect
competition to increase due to the lack of significant barriers to entry for
online business generally and for online incentives programs and micropayment
transactions in particular. Currently, several companies offer competitive
online incentives programs, including MyPoints.com, Inc. and Netcentives, Inc.
We may also face competition from established Internet portals and community Web
sites that engage in direct marketing, as well as from traditional advertising
agencies and direct marketing companies that may seek to offer online products
or services. In addition, financial service organizations, such as banks and
credit card companies, or other large organizations may develop competitive
micropayment systems and incentives-based advertising and marketing programs.
Some of our current and potential competitors have longer operating
histories, greater brand recognition, larger client and member bases and
significantly greater financial, technical and marketing resources than we do.
These advantages may enable them to respond more quickly to new or emerging
technologies and changes in customer preferences. These advantages may also
allow them to engage in more extensive research and development, undertake
extensive far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, strategic
partners and advertisers. As a result, it is possible that our existing
competitors or new competitors may rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margin and
loss of market share. We may not be able to compete successfully, and
competitive pressures may adversely affect our business, results of operations
and financial condition. See "Business -- Competition."
A SIGNIFICANT PORTION OF OUR QUARTERLY REVENUES IS RECOGNIZED FROM A LIMITED
NUMBER OF ADVERTISING AND MARKETING CLIENTS
A significant portion of our revenues to date have been recognized from a
limited number of advertising and marketing clients. Our five largest clients
accounted for approximately 65% and 63% of our revenues for the year ended
December 31, 1998 and the quarter ended March 31, 1999, respectively and our ten
largest clients accounted for approximately 84% and 85% of our revenues for the
year ended December 31, 1998 and the quarter ended March 31, 1999, respectively.
We generally do not have long-term contracts with any of our clients, and
clients can generally terminate their relationships with us upon specified
notice and without penalties. Our client base fluctuates significantly from
quarter to quarter primarily as a result of the advertising and marketing budget
cycles of individual clients. In addition, to date this fluctuating client base
has been drawn from a concentrated group of companies. Revenues from significant
clients as a percentage of total revenues are as follows:
<TABLE>
<S> <C>
YEAR ENDED DECEMBER 31, 1998
Qwest Communications International, Inc................... 22%
Interactive Coupon Network (Cool Savings)................. 16%
THREE MONTHS ENDED MARCH 31, 1999
Qwest Communications International, Inc................... 20%
autobytel.com inc......................................... 12%
LifeMinders.com, Inc...................................... 11%
Cendant Corporation (Netmarket)........................... 11%
The Walt Disney Company (Disney Daily Blast, Disney Store
Online)................................................ 10%
</TABLE>
We expect that the majority of our revenues will continue to depend on
sales to a relatively small number of clients and that our client base will
continue to vary significantly from quarter to quarter. Any
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negative change in our relationship with or downturn in the business of clients
or any general downturn in the businesses of the concentrated group of companies
from which our client base is drawn could seriously harm our results of
operations.
IF WE FAIL TO ADAPT TO RAPID CHANGE IN OUR INDUSTRY OR OUR INTERNALLY DEVELOPED
SYSTEMS CANNOT BE MODIFIED PROPERLY FOR INCREASED TRAFFIC OR VOLUME, OUR
PRODUCTS AND SERVICES MAY BECOME OBSOLETE
Our industry is characterized by rapid change. The introduction of products
and services embodying new technologies, the emergence of new industry standards
and changing consumer needs and preferences could render our existing services
obsolete and unmarketable. Our future success will depend in part on our ability
to respond effectively to rapidly changing technologies, industry standards and
customer requirements by adapting and improving the performance features and
reliability of our services. We may experience technical difficulties that could
delay or prevent the successful development, introduction or marketing of new
products and services. In addition, any new enhancements to our products and
services must meet the requirements of our current and prospective users. We
could incur substantial costs to modify our services or infrastructure to adapt
to rapid change in our industry.
We internally developed our systems for maintaining our Web site processing
transactions and maintaining member accounts. If, in the future, we cannot
modify these systems to accommodate increased traffic and an increased volume of
transactions and orders, we could suffer slower response time, problems with
customer service and delays in reporting accurate financial information. During
the first three months of 1999, we experienced instances of unscheduled system
downtime, which resulted in our Web site being inaccessible for periods ranging
from several minutes to several hours and could experience such unscheduled
system downtime in the future.
WE RELY ON OUR INTELLECTUAL PROPERTY RIGHTS AND MAY BE UNABLE TO PROTECT THESE
RIGHTS
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our technology or business model.
Monitoring unauthorized use of our technology and business model is difficult
and we cannot be certain that the steps we have taken will prevent unauthorized
use of our technology and business model. In addition, our business activities
may infringe upon the proprietary rights of others, and, from time to time, we
have received, and may continue to receive, claims of infringement against us.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Litigation could subject us to significant
liability for damages and invalidation of our proprietary rights. These
lawsuits, regardless of their success, would likely be time consuming and
expensive to resolve and would divert management's time and attention away from
our business. Any potential intellectual property litigation could also force us
to do one or more of the following:
- make significant changes to the structure and operation of our business;
- attempt to design around a third party's patent; or
- license alternative technology from another party.
Implementation of any of these alternatives could be costly and time
consuming, and may not be possible. Accordingly, an adverse determination in any
litigation that we are a party to would have a material adverse effect on our
business, results of operations and financial condition.
Cybergold has two issued U.S. Patents covering its business model and
software architecture. We also have U.S. and foreign pending patent
applications. Cybergold is our only registered trademark,
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although we have applied to register additional trademarks in the United States.
We cannot assure you that our patents or trademarks will not be successfully
challenged by others or invalidated, that our pending patents will be issued or
that our trademark registrations will be approved. If our trademark
registrations are not approved because third parties own these trademarks, our
use of these trademarks would be restricted unless we entered into arrangements
with the third-party owners, which might not be possible on reasonable terms.
We generally enter into confidentiality or license agreements with our
employees and consultants, and control access to and distribution of our
technologies, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights from unauthorized use or disclosure,
unauthorized parties may attempt to disclose, obtain or use our solutions or
technologies. We cannot assure you that the steps we have taken will prevent
misappropriation of our solutions or technologies, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States. See
"Business -- Intellectual Property" for more information on our intellectual
property.
ANY FAILURE OF OUR NETWORK INFRASTRUCTURE COULD HARM OUR BUSINESS
Our success depends on the capacity, reliability and security of our
networking hardware, software and telecommunications infrastructure. We use
network servers that are housed at an Internet co-location service provider's
data center in San Jose, California. Despite precautions taken by us and the
host of our Web site, our system is susceptible to natural and man-made
disasters such as earthquakes, fires, floods, power loss and vandalism.
Telecommunications failures, computer viruses, electronic break-ins or other
similar disruptive problems could adversely affect the operation of our systems.
In addition, any technical failure or security problems at our Internet service
provider and co-location facility could harm our business, financial condition
and results of operations. Our insurance policies may not adequately compensate
us for any losses that may occur due to any damages or interruptions in our
systems. Accordingly, we could be required to make capital expenditures in the
event of unanticipated damage. We do not currently have redundant systems or a
formal disaster recovery plan.
In addition, our members depend on Internet service providers for access to
our Web site. Internet service providers and Web sites have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. These problems
could harm our business, results of operations and financial condition.
IF WE FAIL TO MANAGE EXPANSION EFFECTIVELY, OUR BUSINESS, RESULTS OF OPERATIONS
AND FINANCIAL CONDITION COULD BE HARMED
Our success will depend in part on our ability to manage our growth and
expansion effectively. We plan to expand our technology, sales, administrative
and marketing organizations. Our anticipated future expansion may place a
significant strain on our management systems and resources. We will need to
continue to improve our financial and managerial controls and reporting systems
and procedures and to expand, train and manage our workforce. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
In addition, we are in the process of moving our operations to new
facilities. During this move our technology infrastructure could be more
susceptible to technical failures or other disruptive problems. Any such
problems could diminish or halt our ability to provide services to our
customers, which could harm our business, results of operations and financial
condition.
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MANY OF OUR KEY PERSONNEL ARE NEW TO CYBERGOLD AND MAY NOT WORK TOGETHER
SUCCESSFULLY
A number of people on our management team and sales force have joined our
Company in the last 12 months. Our management team has limited experience
working together. Our future performance will depend, in part, on our ability to
integrate successfully our newly hired executive officers into our management
team, and our ability to develop an effective working relationship among
management. Our executive officers, who have worked together for only a short
time, may not be successful in working together or managing our company. Any
dissent among executive officers, or between our officers and our board of
directors, could affect our ability to make strategic decisions. See
"Management." In addition, the majority of our sales force has joined our
Company in the last six months and they have limited experience marketing our
services and working together. If our key personnel are unable to market our
services and work together successfully, our business, results of operations and
financial condition could be harmed.
WE MAY NOT BE ABLE TO HIRE OR RETAIN KEY EMPLOYEES
Our future success will depend, in part, on our ability to attract and
retain highly skilled employees, particularly management, sales and technical
personnel. Competition for employees in our industry is intense. We may be
unable to retain our key employees or to attract other highly qualified
employees in the future. We have experienced difficulty from time to time in
attracting the personnel necessary to support the growth of our business, and we
may experience similar difficulty in the future. If we are unable to hire or
retain key employees, our business, results of operations and financial
condition will be harmed.
WE MAY FACE RISKS AND COSTS ASSOCIATED WITH POTENTIAL FUTURE ACQUISITIONS
We may acquire or make investments in businesses, products, services, or
technologies to carry out our business strategy. We do not have any present
understanding, nor are we having any discussions relating to any acquisition or
investment. If we acquire businesses, products, services or technologies, we
could have difficulty in assimilating them into our operations. These
difficulties could disrupt our ongoing business, distract our management and
employees and increase our expenses. In addition, effecting acquisitions could
require use of a significant amount of our available cash. Furthermore, we may
have to issue equity or equity-linked securities to pay for future acquisitions,
and any such issuance could be dilutive to existing and future stockholders. In
addition, acquisitions and investments may have negative effects on our reported
results of operations due to acquisition-related charges and amortization of
acquired technology and other intangibles. Any of these acquisition-related
risks or costs could harm our business, financial condition and operating
results.
WE FACE RISKS ASSOCIATED WITH EXPANDING OUR BUSINESS INTERNATIONALLY
An element of our growth strategy is to introduce our services in
international markets. Our participation in international markets will be
subject to a number of risks, including foreign government regulations, export
license requirements, tariffs and taxes, fluctuations in currency exchange
rates, introduction of the European Union common currency, difficulties in
managing foreign operations and political and economic instability. To the
extent our potential international members are impacted by currency
devaluations, general economic crises or other macroeconomic events, the ability
of our members to utilize our services could be diminished. In order to help us
address some of the risks associated with introducing our services
internationally, we believe it will be necessary to establish strategic
relationships with international partners. To date, we have not entered into any
strategic relationship with any international partners. We cannot assure you
that we will be able to establish international relationships, or that if
established, they will be successful. In addition, we cannot assure
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<PAGE> 15
you that electronic commerce will develop successfully in international markets
or that potential members in these foreign markets will utilize incentives-based
marketing programs. Furthermore, we cannot assure you that we will be able to
develop banking relationships with foreign banks or overcome any legal
restrictions related to offering cash rewards and incentives that exist in
foreign jurisdictions. Any failure to develop our business internationally may
harm our competitive position and consequently our business.
WE MAY NEED MORE WORKING CAPITAL TO EXPAND OUR BUSINESS, AND OUR PROSPECTS FOR
OBTAINING ADDITIONAL FINANCING ARE UNCERTAIN
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
capital expenditures and working capital requirements through the end of 2000.
However, we may need to raise additional funds sooner to fund more rapid
expansion, to develop new or enhance existing services or products, to respond
to competitive pressures or to acquire complementary products, businesses, or
technologies. If additional funds are raised through the issuance of equity or
equity-linked securities, the percentage ownership of our stockholders would be
reduced. In addition, these securities may have rights, preferences or
privileges senior to those of our stockholders. We cannot assure you that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our expansion, take advantage of potential opportunities,
develop or enhance services or products, or otherwise respond to competitive
pressures would be significantly limited. Our business, results of operations
and financial condition could be harmed by this limitation. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" for a discussion of
working capital and capital expenditures.
RISKS RELATED TO THE INTERNET INDUSTRY
IF WE ARE UNABLE TO SECURELY MAINTAIN AND EXPAND OUR MEMBERSHIP DATABASE, OUR
BUSINESS COULD BE HARMED
An important feature of our program is our ability to develop and maintain
individual member profiles. Security and privacy concerns may cause consumers to
resist providing the personal data necessary to support this profiling
capability. As a result of these security and privacy concerns, we may incur
significant costs to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Use of our Cybergold Earn & Spend
Community could decline if any compromise of security occurred. In addition, if
unauthorized third parties gain access to our system and alter or destroy
information in our database, our ability to target direct marketing offers to
members would be harmed. We could also be subject to legal claims from members.
Any public perception that we engaged in unauthorized release of member
information would adversely affect our ability to attract and retain members.
Any of these events could have a material adverse effect on our business,
results of operations and financial condition.
We maintain a database containing information on our members, including
their account balances. Our database may be accessed by unauthorized users
accessing our systems remotely. If we experience a security breach, the
integrity of our database may be jeopardized. Any breach of this type could lead
to financial losses through the unauthorized redemption of monies.
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WE COULD BE SUBJECT TO LIABILITY FOR ONLINE CONTENT THAT MAY NOT BE COVERED BY
OUR INSURANCE
The nature and breadth of information disseminated on our Web site could
expose us to liability in various areas, including claims relating to:
- programs and promotions we offer;
- content and publication of various materials posted on our Web site based
on defamation, libel, negligence, personal injury and other legal
theories; and
- copyright or trademark infringement and wrongful action due to the
actions of third parties.
Claims of these kind against us would result in our incurring substantial
costs and would have a negative impact on our financial and other resources. If
there were numerous claims, or if the claims were severe, we would need to
implement measures to reduce our exposure and potential liability. Accordingly,
we may be required to change our services in such a way that would be less
attractive to our advertisers, marketers, merchants and members. This in turn
could reduce traffic to our Web site, negatively impact our membership or reduce
our revenue from electronic commerce or advertising and marketing. Our general
liability insurance may be insufficient to cover expenses and losses in
connection with any claims against us. To the extent our insurance coverage does
not cover liability or expenses we incur, our business, financial condition and
results of operations would be harmed.
IF THE INTERNET INFRASTRUCTURE FAILS TO DEVELOP OR BE ADEQUATELY MAINTAINED, OUR
BUSINESS WOULD BE HARMED BECAUSE MEMBERS MAY NOT BE ABLE TO ACCESS OUR SERVICES
We depend on the Internet infrastructure to provide the performance,
capacity and reliability needed to support the anticipated expansion of
electronic commerce on the Internet. If Internet usage grows, the Internet
infrastructure may not be able to support the demands placed on it by this
growth, and its performance and reliability may decline. Among other things,
continued development of the Internet infrastructure will require a reliable
network backbone with necessary speed, data capacity and security. Currently,
there are regular failures of the Internet network infrastructure, and there are
likely to be more in the future. These failures may undermine our marketing
clients' and our members' confidence in the Internet as a viable commercial
medium. Any actual or perceived degradation in the performance of the Internet
as a whole could undermine the benefits of our services. In addition, the
Internet could lose its viability as a commercial medium due to delays in the
development or adoption of new technology required to accommodate increased
levels of Internet activity or due to government regulation. If outages or
delays occur frequently in the future, electronic commerce and the use of our
services could grow more slowly or decline, which could harm our business,
results of operations and financial condition.
WE MAY BE VULNERABLE TO UNAUTHORIZED ACCESS, COMPUTER VIRUSES AND OTHER
DISRUPTION PROBLEMS THAT COULD ADVERSELY AFFECT US
Despite the implementation of security measures, our networks may be
vulnerable to unauthorized and illegal access, computer viruses and other
disruptive problems. Eliminating computer viruses and alleviating other security
problems may require interruptions, delays or cessation of service to users
accessing our Web sites, which could have a material adverse effect on our
business, results of operations and financial condition. A party who is able to
circumvent security measures could misappropriate proprietary information or
cause interruptions in our Internet operations. Internet service providers and
online service providers have in the past experienced, and may in the future
experience, interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
We may be required to expend significant capital or other resources to protect
against the
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threat of security breaches or to alleviate problems caused by breaches.
Although we intend to continue to implement security measures, we cannot be
certain that measures implemented by us will not be circumvented in the future.
OUR BUSINESS IS SUBJECT TO RISKS REGARDING SECURE TRANSMISSION OF CONFIDENTIAL
INFORMATION OVER PUBLIC NETWORKS
A necessity of online commerce and communications is the secure
transmission of confidential information over public networks. Our security
measures may not prevent security breaches. Any failure to prevent security
breaches could harm our business. We rely on encryption and authentication
technology licensed from third parties to provide the security and
authentication technology to effect secure transmission of confidential
information, including customer credit card numbers. Advances in computer
capabilities, new discoveries in the field of cryptography, or other
developments may result in a compromise or breach of the technology used by us
to protect customer transaction data. Any such compromise of our security could
harm our reputation and, therefore, our business.
FUTURE REGULATION OF THE INTERNET COULD RESTRICT THE OPERATION AND GROWTH OF OUR
BUSINESS
Any new regulation of the Internet could inhibit growth of the Internet and
decrease the acceptance of the Internet as a communications and commercial
medium, which could have a material and adverse effect on our business. The laws
governing the Internet and email services remain largely unsettled. There is no
single governmental body overseeing our industry, and many state laws enacted in
recent years have different and sometimes inconsistent application to our
business.
In addition, industry standards and practices by Internet service providers
and other third-party e-mail providers vary. Some of these providers have
blocked in the past and, at their discretion, may in the future elect to block,
all e-mails coming from a specific domain, such as Cybergold, preventing
distribution of e-mails from us.
POTENTIAL PRIVACY REGULATION
In addition, the Federal Trade Commission is considering the adoption of
regulations regarding the collection and use of personal information obtained
from individuals, especially children, when accessing Web sites. These
regulations could restrict our ability to provide demographic data to our
advertising and marketing clients. At the international level, the European
Union has adopted a directive that will impose restrictions on the collection
and use of personal data. This directive could affect U.S. companies that
collect information over the Internet from individuals in European Union member
countries and may impose restrictions that are more stringent than current
Internet privacy standards in the United States. These developments could have
an adverse effect on our business, results of operations and financial
condition.
POTENTIAL CURRENCY REGULATION
Our online incentive program rewards are not currently subject to currency
regulation in any jurisdiction. If any governmental agency deemed that our
rewards are subject to such regulation, our business, financial condition and
results of operations could be harmed.
POTENTIAL FOREIGN REGULATION
Governments of foreign countries may also attempt to regulate electronic
commerce. New laws could stall the growth of the Internet and decrease the
acceptance of the Internet as a commercial
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medium. In addition, existing laws such as those governing intellectual property
and privacy may be interpreted to apply to the Internet. In the event that
foreign governments, the federal government, state governments or other
governmental authorities adopt, modify or re-interpret laws or regulations
relating to the Internet, our business, results of operations and financial
condition could be harmed.
POTENTIAL ELECTRONIC COMMERCE REGULATION
In 1998, the United States government enacted a three-year moratorium
prohibiting states and local governments from imposing new taxes on electronic
commerce transactions. Upon expiration of this moratorium, if it is not
extended, states or other governments may levy sales or use taxes on electronic
commerce transactions. An increase in the taxation of electronic commerce
transactions may make the Internet less attractive for consumers and businesses
which would harm our business.
WE FACE A NUMBER OF UNKNOWN RISKS ASSOCIATED WITH THE YEAR 2000 PROBLEM, ANY OF
WHICH MAY HARM OUR BUSINESS
Many currently installed computer systems and software products are coded
to accept only two digit entries in their date code field. Beginning in the Year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and software products used by many companies may need to be upgraded to
comply with these Year 2000 requirements.
The costs we have incurred and expect to incur related to Year 2000
compliance have not been material to our business, results of operations or
financial condition. In the event that our assessment of our Year 2000 readiness
is inaccurate, we could be required to expend substantial resources to remedy
any unanticipated Year 2000 problems. Costs associated with unanticipated Year
2000 problems and difficulties in remedying these problems by year-end could
have a material adverse effect on our business, results of operations and
financial condition.
The most likely Year 2000 failure scenario attributable to a supplier or
customer is a systematic failure beyond our control or the supplier's or
customer's immediate control, such as a prolonged data communication,
telecommunications or electrical failure. A failure of this sort could prevent
members from accessing our Web site and prevent us from operating our business.
The primary business risks in the event of such a failure would include lost
revenues, increased operating expenses and loss of members. Any of these risks
could have a material adverse effect on our business, results of operations and
financial condition.
We have not yet developed a comprehensive contingency plan to address Year
2000 problems that are not detected and corrected prior to their occurrence.
RISKS RELATED TO THE OFFERING
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL RETAIN SUBSTANTIAL VOTING CONTROL OVER
CYBERGOLD AFTER THE OFFERING WHICH WILL ALLOW THEM TO INFLUENCE THE OUTCOME OF
MATTERS SUBMITTED TO STOCKHOLDERS FOR APPROVAL
We anticipate that our executive officers, our directors and entities
affiliated with them will, in the aggregate, beneficially own approximately %
of our outstanding common stock following the completion of this offering, or
% assuming exercise of the underwriters option to purchase additional shares.
As a result, these stockholders will retain substantial control over matters
requiring approval by our stockholders, such as the election of directors and
approval of significant corporate transactions. This
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concentration of ownership may also have the effect of delaying or preventing a
change in control. See "Principal Stockholders" for more information relating to
the ownership positions of our executive officers and directors.
SOME OF THE PROVISIONS OF OUR CHARTER DOCUMENTS MAY HAVE ANTI-TAKEOVER EFFECTS
THAT COULD PREVENT A CHANGE IN CONTROL OF CYBERGOLD
Some of the provisions of our certificate of incorporation, our bylaws and
the Delaware General Corporation Law could make it more difficult for a third
party to acquire us, even if a change of control would be beneficial to our
stockholders. See "Description of Capital Stock" for more information on our
charter provisions and Delaware General Corporation Law. Such provisions
include:
- authorizing the issuance of up to 5,000,000 shares of "blank
check"preferred stock;
- providing for a classified board of directors with staggered, three year
terms; and
- prohibiting certain stockholder action by written consent.
THE SUBSTANTIAL NUMBER OF SHARES THAT WILL BE ELIGIBLE IN THE NEAR FUTURE MAY
CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE
A substantial number of shares of common stock will be available for sale
in the public market following this offering, which could adversely affect the
market price for our common stock. See "Shares Eligible for Future Sale" for a
more detailed description of the eligibility of shares of our common stock for
future sale.
A PUBLIC MARKET FOR OUR SECURITIES MAY NOT DEVELOP OR BE SUSTAINED
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our common stock will lead to the
development of a trading market or how liquid that market might become. The
initial public offering price for the shares will be determined by negotiations
between us and the representatives of the underwriters and may not be indicative
of prices that will prevail in the trading market. You may not be able to resell
your shares at or above the initial public offering price. See "Underwriting."
OUR STOCK PRICE COULD BE VOLATILE FOLLOWING THIS OFFERING WHICH COULD LEAD TO
CLASS ACTION LITIGATION
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly Internet-related
companies, have been highly volatile. Investors may not be able to resell their
shares at or above the initial public offering price. In addition, in the past,
securities class action litigation has often been instituted against a company
following periods of volatility in the company's stock price. This type of
litigation could result in substantial costs and could divert our management's
attention and resources which could harm our business.
YOU WILL EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF
YOUR INVESTMENT
The initial public offering price of our common stock is substantially
higher than what the net tangible book value per share of the common stock will
be immediately after this offering. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $ in the net
tangible book value per share of our common stock from the price you pay for our
common stock (based upon an assumed initial public offering price of $ per
share). See "Dilution." The exercise of outstanding options and warrants may
result in further dilution.
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MANAGEMENT MAY APPLY THE PROCEEDS OF THIS OFFERING TO USES THAT DO NOT INCREASE
OUR PROFITS OR MARKET VALUE
We intend to use the net proceeds from the sale of the common stock for
general corporate purposes, including working capital, and for potential
strategic acquisitions or investments. We have not determined how the proceeds
will be allocated among the anticipated uses. Accordingly, our management will
have significant flexibility in applying the net proceeds of this offering and
you will not have the opportunity, as part of your investment decision, to
assess whether the proceeds are being used appropriately. The net proceeds may
be used for corporate purposes that do not increase our profitability or our
market value. Until the proceeds are needed, we plan to invest them in
investment-grade, interest-bearing securities. The failure of management to
apply these funds effectively could harm our business. See "Use of Proceeds."
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS BECAUSE THEY ARE INHERENTLY
UNCERTAIN
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. In evaluating these statements you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement. In addition, this prospectus contains forward-looking
statements attributed to third party industry sources relating to their
estimates regarding the growth of Internet use. You should not place undue
reliance on these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus to conform such statements to actual results
or to changes in our expectations.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of shares of
common stock we are offering will be approximately $ million ($ million
if the underwriters exercise their over-allotment option in full) at an assumed
initial public offering price of $ and after deducting estimated
offering expenses of $ and underwriting discounts and commissions
payable by us.
We expect to use the net proceeds for general corporate purposes, including
working capital and capital expenditures. A portion of the net proceeds may also
be used to acquire or invest in businesses, technologies, product lines or
products that are complementary to our business. We have no current agreements
or commitments with respect to any of these acquisitions or investments. Our
management will have broad discretion concerning the use of the net proceeds of
the offering. Pending these uses, we intend to invest the net proceeds of this
offering in investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock or other
securities and do not currently anticipate paying cash dividends in the future.
Our equipment financing obligations currently prohibit the payment of dividends.
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CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. The
pro forma information reflects the sale of 3,076,923 shares of Series D
Preferred Stock on May 18, 1999, the issuance of 576,925 shares of Series D
Preferred Stock upon the exercise of outstanding warrants, the filing of an
amendment to our amended and restated certificate of incorporation to provide
for authorized capital stock of 75,000,000 shares of common stock and 5,000,000
shares of undesignated preferred stock and the conversion of all outstanding
shares of preferred stock into 15,030,111 shares of common stock on completion
of this offering. The pro forma as adjusted information reflects the sale of the
shares of common stock offered hereby and the application of the net proceeds we
receive from this offering. The outstanding share information excludes 1,958,364
shares of common stock issuable upon exercise of outstanding options as of March
31, 1999 at a weighted average exercise price of $0.19 per share, 185,000 shares
of common stock issuable upon conversion of outstanding options to purchase
preferred stock, 272,500 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $0.30 per share,
1,500,000 shares of common stock reserved for issuance under our 1999 Omnibus
Equity Incentive Plan and 300,000 shares of common stock reserved for issuance
under our 1999 Employee Stock Purchase Plan. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and the related notes.
See "Use of Proceeds" and "Management -- Stock Plans."
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------------- ------------ -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, net of current
maturities.................................... $ 291,425 $ $
Convertible redeemable preferred stock, $0.0001
par value, 8,000,029 shares authorized,
6,283,792 shares issued and outstanding,
actual; no shares authorized, no shares issued
and outstanding, pro forma and pro forma as
adjusted...................................... 6,671,480
------------ ---------- ----------
Stockholders' equity (deficit):
------------ ---------- ----------
Preferred stock, $0.0001 par value, 5,329,971
shares authorized, 5,092,471 shares issued and
outstanding, actual; 5,000,000 shares
authorized, no shares issued or outstanding,
pro forma and pro forma as adjusted........... 509
Common stock, $0.0001 par value, 20,000,000
shares authorized, 6,109,017 shares issued and
outstanding, actual; 75,000,000 shares
authorized, shares issued and
outstanding, pro forma; shares
authorized, issued and
outstanding, pro forma as adjusted............ 611
Stock subscription receivable...................
Additional paid-in capital...................... 8,916,025
Deferred compensation........................... (1,143,674)
Retained deficit................................ (13,751,771)
------------ ---------- ----------
Total stockholders' equity
(deficit).......................... (5,978,300)
------------ ---------- ----------
Total capitalization.................. $ $ $
============ ========== ==========
</TABLE>
21
<PAGE> 23
DILUTION
The pro forma net tangible book value of our common stock as of March 31,
1999, giving effect to (i) the sale of 3,076,923 shares of Series D Preferred
Stock on May 18, 1999, (ii) the issuance of 576,925 shares of Series D Preferred
Stock upon the exercise of outstanding warrants and (iii) the conversion of all
outstanding shares of preferred stock into common stock on the closing of this
offering, was $ , or approximately $ per share of common stock.
"Pro forma net tangible book value per share" represents the amount of our total
tangible assets reduced by the amount of our total liabilities divided by
shares of common stock outstanding after giving effect to the
conversion of the preferred stock outstanding as of March 31, 1999 into common
stock. After giving effect to the issuance and sale of shares of
common stock offered by us and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us, our pro forma net
tangible book value as of March 31, 1999 would have been , or
$ per share. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate dilution
in net tangible book value of $ per share to new investors. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of March
31, 1999............................................... $
Increase per share attributable to new investors..........
Pro forma net tangible book value per share after the
offering..................................................
------
Dilution per share to new investors
======
</TABLE>
The following table summarizes on a pro forma basis, giving effect to the
conversion of all outstanding shares of preferred stock into common stock on the
closing of this offering, as of March 31, 1999, the difference between the
number of shares of common stock purchased from us by existing stockholders and
by new investors, the total consideration paid to us by existing stockholders
and new investors and the average price paid by existing stockholders and by new
investors, before deduction of estimated discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. $ $
New investors.....................
--------- ----- ---------- ----- ------
Totals.................. 100.0% 100.0%
========= ===== ========== ===== ======
</TABLE>
As of March 31, 1999, there were options outstanding to purchase a total of
1,875,957 shares of common stock at a weighted average exercise price of $0.19
per share; 185,000 shares of common stock issuable upon conversion of
outstanding options to purchase preferred stock; 272,500 shares of common stock
issuable upon exercise of outstanding warrants at a weighted average exercise
price of $0.30 per share; 1,500,000 shares of common stock reserved for issuance
under our 1999 Omnibus Equity Incentive Plan and 300,000 shares of common stock
reserved for issuance under our 1999 Employee Stock Purchase Plan. To the extent
outstanding options or warrants are exercised, there will be further dilution to
new investors. See "Management -- Stock Plans."
22
<PAGE> 24
SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the financial
statements of Cybergold, Inc. These financial statements have been audited by
Arthur Andersen LLP, independent public accountants. The balance sheets as of
December 31, 1997 and 1998 and the statements of operations for the years ended
December 31, 1996, 1997 and 1998, and the related report, are included elsewhere
in this prospectus.
The selected financial data presented below as of March 31, 1999 and for
the three months ended March 31, 1998 and 1999 are derived from our unaudited
financial statements and are not necessarily indicative of the results that may
be expected for future periods, including the year ending December 31, 1999. In
the opinion of the Company, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of our financial position and
results of operations for such periods have been included.
The selected balance sheet data set forth below, as of December 31, 1997,
and 1998 and the statement of operations data for each of the three years in the
period ended December 31, 1998, are derived from the Company's financial
statements which have been audited by Arthur Andersen LLP, independent public
accountants, and which are included elsewhere in this prospectus.
The selected financial data as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 are derived from the Company's unaudited financial
statements which are included elsewhere in this prospectus and which include, in
the opinion of the Company, all adjustments, consisting only of normal recurring
adjustments, that are necessary for a fair presentation of its financial
position and the results of its operations for those periods. Operating results
for the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999.
The Company was formed in 1994 but did not begin meaningful operating
activities until 1996. Therefore, no selected financial data is presented for
the years ended December 31, 1994 or 1995.
The selected financial data set forth below should be read in conjunction
with our financial statements and notes and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" included elsewhere
in this prospectus.
The selected consolidated financial data should be read in conjunction
with, and is qualified by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements and notes thereto included elsewhere in this Prospectus.
23
<PAGE> 25
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Transaction............................ $ 1 $ 457 $ 628 $ 107 $ 333
Custom marketing services and other.... 0 74 377 0 170
------- ------- ------- ------- -------
Total revenues................. 1 531 1,005 107 503
Cost of revenues......................... 1 293 466 35 244
------- ------- ------- ------- -------
Gross margin........................... 0 238 539 72 259
------- ------- ------- ------- -------
Operating expenses:
Product development.................... 1,093 1,190 1,700 376 484
Sales and marketing.................... 841 2,162 2,695 791 967
General and administrative............. 645 615 642 120 228
Amortization of deferred
compensation........................ 0 0 185 0 316
------- ------- ------- ------- -------
Total operating expenses....... 2,579 3,967 5,222 1,287 1,995
------- ------- ------- ------- -------
Loss from operations..................... (2,579) (3,729) (4,683) (1,215) (1,736)
Interest income (expense), net........... 10 (15) 79 (5) 11
------- ------- ------- ------- -------
Net loss............................... $(2,569) $(3,744) $(4,604) $(1,220) $(1,725)
Dividend attributable to preferred
stockholders........................... -- -- (660) -- (293)
------- ------- ------- ------- -------
Net loss attributable to common
stockholders........................... $(2,569) $(3,744) $(5,265) $(1,220) $(2,018)
======= ======= ======= ======= =======
Net loss per common share,
Basic and diluted(1)................... $ (0.46) $ (0.63) $ (0.87) $ (0.20) $ (0.33)
======= ======= ======= ======= =======
Weighted average common shares
outstanding,
Basic and diluted(1)................... 5,618 5,969 6,031 6,020 6,079
======= ======= ======= ======= =======
Pro forma basic and diluted(1)........... $ (0.31) $ (0.10)
======= =======
Weighted average common shares
outstanding, basic and diluted...... 14,915 17,396
======= =======
</TABLE>
- -------------------------
(1) See Note 1 of Notes to Financial Statements for a description of the method
used to compute basic and diluted net loss per common share.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- MARCH 31,
1997 1998 1999
------- ---------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 1,240 $ 3,175 $ 2,280
Current assets....................................... 1,401 3,592 2,403
Total assets......................................... 1,823 4,040 2,893
Long term obligations, net of current maturities..... 272 226 291
Convertible redeemable preferred stock............... -- 6,379 6,671
Total stockholders' equity (deficit)................. 743 (4,277) (5,978)
</TABLE>
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and the notes to those statements that appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed below and elsewhere in this prospectus, particularly in "Risk
Factors."
OVERVIEW
We are a leading provider of online direct marketing and cash-based
incentive advertising solutions. We combine a variety of Internet-based direct
advertising and marketing services with cash-based online incentive programs to
provide flexible, cost-per-action incentive marketing solutions. Our payment
structure, in which our advertising and marketing clients are only charged when
our members execute specific predefined actions, provides these clients with a
known cost per yield for their advertising campaigns. By leveraging our
proprietary consumer member database and our targeting capabilities, we are able
to offer our clients customized, targeted advertising solutions designed to
improve advertisement response rates and reduce customer acquisition costs.
Cybergold was incorporated in October 1994 and from inception through the
second quarter of 1996, we were in an early stage of development, and had no
sales and limited operating activities. From the second quarter of 1996 through
the first quarter of 1997, operating activities related primarily to developing
necessary infrastructure, recruiting personnel, raising capital, initial
strategic planning and developing our Web site. In March 1997, we launched our
initial service and enrolled our first Cybergold members. In March 1999, we
introduced our micropayments system, and launched our Earn & Spend Community.
Our membership base increased from approximately 250,000 at December 31, 1997 to
approximately 1.0 million at December 31, 1998 and to approximately 1.8 million
at May 18, 1999. Although our membership has grown in prior periods, we cannot
be certain that our membership growth will continue at current rates or increase
in the future. See "Risk Factors -- Our success depends on our ability to
maintain and expand an active membership base."
Our revenues consist of transaction revenues and custom marketing services
and other revenues. Transaction revenues represent fees paid to us each time a
member either earns or spends incentive rewards within our system and for
micropayments transactions. Our members earn rewards by responding to online
advertisements with a specific action such as filling out a survey or
registering for services. We are paid a transaction fee by advertisers or
marketers and we pay a portion of this fee to our members as a cash reward. We
also earn a transaction fee when our members spend their cash rewards to
purchase inexpensive digital content, services or products through our site or
other sites using our system. These transaction revenues are not recognized
until the transaction has been completed. In the case of prepayments by the
advertising or marketing client, amounts not yet recognized are included in
deferred revenue on the balance sheet. To date, our transaction revenues have
been primarily generated from per-transaction fees received from our advertising
and marketing clients for incentive programs. Revenues from micropayment
transactions have not been material.
Our transaction revenues are driven by a number of factors, including:
- the number of our advertising and marketing clients;
- the size of our membership base;
- the number of transactions performed by each member; and
- the average revenue per transaction.
25
<PAGE> 27
Custom marketing services and other revenues include production and
development fees received for customization of marketing programs, fees received
for delivering targeted e-mail to our members and fees received for other
advertising and marketing services. Production and development fees represent
HTML design services, graphic services, engineering and database development and
related services. We charge clients for production and development fees on
either a fixed price or time and materials basis. Revenue is recognized as these
services are performed. These revenues fluctuate based on the number of new
programs initiated, type of services, and scope and complexity of each program.
The cost of revenues associated with our transaction revenues represent
cash rewards paid to our members for completing transactions or actions. We pay
our members a portion of the amount received from the advertiser or marketer in
return for completing a specified response or action. Gross margin on
transaction revenues may fluctuate based on the nature of the incentive programs
and the advertisers and marketers in any given period.
The cost of revenues associated with custom advertising and marketing
services and other revenues primarily consist of costs for production and
development personnel and independent contractors, including associated payroll
tax, benefits and other indirect costs. Gross margin associated with these
revenues varies from contract to contract depending on the specific terms of the
individual contract, and may also fluctuate significantly based on the number
and size of fixed price contracts that we undertake in any period and our
ability to complete them within the anticipated budget.
We incurred a net loss of approximately $4.6 million in 1998, and
approximately $1.7 million in the three months ended March 31, 1999. As of March
31, 1999 we had a retained deficit of approximately $13.6 million. We plan to
increase our operating expenses as we continue to build brand and infrastructure
and consequently, our losses will increase in the future. Our limited operating
history makes it difficult to forecast future operating results. Although we
have experienced revenue growth in recent quarters, we cannot be certain that
revenues will increase at a rate sufficient to achieve and maintain
profitability. Even if we were to achieve profitability in any period, we may
not be able to sustain or increase profitability on a quarterly or annual basis.
In connection with the granting of options to purchase our common stock to
certain employees, directors and consultants during 1998 and the first quarter
of 1999, we recorded deferred compensation of $1.6 million representing the
difference between the exercise price of options granted and the deemed fair
market value of our common stock at the time of grant. We will amortize this
deferred compensation as an expense over the vesting periods of the related
options. Total deferred compensation expenses recognized during the year ended
December 31, 1998 and the three month period ended March 31, 1999 were $185,000,
and $316,000, respectively.
26
<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth selected financial data for the periods
indicated as a percentage of total revenues. Data for the year ended December
31, 1996 is not presented because we had no material revenues during that
period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE MONTHS ENDED
---------------- ------------------
1997 1998 1998 1999
------ ------ -------- ------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction......................................... 86.0% 62.5% 99.1% 65.2%
Custom marketing services and other................. 14.0 37.5 0.9 34.8
------ ------ -------- ------
Total revenues.............................. 100.0 100.0 100.0 100.0
Cost of revenues...................................... 55.2 46.4 33.3 47.3
------ ------ -------- ------
Gross margin................................ 44.8 53.6 66.7 52.7
Operating expenses:
Product development................................. 224.1 169.0 283.3 95.3
Sales and marketing................................. 407.2 268.2 811.1 200.8
-------- ------
General and administrative.......................... 115.8 63.9 112.0 48.2
-------- ------
Amortization of deferred compensation............... -- 18.4 0.0 64.2
------ ------
Total operating expenses.................... 747.1 519.5 1,206.4 408.5
------ ------ -------- ------
Loss from operations.................................. (702.3) (466.0) (1,139.7) (355.8)
======== ======
Interest income (expense), net........................ (2.8) 7.9 10.3 2.2
------ ------ -------- ------
Net loss.............................................. (705.1)% (458.1)% (1,129.4)% (353.6)%
====== ====== ======== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUES
Our revenues increased 370% to $503,000 in the three months ended March 31,
1999 from $107,000 in the three months ended March 31, 1998.
Transaction Revenues. Transaction revenues increased 211% to $333,000 in
the three months ended March 31, 1999 from $107,000 in the three months ended
March 31, 1998. The increase in transaction revenues is a the result of the
growth in our membership base and an increase in the average revenue per
transaction. Total membership grew 265% to approximately 1,550,000 as of March
31, 1999 from approximately 425,000 as of March 31, 1998.
Custom Marketing Services and Other Revenues. Custom marketing services and
other revenues were $170,000 in the three months ended March 31, 1999. We did
not generate any custom marketing services and other revenues in the three
months ended March 31, 1998. The increase in custom marketing services revenues
is primarily the result of a relationship with a single significant customer. We
expect custom marketing services and other revenues to fluctuate from period to
period.
COST OF REVENUES
Cost of revenues represents the cash incentives paid to members for
performing specified actions in response to advertisements and the personnel
costs associated with custom marketing services and other revenues. Cost of
revenues increased 597% to $244,000 in the three months ended March 31, 1999
from $35,000 in the three months ended March 31, 1998, and gross margin
decreased to 51% from 67% in these respective periods. This decrease in gross
margin was primarily due to a change in the mix of
27
<PAGE> 29
revenue-generating services, including an increase in lower-margin custom
marketing services and other revenues. We expect gross margin to fluctuate in
future periods as a result of continued variation in the mix of services we
provide, as well as the potential impact of fixed price custom marketing
services contracts.
PRODUCT DEVELOPMENT COSTS
Our product development costs primarily consist of compensation for
technology personnel, fees for outside technology consultants, and an allocation
of overhead costs. Product development costs increased 29% to $484,000 in the
three months ended March 31, 1999 from $376,000 in the three months ended March
31, 1998, but decreased as a percentage of revenues to 96% from 351% in these
respective periods. The increase in product development costs was primarily due
to the increased hiring of additional technical personnel, including
consultants. The decrease in product development expenses as a percentage of
revenues is primarily attributable to an increase in revenues as we increased
our membership and advertising and marketing clients. In addition, the fixed
nature of certain development costs also contributed to the decrease in expense
as a percentage of revenues. To date, we have expensed all product development
costs as they have been incurred. We expect product development costs to
continue to increase as we continue to build features and functionality into our
system.
SALES AND MARKETING EXPENSES
Our sales expenses primarily consist of compensation for sales personnel,
expenses for trade shows and an allocation of overhead costs. Our marketing
expenses consist primarily of member acquisition expenses, promotions directed
towards new and existing incentives-based advertisers and marketers,
compensation for marketing personnel and an allocation of overhead costs.
Sales and marketing expenses increased 22% to $967,000 in the three months
ended March 31, 1999 from $792,000 in the three months ended March 31, 1998, but
decreased as a percentage of revenues to 192% from 739% in these respective
periods. The increase in sales and marketing expenses is primarily attributable
to additional hiring of sales and marketing personnel, increased sales
commissions resulting from higher revenues, increased expenses associated with
membership acquisition, and increased advertising and promotion expenses. The
decrease in sales and marketing expenses as a percentage of revenues is
attributable primarily to an increase in revenues as we increased our membership
and advertising and marketing clients. We expect sales and marketing expenses to
increase as we continue to increase our marketing efforts, expand our direct
sales force and open additional regional sales offices.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses include compensation for
administrative personnel, fees for outside professional advisors and an
allocation of overhead costs. General and administrative expenses increased 90%
to $228,000 in the three months ended March 31, 1999 from $120,000 in the three
months ended March 31, 1998, but decreased as a percentage of revenues to 45%
from 112% in these respective periods. The increase in general and
administrative expenses resulted from higher professional fees as well as an
increase in payroll expenses due to hiring additional administrative personnel.
The decrease in general and administrative expenses as a percentage of revenues
is primarily attributable to an increase in revenues as we increased our
membership and advertising and marketing clients. In addition, the fixed nature
of certain general and administrative costs also contributed to the decrease in
expenses as a percentage of revenues. We expect that general and administrative
expenses will continue to increase as we expand our operations and incur
additional costs related to being a public company.
28
<PAGE> 30
AMORTIZATION OF DEFERRED COMPENSATION EXPENSE
In connection with the granting of options to purchase our common stock to
certain employees, directors and consultants during the three months ended March
31, 1999, we recorded deferred compensation representing the difference between
the exercise price of options granted and the deemed fair market value of our
common stock at the time of grant. Amortization of deferred compensation was
$316,000 in the three months ended March 31, 1999. In the three months ended
March 31, 1998, we recorded no deferred compensation.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net, primarily consists of interest earned on
cash balances, including balances in Cybergold member accounts, offset by
interest expense incurred with respect to the Company's capital leases and
equipment financing obligations. Interest income (expense), net, was $11,000 in
the three months ended March 31, 1999 and was a net expense of $5,000 in the
three months ended March 31, 1998. The change from net expense to net income
resulted primarily from increased interest income on higher cash balances.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUES
Revenues increased 88% to $1.0 million in the year ended December 31, 1998
from $531,000 in the year ended December 31, 1997. We had no material revenues
in 1996.
Transaction Revenues. Transaction revenues increased 37% to $628,000 in the
year ended December 31, 1998 from $457,000 in the year ended December 31, 1997.
The increase in transaction revenues is the result of the growth in our
membership base and the average revenue per transaction generated by those
members. Total membership grew 320% from approximately 254,000 on December 31,
1997 to approximately 1,066,000 on December 31, 1998.
Custom Marketing Services and Other Revenues. Custom marketing services and
other revenues increased 409% to $377,000 in the year ended December 31, 1998
from $74,000 in the year ended December 31, 1997. The increase in custom
marketing services and other revenues resulted primarily from the initiation of
relationships with three significant customers.
COST OF REVENUES
Cost of revenues increased 59% to $466,000 in the year ended December 31,
1998 from $293,000 in the year ended December 31, 1997, but gross margin
increased to 54% from 45% in these respective periods. This increase in gross
margin was primarily due to improved gross margin on transaction revenues.
PRODUCT DEVELOPMENT COSTS
Product development costs increased 42% to $1.7 million in the year ended
December 31, 1998 from $1.2 million in the year ended December 31, 1997, but
decreased as a percentage of revenues to 169% from 226% in these respective
periods. The decrease in product development expenses as a percentage of
revenues is primarily attributable to an increase in revenues as we increased
our membership and advertising and marketing clients. In addition, the fixed
nature of certain development costs also contributed to the decrease in expense
as a percentage of revenues.
29
<PAGE> 31
Product development costs were $1.1 million in the year ended December 31,
1996. The increase in costs from 1996 to 1997 was primarily due to increased
hiring of technical employees and consultants.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 23% to $2.7 million in the year
ended December 31, 1998 from $2.2 million in the year ended December 31, 1997,
but decreased as a percentage of revenues to 270% from 414% in these respective
periods. The increase in sales and marketing expenses is primarily attributable
to additional hiring of sales and marketing personnel, increased sales
commissions resulting from higher revenues, increased expenses associated with
member acquisition, and increased advertising and promotion expenses. The
decrease in sales and marketing expenses as a percentage of revenues is
attributable primarily to an increase in revenues as we increased our membership
and advertising and marketing clients.
Sales and marketing expenses were $841,000 in the year ended December 31,
1996. The increase in sales and marketing expenses from 1996 to 1997 is
primarily attributable to additional hiring of sales and marketing personnel,
increased sales commissions resulting from higher revenues, increased expenses
associated with member acquisition, and increased advertising and promotion
expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 4% to $642,000 in the year
ended December 31, 1998 from $615,000 in the year ended December 31, 1997, but
decreased as a percentage of revenues to 64% from 116% in these respective
periods. The increase in general and administrative expenses resulted from
higher professional fees as well as an increase in payroll expenses due to
hiring additional administrative personnel. The decrease in general and
administrative expenses as a percentage of revenues is primarily attributable to
an increase in revenues as we increased our membership and advertising and
marketing clients. In addition, the fixed nature of certain general and
administrative costs also contributed to the decrease in expense as a percentage
of revenues.
General and administrative expenses were $645,000 in the year ended
December 31, 1996.
AMORTIZATION OF DEFERRED COMPENSATION EXPENSE
In connection with the granting of options to purchase our common stock to
certain employees, directors and consultants during the year ended December 31,
1998, we recorded deferred compensation representing the difference between the
exercise price of options granted and the deemed fair market value of our common
stock at the time of grant. Amortization of deferred compensation in the year
ended December 31, 1998 was $185,000. For the years ended December 31, 1997 and
1996 we recorded no deferred compensation.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net was $79,000 in the year ended December 31,
1998, compared to a net expense of $15,000 in the year ended December 31, 1997.
The change to net interest income from net interest expense is primarily
attributable to an increase in the amount of interest earned on cash balances,
partially offset by an increase in interest expense generated from capital lease
and equipment financing obligations.
Interest income (expense), net was $10,000 in the year ended December 31,
1996. The change to net interest expense in 1997 from net interest income in
1996 is primarily attributable to an increase in interest expense generated from
capital lease and equipment financing obligations as well as interest on
30
<PAGE> 32
investor notes that were paid in full upon completion of the Company's Series B
Preferred Stock financing in May 1997.
INCOME TAXES
We recorded a net loss of $4.6 million for the year ended December 31,
1998. For federal and state tax purposes, no provision for income taxes was
recorded, and no tax benefit has been recognized due to the uncertainty of
realizing future tax deductions for these losses.
As of December 31, 1998, we had net operating loss carryforwards of
approximately $9,360,000 for federal and state income tax purposes. The federal
and state net operating loss carryforwards begin to expire in the years 2011 and
2005, respectively. Our ability to utilize our net operating loss carryforwards
to offset future taxable income, if any, may be restricted as a result of equity
transactions that give rise to changes in ownership as defined in the Tax Reform
Act of 1986.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain statement of operations data for the
quarters ended March 31, 1999 in dollars and as a percentage of revenues. This
data has been derived from our unaudited financial statements and is not
necessarily indicative of the results that may be expected for future periods.
In our opinion, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of our financial position and results of
operations for such period have been included.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction........................... $ 107 $ 155 $ 175 $ 191 $ 333
Custom marketing services and other... 0 8 108 261 170
------- ------- ------- ------- -------
Total revenues................. 107 163 283 452 503
Cost of revenues........................ 35 66 142 223 244
------- ------- ------- ------- -------
Gross margin................... 72 97 141 229 259
------- ------- ------- ------- -------
Operating expenses:
Product development................... 376 414 430 480 484
Sales and marketing................... 791 637 563 704 967
General and administrative............ 120 119 207 196 228
Amortization of deferred
compensation........................ 0 3 30 152 316
------- ------- ------- ------- -------
Total operating expenses....... 1,287 1,173 1,230 1,532 1,995
------- ------- ------- ------- -------
Loss from operations.................... (1,215) (1,076) (1,089) (1,303) (1,736)
Interest income (expense), net........ (5) 12 16 55 11
------- ------- ------- ------- -------
Net loss................................ $(1,220) $(1,064) $(1,073) $(1,248) $(1,725)
======= ======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET REVENUES:
Revenues:........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................... 32.7 40.5 50.2 49.3 48.5
--------- ------ ------ ------ ------
Gross margin............... 67.3 59.5 49.8 50.7 51.5
--------- ------ ------ ------ ------
Operating expenses:
Product development............... 351.4 253.4 151.9 106.2 96.2
Sales and marketing............... 739.2 389.5 198.9 155.5 192.2
General and administrative........ 112.2 74.9 73.1 43.6 45.3
Amortization of deferred
compensation.................... 0.0 1.8 10.7 33.6 62.8
--------- ------ ------ ------ ------
Total operating expenses... 1,202.8 719.6 434.6 338.9 396.5
--------- ------ ------ ------ ------
Loss from operations................ (1,135.5) (660.1) (384.8) (288.2) (345)
Interest income (expense), net.... (4.7) 7.4 5.7 12.2 2.2
--------- ------ ------ ------ ------
Net loss............................ (1,140.2)% (652.7)% (379.1)% (276)% (342.8)%
========= ====== ====== ====== ======
</TABLE>
Our total revenues have grown in each quarter. Transaction revenues have
increased in each quarter as a result of growth in our membership base, the
average revenue per transaction generated by these members and the average
number of transactions per member. Custom marketing services and other revenues
decreased from the quarter ended December 31, 1998 to the quarter ended March
31, 1999 as the result of the timing of recognition of revenue from a single
significant contract in the quarter ended December 31, 1998. Gross margin has
also fluctuated as a result of quarter to quarter changes in the mix of revenue
between higher-margin transaction revenues and lower-margin custom marketing
services and other revenues.
Our operating expenses have increased significantly from 1996 to 1998 and
in the first quarter of 1999 as we have transitioned from the development stage
to the commercialization of our services. Sales and marketing expenses
fluctuated during 1998, declining sequentially in the second and third quarters
of 1998 as a result of changes made to our sales and marketing personnel in an
effort to enhance the quality and quantity of advertisers, marketers and new
members we attract. Sales and marketing expenses increased during the fourth
quarter of 1998 as we added new sales and marketing personnel, including a new
Vice President of Sales, and increased promotional expenditures to fuel
membership growth and to attract new advertising and marketing clients.
We plan to increase our operating expenses as we continue to build brand
and infrastructure. Consequently, our losses may increase in the future.
Although we have experienced revenue growth in recent periods, we cannot be
certain that such growth will continue at its current rate or increase in the
future. If our revenue growth is slower than we anticipate or our operating
expenses exceed our expectations, our losses will be significantly greater.
Our quarterly results of operations have varied in the past, and our
revenues and operating results are likely to vary significantly from quarter to
quarter. A number of factors are likely to cause these variations, some of which
are outside of our control. These factors include:
- changes in revenue levels resulting from the advertising and marketing
budget cycles of individual advertisers and marketers;
- changes in advertising and marketing costs that we incur to attract and
retain members;
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<PAGE> 34
- changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for Internet advertising and marketing generally;
- our rate of member acquisition and the level of activity of new and
existing members;
- the number and type of programs and development contracts established
with our advertising and marketing clients as well as the impact of the
fixed price portion of development contracts on gross margin;
- the introduction of new products and services by us or by our
competitors;
- unexpected costs and delays resulting from the expansion of our
operations; and
- the occurrence of technical difficulties or unscheduled system downtime.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising and marketing and consumer
purchasing, which are typically higher during the fourth calendar quarter and
lower in the following quarter. In addition, expenditures by advertisers and
marketers tend to be cyclical, reflecting overall economic conditions and
consumer buying patterns. As a result, our results of operations could be harmed
by a downturn in the general economy or a shift in consumer buying patterns.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful and you should not
rely upon them as any indication of our future performance. Our operating
expenses are based on our expectations of our future revenues and are relatively
fixed in the short term. If our revenues are lower than expected, we would incur
greater than expected losses. In addition, during future periods our operating
results likely will fall below the expectations of public market analysts and
investors. In this event, the market price of our common stock likely would
decline.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At December 31, 1998, our cash and cash equivalents consisted primarily of
demand deposits and money market funds held by large institutions in the United
States and our short-term investments were invested in corporate debt and equity
securities maturing in less than one year. Due to the nature of our short-term
investments, we have concluded that there is no material market risk exposure.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily from the sale of
equity securities to venture capital firms and other individual, institutional
and strategic investors. We have also borrowed funds under long-term capital
lease and equipment financing facilities. As of March 31, 1999, we had cash and
cash equivalents of $330,633 million and $115,196 million outstanding under
capital lease and equipment financing facilities. In addition, in May 1999, we
completed a Series D convertible preferred stock financing that resulted in net
proceeds to us of $8.0 million.
Net cash used in operating activities was $3.5 million in 1998, $3.2
million in 1997, $2.3 million in 1996 and $891,000 in the three months ended
March 31, 1999. In 1998, the net cash used in operating activities consisted
primarily of our net loss, offset in part by an increase in net accounts
payable, members payable, membership acquisition payable, depreciation and
amortization, and deferred revenue. In 1997, the net cash used in operating
activities consisted primarily of our net loss, offset by an increase in
depreciation, members payable, membership acquisition payable, and deferred
revenue. In 1996, the
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<PAGE> 35
net cash used in operating activities consisted primarily of our net loss,
offset in part by an increase in accounts payable and depreciation and
amortization.
Net cash used in investing activities was $153,000 in 1998, $58,000 in
1997, $387,000 in 1996 and $89,000 in the three months ended March 31, 1999.
These amounts were used to acquire property and equipment.
Net cash provided by financing activities was $5.6 million in 1998, $4.3
million in 1997, $2.9 million in 1996 and $85,000 in the three months ended
March 31, 1999. In 1998, this amount included $5.8 million in proceeds from the
issuance of preferred stock, less payments on capital leases. In 1997, this
amount included primarily $3.1 million in net proceeds from the issuance of
preferred stock, $1.0 million in proceeds from stockholder loans that were
subsequently converted into preferred stock, and $250,000 in proceeds from a
sale-leaseback transaction related to certain items of computer equipment, less
payments on capital leases. In 1996, this amount included primarily $3,000,000
in proceeds from the issuance of preferred stock. Net cash provided by financing
activities in the three months ended March 31, 1999 consisted primarily of
proceeds from equipment financing.
In 1997 and 1998, we entered into various non-cancelable capital lease
agreements for certain types of capital expenditures. As a result of these
capital lease agreements, we had lease payment obligations of approximately
$110,000 in 1997 and $143,000 in 1998. Borrowings under these capital lease
arrangements have terms ranging from 36 to 48 months with monthly payments and
interest rates ranging from 10.5% to 11.5%.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements through the end of 2000.
However, we may need to raise additional funds sooner to fund more rapid
expansion, to develop new or enhance existing services or products, to respond
to competitive pressures or to acquire complementary products, businesses or
technologies. If adequate funds are not available on acceptable terms, our
business, results of operations and financial condition could be harmed. See
"Risk Factors -- We may need more working capital to expand our business, and
our prospects for obtaining additional financing are uncertain."
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Development or Obtained for Internal Use. SOP No. 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998. We do
not expect that the adoption of SOP No. 98-1 will have a material impact on our
financial statements.
In April 1998, the Accounting Standards Executive Committee issued SOP
98-5, Reporting on the Costs of Start-Up Activities. This SOP provides guidance
on the financial reporting of start-up costs and organization costs. It requires
the costs of the start-up activities and organization costs to be expensed as
incurred. The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company adopted the SOP during the year
ended December 31, 1998. The adoption of the SOP did not have a material impact
on our financial statements.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in their date code field. Beginning in the Year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and
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<PAGE> 36
software products used by many companies may need to be upgraded to comply with
these Year 2000 requirements.
We designed the software underlying our Web-based programs as well as our
Web site and related technology infrastructure to be Year 2000 compliant.
However, we rely on third-party hardware and software in the operation of our
business. We believe we have identified all of the major information systems
used in our internal operations and have substantially completed all
modifications, upgrades or replacements to minimize the possibility of a
material disruption of our business. The expenditures that we have incurred to
date and the expenditures we expect to incur in this regard have not been and
are not expected to be material to our business, results of operations and
financial condition.
We have also contacted the vendors of third-party hardware and software we
use in order to gauge their Year 2000 compliance. Based on these vendors'
representations and the activities we have conducted, we believe that the
third-party hardware and software we use are Year 2000 compliant. We cannot
assure you, however, that we will not experience unanticipated negative
consequences, including material costs caused by undetected errors or defects in
the technology used in our internal systems. If, in the future, it comes to our
attention that the software underlying our email or Web-based programs requires
modification, or that any of our third-party hardware and software are not Year
2000 compliant, then we will seek to make modifications to our systems. In such
case, we expect such modifications will not have a material effect on our
results of operations. There can be no assurance, however, that we will be able
to modify such systems in a timely and successful manner to comply with the Year
2000 requirements. Any failure to do so could have a material adverse effect on
our business, results of operations and financial conditions.
We are also vulnerable to systemic failures resulting from Year 2000
problems. These failures could include prolonged data communications,
telecommunications or electrical failures. A failure of this type could prevent
members from accessing our Web site or prevent us from operating our business.
As a result, we could experience lost revenues, increased operating expenses and
loss of members. Any of these eventualities could have a material adverse effect
on our business, results of operations and financial condition.
We have not yet developed a comprehensive contingency plan to address Year
2000 problems that are not detected and corrected prior to their occurrence.
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BUSINESS
OVERVIEW
We are a leading provider of online direct marketing and cash-based
incentive advertising solutions. We combine a variety of Internet-based direct
advertising and marketing services with cash-based online incentive programs to
provide flexible, cost-per-action incentive marketing solutions. Our payment
structure, in which our advertising and marketing clients are only charged when
our members execute specific predefined actions, provides these clients with a
known cost per yield for their advertising campaigns. By leveraging our
proprietary consumer member database and our targeting capabilities, we are able
to offer our clients customized, targeted advertising solutions designed to
improve advertisement response rates and reduce customer acquisition costs.
Our online Earn & Spend Community offers our 1.8 million consumer members a
broad array of cash-based incentive reward opportunities, whereby members are
compensated with cash, rather than non-cash incentives for responding to online
marketing offers. The cash earned by our members can be credited to either their
VISA or bank accounts from their Cybergold account or be used to purchase
digital content, services and products, including software, music, games, credit
reporting services and original artistic works and publications through our Earn
& Spend Community. Advertising and marketing clients that have used our service
include Ask Jeeves, Inc., autobytel.com inc., Cendant Corporation (NetMarket),
The Walt Disney Company, Earthlink Network, Inc., GoTo.com, Inc., Interactive
Coupon Network (Cool Savings), LifeMinders.com, Inc., New Media and Qwest
Communications International Inc.
INDUSTRY BACKGROUND
Growth of the Internet and Online Commerce
The Internet has emerged rapidly as an important medium for facilitating
communication, disseminating information and conducting commerce. International
Data Corporation (IDC) estimates that the number of Internet users worldwide
exceeded 97 million in 1998 and will grow to approximately 320 million by the
end of 2002. IDC also estimates that worldwide commerce over the Internet will
reach approximately $426 billion by the end of 2002, up from approximately $32
billion in 1998. The availability of a broad range of content and the acceptance
of electronic commerce has driven rapid Internet adoption by businesses and
consumers alike, which has in turn stimulated the proliferation of additional
content and electronic commerce.
Online Advertising and Direct Marketing
The Internet possesses unique and commercially powerful characteristics
that differentiate it from traditional forms of media, including a lack of
geographic or temporal limitations, real time access to dynamic interactive
content, and instantaneous connections between advertisers, marketers and
consumers. Advertisers and marketers are particularly attracted to the Internet
because it enables them to distribute information efficiently, reach potential
customers globally and engage in one-to-one customer interaction. These
capabilities create significant opportunities for advertisers, marketers and
merchants to develop direct relationships with consumers. The Internet also
facilitates the efficient collection of valuable customer data and demographic
information, enabling advertisers and marketers to develop targeted marketing
campaigns directed to existing and potential customers.
These characteristics have resulted in the rapid growth of Internet
advertising. Forrester Research estimates that Internet advertising expenditures
in 1998 were approximately $1.3 billion and projects Internet advertising
expenditures to increase to $10.5 billion in 2003. The majority of Internet
advertising
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to date has been in the form of passive banner advertising. However, as the
number of Web sites and amount of advertising on the Internet has proliferated,
we believe decreasing consumer response to banner advertising has led
advertisers and marketers to question the effectiveness of such advertising and
marketing campaigns. According to NetRatings, click-through rates, used by
advertisers to measure the effectiveness of their online efforts, was 0.63% in
April 1999.
These trends are causing marketers to consider alternative marketing
solutions that encourage consumers not only to pay greater attention to
marketing messages but also to increase response rates to those messages.
Conversely, many consumers prefer to limit the number of advertisements to which
they are exposed and prefer to be exposed only to those advertisements for
products or services in which they are interested. We believe that the inability
of traditional banner advertising to maximize the powerful one-to-one
relationships enabled by the Internet has led advertisers to place greater
emphasis on online direct marketing as a more effective means to convert
Internet users into customers. The Direct Marketing Association estimates that
spending on Internet direct marketing will grow from $603 million in 1998 to
$5.3 billion in 2003, representing a compound annual growth rate of 54%.
Online Incentive Programs
As advertisers and marketers seek to increase the effectiveness and
efficiency of their online marketing efforts, they are turning to
incentives-based programs, which reward consumers for their attention or
specific response to ads and promotions. Because advertisers are charged on a
cost-per-action basis in these programs, advertisers are provided with a
predictable cost for the desired response. In contrast, banner advertisers pay
simply for the number of times a banner appears on a Web site page, regardless
of how many consumers actually view or click on the banners or whether they take
additional actions based on what they read.
Most incentives-based programs offer consumers the ability to earn "points"
that are redeemable only for limited products, frequent flyer miles or other
non-cash rewards. These non-cash incentive programs often have significant
limitations on redemption due to the limited items for which rewards can be
redeemed as well as various program restrictions. For example, programs offering
frequent flyer miles are often restrictive and generally only appeal to
consumers who otherwise actively participate in frequent flyer programs. In
addition, rewards for participation in online direct marketing programs mostly
come in small increments and the redemption opportunities generally require
large outlays of points. Therefore, while these programs have the potential to
provide significant benefits to advertisers and marketers, they remain limited
to a subset of Internet users.
Online Payment Mechanisms
Traditionally, Internet companies have chosen either to fund the free
distribution of content or services through selling banner advertising on their
Web sites or to sell their content or services on a subscription basis. However,
the increasing amount of online advertising inventory and the decreasing
effectiveness of banner advertising is causing the price for banner advertising
to decline. According to AdKnowledge, the overall average advertising banner
cost per thousand impressions (CPMs) have fallen 7.5% from June 1998 to March
1999. We believe a continued decline in CPM rates will lead Internet content and
service providers, many of whom depend on advertising sales as a major source of
revenue, to find alternative revenue sources, including the sale of content or
services on a per transaction basis.
While credit cards have traditionally been the dominant form of payment for
Internet transactions, the relatively high costs of processing credit card
payments makes them less suitable for inexpensive Internet purchases. In
addition, consumers have traditionally been reluctant to use credit cards for
inexpensive purchases. As a result, the absence of a broadly accepted online
micropayment system has left sales of inexpensive content, services and products
economically impractical.
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Market Opportunity
Advertisers, marketers and merchants need more effective means to induce
consumers to respond to online advertising and marketing and facilitate the
online purchase of inexpensive content, goods and services. While there have
been several attempts to address these needs, current incentives-based online
advertising and marketing and micropayment solutions have a number of
significant limitations. Current incentives-based online advertising and
marketing campaigns impose significant limitations on consumer choice, limiting
consumers' ability to monetize their time spent online. These shortcomings limit
the utility and flexibility of incentives-based online marketing programs and,
therefore, consumers' desire to participate. In addition, current transaction
processing methods for the distribution of inexpensive content, services and
products are prohibitively expensive. There is a need for online
incentives-based advertising and marketing and micropayment solutions which
effectively target consumers and provide consumers with greater flexibility and
purchasing opportunities.
THE CYBERGOLD SOLUTION
We are a leading provider of online direct marketing and cash-based
incentive advertising solutions. We believe that we are the first online company
to combine a cash-based incentive program with a direct marketing approach that
provides extensive benefits for our advertising and marketing clients, consumer
members and merchants. Our Earn & Spend Community has over 1.8 million consumer
members, which enables our advertising and marketing clients to offer
cost-per-action incentive programs either to our entire member database or to a
targeted subset. Users are compensated for responding to online advertisements
or promotions by performing certain client-specified actions, such as filling
out online surveys or purchasing products or services. Internet users become
Cybergold members at no cost by completing a short online registration form on
our Web site or on a co-marketer or co-registration Web site.
In order to manage these cash-based incentive programs on our Web site and
on other sites, we have developed a proprietary transaction system that enables
the cost-effective management of cash-based incentive reward programs and
micropayment transactions. Our Earn & Spend Community allows our members to earn
cash by interacting with offers that appeal to their interests. For example,
under a current promotion, members can earn $3.00 for requesting a quote for a
new car from our marketing client, autobytel.com inc. The cash earned by our
members is deposited in their Cybergold accounts and can then be credited to
either their VISA cards or bank accounts or be used to purchase digital content,
services and products, including software, music, games and original artistic
works and publications.
[Earn & Spend Diagram:
DESCRIPTION: Presentation of "virtuous circle" diagram.
TOP OF DIAGRAM TEXT ANNOTATION: Web surfers encounter Cybergold
merchants offering cash incentives in exchange for their online behavior.
RIGHT SIDE OF DIAGRAM TEXT ANNOTATION: Members can transfer the money
in their Cybergold accounts to their personal VISA or bank account; or they
can spend it on digital content.
BOTTOM OF DIAGRAM TEXT ANNOTATION: Members can purchase and download
digital content, services and products using cash from their Cybergold
accounts.
LEFT SIDE OF DIAGRAM TEXT ANNOTATION: To increase their account
balances, members "load" accounts either by transferring funds from their
VISA accounts or by performing incentive transactions with Cybergold
merchants.]
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Benefits of our unique incentive programs include:
Advertising and Marketing Client Benefits
- FLEXIBLE AND EFFECTIVE MARKETING SOLUTION. We provide a variety of
advertising and marketing services for our clients, including incentive
offers on our Earn & Spend Community site, targeted and untargeted
e-mails, and ad campaigns that offer cash incentives directly on
third-party sites. We believe our services provide our clients with more
effective advertising tools to induce desired consumer behavior,
including purchasing, product evaluation and subscriptions.
- COST-PER-ACTION PAYMENT STRUCTURE. We provide a cost-per-action
incentive marketing solution, in which our clients are only charged when
our members take pre-defined actions specified by our clients. In
contrast, with banner advertising, advertisers typically pay for a number
of impressions on Web sites, regardless of whether consumers click on, or
take any action in response to, the banner advertisement. Our
cost-per-action solution provides our clients with both a known cost per
yield for each advertising and marketing campaign, reducing customer
acquisition costs and risk.
- MEASURABLE RESULTS. Member actions in response to client marketing
messages are instantly recorded in our database, allowing clients to
measure the effectiveness of their advertising campaigns on an ongoing
basis. Clients are able to review and modify their campaigns at any time
to react to customer response rates.
- TARGETING CAPABILITY. By leveraging our proprietary member database, we
are able to provide customized, targeted campaigns for our clients. This
targeting capability enables our clients to focus on specific demographic
segments or groups of users that exhibit certain online behavioral
patterns. We believe that by focusing on a specific target audience, our
clients should increase response rates and reduce their customer
acquisition costs.
Member Benefits
- CASH REWARDS. Unlike other online incentive programs which reward the
customer with "points" redeemable for frequent flyer miles, specified
products or other non-cash rewards, we reward our members with cash. One
Cybergold dollar equals one U.S. dollar. The dollars our members earn are
accumulated in a Cybergold account and can be credited to their VISA
cards or bank accounts. We also offer a number of online spending
opportunities to our members, such as the ability to purchase digital
content, services and products, including software, music, games, credit
reporting services and original artistic works and publications.
- MEMBER CHOICE. Our online incentives programs provide two primary
benefits for members. First, members may choose to respond only to
advertising and marketing that interests them and provides a sufficient
reward to induce their participation. Second, members earn cash rewards
which they can choose to spend on online purchases or have credited to
their VISA cards or bank accounts. This enables members to pursue
advertising and marketing that interests them, increasing the quality of
their online experience.
Merchant Benefits
- NEW REVENUE OPPORTUNITY. Through our micropayments system, we afford
merchants who provide inexpensive digital content, services and products
an opportunity to participate in Internet commerce on a
pay-per-transaction basis. We offer these merchants an alternative
revenue source by providing them access to our members, who have cash
accounts that can be used for
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<PAGE> 41
inexpensive purchases of digital content, services and products. In
addition, if Cybergold members wish to purchase items that cost more than
the amount of Cybergold dollars in their accounts, they can deposit
additional funds into their Cybergold accounts from their VISA cards. Our
broad membership community gives merchants an established base of
potential customers.
- VALUE-ADDED SERVICES. We provide merchants with "non-hosted" and
"hosted" value-added services to sell inexpensive digital content,
products and services. In "non-hosted" solutions, our micropayment
transaction system enables merchants to sell inexpensive digital content,
services and products on their own Web sites. In "hosted" solutions, we
provide the merchants with a complete outsourced suite of Web site
hosting, systems administration, transaction processing and integration
services, and the merchant only provides the content.
STRATEGY
Our objective is to enhance our leadership position in online direct
marketing and incentives-based advertising. We intend to achieve our objective
through the following key strategies:
Increase Size of Membership Base. We intend to continue to expand our
membership base through membership acquisition activities such as
co-registration programs, co-marketing programs and advertising on third-party
Internet sites. We also plan to initiate offline branding and promotional
campaigns using broadcast, print and outdoor advertising in order to attract new
members. In addition, we intend to explore international opportunities,
including potential strategic alliances, in order to extend the reach of the
Cybergold brand.
Increase Number of Advertising and Marketing Clients. We are seeking to
broaden our advertising and marketing client base by increasing our direct and
indirect sales and marketing efforts. We plan to increase significantly the size
of our direct sales force and to open additional regional sales offices. In
addition, we are seeking to take advantage of existing distribution channels,
such as advertising networks, to expand the number of advertisers using our
incentive marketing system.
Increase Brand Awareness. We are focused on increasing brand awareness to
attract and retain members, advertising and marketing clients and merchants. We
intend to use a combination of online and offline advertising, direct marketing,
public relations and other marketing programs designed to promote the Cybergold
brand and build loyalty among our members, clients and merchants. We also intend
to develop promotional and media campaigns with well-known Internet companies
and offline marketers of branded consumer products and services.
Expand Earn & Spend Opportunities to Other Web Sites. Although we currently
are primarily a site-centric service, our micropayment technology enables our
Earn & Spend capabilities to function on third-party Web sites. To date, a
number of Web sites have installed the Cybergold Mint, our electronic commerce
payment software, on their servers. We are seeking to aggressively expand
Cybergold Mint installations on other Web sites to increase the number of
Internet users who are exposed to the Cybergold Earn & Spend Community and
establish additional sources of revenue. We are also pursuing strategic
relationships with electronic commerce infrastructure vendors to further expand
the distribution of the Cybergold Mint technology.
Enhance Cybergold Earn & Spend Community. We intend to continue to enhance
the Cybergold Earn & Spend Community by increasing the number and variety of
incentive offers provided and the breadth of online purchasing opportunities. We
are also actively developing a community store site where our members can sell
their own inexpensive digital content, services and products to other members.
We believe that the Cybergold Earn & Spend Community and our technology enable
individuals and businesses to sell inexpensive digital content, services and
products that were previously not cost-effective to offer online.
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Pursue Strategic Acquisitions and Relationships. We intend to continue to
enter into strategic relationships in order to build our Earn & Spend Community,
generate additional traffic to our Web site, increase membership and establish
additional sources of revenue. We have entered into strategic relationships with
the First National Bank of Omaha, MBNA America Bank, Earthlink Network, Inc.,
BuySafe.com and others which have enabled us to offer our clients and members a
broader selection of advertising opportunities, expanded content and more online
services. In addition, we intend to pursue strategic acquisitions of
complementary technologies and services in order to expand and enhance our
current offering of products and services.
CYBERGOLD SERVICES
Cybergold serves three main constituencies: advertising and marketing
clients, consumer members and merchants. Advertising and marketing clients use
Cybergold to cost-effectively acquire new customers with offers and cash
incentives. Consumer members use Cybergold to earn cash rewards for responding
to offers on our Web site, on third-party Web sites and through e-mail
campaigns. Merchants use Cybergold technology as a cost-effective means to sell
inexpensive digital content, services and products on a pay-per-transaction
basis to the Cybergold membership base.
Advertising and Marketing Client Services. We work closely with our
advertising and marketing clients to develop marketing campaigns that are
tailored to their customer acquisition needs. These programs include:
- incentives-based offers and promotions on the Cybergold Web site;
- targeted and untargeted e-mail campaigns conducted by us on behalf of our
advertising and marketing clients;
- programs introduced on our marketing clients' Web sites; and
- banner ads placed on various targeted Web sites.
Our membership database technology enables us to maintain and track
information about our members. We are able to track aspects of member online
activity, such as marketing programs in which specific members have participated
and online purchases initiated through Cybergold. In addition, we have access to
member information gathered by certain of our advertising and marketing clients.
We believe that our database of membership information allows us to carefully
tailor marketing campaigns to maximize their effectiveness for our clients.
Member Services. Internet users become Cybergold members at no cost by
completing a short online registration form on our Web site or on a co-marketer
or co-registration Web site. Our members earn cash rewards for completing
various desired actions, such as viewing an incentive offer, completing a survey
or registration form or downloading software. Members can also earn rebates and
incentives by purchasing a variety of products or services offered through our
Web site or third-party Web sites. In addition, to encourage members to visit
our Web site frequently, our members receive free services, including e-mail,
chat, stock quotes and news.
Existing members are notified of new programs and promotions through
periodic e-mail distributions. In contrast to other incentive programs, our
members have the opportunity not only to earn cash rewards that are transferable
to their VISA cards or bank accounts, but also to spend their Cybergold cash
rewards for a variety of goods and services. Cash is transferable to a member's
bank account in a minimum amount of $10.00 and to a VISA card in a minimum
amount of $5.00. Members are also able to transfer money from VISA cards to
their Cybergold accounts to enable them to use our micropayment system to
purchase additional digital content, goods and services from merchants.
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We are committed to maintaining the privacy and security of our members. We
keep all personal information about our members confidential. Cybergold is a
member of TRUSTe, a non-profit organization dedicated to the protection of user
privacy and promotion of security online.
Merchant Services. We offer merchants the ability to sell digital content,
products and services over the Internet in transactions of any size. By
eliminating the high transaction costs typically associated with very small
credit card transactions, we enable the cost-effective delivery of content such
as articles or music for cents rather than dollars. We believe that our
micropayment system enables new business models for merchants of digital
content, products and services. We offer merchants with two micropayment
environment options:
- Non-hosted -- a technology and marketing solution where the Cybergold
Mint, our electronic commerce payment software, is provided to merchants
for use on their own Web sites to sell inexpensive digital content,
services and products to online consumers.
- Hosted -- a full-service solution where we provide the customer with a
complete outsourced suite of Web site hosting, systems administration,
transaction processing and integration services while the merchant only
provides the content.
SALES AND MARKETING
Our primary sales strategy is to sell our services directly to advertisers,
direct marketers, ad agencies and electronic commerce merchants. We currently
sell our services in the United States through a direct sales organization, with
seven employees located in the San Francisco Bay Area, metropolitan Dallas and
metropolitan New York. Our sales force is dedicated to establishing and
maintaining relationships with advertising and marketing clients. Our sales
force uses industry directories, press, personal contacts, industry knowledge
and Internet search engines to seek likely sales prospects. Recently we have
begun to receive sales leads from advertising agencies that have recommended
Cybergold to clients.
Our marketing organization is composed of marketing communications, product
management, product marketing and membership marketing groups. In addition, we
also use consultants such as public relations agencies and graphic design firms
to assist with marketing activities. Marketing communications is responsible for
external public relations activities, managing relationships with the press and
industry analysts, and creating marketing collateral materials, such as sales
brochures. Product management is responsible for working with our engineering
department and our clients to define new products as well as enhancements to
existing products and services. Product management also contributes to
management development efforts, assists customers with special requirements, and
provides additional resources as needed throughout our company. Product
marketing is responsible for the content and graphics on our Web site, including
the production and implementation of advertising and merchant offers. Product
marketing also determines which additional services may be of interest to
members, clients and merchants.
Membership marketing is focused on expanding our membership base. We use a
variety of methods to generate new members, including e-mail campaigns,
advertising, and co-registration agreements with certain affiliate partners, as
well as referrals by current members and public relations. Currently, we attract
the majority of our members through co-registration agreements with online
partners, whereby registrants for those sites have the option to concurrently
sign up for the Cybergold Earn & Spend Community. We believe that the
convenience afforded by this co-registration capability is a significant factor
in attracting new members. Currently, we have a network of approximately 55
affiliate partners through which we can attract new members. In addition to
these online methods of increasing our membership base, we are currently
planning a range of offline marketing campaigns designed to attract new members.
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ADVERTISING AND MARKETING CLIENTS
Our advertising and marketing clients pay us commissions each time a member
takes an action defined by our clients in response to some online advertising or
promotion. Since inception, a total of 144 advertising and marketing clients
have offered incentives using our system. In 1997, no client accounted for more
than 10% of our revenue. In 1998, Qwest Communications International Inc. and
Interactive Coupon Network (CoolSavings) accounted for 22% and 16% of our
revenue, respectively. As of March 31, 1999, Qwest Communications International
Inc., autobytel.com inc., LifeMinders.com, Inc., Cendant Corporation (Netmarket)
and The Walt Disney Company (Disney Daily Blast, Disney Store Online) accounted
for 20%, 12%, 11%, 11% and 10% of our revenue, respectively. A representative
list of advertising and marketing clients who are using or have used our
services is set forth below:
<TABLE>
<S> <C> <C>
- @Backup Corporation - Consumer Info.com, Inc. - LifeMinders.com, Inc.
- Alexa Internet - The Walt Disney Company - New Media
- Ask Jeeves, Inc. (Disney Daily Blast, - Qwest Communications
- autobytel.com inc. Disney Store Online) International, Inc.
- Cendant Corporation - Earthlink Network, Inc. - First Premier Bank
(Netmarket) - GoTo.com, Inc. (Future Card)
- Interactive Coupon - Uproar (E-Pub Services Ltd.)
Network (Cool Savings)
</TABLE>
STRATEGIC RELATIONSHIPS
To date, we have entered into a number of strategic relationships to build
our Earn & Spend Community, generate additional traffic to our Web site,
increase our membership and generate additional revenue.
These strategic relationships include:
- The First National Bank of Omaha. Our relationship with the First
National Bank of Omaha enables consumers to directly credit their
personal VISA accounts with money earned through Cybergold and to credit
their Cybergold accounts with funds from their VISA accounts;
- MBNA America Bank. Together with MBNA America Bank, we launched the
co-branded Cybergold MBNA VISA card, which provides convenient and easy
Internet shopping, MBNA's state-of-the-art fraud protection, VISA
Platinum Plus cardholder benefits and the potential for cash incentives;
- Earthlink. We launched a private-label loyalty program with Earthlink
under which Earthlink will utilize our transaction processing and account
management technology to implement an incentives-based loyalty program
for its members that use their Earthlink credit cards for shopping both
on the Internet and offline; and
- BuySafe.com. Our relationship with BuySafe.com provides the Cybergold
Earn & Spend Community with certain private label merchandising and
fulfillment programs.
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TECHNOLOGY
We have developed a scaleable technology infrastructure that executes both
incentive reward transactions and online micropayments for consumer purchases.
There are two proprietary components to our infrastructure:
- The Cybergold Mint is our electronic commerce payment software which runs
on either our servers or the servers of our clients or merchants. The
Cybergold Mint executes both Cybergold incentive reward transactions and
online micropayments for consumer purchases. To make world-wide
distribution possible, the Cybergold Mint employs a cryptographic system
called HMAC-MD5 that offers full 128-bit security without export
controls.
- The Cybergold payment server is our real-time transaction processing
engine. This engine is optimized for high-volume financial transactions
and is designed to scale by simply adding additional hardware to our
system. The Cybergold payment server communicates with consumer browsers
using SSL, the industry-standard Web security protocol, to safeguard all
private user information.
Our payment server includes property modules for handling:
- interactive transactions;
- background transactions for off-line incentive programs;
- consumer account management and online statements;
- VISA and bank (ACH) transfers and charity donations;
- transaction reversal and dispute management;
- real-time risk management with velocity checking and fraud detection;
- context-sensitive help; and
- automated customer assistance with escalation to our separate Customer
Service system.
Typical Cybergold transactions begin when Internet users encounter
advertisements offering incentive and/or purchases on our Web site or on
third-party Web sites. The merchant Web servers use the Cybergold Mint to
generate rewards and payments. The transactions are sent over the Internet to
the Cybergold payment servers, which move incentive funds from merchant accounts
to member accounts, and move payment funds from member accounts to merchant
accounts. The payment servers incorporate a database of user, merchant and offer
information.
Our technology consists of proprietary programs integrated with third-party
hardware and software. Our third-party hardware includes Sybase SQL Servers, Sun
Solaris platforms and Apache Web servers, which members access with standard Web
browsers such as Netscape Navigator and Microsoft Internet Explorer. We do not
require consumers to download any software to process or store micropayments and
rewards.
We internally developed our systems for maintaining our Web site processing
transactions and maintaining member accounts. If, in the future, we cannot
modify these systems to accommodate increased traffic and an increased volume of
transactions and orders, we could suffer slower response time, problems with
customer service and delays in reporting accurate financial information. See
"Risk Factors -- If we fail to adapt to rapid change in our industry or our
internally developed systems cannot be modified properly for increased traffic
or volume."
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COMPETITION
The market for online direct advertising and marketing is extremely
competitive. In addition, while the market for services that facilitate
small-scale electronic commerce transactions is very new, we expect competition
in that area to increase dramatically in the near future. We cannot assure you
that we will compete successfully in this environment. Our ability to compete in
these marketplaces depends on many factors, some of which are beyond our
control. Please see "Risk Factors -- We face significant competition from other
online incentives-based advertising and marketing programs and providers of
micropayment systems" for a list of these factors. Our failure to compete in
these marketplaces could have a material adverse effect on our business, results
of operations and financial condition.
We believe that the principal competitive factors in the online
incentives-based advertising market are:
- brand recognition;
- breadth and depth of content and services;
- number and quality of advertising clients;
- size of membership base;
- ease of use;
- transaction speed and security;
- quality of service; and
- technical expertise.
We face significant competition from online incentives-based advertising
and marketing programs and providers of micropayment systems. We expect
competition to increase due to the lack of significant barriers to entry for
online business generally and for online incentives-based direct marketing
programs and micropayment transactions in particular. Currently, several
companies offer competitive online incentives programs, including MyPoints.com,
Inc. and Netcentives Inc. We may also face competition from established Internet
portals and community Web sites that engage in direct marketing, as well as from
traditional advertising agencies and direct marketing companies that may seek to
offer online products or services. In addition, financial service organizations,
such as banks and credit card companies, or other large organizations may
develop competitive micropayment systems and incentives-based advertising and
marketing programs.
Some of our current and potential competitors have longer operating
histories, greater brand recognition, larger client and member bases and
significantly greater financial, technical and marketing resources than we do.
These advantages may enable them to respond more quickly to new or emerging
technologies and changes in customer preferences. These advantages may also
allow them to engage in more extensive research and development, undertake
extensive far-reaching marketing campaigns, adopt more aggressive pricing
policies and make more attractive offers to potential employees, strategic
partners and advertisers. As a result, it is possible that our existing
competitors or new competitors may rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margin and
loss of market share. We may not be able to compete successfully, and
competitive pressures may affect our business, results of operations and
financial condition.
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INTELLECTUAL PROPERTY
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our technology or business model.
Monitoring unauthorized use of our technology and business model is difficult
and we cannot be certain that the steps we have taken will prevent unauthorized
use of our technology and business model. In addition, our business activities
may infringe upon the proprietary rights of others, and, from time to time, we
have received, and may continue to receive, claims of infringement against us.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. Litigation could subject us to significant
liability for damages and invalidation of our proprietary rights. These
lawsuits, regardless of their success, would likely be time consuming and
expensive to resolve and would divert management's time and attention away from
our business. Any potential intellectual property litigation could also force us
to do one or more of the following:
- make significant changes to the structure and operation of our business;
- attempt to design around a third party's patent; or
- license alternative technology from another party.
Implementation of any of these alternatives could be costly and time
consuming, and may not be possible. Accordingly, an adverse determination in any
litigation that we are a party to would have a material adverse effect on our
business, results of operations and financial condition.
Cybergold has two issued U.S. Patents covering its business model and
software architecture:
- Patent #5,794,210 covers Attention Brokerage, in which users are
compensated for paying attention online to advertisements, promotions,
and similar information, and Orthogonal Sponsorship, in which users can
apply their earned compensation to purchase digital content or other
intellectual property; and
- Patent #5,855,008, for Consumer Controlled Privacy Management, in which
users establish criteria by which their personal information is released
to others, those requesting access to personal data provide their
identity, intentions for using the personal data, and may offer
compensation to the user for access to the personal data, and the user or
an automated process decides whether to release the requested personal
data based on the user's criteria and the requester's information.
We also have U.S. and foreign pending patent applications. Cybergold is our
only registered trademark, although we have applied to register additional
trademarks in the United States. We cannot assure you that our patents or
trademarks will not be successfully challenged by others or invalidated. If our
trademark registrations are not approved because third parties own these
trademarks, our use of these trademarks would be restricted unless we entered
into arrangements with the third-party owners, which might not be possible on
reasonable terms.
We generally enter into confidentiality or license agreements with our
employees and consultants, and control access to and distribution of our
technologies, documentation and other proprietary information. Despite our
efforts to protect our proprietary rights from unauthorized use or disclosure,
parties may attempt to disclose, obtain or use our solutions or technologies. We
cannot assure you that the steps we have taken will prevent misappropriation of
our solutions or technologies, particularly in foreign countries where laws or
law enforcement practices may not protect our proprietary rights as fully as in
the United States.
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EMPLOYEES
As of April 30, 1999, we had a total of 56 employees. Of those, 28 are in
sales and marketing, 19 are in engineering and nine are in general and
administrative. We believe that we have good relationships with our employees.
We have never had a work stoppage, and none of our employees is represented
under a collective bargaining agreement. We believe that our future success will
depend in part on our ability to attract, integrate and retain highly motivated
sales, marketing, production and technical personnel and upon the continued
service of our senior management. Competition for qualified personnel in our
industry and geographical locations is intense, and there can be no assurance
that we will be successful in attracting, integrating, retaining and motivating
a sufficient number of qualified personnel to conduct our business in the
future.
FACILITIES
The Company's current headquarters are located in approximately 6,400
square feet of office space we have leased at 2921 Adeline Street, Berkeley,
California. We are leasing this office space in a holdover capacity as our
original lease has expired. We have entered into a lease for approximately
15,200 square feet of office space at 436 14th Street, Oakland, California. The
lease extends through June 2004, and includes a right of first refusal on
additional space which may become available in the building where we will be
headquartered. We are in the process of moving our operations to the new
facility. During this move our technology system could be susceptible to
technical failures or other disruptive problems. Any such problems could
diminish or halt our ability to provide services to our customers, which could
harm our business, results of operations and financial condition. We believe the
office space in the new facility will be adequate to meet our needs for the next
six months, and we expect our growth for the next 24 to 36 months to be
accommodated by our right of first refusal on additional office space which may
become available in our building. We have sales personnel located in the
metropolitan areas of Dallas and New York. These personnel work out of
home-based offices, and do not receive any additional compensation for the use
of their home offices, other than reimbursement for direct expenses such as
telephone, office equipment and supplies. We anticipate adding additional field
personnel in the future; such personnel may or may not work out of home-based
offices, and therefore, we may or may not incur additional expenses relating to
the rental of additional office space.
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MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding our directors
and officers as of May 18, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
A. Nathaniel Goldhaber.................... 51 President, Chief Executive Officer and Chairman
of the Board
Steven M. Farber.......................... 40 Chief Operating Officer
John D. Steuart........................... 38 Chief Financial Officer
Gary Fitts................................ 53 Chief Technology Officer
Daniel W. Berger.......................... 40 Vice President, Sales
Michael Koifman........................... 50 Vice President, Engineering
Larry Weinstein........................... 52 Vice President, Strategic Relationships
Pieter Hartsook........................... 51 Vice President, Business Development
Christopher D. Alafi, Ph.D.(2)............ 35 Director
Jay Chiat(2).............................. 67 Director
Garrett P. Gruener(1)..................... 44 Director
Regis P. McKenna(2)....................... 59 Director
Alan Salzman(1)........................... 45 Director
Peter S. Sealey, Ph.D.(1)................. 58 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
A. Nathaniel Goldhaber has served as President, Chairman of the Board and
Chief Executive Officer since October 1994. Prior to joining Cybergold, Mr.
Goldhaber was self-employed as a venture capitalist. Prior to that Mr. Goldhaber
was the Chief Executive Officer of Kaleida Labs, Inc., a multimedia joint
venture between IBM and Apple Computer, and the Chief Executive Officer of
Centram Systems West, a developer of local area networks. Mr. Goldhaber is a
Member of the Executive Board of the University of California, Berkeley, College
of Letters and Sciences. Mr. Goldhaber received a B.A. from Maharishi
International University and an M.A. from the University of California,
Berkeley.
Steven M. Farber has served as Chief Operating Officer since August 1998.
Prior to joining Cybergold, Mr. Farber was the Chief Executive Officer of
Interwoven, a provider of open systems for enterprise Web production for
Internets and intranets, from March 1997 to March 1998. From 1996 to 1997, he
was self-employed as a consultant. From 1995 to 1996, Mr. Farber was a Vice
President of Summit Integration Group, a software consulting firm. Prior to
that, Mr. Farber served as a Vice President of The Vantive Corporation, a
customer relationship management software company. Mr. Farber received a B.S.
from Tufts University.
John D. Steuart has served as Chief Financial Officer since June 1996.
Prior to joining the Company, Mr. Steuart acted as the Chief Financial Officer
of Alafi Capital, a venture capital firm, from October 1988 to June 1996. He is
a member of the Board of Directors of a number of privately held companies. Mr.
Steuart received a B.A. in Economics from the University of California, Berkeley
and an M.S. in Business from Golden Gate University.
Gary Fitts has served as Chief Technology Officer since July 1995. Prior to
joining Cybergold, Mr. Fitts was self-employed as a consultant. He has also
served as the Directors of TOPS Technology for SunSelect, a personal computer
networking business unit of Sun Microsystems, Inc., and as Vice
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<PAGE> 50
President, Technology, of Sitka Corporation, a networking subsidiary of Sun
Microsystems, Inc. Mr. Fitts received a B.A. from Dartmouth College.
Daniel W. Berger has served as Vice President, Sales since November 1998.
From April 1998 to October 1998, Mr. Berger was Vice President, Sales, at
Conduct Software Technologies, Inc., a network software company. From April 1997
to March 1998 Mr. Berger was Vice President, Sales, at Make Systems, Inc., a
network design tool vendor. From August 1995 to March 1997, Mr. Berger was self-
employed as a software and Internet consultant. Prior to that Mr. Berger was
Vice President, Sales, at Seagate Software, a network software company. Mr.
Berger received a B.A. from Colby College.
Michael Koifman has served as Vice President, Engineering since November
1998. From October 1997 to November 1998, Mr. Koifman was Vice President of
Engineering at Blue Pumpkin Software, a developer of workforce management
software for call centers. From September 1996 to October 1997, Mr. Koifman
served as Manager of Advanced Applications at Siebel Systems, a sales force
automation company. Prior to that, Mr. Koifman was a Senior Principal at AMS, a
computer consulting company. Mr. Koifman holds an M.S. in Mathematics from St.
Petersburg University in St. Petersburg, Russia and an M.S.E.E. in Computer
Design from the Institute of Electrical Engineering in St. Petersburg, Russia.
Larry Weinstein has served as Vice President, Strategic Projects since
February 1999. From February 1998 to February 1999, Mr. Weinstein was the
Executive Vice President of Greenleaf Technologies, an encryption technology
company. From January 1996 to February 1998, Mr. Weinstein was self-employed as
a consultant. Prior to that Mr. Weinstein was a Producer for Frankfurt Balkind
Partners, a strategic communications agency.
Pieter Hartsook has served as Vice President, Business Development since
July 1998. From June 1997 to April 1998, Mr. Hartsook was Vice President,
Business Development, at IPT, Inc., a computer software firm. From November 1996
to April 1997, Mr. Hartsook was Vice President, Marketing Analysis, at Apple
Computer, Inc., a maker of personal computing products. Prior to joining Apple,
Mr. Hartsook was the President of the Hartsook Letter, a market research
consulting firm. Mr. Hartsook received a B.A. and an M.L.S. from the University
of California, Berkeley.
Christopher D. Alafi has served as one of our directors since July 1997.
Dr. Alafi is currently a general partner of Alafi Capital Co., a venture capital
firm. Prior to joining Alafi Capital in 1995, Dr. Alafi was a visiting scholar
in the Department of Chemistry at Stanford University. Dr. Alafi is currently a
member of the Board of Directors of a number of private companies. Dr. Alafi
received a B.A. from Pomona College and a Ph.D. in Biochemistry from the
University of Oxford.
Jay Chiat has served as one of our directors since May 1996. Since October
1998 Mr. Chiat has been the Chief Executive Officer of ScreamingMedia.net, an
Internet news service. From June 1968 to November 1996, Mr. Chiat served as the
Chief Executive Officer of Chiat/Day Advertising, an advertising firm. Mr. Chiat
is a member of the Board of Directors of Department 56, Inc., a designer,
importer and distributor of collectibles and giftware. Mr. Chiat received a B.S.
in Education from Rutgers University and an Executive M.B.A. from the Anderson
School at U.C.L.A.
Garrett P. Gruener has served as one of our directors since May 1998. Mr.
Gruener has been a general partner of Alta Partners L.P., a venture capital
firm, since February 1996. Since 1992, Mr. Gruener has been a general partner of
certain funds affiliated with Burr, Egan, Deleage & Co., a venture capital firm.
Mr. Gruener is a member of the Board of Directors of several private companies.
Mr. Gruener received a B.S. from the University of California, San Diego, and an
M.A. from the University of California, Berkeley.
Regis P. McKenna has served as one of our directors since May 1996. Mr.
McKenna has been Chairman of The McKenna Group, a Silicon Valley-based
management and marketing consulting firm,
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<PAGE> 51
since 1970. Mr. McKenna serves on the board of the Economic Strategies Institute
and is a member of the Council on Competitiveness. Mr. McKenna also serves on
the advisory board to Stanford's Graduate School of Business. Mr. McKenna is a
trustee of Santa Clara University and is the Chairman of the Board of the Santa
Clara University Center for Science, Technology and Society. Mr. McKenna serves
as a member of the Board of Directors of Cylink Corporation, a supplier of
network information security products. Mr. McKenna received a B.A. from Duquesne
University.
Alan Salzman has served as one of our directors since May 1998. Mr. Salzman
is a founder and managing partner of VantagePoint Venture Partners, a venture
capital firm focused on the Internet, data networking and communications
services. Prior to joining VantagePoint in 1995, Mr. Salzman was a general
partner with Canaan Partners, a venture capital firm. Prior to that Mr. Salzman
was a partner with Brobeck, Phleger & Harrison, LLP, a law firm. Mr. Salzman
received a B.A. from the University of Toronto, a J.D. from Stanford Law School
and an L.L.M. from the University of Brussels.
Peter Sealey has served as one of our directors since May 1996. Dr. Sealey
has been a Lecturer and an Adjunct Professor of Marketing at the Haas School of
Business at the University of California, Berkeley since 1994. In addition, Dr.
Sealey has been self-employed as a management consultant, serving primarily
technology-oriented companies, during the same period. Prior to that, Dr. Sealey
was employed by the Coca-Cola Company for 24 years, where he held a series of
senior management positions, including Senior Vice President, Global Marketing.
Dr. Sealey serves on the board of directors of Autoweb.com, a consumer
automotive Internet service provider, and USWeb Corporation, an Internet
professional services and integrated marketing communications services company.
Dr. Sealey received a B.S. from the University of Florida, an M.I.A. from Yale
University and an M.A. and a Ph.D. from Claremont Graduate University.
Classified Board. Our certificate of incorporation provides for a
classified board of directors consisting of three classes of directors, each
serving staggered three-year terms. As a result, a portion of our board of
directors is elected each year. To implement the classified structure, prior to
the consummation of the offering, two of the nominees to the board of directors
were elected to one-year terms, two were elected to two-year terms, and three
were elected to three-year terms. Thereafter, directors will be elected for
three-year terms. Christopher D. Alafi and Jay Chiat have been designated Class
I directors whose term expires at the 2000 annual meeting of stockholders. A.
Nathaniel Goldhaber and Garrett D. Gruener have been designated Class II
directors whose term expires at the 2001 annual meeting of stockholders. Regis
P. McKenna, Alan Salzman and Peter Sealey have been designated Class III
directors whose term expires at the 2002 annual meeting of stockholders. See
"Description of Capital Stock -- Antitakeover Effects of Provisions of
Certificate of Incorporation, Bylaws and Delaware Law."
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
BOARD COMMITTEES
The board of directors has a compensation committee and an audit committee.
Compensation Committee. The compensation committee of the board of
directors reviews and makes recommendations to the board regarding the
compensation and benefits provided to our key executive officers and directors,
including stock compensation and loans. In addition, the compensation committee
reviews policies regarding compensation arrangements and benefits for all of our
employees. As part of the foregoing, the compensation committee also administers
our 1999 Omnibus Equity Incentive Plan and 1999 Employee Stock Purchase Plan.
The current members of the compensation committee are Messrs. Alafi, Chiat and
McKenna.
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Audit Committee. The audit committee of the board of directors reviews and
monitors our internal accounting procedures and reviews the results and scope of
the annual audit and other services provided by our independent accountants. The
audit committee also consults with our management and our independent auditors
prior to the presentation of financial statements to stockholders and, as
appropriate, initiates inquiries into aspects of our financial affairs. In
addition, the audit committee has the responsibility to consider and recommend
the appointment of, and to review fee arrangements with, our independent
auditors. The current members of the audit committee are Messrs. Gruener,
Salzman and Sealey.
DIRECTOR COMPENSATION
Our directors receive $5,000 for attendance at each Board meeting and
$2,500 for attendance at each board committee meeting. In addition, our
directors are reimbursed for all reasonable out-of-pocket expenses incurred in
connection with their attendance at board and board committee meetings. From
time to time, certain directors who are not employees of Cybergold have received
grants of options to purchase shares of our common stock. On June 25, 1996, we
granted Messrs. Chiat and McKenna each an option to purchase 70,000 shares of
our common stock and Mr. Sealey an option to purchase 25,000 shares of our
common stock at an exercise price of $0.01 per share. On November 11, 1996, we
also granted to Mr. Sealey an option to purchase 45,000 shares of our common
stock at an exercise price of $0.15 per share, and on June 19, 1998, we granted
him an option to purchase 30,000 shares of our common stock at an exercise price
of $0.50 per share. Following this offering, directors will receive automatic
option grants under our 1999 Omnibus Equity Incentive Plan. Please see "Stock
Plans -- 1999 Omnibus Equity Incentive Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the board of directors currently consists of
Messrs. McKenna, Chiat and Alafi. No interlocking relationship exists between
any member of our board of directors or our compensation committee and any
member of the board of directors or compensation committee of any other company,
and no such interlocking relationship has existed in the past.
INDEMNIFICATION
In May 1999, the board of directors authorized us to enter into
indemnification agreements with each of our directors and executive officers.
The form of indemnification agreement provides that we will indemnify our
directors and executive officers against any and all of their expenses incurred
by reason of their status as a director or executive officer to the fullest
extent permitted by Delaware law, our certificate of incorporation and our
bylaws.
Our certificate of incorporation and bylaws each contain certain provisions
relating to the limitation of liability and indemnification of our directors and
officers. Our certificate of incorporation provides that our directors will not
be personally liable to Cybergold or our stockholders for monetary damages for
any breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to Cybergold or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- in respect of certain unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
- for any transaction from which the director derives any improper personal
benefit.
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<PAGE> 53
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended after approval by our stockholders of our certificate
of incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of our directors will be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law. The foregoing provisions of our certificate of incorporation
are not intended to limit the liability of our directors or officers for any
violation of applicable federal securities laws.
In addition, as permitted by Section 145 of the Delaware General
Corporation Law, our bylaws provide that:
- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law;
- to the fullest extent permitted by the Delaware General Corporation Law,
we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding (subject to
certain exceptions);
- the rights conferred in the bylaws are not exclusive;
- we are authorized to enter into indemnification agreements with our
directors, officers, employees and agents; and
- we may not retroactively amend our bylaw provisions relating to
indemnification.
Our bylaws provide that we must indemnify our directors to the fullest
extent permitted by Delaware General Corporation Law, including in circumstances
in which indemnification is otherwise discretionary under Delaware General
Corporation Law.
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<PAGE> 54
EXECUTIVE COMPENSATION
The following table sets forth information with respect to compensation for
the fiscal year ended December 31, 1998 paid by us for services by our Chief
Executive Officer and our two other highest-paid executive officers collectively
referred to below as the named executive officers, whose total salary and bonus
exceeded $100,000 for services rendered to Cybergold in all capacities during
1998. No executive officer who would otherwise have been included in this table
based on salary and bonus earned for fiscal year 1998 has resigned or otherwise
been terminated as of the date of this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
A. Nathaniel Goldhaber(1)................................ -- -- --
President and Chief Executive Officer
John D. Steuart.......................................... 93,940 -- 50,000
Chief Financial Officer
Gary Fitts............................................... 123,963 -- --
Chief Technology Officer
</TABLE>
- -------------------------
(1) Mr. Goldhaber's annual salary for fiscal year 1999 is $175,000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the
fiscal year ended December 31, 1998 to each of the named executive officers. No
stock appreciation rights were granted to these individuals during such year.
Each of the options listed in the table is immediately exercisable. The
shares purchasable under the options may be repurchased by Cybergold at the
original exercise price paid per share if the optionee ceases service before
vesting in such shares. The repurchase right lapses and the optionee vests as to
25% of the option shares upon completion of 12 months of service from the
vesting start date and the balance in a series of equal monthly installments
over the next three years of service. The option shares will vest upon an
acquisition of Cybergold by merger or asset sale, unless our repurchase right
with respect to the unvested option shares is transferred to the acquiring
entity.
The exercise price was equal to the fair market value of our common stock
as valued by our board of directors on the date of grant. In determining this
fair market value, the board of directors took into account the purchase price
paid by investors for shares of our preferred stock (taking into account the
liquidation preferences and other rights, privileges and preferences associated
with such preferred stock) and an evaluation by the board of directors of our
revenues, operating history and prospects. The exercise price may be paid in
cash, in shares of our common stock valued at fair market value on the exercise
date or through a cashless exercise procedure involving a same-day sale of the
purchased shares. We may also finance the option exercise by lending the
optionee sufficient funds to pay the exercise price for the purchased shares,
together with any federal and state income tax liability incurred by the
optionee in connection with such exercise.
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<PAGE> 55
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable value at 5% and 10% appreciation is calculated by assuming
that the estimated fair market value on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price. The initial public offering price is higher than the
estimated fair market value on the date of grant, and the potential realizable
value of the option grants would be significantly higher than the numbers shown
in the table if future stock prices were projected to the end of the option term
by applying the same annual rates of stock price appreciation to the initial
public offering price.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE 5%($) 10%($)
---- ---------- --------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
A. Nathaniel Goldhaber..... -- -- -- -- -- --
John D. Steuart(2)......... 50,000 3.8 0.50 01/06/08 15,722 39,844
Gary Fitts................. -- -- -- -- -- --
</TABLE>
- -------------------------
(1) Based on a total of 1,313,950 options granted to our employees under our
1996 Stock Option Plan during the 12 months ended December 31, 1998.
(2) On May 10, 1999, we granted to Mr. Steuart an option for 200,000 shares of
our common stock at an exercise price of $2.60 per share. 100,000 of the
option shares vest over a two-year period, and the vesting is accelerated
for 50,000 of such shares upon the date of this offering. The remaining
100,000 option shares vest over a four-year period, with 25% of the shares
vesting upon the completion of one year of service and the balance vesting
upon the completion of each of the next 36 months of service.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth for each of the named executive officers the
number of options exercised during the fiscal year ended December 31, 1998 and
the number and value of securities underlying unexercised options that are held
by the named executive officers as of December 31, 1998. No options were
exercised by the named executive officers in fiscal year 1998. No stock
appreciation rights were exercised by the named executive officers in fiscal
year 1998, and no stock appreciation rights were outstanding at the end of that
year.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
FISCAL YEAR END(#)(1) FISCAL YEAR END($)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
A. Nathaniel Goldhaber.................... -- -- -- --
John D. Steuart........................... 50,000 -- 0 --
Gary Fitts................................ 350,000 -- 49,000 --
</TABLE>
54
<PAGE> 56
- -------------------------
(1) The options are immediately exercisable for all of the option shares, but
any shares purchased under those options will be subject to repurchase by
Cybergold, at the original exercise price paid per share, if the optionee
ceases service with Cybergold before vesting in such shares.
(2) Based on the fair market value of our common stock as determined by our
board of directors at the end of 1998 of $0.15 per share, less the exercise
price payable or paid for such shares. The fair market value of our common
stock at the end of 1998 was estimated by the board of directors on the
basis of the purchase price paid by investors for shares of our preferred
stock (taking into account the liquidation preferences and other rights,
privileges and preferences associated with the preferred stock) and an
evaluation by the board of our revenues, operating history and prospects.
The initial public offering price is higher than the estimated fair market
value at fiscal year-end, and the value of unexercised options would be
higher than the numbers shown in the table if the value were calculated by
subtracting the exercise price from the initial public offering price.
STOCK PLANS
1999 OMNIBUS EQUITY INCENTIVE PLAN
Share Reserve. Our board of directors adopted our 1999 Omnibus Equity
Incentive Plan on May 18, 1999. Our stockholders will also approve this plan. We
have reserved 1,500,000 shares of our common stock for issuance under the 1999
Omnibus Equity Incentive Plan. Any shares not yet issued under our 1996 Stock
Option Plan as of the date of this offering will also be available for grant
under the 1999 Omnibus Equity Incentive Plan. On January 1 of each year,
starting with the year 2000, the number of shares in the reserve will
automatically increase by 5% of the total number of shares of common stock that
are outstanding at that time or, if less, by 1,500,000 shares. In general, if
options or shares awarded under the 1999 Omnibus Equity Incentive Plan or 1996
Stock Option Plan are forfeited, then those options or shares will again become
available for awards under the 1999 Omnibus Equity Incentive Plan. We have not
yet granted any options under the 1999 Omnibus Equity Incentive Plan.
Administration. The compensation committee of our board of directors
administers the 1999 Omnibus Equity Incentive Plan. The committee has the
complete discretion to make all decisions relating to the interpretation and
operation of our 1999 Omnibus Equity Incentive Plan. The committee has the
discretion to determine who will receive an award, what type of award it will
be, how many shares will be covered by the award, what the vesting requirements
will be (if any), and what the other features and conditions of each award will
be. The compensation committee may also reprice outstanding options and modify
outstanding awards in other ways.
Eligibility. The following groups of individuals are eligible to
participate in the 1999 Omnibus Equity Incentive Plan:
- Employees,
- Members of our board of directors who are not employees, and
- Consultants.
Types of Award. The 1999 Omnibus Equity Incentive Plan provides for the
following types of award:
- Incentive stock options to purchase shares of our common stock,
- Nonstatutory stock options to purchase shares of our common stock,
- Restricted shares of our common stock,
- Stock appreciation rights, and
- Stock units.
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<PAGE> 57
Options. An optionee who exercises an incentive stock option may qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code of
1986. On the other hand, nonstatutory stock options do not qualify for such
favorable tax treatment. The exercise price for incentive stock options granted
under the 1999 Omnibus Equity Incentive Plan may not be less than 100% of the
fair market value of our common stock on the option grant date. In the case of
nonstatutory stock options, the minimum exercise price is 85% of the fair market
value of our common stock on the option grant date. Optionees may pay the
exercise price by using:
- Cash,
- Shares of common stock that the optionee already owns,
- A full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash,
- An immediate sale of the option shares through a broker designated by us,
or
- A loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee.
In most cases, our options vest over the four-year period following the date of
grant. Options generally expire 10 years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
1999 Omnibus Equity Incentive Plan provides that no participant may receive
options covering more than 500,000 shares in the same year, except that a newly
hired employee may receive options covering up to 1,500,000 shares in the first
year of employment.
Restricted Shares. Restricted shares may be awarded under the 1999 Omnibus
Equity Incentive Plan in return for:
- Cash,
- A full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash,
- Services already provided to us, and
- In the case of treasury shares only, services to be provided to us in the
future.
Automatic Option Grants
Initial Grants. Only the non-employee members of our board of directors
will be eligible for option grants under the automatic option grant program.
Each non-employee director who first joins our board after the effective date of
this offering will receive an initial option for 15,000 shares. That grant will
occur when the director takes office. The initial options vest in full on the
first year anniversary of the date of grant.
Annual Grants. At the time of each of our annual stockholders' meetings,
beginning in 2000, each non-employee director who will continue to be a director
after that meeting will automatically be granted an annual option for 7,500
shares of our common stock. However, a new non-employee director who is
receiving the 15,000-share initial option will not receive the 7,500-share
annual option in the same calendar year. The annual options vest in full on the
first year anniversary of the date of grant.
The exercise price of each non-employee director's option will be equal to
the fair market value of our common stock on the option grant date. A director
may pay the exercise price by using cash, shares of common stock that the
director already owns, or an immediate sale of the option shares through a
broker designated by us. The non-employee directors' options have a 10-year
term, except that they expire one year after a director leaves the board (if
earlier). If a change in control of Cybergold occurs, a non-employee director's
option will become fully vested unless the accounting rules applicable to a
56
<PAGE> 58
pooling of interests preclude acceleration. Vesting also accelerates if the
optionee retires after age 65, dies or is disabled.
Stock Appreciation Rights. We may award stock appreciation rights under the
1999 Omnibus Equity Incentive Plan. Each agreement evidencing stock appreciation
rights will inform the holder when such rights may be exercised. Stock
appreciation rights may be exercised for shares of common stock, cash or a
combination of cash and shares. No participant may receive stock appreciation
rights for more than 500,000 shares in the same year, except that a newly hired
employee may receive stock appreciation rights for up to 1,000,000 shares.
Stock Units. We may award stock units under the 1999 Omnibus Equity
Incentive Plan. The stock units may be subject to vesting. Stock units may be
settled for shares of common stock, cash or a combination of cash and shares.
Buy Outs. In our sole discretion, we may offer to buy out for cash an
option or authorize an optionee to cash out an option that was previously
granted.
Deferral of Awards. We may permit a participant to have cash that would be
paid to the participant for exercise of a stock appreciation right or settlement
of a stock unit credited to a deferred compensation account. We may also permit
shares that would be delivered for exercise of an option or stock appreciation
right converted into an equal number of stock units or converted into amounts
that would be credited to a deferred compensation account.
Change in Control. If a change in control of Cybergold occurs, an option or
other award under the 1999 Omnibus Equity Incentive Plan will become fully
vested if the option or other award is not assumed by the surviving corporation
or its parent or if the surviving corporation or its parent does not substitute
another award on substantially the same terms. A change in control includes:
- A merger of Cybergold after which our own stockholders own 50% or less of
the surviving corporation or its parent company,
- A sale of all or substantially all of our assets,
- A proxy contest that results in the replacement of more than one-third of
our directors over a 24-month period, or
- An acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to Cybergold (such as a holding
company owned by our stockholders).
Amendments or Termination. Our board may amend or terminate the 1999
Omnibus Equity Incentive Plan at any time. If our board amends the plan, it does
not need to ask for stockholder approval of the amendment unless applicable law
requires it. The 1999 Omnibus Equity Incentive Plan will continue in effect
indefinitely, unless the board decides to terminate the plan earlier.
1999 EMPLOYEE STOCK PURCHASE PLAN
Share Reserve and Administration. Our board of directors adopted our 1999
Employee Stock Purchase Plan on May 18, 1999. Our stockholders will also approve
this plan. Our 1999 Employee Stock Purchase Plan is intended to qualify under
Section 423 of the Internal Revenue Code. We have reserved 300,000 shares of our
common stock for issuance under the plan. On January 1 of each year, starting
with the year 2000, the number of shares in the reserve will be automatically
increased by 500,000 shares. Our compensation committee of our board of
directors administers the plan.
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<PAGE> 59
Eligibility. All of our employees are eligible to participate if they are
employed by us for more than 20 hours per week and for more than five months per
year. Eligible employees may begin participating in the 1999 Employee Stock
Purchase Plan at the start of any offering period. Each offering period lasts 24
months. Overlapping offering periods start on February 1 and August 1 of each
year. However, the first offering period will start on the effective date of
this offering and end on July 31, 2001.
Amount of Contributions. Our 1999 Employee Stock Purchase Plan permits each
eligible employee to purchase common stock through payroll deductions. Each
employee's payroll deductions may not exceed 15% of the employee's cash
compensation. Purchases of our common stock will occur on January 31 and July 31
of each year. Each participant may purchase up to 750 shares on any purchase
date (1,500 shares per year). But the value of the shares purchased in any
calendar year (measured as of the beginning of the applicable offering period)
may not exceed $25,000.
Purchase Price. The price of each share of common stock purchased under our
1999 Employee Stock Purchase Plan will be 85% of the lower of:
- The fair market value per share of common stock on the date immediately
before the first day of the applicable offering period, or
- The fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the
plan will be 85% of the lower of:
- The price per share to the public in this offering, or
- The fair market value per share of common stock on the purchase date.
Other Provisions. Employees may end their participation in the 1999
Employee Stock Purchase Plan at any time. Participation ends automatically upon
termination of employment with Cybergold. If a change in control of Cybergold
occurs, our 1999 Employee Stock Purchase Plan will end and shares will be
purchased with the payroll deductions accumulated to date by participating
employees, unless the plan is assumed by the surviving corporation or its
parent. Our board of directors may amend or terminate the 1999 Employee Stock
Purchase Plan at any time. Our Chief Executive Officer may also amend the plan
in certain respects. If our board increases the number of shares of common stock
reserved for issuance under the plan (except for the automatic increases
described above), it must seek the approval of our stockholders.
CHANGE OF CONTROL ARRANGEMENTS
All options and other awards granted under our 1996 Stock Option Plan and
our 1999 Omnibus Equity Incentive Plan, including options granted to our named
executive officers, will become fully vested if a change in control of Cybergold
occurs, unless the options or awards are assumed by the surviving corporation or
its parent or if the surviving corporation or its parent substitutes comparable
options or awards for options or awards granted under our plans.
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<PAGE> 60
CERTAIN TRANSACTIONS
Since January 1, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we or any of our
subsidiaries was or is to be a party in which the amount involved exceeded or
will exceed $60,000 and in which any of our directors, executive officers,
holder of more than 5% of our Common Stock or any member of the immediate family
of such persons had or will have a direct or indirect material interest other
than (i) compensation agreements and other arrangements, which are described
where required in "Management," and (ii) the transactions described below.
In September 1996, we were a party to two agreements by which Mr. Goldhaber
sold 100,000 shares of common stock to each of Regis McKenna and Jay Chiat, two
of our directors, at a per share purchase price of $0.01, for an aggregate
purchase price of $2,000.
In May 1996 and January 1998, we entered into consulting agreements with
Peter Sealey, one of our directors. Under the May 1996 agreement, we made
commitments to issue Dr. Sealey 10,000 shares of common stock and grant him an
option to purchase an additional 15,000 shares of common stock. Under the
January 1998 agreement, we paid Dr. Sealey $15,000 and made a commitment to
grant him an option to purchase 10,000 shares of common stock.
In May 1999, we entered into an agreement with Steven Farber, one of our
executive officers, under which we agreed to grant Mr. Farber an option to
purchase 300,000 shares of common stock at an exercise price of $2.60 per share,
such option vesting upon the achievement of certain performance criteria or if
such milestones are not achieved, such option will vest in full five years from
the date of grant. 50,000 of these shares accelerate on the closing of this
offering.
We have issued, in private placement transactions, shares of our Preferred
Stock as follows: an aggregate of 3,000,000 shares of Series A Preferred Stock
in July and September of 1996 at a purchase price of $1.00 per share; 2,092,471
shares of Series B Preferred Stock in June 1997 at a purchase price of $2.00 per
share; 6,283,792 shares of Series C Preferred Stock in May and August of 1998 at
a purchase price of $0.91 per share; and in May 1999, 3,076,923 shares of Series
D Preferred Stock at a purchase price of $2.60 per share, and warrants to
purchase an aggregate of 576,925 shares of Series D Preferred Stock at an
exercise price of $3.00 per share. Each share of Preferred Stock is convertible
into one share of Common Stock, and all such shares of Preferred Stock shall be
converted into shares of Common Stock upon the closing of this offering.
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<PAGE> 61
The following table summarizes the shares of Preferred Stock purchased by
our named executive officers, directors and 5% stockholders, and entities
associated with them, in private placement transactions.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
INVESTOR(1) PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK(4)
----------- --------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
A. Nathaniel Goldhaber........ 1,270,000 488,662 -- 100,000
John D. Steuart............... 25,000 6,441 10,989 11,229
Jay Chiat..................... 180,000 66,337 100,000 50,001
Regis P. McKenna.............. 50,000 25,252 54,945 28,626
Peter S. Sealey............... -- 5,000 8,242 2,912
Alafi Capital Company......... 975,000 556,827 -- 405,412
Alta California Partners,
L.P.(2)..................... -- -- 3,296,703 872,498
Vantage Point Venture
Partners, 1996(3)........... -- -- 2,472,528 872,498
</TABLE>
- -------------------------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) Includes shares held by Alta Embarcadero Partners, LLC. Garrett P. Gruener,
one of our directors, is a general partner of the general partner of Alta
California Partners, L.P. and a member of Alta Embarcadero Partners, LLC.
(3) Alan Salzman, one of our directors, is a managing partner of Vantage Point
Venture Partners, 1996.
(4) Includes warrants to purchase Series D Preferred Stock.
We believe that the transactions set forth above were made on terms no less
favorable to us than could have been obtained from unaffiliated third parties.
All future transactions, including loans between us and our officers, directors,
principal stockholders and their affiliates will be approved by a majority of
the board of directors, and will continue to be on terms no less favorable to us
than could be obtained from unaffiliated third parties.
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of our common stock
as of May 18, 1999 and as adjusted to reflect the sale of the common stock
offered hereby for: (1) each person who is known by us to beneficially own more
than 5% of our common stock; (2) the chief executive officer and each of our
named executive officers, (3) each of our directors; and (4) all of our
directors and executive officers as a group. Except as otherwise indicated, we
believe that the beneficial owners of the common stock listed below, based on
information furnished by such owners, have sole voting and investment power with
respect to such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES -------------------------------
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY BEFORE AFTER
EXECUTIVE OFFICERS AND DIRECTORS OWNED OFFERING(1)(2) OFFERING(1)(2)
-------------------------------- ---------------- -------------- --------------
<S> <C> <C> <C>
A. Nathaniel Goldhaber(3).......................... 7,258,662 34.28%
Entities affiliated with Alta California Partners,
L.P.(4).......................................... 4,169,201 19.69%
VantagePoint Venture Partners, 1996(5)............. 3,345,026 15.80%
Alafi Capital Company(6)........................... 1,937,239 9.15%
Gary Fitts(7)...................................... 350,000 1.63%
John D. Steuart(8)................................. 478,659 2.23%
Christopher D. Alafi, Ph.D.(6)..................... 1,937,239 9.15%
Jay Chiat(9)....................................... 566,338 2.67%
Garrett P. Gruener(4).............................. 4,169,201 19.69%
Regis P. McKenna(10)............................... 328,823 1.55%
Alan Salzman(5).................................... 3,345,026 15.80%
Peter S. Sealey, Ph.D.(11)......................... 116,154 *
All directors and officers as a group (14 persons)
(12)............................................. 19,546,702 85.21%
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Percentage ownership is based on 21,173,629 shares outstanding as of May
18, 1999, including 14,453,186 shares of common stock issuable upon
conversion of all outstanding preferred stock at the closing of this
offering and the assumed exercise on a cash basis of 576,925 shares of
preferred stock issuable upon exercise of outstanding warrants that
terminate upon the closing of this offering. Shares of common stock subject
to options currently exercisable or exercisable within 60 days of May 18,
1999 are deemed outstanding for purposes of computing the percentage
ownership of the person holding such options but are not deemed outstanding
for purposes of computing the percentage ownership of any other person.
Except pursuant to the community property laws or as indicated in the
footnotes to this table, each stockholder identified in the table possesses
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by such stockholder. Unless otherwise
indicated, the address of each of the individuals listed in the table is
c/o Cybergold, Inc., 2921 Adeline Street, Berkeley, CA 94703.
(2) Assumes the underwriters' option to purchase additional shares is not
exercised.
(3) Includes 23,077 shares of common stock issuable upon exercise of a warrant,
and 840,000 shares of common stock which Mr. Goldhaber has made commitments
to transfer to a family trust.
(4) Includes 4,076,079 shares beneficially owned by Alta California Partners,
L.P., and 93,122 shares beneficially owned by Alta Embarcadero Partners
LLC. Of these shares, a total of 201,346 are issuable upon exercise of
warrants. Garrett P. Gruener, one of our directors, is a general partner of
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<PAGE> 63
the general partner Alta California Partners, L.P. and a member of Alta
Embarcadero Partners LLC. The address of Alta California Partners, L.P. and
Alta Embarcadero Partners LLC is One Embarcadero Center, Suite 4050, San
Francisco, CA 94111. Mr. Gruener disclaims beneficial ownership of the
shares held by Alta California Partners, L.P. and Alta Embarcadero Partners
LLC, except to the extent of his pecuniary interest therein.
(5) Includes 201,346 shares of common stock issuable upon exercise of a
warrant. Alan Salzman, one of our directors, is a managing partner of
Vantage Point Venture Partners, 1996. The address of Vantage Point Venture
Partners, 1996 is 1001 Bayhill Drive, Suite 100, San Bruno, CA 94066. Mr.
Salzman disclaims beneficial ownership of the shares held by Vantage Point
Venture Partners, 1996, except to the extent of his pecuniary interest
therein.
(6) Includes 93,557 shares of common stock issuable upon exercise of a warrant.
Christopher Alafi, one of our directors, is a general partner of Alafi
Capital Company. The address of Alafi Capital Company is 9 Commodore Drive,
Suite 405, Emeryville, CA 94608. Dr. Alafi disclaims beneficial ownership
of the shares held by Alafi Capital Company, except to the extent of his
pecuniary interest therein.
(7) Includes 350,000 shares of common stock issuable upon exercise of
immediately exercisable options, none of which are subject to our right of
repurchase.
(8) Includes 250,000 shares of common stock issuable upon exercise of
immediately exercisable options, shares of which are subject
to our right of repurchase, and 2,591 shares of common stock issuable upon
exercise of a warrant.
(9) Includes 11,539 shares of common stock issuable upon exercise of a warrant.
(10) Includes 70,000 shares of common stock issuable upon exercise of
immediately exercisable options, none of which are subject to our right of
repurchase, and 6,606 shares of common stock issuable upon exercise of a
warrant.
(11) Includes 100,000 shares of common stock issuable upon exercise of
immediately exercisable options, 11,354 shares of which are subject to our
right of repurchase, and 672 shares of common stock issuable upon exercise
of a warrant.
(12) Includes 1,665,000 shares of common stock issuable upon exercise of
immediately exercisable options, shares of which are subject to
our right of repurchase, and 540,734 shares of common stock issuable upon
exercise of warrants.
62
<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon consummation of this offering, our authorized capital stock will
consist of 75,000,000 shares of common stock, $0.0001 par value, and 5,000,000
shares of preferred stock, $0.0001 par value. The following summary of certain
provisions of the common stock and the preferred stock does not purport to be
complete and is subject to, and qualified in its entirety by, our certificate of
incorporation and bylaws and by the provisions of applicable law.
COMMON STOCK
As of May 18, 1999, there were 20,596,704 shares of common stock
outstanding that were held of record by approximately 60 stockholders. There
will be shares of Common Stock outstanding (assuming no
exercise of the underwriters' over-allotment option and assuming no exercise
after March 31, 1999, of outstanding options) after giving effect to the sale of
the shares of common stock to the public offered hereby and the conversion of
our preferred stock into common stock at a one-to-one ratio.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available therefor. See
"Dividend Policy." In the event of the liquidation, dissolution or winding up of
Cybergold, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding. The common stock has no
preemptive or conversion rights or other subscription rights. 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 upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation authorizes 5,000,000 shares of preferred
stock. The board of directors has the authority to issue the preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of Cybergold without further action by the stockholders and
may adversely affect the voting and other rights of the holders of common stock.
The issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. At present, we have no plans to issue any of the
preferred stock.
WARRANTS
As of May 18, 1999,we had outstanding exercisable warrants to purchase an
aggregate of 250,000 shares of common stock at $0.15 per share; 22,500 shares of
Series B preferred stock at $2.00 per share; and 576,925 shares of Series D
preferred stock at $3.00 per share. All unexercised warrants to purchase Series
D preferred stock will be automatically exercised (pursuant to net exercise
provisions to the extent unexercised) upon the closing of this offering. The
warrants to purchase common stock and Series B
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<PAGE> 65
preferred stock, which remain outstanding after this offering, will expire
between July 28, 2000 and January 30, 2008.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
The certificate of incorporation provides that, effective upon the closing
of this offering, all stockholder actions must be effected at a duly called
meeting and not by a consent in writing. In addition, we have a classified board
of directors such that approximately one-third of the members of the board of
directors are elected at each annual meeting of our stockholders. Our bylaws
provide that our stockholders may call a special meeting of stockholders only
upon a written request of stockholders owning at least 50% of our capital stock.
These provisions of the certificate of incorporation and bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
of Cybergold. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the board of directors and in the
policies formulated by the board of directors and to discourage certain types of
transactions that may involve an actual or threatened change of control of
Cybergold. These provisions are designed to reduce the vulnerability of
Cybergold to an unsolicited acquisition proposal. The provisions also are
intended to discourage certain tactics that may be used in proxy fights.
However, such provisions could have the effect of discouraging others from
making tender offers for our shares and, as a consequence, they also may inhibit
fluctuations in the market price of our shares that could result from actual or
rumored takeover attempts. Such provisions also may have the effect of
preventing changes in our management. See "Risk Factors -- Antitakeover
provisions in our charter documents and Delaware law could prevent or delay a
change in control of our company."
DELAWARE TAKEOVER STATUTE
We are subject to Section 203 of the Delaware General Corporation Law,
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (1) by persons who are
directors and also officers and (2) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
interested stockholder.
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<PAGE> 66
Section 203 defines business combination to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of 15,302,611 shares of common stock will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act. Under the terms of our agreement with the holders of
such registrable securities, if we proposed to register any of our securities
under the Securities Act, either for our own account or for the account of other
security holders exercising registration rights, such holders are entitled to
receive notice of such registration and are entitled to include shares of such
common stock therein. Additionally, holders of 15,280,111 shares of common stock
are entitled to certain demand registration rights pursuant to which they may
require us to file a registration statement under the Securities Act at our
expense with respect to their shares of common stock, and we are required to use
our best efforts to effect such registration. Further, the holders of such
demand rights may require us to file additional registration statements on Form
S-1 or Form S-3. All of these registration rights are subject to certain
conditions and limitations, among them the right of the underwriters of an
offering to limit the number of shares included in such registration and our
right not to effect a requested registration within six months following an
offering of our securities, including the offering made hereby.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is .
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<PAGE> 67
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this offering, we will have shares of
common stock outstanding, assuming the issuance of shares of
common stock offered hereby and no exercise of options after March 31, 1999. Of
these shares, the shares sold in the offering will be freely
tradable without restriction or further registration under the Securities Act,
except that any shares held by our affiliates, as that term is defined under the
Securities Act, may generally only be sold in compliance with the limitations of
Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 21,173,629 shares of common stock are deemed restricted
shares under Rule 144. The number of shares of common stock available for sale
in the public market is limited by restrictions under the Securities Act and
lock-up agreements under which the holders of such shares have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of this prospectus without the prior written consent of SG Cowen
Securities Corporation. On the date of this prospectus, no shares other than the
shares offered hereby will be eligible for sale. Beginning 180
days after the date of this prospectus, or earlier with the consent of SG Cowen
Securities Corporation, 17,519,781 restricted shares will become available for
sale in the public market subject to certain limitations of Rule 144 of the
Securities Act.
In general, under Rule 144 of the Securities Act as currently in effect,
beginning 90 days after this offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including a person who may be deemed an affiliate, is entitled to sell within
any three-month period a number of shares of common stock that does not exceed
the greater of 1% of the then-outstanding shares of our common stock
(approximately shares after giving effect to this offering) and
the average weekly trading volume of our common stock on the Nasdaq National
Market during the four calendar weeks preceding such sale. Sales under Rule 144
of the Securities Act are subject to certain restrictions relating to manner of
sale, notice and the availability of current public information about us. A
person who is not our affiliate at any time during the 90 days preceding a sale,
and who has beneficially owned shares for at least two years, would be entitled
to sell such shares immediately following this offering without regard to the
volume limitations, manner of sale provisions or notice or other requirements of
Rule 144 of the Securities Act. However, the transfer agent may require an
opinion of counsel that a proposed sale of shares comes within the terms of Rule
144 of the Securities Act prior to effecting a transfer of such shares.
Prior to this offering, there has been no public market for our common
stock and no predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional common stock will have on the
market price of our common stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could adversely affect the market price of the common stock and could impair our
future ability to raise capital through an offering of our equity securities.
OPTIONS
As of March 31, 1999, there were a total of 1,958,364 shares of common
stock subject to outstanding options under our 1996 Stock Option Plan, of which
were vested, and shares of common stock subject to
outstanding options issued outside our 1996 Stock Option Plan, all of which were
vested. However, all of these shares are subject to lock-up agreements.
Rule 701 under the Securities Act provides that shares of common stock
acquired on the exercise of outstanding options may be resold by persons other
than our affiliates, beginning 90 days after the date of
66
<PAGE> 68
this prospectus, subject only to the manner of sale provisions of Rule 144, and
by affiliates, beginning 90 days after the date of this prospectus, subject to
all provisions of Rule 144 except its one-year minimum holding period.
Immediately after the completion of the offering, Cybergold intends to file
registration statements on Form S-8 under the Securities Act to register all of
the shares of common stock issued or reserved for future issuance under the 1996
Stock Option Plan, our 1999 Omnibus Equity Incentive Plan and our 1999 Employee
Stock Purchase Plan, as well as the shares of common stock subject to options
issued outside the 1996 Stock Option Plan. On the date 180 days after the
effective date of the offering, a total of shares of common stock subject
to outstanding options will be vested. After the effective dates of the
registration statements on Form S-8, shares purchased upon exercise of options
granted pursuant to the 1996 Stock Option Plan, 1999 Omnibus Equity Incentive
Plan, 1999 Employee Stock Purchase Plan and outside the 1996 Stock Option Plan
generally would be available for resale in the public market.
LOCK-UP AGREEMENTS
The officers, directors and stockholders of Cybergold have agreed not to
sell or otherwise dispose of any of their shares for a period of 180 days after
the date of the offering. SG Cowen Securities Corporation, however, may in its
sole discretion, at any time without notice, release all or any portion of the
shares subject to lock-up agreements.
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<PAGE> 69
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
, 1999, the underwriters named below, through their representatives
SG Cowen Securities Corporation, CIBC World Markets Corp. and Volpe Brown Whelan
& Company, LLC, have severally agreed to purchase from us the number of shares
of common stock set forth opposite their names at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
prospectus.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
SG Cowen Securities Corporation.............................
CIBC World Markets Corp.....................................
Volpe Brown Whelan & Company, LLC...........................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are conditional and may be terminated at their discretion based on
their assessment of the state of the financial markets and may also be
terminated upon the occurrence of the events specified in the underwriting
agreement. The underwriters are severally committed to purchase all of the
common stock being offered by Cybergold if any of such shares are purchased
(other than those covered by the over-allotment option described below).
The underwriters propose to offer the common stock directly to the public
at the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to certain dealers at that price less a
concession not in excess of $ per share. Dealers may reallow a concession
not in excess of $ per share to certain other dealers. After the shares of
the common stock are released for sale to the public, the underwriters may vary
the offering price and other selling terms from time to time.
We have granted to the underwriters an option, exercisable for up to 30
days after the date of this prospectus, to purchase up to
additional shares of common stock at the public offering price set forth on the
cover of this prospectus to cover over-allotments, if any. If the underwriters
exercise their over-allotment option, the underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares of common stock to be purchased by each of
them, as shown in the foregoing table, bears to the common stock offered hereby.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make in respect thereof.
Cybergold, our directors and officers and existing stockholders who hold an
aggregate of shares, together with the holders of options to
purchase shares of common stock and holders of warrants to
purchase shares of common stock, have agreed that for a period
180 days following the date of this prospectus, without the prior written
consent of SG Cowen Securities Corporation, they will not: (1) directly or
indirectly, offer, sell, assign, transfer, pledge, contract to sell, or
otherwise dispose of, other than by operation of law, any shares of common stock
or any securities convertible into or exercisable or exchangeable for common
stock (including, without limitation, common stock which may be deemed to be
beneficially owned in accordance with the rules and regulations promulgated
under the Securities Act); or (2) request or demand registration pursuant to the
Securities Act of any shares of common stock owned by them; provided, however,
that this restriction shall not apply to any rights they may have to be included
in any Company initiated registration of its securities.
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<PAGE> 70
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and passive market making in
accordance with Regulation M under the Securities Exchange Act of 1934 (the
"Exchange Act"). Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the common stock originally sold by such syndicate member
is purchased in a syndicate covering transaction to cover syndicate short
positions. In passive market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to certain limitations,
make bids for or purchases of the common stock until the time, if any, at which
a stabilizing bid is made. These stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common stock to be
higher than it would otherwise be in the absence of these transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales
in excess of 5% of the common stock offered hereby to any account over which
they exercise discretionary authority.
Prior to this offering, there has been no public market of the common
stock. Consequently, the initial public offering price will be determined by
negotiations between us and the underwriters. Among the factors considered in
these negotiations will be prevailing market conditions, the market
capitalizations and the stages of development of other companies that we and the
underwriters believe to be comparable to us, estimates of our business
potential, our results of operations in recent periods, the present state of our
development and other factors deemed relevant.
We estimate that our out of pocket expenses for this offering will be
approximately $ .
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Brobeck, Phleger & Harrison LLP, San
Francisco, California.
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement, to the extent and for the periods indicated in their
report, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
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<PAGE> 71
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission, or SEC, Washington,
D.C. 20549, a registration statement on Form S-1 under the Securities Act with
respect to the shares of common stock offered hereby. This prospectus does not
contain all the information set forth in the registration statement and the
exhibits and schedules filed therewith. For further information with respect to
Cybergold and the common stock offered hereby, reference is made to the
registration statement and to the exhibits and schedules filed therewith.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and each such statement
is qualified in all respects by reference to the full text of such contract or
other document filed as an exhibit to the registration statement. A copy of the
registration statement and the exhibits and schedules filed therewith may be
inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W. Washington, D.C. 20549, and at the
SEC's regional offices located at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the registration statement may be obtained from such offices upon payment of the
fees prescribed by the SEC. The SEC maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the regional
offices, public reference facilities and web site of the SEC referred to above.
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<PAGE> 72
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheet as of December 31, 1997, 1998 and March 31,
1999...................................................... F-3
Statements of Operations for the three years in the period
ended December 31, 1998 and the three month periods ended
March 31, 1998 and 1999................................... F-4
Statements of Stockholders Equity (Deficit) for the three
years in the period ended December 31, 1998 and the three
month periods ended March 31, 1998 and 1999............... F-5
Statements of Cash Flows for the three years in the period
ended December 31, 1998 and the three month periods ended
March 31, 1998 and 1999................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 73
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
CyberGold, Inc.:
We have audited the accompanying balance sheets of CyberGold, Inc. (a
California corporation) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CyberGold, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
May 18, 1999
F-2
<PAGE> 74
CYBERGOLD, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999
-------------------------- ----------------------------
1997 1998 ACTUAL PRO FORMA
---------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $1,239,510 $ 3,175,008 $ 2,280,033
Accounts receivable, less allowance for doubtful
accounts of $50,000, $30,000 and $30,000,
respectively................................... 161,165 390,701 112,650
Prepaid expenses and other current assets........ -- 26,347 10,600
---------- ------------ ------------
Total current assets...................... 1,400,675 3,592,056 2,403,283
PROPERTY AND EQUIPMENT, net........................ 371,619 407,066 414,583
DEPOSITS AND OTHER ASSETS.......................... 50,364 41,150 74,809
---------- ------------ ------------
Total assets.............................. $1,822,658 $ 4,040,272 $ 2,892,675
========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................. $ 142,070 $ 257,267 $ 122,437
Current maturities of long term obligations...... 81,791 136,639 154,404
Member payable................................... 382,203 800,255 912,159
Membership acquisition payable................... 69,775 175,653 287,469
Accrued liabilities.............................. 88,493 167,294 213,687
Deferred revenue................................. 43,134 175,543 217,914
---------- ------------ ------------
Total current liabilities................. 807,466 1,712,651 1,908,070
LONG TERM OBLIGATIONS, net of current maturities... 272,152 225,550 291,425
---------- ------------ ------------
Total liabilities......................... 1,079,618 1,938,201 2,199,495
---------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE REDEEMABLE PREFERRED STOCK, $.0001 par
value: 8,000,029 shares authorized; 6,283,792
issued and outstanding at December 31, 1998, and
March 31, 1999 (preference in liquidation of
$5,718,251)...................................... -- 6,378,679 6,671,480 --
---------- ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock, $.0001 par
value:
Authorized shares -- 3,185,000
Issued and outstanding shares -- 3,000,000,
3,000,000, 3,000,000 and 0 respectively..... 300 300 300 --
Preference in liquidation -- $3,000,000
Series B convertible preferred stock, $.0001 par
value:
Authorized shares -- 2,144,971
Issued and outstanding shares -- 2,067,471,
2,092,471, 2,092,471, and 0 respectively.... 207 209 209 --
Preference in liquidation -- $4,134,939,
4,184,942 and $4,184,942
Common stock, $.0001 par value:
Authorized shares -- 21,670,000
Issued and outstanding shares -- 6,018,063,
6,072,267, 6,109,017, and 17,485,280
respectively................................ 602 607 611 1,748
Additional paid-in capital......................... 7,210,077 8,914,716 8,916,025 15,586,877
Deferred compensation.............................. -- (1,459,423) (1,143,674) (1,143,674)
Retained (deficit)................................. (6,468,146) (11,733,017) (13,751,771) (13,751,771)
---------- ------------ ------------ ------------
Total stockholders' equity (deficit)...... 743,040 (4,276,608) (5,978,300) 693,180
---------- ------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit)............................... $1,822,658 $ 4,040,272 $ 2,892,675 $ 2,892,675
========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 75
CYBERGOLD, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, -------------------------
--------------------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Transaction....................... $ 1,000 $ 457,074 $ 628,350 $ 107,408 $ 332,558
Custom marketing services and
other.......................... -- 74,342 376,583 -- 170,178
----------- ----------- ----------- ----------- -----------
Total revenues............ 1,000 531,416 1,004,933 107,408 502,736
COST OF REVENUES.................... 671 293,171 466,118 35,282 244,417
----------- ----------- ----------- ----------- -----------
Gross margin.............. 329 238,245 538,815 72,126 258,319
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Product development............... 1,093,433 1,190,047 1,700,421 375,273 484,249
Sales and marketing............... 840,586 2,162,413 2,694,601 792,196 967,189
General and administrative........ 645,298 614,816 641,837 119,837 227,671
Amortization of deferred
compensation................... -- -- 184,778 -- 315,749
----------- ----------- ----------- ----------- -----------
Total operating expenses..... 2,579,317 3,967,276 5,221,637 1,287,306 1,994,858
----------- ----------- ----------- ----------- -----------
Loss from operations......... (2,578,988) (3,729,031) (4,682,822) (1,215,180) (1,736,539)
INTEREST INCOME (EXPENSE), net...... 10,198 (15,292) 78,381 (4,913) 10,586
----------- ----------- ----------- ----------- -----------
Net loss.................. (2,568,790) (3,744,323) (4,604,441) (1,220,093) (1,725,953)
DIVIDEND ATTRIBUTABLE TO PREFERRED
STOCKHOLDERS...................... -- -- (660,430) -- (292,801)
----------- ----------- ----------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS...................... $(2,568,790) $(3,744,323) $(5,264,871) $(1,220,093) $(2,018,754)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON SHARE, Basic and
diluted........................... $ (0.46) $ (0.63) $ (0.87) $ (0.20) $ (0.33)
=========== =========== =========== =========== ===========
Pro forma basic and diluted....... $ (0.31) $ (0.10)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, Basic and diluted.... 5,618,411 5,969,233 6,030,590 6,019,514 6,079,042
=========== =========== =========== =========== ===========
Pro forma basic and diluted....... 14,914,618 17,395,777
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 76
CYBERGOLD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------------------------
SERIES A SERIES B COMMON STOCK ADDITIONAL
------------------- ------------------- ------------------- PAID IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
---------- ------ ---------- ------ ---------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995........ -- $ -- -- $ -- 5,600,000 $ 560 $ 63,465 $ --
Issuance of Series A preferred
stock.......................... 3,000,000 300 -- -- -- -- 2,999,700 --
Exercise of common stock
options........................ -- -- -- -- 70,000 7 693 --
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1996........ 3,000,000 300 -- -- 5,670,000 567 3,063,858 --
Issuance of Series B preferred
stock.......................... -- -- 2,067,471 207 -- -- 4,134,732 --
Exercise of common stock
options........................ -- -- -- -- 405,563 41 15,644 --
Repurchase of stock options...... -- -- -- -- (57,500) (6) (4,157) --
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1997........ 3,000,000 300 2,067,471 207 6,018,063 602 7,210,077 --
Issuance of Series B preferred
stock.......................... -- -- 25,000 2 -- -- 49,998 --
Accretion of Series C redemption
premium........................ -- -- -- -- -- -- -- --
Exercise of common stock
options........................ -- -- -- -- 92,641 9 10,820 --
Repurchase of stock options...... -- -- -- -- (38,437) (4) (380) --
Deferred compensation............ -- -- -- -- -- -- 1,644,201 (1,644,201)
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 184,778
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1998........ 3,000,000 300 2,092,471 209 6,072,267 607 8,914,716 (1,459,423)
Accretion of Series C
redemption..................... -- -- -- -- -- -- -- --
Exercise of common stock
options........................ -- -- -- -- 36,750 4 1,309 --
Amortization of deferred
compensation................... -- -- -- -- -- -- -- 315,749
Net loss......................... -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
BALANCE, MARCH 31, 1999
(unaudited)...................... 3,000,000 $ 300 2,092,471 $ 209 6,109,017 $ 611 $ 8,916,025 $(1,143,674)
Conversion of Series A
preferred...................... (3,000,000) (300) -- -- 3,000,000 300 -- --
Conversion of Series B
preferred...................... -- -- (2,092,471) (209) 2,092,471 209 -- --
Conversion of Series C
preferred...................... -- -- -- -- 6,283,792 628 6,670,852 --
---------- ----- ---------- ----- ---------- ------ ----------- -----------
PRO FORMA BALANCE, MARCH 31, 1999
(unaudited)...................... -- $ -- -- $ -- 17,485,280 $1,748 $15,586,877 $(1,143,674)
========== ===== ========== ===== ========== ====== =========== ===========
<CAPTION>
RETAINED
DEFICIT TOTAL
------------ -----------
<S> <C> <C>
BALANCE, DECEMBER 31, 1995........ $ (155,033) $ (91,008)
Issuance of Series A preferred
stock.......................... -- 3,000,000
Exercise of common stock
options........................ -- 700
Net loss......................... (2,568,790) (2,568,790)
------------ -----------
BALANCE, DECEMBER 31, 1996........ (2,723,823) 340,902
Issuance of Series B preferred
stock.......................... -- 4,134,939
Exercise of common stock
options........................ -- 15,685
Repurchase of stock options...... -- (4,163)
Net loss......................... (3,744,323) (3,744,323)
------------ -----------
BALANCE, DECEMBER 31, 1997........ (6,468,146) 743,040
Issuance of Series B preferred
stock.......................... -- 50,000
Accretion of Series C redemption
premium........................ (660,430) (660,430)
Exercise of common stock
options........................ -- 10,829
Repurchase of stock options...... -- (384)
Deferred compensation............ -- --
Amortization of deferred
compensation................... -- 184,778
Net loss......................... (4,604,441) (4,604,441)
------------ -----------
BALANCE, DECEMBER 31, 1998........ (11,733,017) 4,276,608
Accretion of Series C
redemption..................... (292,801) (292,801)
Exercise of common stock
options........................ -- 1,313
Amortization of deferred
compensation................... -- 315,749
Net loss......................... (1,725,953) (1,725,953)
------------ -----------
BALANCE, MARCH 31, 1999
(unaudited)...................... $(13,751,771) $(5,978,300)
Conversion of Series A
preferred...................... -- --
Conversion of Series B
preferred...................... -- --
Conversion of Series C
preferred...................... -- 6,671,480
------------ -----------
PRO FORMA BALANCE, MARCH 31, 1999
(unaudited)...................... $(13,751,771) $ 693,180
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 77
CYBERGOLD, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, -------------------------
--------------------------------------- MARCH 31, MARCH 31,
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................... $(2,568,790) $(3,744,323) $(4,604,441) $(1,220,093) $(1,725,953)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation.................... 101,050 190,859 269,158 61,075 81,709
Amortization of deferred
compensation.................. -- -- 184,778 -- 315,749
Changes in assets and
liabilities:
Accounts receivable........... -- (161,165) (229,536) 63,421 278,051
Prepaid expenses and other
current assets............. (22,375) (27,989) (17,133) (8,507) (17,912)
Accounts payable.............. 148,310 (6,240) 115,197 71,222 (134,830)
Members payable............... -- 382,203 418,052 133,989 111,904
Membership acquisition
payable.................... -- 69,775 217,694 5,225 111,816
Accrued liabilities........... 38,392 50,101 (33,015) (39,785) 46,393
Deferred revenue.............. -- 43,134 132,409 13,495 42,371
----------- ----------- ----------- ----------- -----------
Net cash used in operating
activities............... (2,303,413) (3,203,645) (3,546,837) (919,958) (890,702)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and
equipment....................... (387,472) (57,564) (152,922) (23,185) (89,226)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease
obligations..................... -- (114,549) (143,437) (18,879) (40,084)
Proceeds from equipment
financing....................... -- -- -- -- 123,724
Proceeds from sale leaseback
transaction..................... -- 250,000 -- -- --
Proceeds from loans from
stockholders.................... -- 1,000,000 -- -- --
Repayments of advances from
stockholder..................... (91,008) -- -- -- --
Proceeds from issuance of preferred
stock........................... 3,000,000 3,134,939 5,768,249 99,796 --
Proceeds from exercise of stock
options, net of repurchases..... 700 11,522 10,445 -- 1,313
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities..... 2,909,692 4,281,912 5,635,257 80,917 84,953
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 218,807 1,020,703 1,935,498 (862,226) (894,975)
CASH AND CASH EQUIVALENTS:
Balance at beginning of period..... -- 218,807 1,239,510 1,239,510 3,175,008
=========== =========== =========== =========== ===========
Balance at end of period........... $ 218,807 $ 1,239,510 $ 3,175,008 $ 377,284 $ 2,280,033
=========== =========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............. $ -- $ 35,800 $ 71,086 $ 16,261 $ 19,536
Acquisition of property and
equipment using capital
leases.......................... 120,600 97,892 151,683 61,970 --
Conversion of stockholder loans
into preferred stock............ -- 1,000,000 -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 78
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF OPERATIONS
CyberGold, Inc. (the Company) was incorporated in California in 1994. The
Company did not have any significant operations prior to 1996.
The Company is engaged in the business of providing on-line direct
marketing and cash based incentive advertising solutions for on-line advertisers
and marketers. Additionally, the Company provides custom marketing services
which include production and development of marketing programs, delivery of
targeted e-mail to CyberGold members, design of customer web sites and third
party engineering functions.
As of December 31, 1998, the Company had a retained deficit of
approximately $11.7 million and has continued to incur losses during 1999.
During May 1999, the Company issued redeemable convertible preferred stock, as
further discussed in Note 4, in the amount of $8 million. Management believes
that this financing will be sufficient for it to meet its obligations through at
least December 31, 1999.
The industry in which the Company operates is very specialized and is
subject to a number of industry-specific risk factors, including, but not
limited to, rapidly changing technologies, significant numbers of new entrants,
dependence on key individuals, competition from similar products and from larger
companies, customer preferences, the need for the continued successful
development, marketing and selling of its products and services, the need for
financing, and the need for positive cash flows from operations.
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements as of March 31, 1999 and for the
quarters ended March 31, 1998 and 1999 are unaudited, but in the opinion of
management, include all adjustments consisting of normal recurring adjustments
necessary for a fair presentation of results for the interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted, although the Company believes that the disclosures included are
adequate to make the information presented not misleading. Results for the
quarter ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999.
UNAUDITED PRO FORMA PRESENTATION
The unaudited pro forma balance sheet and statement of stockholders' equity
(deficit) as of March 31, 1999 reflects the automatic conversion of all
outstanding shares of convertible preferred stock into 11,373,263 shares of
common stock which will occur upon the closing of the Company's proposed initial
public offering.
SIGNIFICANT CUSTOMERS
Two customers individually accounted for 22 and 16 percent, respectively,
of the Company's total revenue during the year ended December 31, 1998. No
individual customer exceeded 10 percent of total revenue during the year ended
December 31, 1997.
F-7
<PAGE> 79
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At December 31, 1998, one of these customers accounted for 78 percent of
accounts receivable. These amounts have been paid subsequent to December 31,
1998.
CASH EQUIVALENTS
For the statements of cash flows, the Company treats financial instruments
as cash equivalents if the original maturity of such instruments is three months
or less.
FINANCIAL INSTRUMENTS
Financial instruments consist of cash equivalents, accounts receivable,
accounts payable and debt. The estimated fair value of these financial
instruments approximates their carrying value.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and for financial reporting
purposes, depreciation is computed using the straight-line method over estimated
useful lives of three years for all assets. Maintenance and repair expenditures
are charged to expense when incurred.
MEMBER ACQUISITION PAYABLE
Member acquisition payable represents amounts due to advertising partners
for new member sign-ups that are originated from a partner web site.
REVENUE RECOGNITION AND COST OF REVENUES
The Company earns revenue from certain member transactions and from custom
marketing and other services. Transaction revenues are earned each time a member
either earns or spends incentive rewards within the system and for micropayment
transactions. Transaction revenues are recognized as revenue upon completion of
the specific action related to the transaction fee.
Custom marketing services and other revenues include production and
development fees received for customization of marketing programs, fees received
for delivering targeted e-mail to the Company's members and fees received for
other advertising and marketing services. Production and development fees
represent HTML design services, graphic services, engineering and database
development and related services. Revenue is recognized as these services are
performed.
Prepayments by advertising or marketing clients for transaction fees or
custom marketing services are included in deferred revenue on the accompanying
balance sheets.
The cost of revenues associated with our transaction revenues represent
cash rewards paid to our members for completing transactions.
The cost of revenues associated with custom advertising and marketing
services and other revenues primarily consist of costs for production and
development personnel and independent contractors.
Any unpaid rewards due to members are recorded in members payable in the
accompanying balance sheets.
F-8
<PAGE> 80
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PRODUCT DEVELOPMENT
Product development costs include expenses related to the development and
enhancement of the Company's product offerings. Product development costs are
expensed as incurred.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Actual results could differ from those estimates.
NET LOSS PER SHARE
Basic net loss per share is calculated by dividing net loss by the weighted
average common shares outstanding during the period. Diluted income per share is
calculated by dividing the net income by the weighted average common shares
outstanding adjusted for all potential common shares, which includes shares
issuable upon the exercise of outstanding common stock options, warrants and
other contingent issuances of common stock. The Company has losses for all
periods presented and, accordingly, such potential common shares are excluded
from the computation of diluted net loss per share, as their effect is
antidilutive.
Potentially dilutive securities include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31,
1996 1997 1998 1999
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Options to purchase common stock.... 1,018,063 1,184,500 1,866,602 1,875,957
Warrants to purchase common stock... 250,000 250,000 250,000 250,000
Warrants to purchase preferred
stock............................. -- 220,000 207,500 207,500
---------- ---------- ----------- ----------
Series A preferred stock............ 3,000,000 3,000,000 3,000,000 3,000,000
Series B preferred stock............ -- 2,067,471 2,092,471 2,092,471
Redeemable preferred stock.......... -- -- 6,283,792 6,283,792
========== ========== =========== ==========
Total..................... 4,268,063 6,721,971 13,700,365 13,709,720
========== ========== =========== ==========
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
The calculation of pro forma net loss per share assumes that all series of
convertible shares have been converted into common stock as of the original
issuance date.
NEW ACCOUNTING STANDARDS
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income." The Company has no other comprehensive income amounts for any of the
periods presented.
The Company also adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." As of December 31, 1998, management has
concluded that the Company only operates in one segment and exclusively in the
United States.
In March 1998, the American Institute of Certified Public Accountants
issued SOP No. 98-1, "Software for Internal Use." The Company does not expect
the adoption of SOP No. 98-1 to have a material impact on its financial
statements.
F-9
<PAGE> 81
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is not expected to have a
material impact on the Company's financial position or results of operations.
2. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Computer equipment and software............ $ 625,610 $ 923,127 $ 979,576
Furniture and fixtures..................... 25,817 30,465 63,145
Leasehold improvements..................... 12,101 14,541 14,541
--------- --------- ----------
663,528 968,133 1,057,262
Accumulated depreciation................... (291,909) (561,067) (642,679)
--------- --------- ----------
$ 371,619 $ 407,066 $ 414,583
========= ========= ==========
</TABLE>
Depreciation expense for property and equipment was $101,050, $190,859, and
$269,158 for the years ended December 31, 1996, 1997, and 1998, respectively.
Included in property and equipment at December 31, 1997 and 1998 are depreciated
amounts of approximately $372,000 and $278,000, respectively, related to assets
acquired under capital leases.
3. INCOME TAXES:
Significant components of net deferred tax assets as of December 31 were:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards..................... $ 1,997,200 $ 3,744,037
R&D credit carryforward.............................. 147,482 274,163
Other................................................ 5,347 25,028
----------- -----------
Gross deferred tax assets.................. 2,150,029 4,043,228
Deferred tax valuation allowance..................... (2,150,029) (4,043,228)
----------- -----------
Net deferred tax asset..................... $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1998, the Company had tax net operating loss
carryforwards of approximately $9,360,000 for federal and state income tax
purposes. These carryforwards begin to expire in 2011 and 2005, respectively. In
addition, the Company has research and development tax credit carryforwards of
$156,821 and $117,342 for federal and state income tax purposes, respectively,
which begin to expire in 2011. A valuation allowance has been provided to offset
gross deferred tax assets due to the uncertainty surrounding the realizability
of such assets.
F-10
<PAGE> 82
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards and research and development credits available to
be used in any given year should certain events occur, including the sale of
equity securities and other changes in ownership. There can be no assurance that
the Company will be able to utilize net operating loss carryforwards and credits
before expiration.
4. CONVERTIBLE REDEEMABLE PREFERRED STOCK:
During 1998 and 1999, the Company amended and restated its articles of
incorporation to allow for the issuance of 8,000,029 shares of Series C
Convertible Redeemable Preferred Stock (Series C Stock) and 3,850,000 shares of
Series D Convertible Redeemable Preferred Stock (Series D Stock). During the
period from May 1998 through August 1998, the Company issued 6,283,792 shares of
Series C Stock at $0.91 per share. During May 1999, the Company issued 3,076,923
shares of Series D Stock at $2.60 per share.
The holders of Series C Stock and Series D Stock shall be entitled to
receive noncumulative dividends of $.0455 per annum and $.13 per annum,
respectively, as declared by the Board of Directors.
The Series C Stock and Series D Stock has preference in liquidation over
common stock and Series A and B Preferred (see Note 5) equal to a liquidation
value of $0.91 and $2.60 per share, respectively.
Each share of Series C Stock and Series D Stock is convertible, at the
option of the holder, into a share of common stock at the Initial Conversion
Price, as defined. Each share will automatically convert into shares of common
stock at the Initial Conversion Price upon the earlier of (a) the Company's sale
of its common stock in a firm commitment underwritten initial public offering,
the public offering price of which was not less than $6.50 per share and
$15,000,000 in the aggregate or (b) the date specified by written consent of 67
percent of the holders of the then outstanding shares of preferred stock.
At any time after May 15, 2003, the holders of not less than 67 percent of
the then outstanding Series C Stock and Series D Stock may request for the
redemption of the Series C Stock and Series D Stock at $1.82 per share and $5.20
per share, respectively. This related redemption premium is being accreted over
the period from the issuance of the respective stock through May 15, 2003. For
the year ended December 31, 1998, and for the quarter ended March 31, 1999, the
accretion charged to retained deficit was $660,430 and $292,801, respectively.
In connection with the issuance of Series D Stock, the Company also issued
warrants to purchase 576,923 warrants of Series D Stock an exercise price of
$3.00.
5. STOCKHOLDERS EQUITY:
COMMON STOCK
The holders of common stock are entitled to one vote per share. Subject to
preferences on outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors. In the event of liquidation, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock. The common stock has no
preemptive, conversion or other subscription rights.
F-11
<PAGE> 83
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PREFERRED STOCK
Pursuant to the Company's Series A preferred stock agreement entered into
in May 1996, 3,000,000 shares of Series A preferred stock were sold to the
existing stockholder and other investors at a price of $1.00 per share in July
1996. Upon liquidation, merger or acquisition of the Company, provided
sufficient assets are available, Series A preferred stockholders would receive
$1.00 per share plus any declared but unpaid dividends.
On June 28, 1996, the Company issued to one of the new Series A investors a
warrant to purchase 250,000 shares of common stock at $0.15 per share. The value
of this warrant at June 28, 1996, was determined not to be material.
Pursuant to the Company's Series B preferred stock agreement entered into
in June 1997, 2,067,471 shares of Series B preferred stock were sold to the
existing stockholders and other investors at a price of $2.00 per share. Of the
total number of shares sold, 515,421 shares were issued upon the conversion of
stockholder notes (the Notes). The Notes were entered into in early 1997 by the
existing stockholders as bridge financing. The Notes accrued interest at 8
percent. Upon liquidation, merger or acquisition of the Company, provided
sufficient assets are available, Series B preferred stockholders would receive
$2.00 per share plus any declared but unpaid dividends.
Conversion of Series A preferred stock and Series B preferred stock into
common stock is at the option of the preferred stockholders. Each share of
preferred stock is convertible into such number of shares of common stock
determined by dividing the issuance price by the conversion price, which is
determined at the time of the conversion. The conversion price for Series A and
Series B preferred stock was initially set at $1.00 and $2.00 per share,
respectively. This conversion price is subject to adjustment upon the occurrence
of certain events. Conversion of the preferred stock is automatic upon the
earlier of (a) the Company's sale of its common stock in a firm commitment
underwritten initial public offering, the offering price of which is not less
than $2.73 and the proceeds of which are greater than $15,000,000; or (b) the
date specified by written consent of the holders of the then outstanding shares
of Series A, Series B, Series C and Series D stock, acting together as a single
class.
In connection with the capital leases described in Note 6, the Company
issued warrants to the lessor to purchase 17,500 shares of Series A preferred
stock at $1.00 per share, 5,000 shares of Series B preferred stock at $2.00 per
share. The value of these warrants at the grant dates was determined not to be
material, based on the Black-Scholes pricing model.
At December 31, 1998, 15,000,029 shares of common stock, equivalent to the
number of shares of preferred stock authorized, were reserved for issuance upon
conversion of preferred stock.
Each share of preferred stock conveys the right to the stockholder of one
vote.
6. COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company entered into a sale leaseback transaction during 1997 related
to the leasing of certain computer equipment. No gain or loss was recognized on
this sale. During 1999, the Company moved its headquarters to Oakland,
California and entered into an operating lease that expires in June 2004.
F-12
<PAGE> 84
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1998, future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASE LEASE
PAYMENTS PAYMENTS
---------- ---------
<S> <C> <C>
1999.................................................... $ 217,790 $ 196,013
2000.................................................... 341,100 166,456
2001.................................................... 370,800 83,498
2002.................................................... 407,700 15,414
2003.................................................... 427,500 --
Thereafter.............................................. 180,000 --
---------- ---------
Total......................................... $1,944,890 461,381
==========
Less: Interest component................................ (99,192)
---------
Present value of minimum lease payments................. 362,189
Less: Current maturities................................ (136,639)
---------
Long-term capital obligations........................... $ 225,550
=========
</TABLE>
Interest expense on capital leases amounted to $0, $35,800 and $71,086 for
the years ended December 31, 1996, 1997, and 1998 respectively. Rent expense for
the years ended December 31, 1996, 1997, and 1998, was $103,529, $150,730 and
$139,749, respectively.
EMPLOYMENT AGREEMENTS
During 1998, the Company entered into employment agreements with three
officers that provide for minimum annual base salaries, bonus entitlements and
issuance of common stock options upon the achievement of certain objectives.
Should these objectives not be achieved, these options vest over five years. The
employment agreements were effective as of the hire date of each respective
officer and may be terminated by either party. As of December 31, 1998, the
Company accrued approximately $32,000 in the accompanying balance sheet for
accrued bonuses in relation to these agreements.
EQUIPMENT CREDIT LINE
During February 1999, the Company entered into an equipment credit line
agreement. This credit line is to be used solely for capital expenditures.
Maximum borrowings under this line are $400,000. Interest of approximately 18
percent and principal are payable monthly, over a three year period. At March
31, 1999, the Company had amounts outstanding under this line of $115,196. Of
this amount, $4,760 is included in current maturities of long-term obligations
in the accompanying balance sheet with the remainder included in long-term
obligations, net of current maturities.
7. STOCK OPTION PLAN:
Under the terms of the Company's Employee Stock Option Plan (the Plan)
adopted in June 1996, options to purchase shares of the Company's common stock
are granted to employees, consultants and directors. Options currently
outstanding vest at 25 percent on the first anniversary of the grant date and
1/36 per month thereafter. Each option shall terminate 10 years after the date
of grant. In addition, the option holder is entitled to exercise prior to the
option's vesting as long as he or she is still an employee.
F-13
<PAGE> 85
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Should the employee subsequently leave, the Company has the right to repurchase
the shares that had not vested at the departure date. At December 31, 1998 and
March 31, 1999, 85,157 and 81,251 shares of common stock were subject to
repurchase, respectively, under this provision.
A summary of the status of the Company's stock option plan at December 31,
1998 and changes during the years ended December 1996, 1997, and 1998, and three
months ended March 31, 1999, are presented in the table below:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
OPTIONS OUTSTANDING AVERAGE AVERAGE
-------------------------- EXERCISE FAIR VALUE OF
QUALIFYING NONQUALIFYING TOTAL PRICE OPTIONS GRANTED
---------- ------------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995...... -- -- -- $ --
Granted....................... 1,371,500 12,500 1,384,000 0.04 $0.04
Canceled...................... (295,937) -- (295,937) 0.03
Exercised..................... (57,500) (12,500) (70,000) 0.01
--------- -------- ---------
Balance, December 31, 1996...... 1,018,063 -- 1,018,063 0.04
Granted....................... 501,500 160,000 661,500 0.23 $0.05
Canceled...................... (147,000) -- (147,000) 0.10
Exercised..................... (348,063) -- (348,063) 0.04
--------- -------- ---------
Balance, December 31, 1997...... 1,024,500 160,000 1,184,500 0.13
Granted....................... 1,013,600 300,350 1,313,950 0.31 $0.68
Canceled...................... (485,977) (91,667) (577,644) 0.40
Exercised..................... (52,604) (1,600) (54,204) 0.19
--------- -------- ---------
Balance, December 31, 1998...... 1,499,519 367,083 1,866,602 0.19
Granted....................... 78,000 112,500 190,500 0.15 $1.88
Canceled...................... (54,395) (90,000) (144,395) 0.40
Exercised..................... (30,000) (6,750) (36,750) 0.04
--------- -------- ---------
Balance, March 31, 1999......... 1,575,531 382,833 1,875,957 0.19
========= ======== =========
</TABLE>
Options outstanding, exercisable, and vested by price range at December 31,
1998, are as follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
EXERCISE NUMBER REMAINING NUMBER NUMBER
PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISABLE VESTED
- --------- ----------- ---------------- ----------- --------
<S> <C> <C> <C> <C>
0.$50... 389,852 9.0 389,852 205,558
0.01 478,000 7.4 478,000 454,895
0.15 998,750 9.5 998,750 159,986
--------- -------- --------
1,866,602 1,866,602 820,439
========= ======== ========
</TABLE>
During 1997, the Company entered into agreements that granted options to
purchase 185,000 shares of Series A preferred stock to consultants at $1.00 per
share. The options were fully vested at December 31, 1998. The value of these
options at the grant date (as determined using the Black-Scholes model), was not
material.
In connection with the granting of certain stock options to employees,
directors and consultants during 1998, the Company recorded deferred
compensation of $1,644,201. This deferred compensation is
F-14
<PAGE> 86
CYBERGOLD, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
being amortized over the expected service periods of the grantees, generally
four years. Amortization of deferred compensation for the year ended December
31, 1998, was $184,778.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation expense for the Plan
been determined based on the fair value at the grant dates, as prescribed in
SFAS No. 123, the Company's net loss and net loss per share would have been as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net loss:
As reported.............. $(2,568,790) $(3,744,323) $(5,264,871) $(1,220,093) $(2,018,754)
Pro forma................ (2,582,025) (3,779,438) (5,349,881) (1,220,093) (2,018,754)
Basic and diluted net loss
per common share:
As reported.............. $ (0.46) $ (0.63) $ (0.87) $ (0.20) $ (0.33)
Pro forma................ (0.46) (0.63) (0.89) (0.20) (0.33)
</TABLE>
The fair value of each option was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for the
grants: expected dividend yield of 0 percent in all periods; expected volatility
of 0 percent in all periods; weighted average risk-free interest rates ranging
from 4.45 percent to 6.28 percent for all periods presented in the table above;
and expected lives of four years for all periods.
8. COMPENSATION AND RETIREMENT PLANS:
On May 18, 1999, the Board of Directors adopted the following plans:
1999 OMNIBUS EQUITY INCENTIVE PLAN -- The Company has reserved 1,500,000
shares of common stock for issuance under this plan. Options may be granted
under this plan to employees, directors and consultants and will not be granted
at less than 100 percent of the fair market value of the common stock on the
option grant date. These options will generally vest over four years and expire
ten years after the date of grant. At May 18, 1999, no options were outstanding
under this plan.
1999 EMPLOYEE STOCK PURCHASE PLAN -- The Company has reserved 300,000
shares of common stock for issuance under this plan and only employees are
eligible. Employees can purchase stock through payroll deductions which may not
exceed 15 percent of the employee's cash compensation. The purchase price per
share of common stock will be no less than 85 percent of the fair market value
of the stock at the date of grant. At May 18, 1999, no purchases had been made
under this plan.
401(K) DEFINED CONTRIBUTION PLAN -- The Company also sponsors a defined
contribution 401(k) retirement plan for all employees who have completed at
least 30 days of service. Participants may elect to defer up to 15 percent of
their current annual salary, not to exceed $10,000. The Company does not match
contributions.
9. RELATED PARTIES:
During the years ended December 31, 1996, 1997, and 1998, the president of
the Company and majority common stockholder was not paid a salary.
F-15
<PAGE> 87
[BACK INSIDE COVER
Description: 15 color photographs of Cybergold members, laid out in a staggered
pattern. (See attached layout). Each photo approx. 1.5 inches x 1.5 inches. Each
photograph is captioned with name and occupation. Cybergold logo, approximately
1 inch x 2 inches, in center of page.
<TABLE>
<S> <C>
CAPTIONS:
Carrie Applebaum Marketing Manager/Hebrew Teacher
Stacey Trask Waitress
Glenn Randle Graphic Designer
Ian Dalec Field Engineer
Chris Trim Police Officer/Mountain Biker
Jonathan Peacock Tech Support Engineer/Skier
Voltaire Moise Artist
Jessica Burrows Media Planner
Frank Siegel Software Developer
Devora Kanter Nonprofit Volunteer
Dick Kerner Financial Planner
Roxanne Castillo Paralegal
Ryan Dadasovich QA Manager/Musician
Nicole Ylagan Supply Technician/Singer
Colette Sandstedt Filmmaker]
</TABLE>
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 12,788
NASD fee.................................................... $ 5,100
Nasdaq National Market listing fee..........................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses.................................. $ 3,000
Transfer agent fees.........................................
Miscellaneous fees and expenses.............................
--------
Total.............................................
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers, including reimbursement for expenses incurred, in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VI, Section 6.1, of the Registrant's Bylaws provides
for mandatory indemnification of its directors and permissible indemnification
of officers and employees to the maximum extent permitted by the Delaware
General Corporation Law. The Registrant's Certificate of Incorporation provides
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty as directors to the Company
and its stockholders. This provision in the Certificate of Incorporation does
not eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Registrant has entered into Indemnification Agreements with its officers and
directors, a form of which is attached as Exhibit 10.1 hereto and incorporated
herein by reference. The Indemnification Agreements provide the Registrant's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. Reference is made to Section
7 of the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities.
II-1
<PAGE> 89
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1996, the Company has issued and sold the following
unregistered securities pursuant to the exemption from the registration
requirements of the Securities Act of 1933 as amended (the "Act"), provided by
Sections 3(a)(10) or 4(2) of the Act or Rule 701 of the Act:
(1) On May 18, 1999, CyberGold, Inc., a California corporation ("Cybergold
California") incorporated a wholly-owned subsidiary, Cybergold, Inc., a
Delaware corporation (Cybergold Delaware) for purposes of reincorporating
into Delaware. In connection with the reincorporation, Cybergold Delaware
will issue shares of its common stock to the holders of common stock of
Cybergold California, such that the holders of common stock of CyberGold
California will receive a proportionate interest in Cybergold Delaware
common stock. The issuance of the securities and such reincorporation will
be exempt from the registration requirements of the Act, due to the
exemptions from registration provided by Sections 3(a)(10) and 4(2) thereof.
(2) In July and September of 1996, we issued 3,000,000 shares of Series A
preferred stock to a group of private accredited investors for an aggregate
consideration of $3,000,000 pursuant to Section 4(2) of the Act.
(3) In July 1996, we issued a warrant to purchase 250,000 shares of common stock
to a private accredited investor at an exercise price of $0.15 pursuant to
Section 4(2) of the Act.
(4) In June 1997, we issued 2,092,471 shares of Series B preferred stock to a
group of private accredited investors for an aggregate consideration of
$4,234,942 pursuant to Section 4(2) of the Act.
(5) In March 1997, we issued warrants to an equipment lessor to purchase 22,500
shares of Series B preferred stock at an exercise price of $2.00 pursuant to
Section 4(2) of the Act.
(6) In May and August 1998, we issued 6,283,792 shares of Series C preferred
stock to a group of private accredited investors for an aggregate
consideration of $5,655,750 pursuant to Section 4(2) of the Act.
(7) On May 18, 1999, we issued 3,076,923 shares of Series D preferred stock to a
group of private accredited investors for an aggregate consideration of
$7,999,999.80 pursuant to Section 4(2) of the Act.
(8) On May 18, 1999, we issued warrants to purchase a total of 576,925 shares of
Series D preferred stock at an exercise price of $3.00 to a group of private
accredited investors pursuant to Section 4(2) of the Act.
(9) Since 1996, we have issued options to purchase common stock to employees,
directors and consultants pursuant to Section 4(2) and Rule 701 of the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1** Form of Underwriting Agreement (preliminary form).
3.1** Registrant's Certificate of Incorporation
3.2** Registrant's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of the
offering
3.3** Registrant's Bylaws
4.1** Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2* Specimen Common Stock Certificate
</TABLE>
II-2
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
4.3** Amended and Restated Investors' Rights Agreement, dated May
18, 1999
5.1* Opinion of Gunderson Dettmer Stough Franklin Villeneuve &
Hachigian, LLP
10.1** Form of Indemnification Agreement
10.2* 1996 Stock Plan
10.3* 1999 Omnibus Equity Incentive Plan
10.4* 1999 Employee Stock Purchase Plan
10.5 Standard Office Lease, by and between Central Building LLC
and the Registrant, dated March 25, 1999.
10.6 Commercial Lease, by and between Weilman Treloar & Co. and
the Registrant, dated December 20, 1995.
10.7+ Merchant Transaction Processing Agreement between the First
National Bank of Omaha and the Registrant, as amended July
21, 1997.
10.8+ Letter of Agreement between Earthlink Network, Inc. and the
Registrant, dated August 10, 1998.
10.9 Master Lease Agreement, between the Registrant and LINC
Capital, Inc., dated March 17, 1997.
10.10 Senior Loan and Security Agreement No. 6209, between the
Registrant and Phoenix Leasing Incorporated, dated December
10, 1998.
10.11+ Agreement, between the Registrant and Audits & Surveys
Worldwide, Inc., dated March 17, 1997.
10.12+ Affinity Agreement between the Registrant and MBNA America
Bank, N.A., dated November 20, 1998.
23.1** Independent Auditors' Consent.
23.2** Consent of Counsel (See Exhibit 5.1).
24.1** Power of Attorney (See Page II-5).
27.1** Financial Data Schedule (Fiscal 1998 and three months ended
March 31, 1999).
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
+ Specified portions of this agreement have been omitted and have been filed
separately with the Commission pursuant to a request for confidential
treatment.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of
II-3
<PAGE> 91
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered hereunder, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of 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 Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Berkeley, State of California, on this 8th day of June, 1999.
CYBERGOLD, INC.
By: /s/ A. NATHANIEL GOLDHABER
------------------------------------
A. Nathaniel Goldhaber
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ A. NATHANIEL GOLDHABER President, Chief Executive June 8, 1999
- --------------------------------------------------- Officer (Principal Executive
A. Nathaniel Goldhaber Officer)
and Director
/s/ JOHN STEUART Chief Financial Officer June 8, 1999
- --------------------------------------------------- (Principal Financial and
John Steuart Accounting Officer)
/s/ CHRISTOPHER ALAFI Director June 8, 1999
- ---------------------------------------------------
Christopher Alafi
/s/ JAY CHIAT Director June 8, 1999
- ---------------------------------------------------
Jay Chiat
/s/ GARRETT GRUENER Director June 8, 1999
- ---------------------------------------------------
Garrett Gruener
/s/ REGIS MCKENNA Director June 8, 1999
- ---------------------------------------------------
Regis McKenna
/s/ ALAN SALZMAN Director June 8, 1999
- ---------------------------------------------------
Alan Salzman
/s/ PETER SEALEY Director June 8, 1999
- ---------------------------------------------------
Peter Sealey
</TABLE>
*By: /s/ A. NATHANIEL GOLDHABER
---------------------------------
A. Nathaniel Goldhaber
Attorney-in-Fact
*By: /s/ JOHN STEUART
---------------------------------
John Steuart
Attorney-in-Fact
II-5
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1** Form of Underwriting Agreement (preliminary form).
3.1** Registrant's Certificate of Incorporation
3.2** Registrant's Amended and Restated Certificate of
Incorporation, to be effective upon the closing of the
offering
3.3** Registrant's Bylaws
4.1** Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2* Specimen Common Stock Certificate
4.3** Amended and Restated Investors' Rights Agreement, dated May
18, 1999
5.1* Opinion of Gunderson Dettmer Stough Franklin Villeneuve &
Hachigian, LLP
10.1** Form of Indemnification Agreement
10.2* 1996 Stock Plan
10.3* 1999 Omnibus Equity Incentive Plan
10.4* 1999 Employee Stock Purchase Plan
10.5 Standard Office Lease, by and between Central Building LLC
and the Registrant, dated March 25, 1999.
10.6 Commercial Lease, by and between Weilman Treloar & Co. and
the Registrant, dated December 20, 1995.
10.7+ Merchant Transaction Processing Agreement between the First
National Bank of Omaha and the Registrant, as amended July
21, 1997.
10.8+ Letter of Agreement between Earthlink Network, Inc. and the
Registrant, dated August 10, 1998.
10.9 Master Lease Agreement, between the Registrant and LINC
Capital, Inc., dated March 17, 1997.
10.10 Senior Loan and Security Agreement No. 6209, between the
Registrant and Phoenix Leasing Incorporated, dated December
10, 1998.
10.11+ Agreement, between the Registrant and Audits & Surveys
Worldwide, Inc., dated March 17, 1997.
10.12+ Affinity Agreement between the Registrant and MBNA America
Bank, N.A., dated November 20, 1998.
23.1** Independent Auditors' Consent.
23.2** Consent of Counsel (See Exhibit 5.1).
24.1** Power of Attorney (See Page II-5).
27.1** Financial Data Schedule (Fiscal 1998 and three months ended
March 31, 1999).
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
+ Specified portions of this agreement have been omitted and have been filed
separately with the Commission pursuant to a request for confidential
treatment.
<PAGE> 1
EXHIBIT 10.5
STANDARD OFFICE LEASE
This Lease is made and entered into as of March 25, 1999 by and between
Central Building LLC, a limited liability corporation ("Landlord"), and
Cybergold, Inc., a California corporation ("Tenant"), who agree as follows:
1. DEFINITIONS.
As used in this Lease, the following terms shall have the following
meanings specified below:
1.1 Base Rent: Subject to any adjustment provided for herein:
Year 1: $1.55 per rentable square foot per month
Year 2: $1.60 per rentable square foot per month
Year 3: $1.80 per rentable square foot per month
Year 4: $1.95 per rentable square foot per month
Year 5: $2.00 per rentable square foot per month
1.2 Base Year: The calendar year of 1999.
1.3 Building: The building and other improvements on the real
property located at 436 - 14th Street, Oakland, California,
94612.
1.4 Commencement Date: The date determined in accordance with
Section 3.2 below.
1.5 Common Areas: The Building common corridors and hallways,
restrooms, stairways, patios, elevators and other generally
understood public or common areas. Landlord shall have the
right to regulate or restrict the use of the Common Areas.
1.6 Expiration Date: Five years from commencement date, unless
sooner terminated in accordance with the provisions of this
Lease.
1.7 First Adjustment Date: Intentionally Deleted
1.8 Guarantor: Letter of credit in the amount of $100,000.00 to
be obtained in favor of Central Building LLC shall be
submitted to and approved by Landlord prior to occupancy of
the fourth floor premises, and an additional $100,000.00
letter of credit to be obtained in favor of Central Building
LLC shall be submitted to and approved by Landlord prior to
occupancy of the third floor premises.
1.9 Index: Intentionally deleted.
<PAGE> 2
1.10 Interest Rate: A per annum rate of interest equal to two
percent (2%) plus the rate most recently announced by Wells
Fargo Bank, N.A., at its main office in San Francisco,
California, as its "Prime Rate", serving as the basis upon
which effective rates of interest are calculated for those
loans making reference thereto, but in no event in excess of
the maximum applicable usury limitation.
1.11 Landlord's Notice Address: c/o Colliers International, 2
Embarcadero Center, Suite 1000, San Francisco, California
94111, Attn: Portfolio Manager, or such other address as
Landlord shall designate from time to time.
1.12 Premises: That portion of the Building containing
approximately 18,000 square feet of Rentable Area, shown by
diagonal lines on Exhibit "A", located on the third and fourth
floors of the Building and known as Suite 300 and Suite 400.
Tenant, at Tenant's sole cost and expense, shall have the
right to have Tenant's architect re-measure the entire
Building. In the event there is more than a five percent (5%)
variance in the square footage of Tenant's Premises, then
Landlord and Tenant shall mutually agree upon a revised
Rentable Area. If the agreed upon rentable area of the
Premises vary by more than 5%, then Landlord shall be
responsible for the cost of the re-measuring.
1.13 Real Estate Broker: Colliers International
1.14 Rentable Area: As to both the Premises and the Building, the
respective measurements of floor area as may from time to time
be subject to lease by Tenant and all tenants of the Building,
respectively, as determined by Landlord and applied on a
consistent basis throughout the Building.
1.15 Scheduled Commencement Date: April 30, 1999.
1.16 Security Deposit: Thirty-six Thousand Dollars and No Cents
($36,000.00). Equal to last month's rent, subject to
adjustment based on re-measuring of the premises.
1.17 Tenant's Notice Address: Cybergold, Inc., 436 - 14th Street,
Suite 400, Oakland, California 94612.
1.18 Tenant's Proportionate Share: 5.63% per floor, for a total of
11.26%. Such share is a fraction, the numerator of which is
the Rentable Area of the Premises, and the denominator of
which is the Rentable Area of the Building, as determined by
Landlord from time to time. The Building contains a total
Rentable Area of approximately 159,795 square feet.
2
<PAGE> 3
1.19 Tenant's Use: General office, Internet site development.
1.20 Term: The period commencing on the Commencement Date and
expiring at midnight on the Expiration Date.
2. LEASE OF PREMISES.
Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, the Premises for the Term and subject to the terms and
provisions contained in this Lease. The Premises are located within
the Building. Tenant shall have the nonexclusive right (unless
otherwise provided herein) to the use of the Common Areas in common
with Landlord, other tenants and occupants of the Building and other
parties entitled to use the Common Areas, subject to the provisions
of this Lease and to the Building rules and regulations. Tenant
shall have access to the Premises twenty-four hours a day, seven
days per week.
3. TERM.
3.1 Delivery of Possession. This Lease shall become effective upon
execution by Landlord and Tenant. The term of this Lease
("Term") shall commence on the Commencement Date of the Fourth
Floor Premises and shall continue until the Expiration Date,
unless earlier terminated in accordance with this Lease or
unless extended as hereinafter provided. If for any reason
Landlord cannot deliver possession of the Premises to Tenant
on the Scheduled Commencement Date, Landlord shall not be
subject to any liability for such failure, the Expiration Date
shall not change and the validity of this Lease shall not be
impaired, but Base Rent shall be abated until delivery of
possession. Tenant shall have the right to terminate this
Lease if Landlord fails to Substantially Complete the Tenant
Improvements, as agreed upon, within one hundred twenty days
(120) following the execution date of this Lease, excluding
delays caused by Tenant, Acts of God, or Governmental
Agencies. Substantial completion of the Tenant Improvements
shall not include the completion of the installation of the
mechanical system
3.2 Commencement Date. The Commencement Date shall be the earlier
of (a) the date upon which Tenant occupies the Fourth Floor
Premises, or (b) the date on which Landlord delivers
possession of the Fourth Floor Premises to Tenant with the
Tenant Improvements provided for in Exhibit "C" attached
hereto, if any, Substantially Completed (as defined in Exhibit
"C"). At such time as the Commencement Date has been
established, Landlord and Tenant shall execute a written
acknowledgment of the Commencement Date.
3
<PAGE> 4
4. RENT.
4.1. Payment of Base Rent. Tenant shall pay to Landlord throughout
the Term the Base Rent for the Premises. The Base Rent shall
be payable in advance beginning on the Commencement Date and
on the first business day of each calendar month of the Term
thereafter. If the Term begins (or ends) on other than the
first (or last) day of a calendar month, the Base Rent for the
partial month shall be prorated on a per diem basis on the
basis of a thirty (30) day month. Tenant shall pay Landlord
the first month's Base Rent when Tenant executes the Lease.
4.2 Adjusted Base Rent. - Intentionally Deleted
4.3 Definition of Rent. All costs and expenses which Tenant
assumes or agrees to pay to Landlord under this Lease shall be
deemed additional rent (which, together with the Base Rent,
are sometimes referred to herein as the "Rent"). The Rent
shall be paid to Landlord, the Building manager or such other
person, and at such place, as Landlord may from time to time
designate in writing, without any prior notice or demand
therefor and without deduction, offset or counterclaim, in
lawful money of the United States of America.
4.4 Rent Control. If the amount of Rent or any other payment due
under this Lease violates the terms of any governmental
restrictions on such Rent or payment, then the Rent or payment
due during the period of such restrictions shall be the
maximum amount allowable under those restrictions. Upon
termination of the restrictions, Landlord shall, to the extent
it is legally permitted, recover from Tenant the difference
between the amounts received during the period of the
restrictions and the amounts Landlord would have received had
there been no restrictions.
5. BUILDING OPERATING COSTS.
5.1 Tenant's Obligation. During each calendar year during the
Term, Tenant shall pay to Landlord, as additional rent and in
addition to the Base Rent and all other payments due under
this Lease, an amount equal to Tenant's Proportionate Share of
increases in Building Operating Costs in the manner provided
below.
5.2 Definition. The term "Building Operating Costs" means all
costs and expenses paid or incurred by Landlord in the
ownership, management, operation, repair, replacement and
maintenance of the Building, including, without limitation,
the following:
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(a) Costs of electricity, water, gas, steam and other
utilities and services furnished to or consumed within
the Building, and all utility taxes thereon;
(b) Costs of all supplies and materials used by Landlord in
connection with the Building;
(c) Premiums and other charges for insurance, including,
without limitation, all risk, commercial general
liability, property damage, worker's compensation,
employer's liability, earthquake (if required by
Landlord's lender, mortgagee or any Governmental
Agency), flood and such other insurance in such forms of
coverage and in such amounts as Landlord, in its sole
discretion, shall elect to maintain with respect to the
Building or shall be obligated to maintain with respect
to the Building by any mortgagee or lender;
(d) Costs of, and all amounts payable under, service,
maintenance and inspection contracts for janitorial,
window-cleaning, garbage removal, extermination,
elevator, escalator, plumbing, electrical and mechanical
equipment, heating, ventilating and air-conditioning
("HVAC") equipment, security protection, landscape
maintenance and costs of purchasing or renting
equipment, supplies, tools, materials and uniforms;
(e) Compensation (including employment taxes and fringe
benefits) of all persons who perform duties connected
with the operation, maintenance or repair of the
Building, and equipment, improvements and facilities
located within the Building, including, without
limitation, engineers, janitors, painters, floor waxers,
window washers and security personnel (but excluding
persons performing services not uniformly available to
or performed for substantially all Building tenants);
(f) Costs of the operation and maintenance of a room, if
any, for delivery and distribution of mail to tenants of
the Building (including, without limitation, an amount
equal to the fair market rental value of the mail room
premises);
(g) Fees and costs of management of the Building, whether
managed by Landlord, an affiliate of Landlord or an
independent contractor (including, without limitation,
an amount equal to the fair market value of any on-site
manager's office);
(h) Rental expenses for (or a depreciation allowance on)
personal property used in the maintenance, operation or
repair of the Building;
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(i) License, permit and inspection fees; costs of complying
with applicable statutes, ordinances, rules and
regulations of governmental authorities, including,
without limitation, repairs, maintenance,, alterations,
additions or improvements required in connection
therewith; attorneys', accountants' and consultants'
fees;
(j) The costs of any capital improvements made to the
Building by Landlord in order to reduce Building
Operating Costs; made to the Building by Landlord after
the date of this Lease that are required under any
governmental law or regulation that was not applicable
to the Building at the time it was constructed;
(k) Other costs and expenses which are of a type generally
reimbursed by Tenants of comparable office buildings in
Oakland, California.
(1) Capital improvement costs, other than those specified
herein, are specifically excluded. Tenant shall not be
liable to Landlord for the reimbursement of any
attorneys' fees and other costs and expenses incurred in
connection the negotiation or disputes with present or
other prospective tenants or other occupants of the
Building, except those attorneys' fees and other costs
and expenses incurred in connection with negotiation
disputes or claims relating to items of Building
Operating Costs, enforcement of rules and regulations of
the Building and such other matters relating to the
maintenance of standards required of Landlord under this
Lease.
Building Operating Costs shall not include Real Property Taxes
which shall be governed by Section 6 below.
5.3 Payment. Tenant's Proportionate Share of Increases in Building
Operating Costs shall be payable by Tenant to Landlord as
follows:
(a) Beginning with the calendar year following the Base Year
and for each calendar year thereafter (each, a
"Comparison Year"), Tenant shall pay to Landlord an
amount equal to Tenant's Proportionate Share of the
amount by which the Building Operating Costs paid or
incurred by Landlord in the Comparison Year exceeds the
Building Operating Costs paid or incurred by Landlord
for the Base Year. This excess is referred to as the
"Excess Operating Costs." The Building Operating Costs
for each Comparison Year in which less than ninety-five
percent (95%) of the Rentable Area of the Building has
been occupied for the entire Computation Year shall be
determined by adjusting the actual Building Operating
Costs to equal Landlord's reasonable estimate of what
the Building Operating Costs would have been if
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ninety-five percent (95%) of the Rentable Area of the
Building had been fully occupied for such entire
Comparison Year.
(b) To provide for current payments of Excess Operating
Costs, Tenant shall, at Landlord's request, pay as
additional rent during each Comparison Year an amount
equal to Tenant's Proportionate Share of the Excess
Operating Costs payable during such Comparison Year, as
estimated by Landlord from time to time. Landlord shall
have the right to notify Tenant of the amount which
Landlord reasonably estimates to be the monthly
installments of Tenant's Proportionate Share of Excess
Operating Costs for any Comparison Year. Tenant shall
make such monthly installments commencing on the first
business day of the month following the month in which
Landlord gives Tenant a notice of estimated Tenant's
Proportionate Share of Excess Operating Costs and
continuing until the first day of the month following
the month in which Landlord gives Tenant a new notice of
estimated Tenant's Proportionate Share of Excess
Operating Costs.
(c) On or before April 1 of each Comparison Year after the
first Comparison Year (or as soon thereafter as is
practicable), Landlord shall deliver to Tenant a
statement setting forth the actual amount of Tenant's
Proportionate Share of Excess Operating Costs for the
preceding Comparison Year. If the actual amount of
Tenant's Proportionate Share of Excess Operating Costs
for the preceding Comparison Year exceeds the total of
the estimated monthly payments made by Tenant for such
year, Tenant shall pay Landlord the amount of the
deficiency within ten (10) days of the receipt of the
statement. If the total of the estimated monthly
payments made by Tenant for such year exceeds the actual
amount of Tenant's Proportionate Share of Excess
Operating Expenses for such Comparison Year, then
Landlord shall credit against Tenant's next ensuing
monthly installments of Tenant's Proportionate Share of
Excess Operating Costs an amount equal to the difference
until the credit is exhausted. If a credit is due from
Landlord on the Expiration Date, Landlord shall pay
Tenant the amount of the credit. The obligations of
Tenant and Landlord to make payments required under this
Section 5 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Operating Costs
in any Comparison Year having less than 365 days shall
be appropriately prorated.
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(e) Upon reasonable notice from Tenant, Landlord shall make
available for Tenant's inspection, at Landlord's office,
during normal business hours, Landlord's books and
records relating to the Building Operating Costs for the
previous year. Tenant may submit a claim for any over
billed amount to Landlord detailing the nature of the
over billing and Landlord shall have thirty (30) days to
respond or pay such amount. If on the basis of Tenant's
review of Landlord's books and records, Landlord's
statement is determined to be in error by more than six
percent (6%) Landlord shall reimburse Tenant, within
thirty (30) days following such determination, the
reasonable cost of Tenant's review of Landlord's books
and records.
(f) In no event shall Tenant's proportionate share of Excess
Operating Costs exceed Fifty Cents ($.50) per square
foot per month.
6. REAL PROPERTY TAXES.
6.1 Tenant's Obligation. During each calendar year during the
Term, Tenant shall pay to Landlord, as additional rent and in
addition to the Base Rent and all other payments due under
this Lease, an amount equal to Tenant's Proportionate Share of
increases in Real Property Taxes in the manner provided below.
6.2 Definition. The term "Real Property Taxes" means all taxes,
assessments, water and sewer charges and other similar
governmental charges (including costs and expenses of
contesting the amount or validity thereof by appropriate
administrative or legal proceedings) levied on or attributable
to the Building or its operation, including, without
limitation, all real property taxes and general and special
assessments; charges, fees, levies and assessments for
transit, housing, police, fire or other governmental services
or purported benefits to the Building; service payments in
lieu of taxes; environmental surcharges; excise taxes; gross
receipts taxes; gross income taxes; rent taxes; sales and/or
use taxes; employee taxes; water and sewer taxes and charges;
any tax, fee or excise on the act of entering into this Lease,
on the use or occupancy of the Building or any part thereof,
or upon or measured by the rent payable under any lease or in
connection with the business of renting space in the Building;
and all other governmental impositions of any kind or nature
whatsoever, regardless of whether or not customary or within
the contemplation of the parties hereto and regardless of
whether resulting from increased rate and/or valuation, or
whether extraordinary or ordinary, general or special,
foreseen or unforeseen, or similar or dissimilar to any of the
foregoing, which may now or hereafter be levied or assessed
against Landlord by the United States of America, the State of
California, the City of Oakland or any political subdivision,
public corporation, district or other political or public
entity, and any other tax,
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fee or other excise, however described, levied or assessed as
a substitute for, or as an addition to (in whole or in part),
any other such taxes. Notwithstanding the foregoing, "Real
Property Taxes" shall not include any net income, franchise,
capital stock, estate or inheritance taxes.
6.3 Payment. Tenant's Proportionate Share of increases in Real Property
Taxes shall be payable by Tenant to Landlord as follows:
(a) Beginning with the year following the Base Year and for each
calendar year thereafter (each, a "Comparison Year"), Tenant
shall pay to Landlord an amount equal to Tenant's
Proportionate Share of the amount by which the Real Property
Taxes paid or incurred by Landlord in the Comparison Year
exceeds the Real Property Taxes paid or incurred by Landlord
for the Base Year. This excess is referred to as the "Excess
Taxes."
(b) To provide for current payments of Excess Taxes, Tenant shall,
at Landlord's request, pay as additional rent during each
Comparison Year an amount equal to Tenant's Proportionate
Share of the Excess Taxes payable during such Comparison Year,
as estimated by Landlord from time to time. Landlord shall
have the right to notify Tenant of the amount which Landlord
reasonably estimates to be the monthly installments of
Tenant's Proportionate Share of Excess Taxes for any
Comparison Year. Tenant shall make such monthly installments
commencing on the first day of the month following the month
in which Landlord gives Tenant a notice of estimated Tenant's
Proportionate Share of Excess Taxes and continuing until the
first day of the month following the month in which Landlord
gives Tenant a new notice of estimated Tenant's Proportionate
Share of Excess Taxes.
(c) On or before April 1 of each Comparison Year (or as soon
thereafter as is practicable), Landlord shall deliver to
Tenant a statement setting forth the actual amount of Tenant's
Proportionate Share of Excess Taxes for the preceding
Comparison Year. If the actual amount of Tenant's
Proportionate Share of Excess Taxes for the preceding
Comparison Year exceeds the total of the estimated monthly
payments made by Tenant for such year, Tenant shall pay
Landlord the amount of the deficiency with ten (10) days of
the receipt of the statement. If the total of the estimated
monthly payments made by Tenant for such year exceeds the
actual amount of Tenant's Proportionate Share of Excess Taxes
for such Comparison Year, then Landlord shall credit against
Tenant's next ensuing monthly installments of Tenant's
Proportionate Share of Excess Taxes an amount equal to the
difference until the credit is exhausted. If a credit is due
from Landlord on the Expiration
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Date, Landlord shall pay Tenant the amount of the credit. The
obligations of Tenant and Landlord to make payments required
under this Section 6 shall survive the Expiration Date.
(d) Tenant's Proportionate Share of Excess Taxes in any Comparison
year having less than 365 days shall be appropriately
prorated.
(e) In no event shall Tenant's Proportionate Share of Excess Taxes
exceed Fifty Cents ($.50) per square foot per month.
6.4 Taxes Payable by Tenant. In addition to the Rent and any other
amounts to be paid by Tenant hereunder, Tenant shall reimburse
Landlord upon demand for any and all taxes, levies, assessments,
surcharges, fees and other charges payable by Landlord which are not
otherwise reimbursable under this Lease, whether or not now
customary or within the contemplation of the parties, where such
taxes, levies, assessments, surcharges, fees and other charges are
upon, measured by or reasonably attributable to (a) the cost or
value of Tenant's equipment, furniture, fixtures and other personal
property located in the Premises, or the cost or value of any
leasehold improvements made in or to the Premises by or for Tenant,
regardless of whether title to such improvements is held by Tenant
or Landlord; (b) the gross or net Rent payable under this Lease,
including, without limitation, any rental or gross receipts tax
levied by any taxing authority with respect to the receipt of the
Rent hereunder such as the Oakland Business Tax or any similar tax;
(c) the possession, leasing, operation, management, maintenance,
alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (d) this transaction or any document to
which Tenant is a party creating or transferring an interest or an
estate in the Premises. If it shall be unlawful for Tenant to
reimburse Landlord for any additional taxes as required under this
Lease, the Base Rent shall be revised to net Landlord the same net
Rent after imposition of any tax or other charge upon Landlord as
would have been payable to Landlord but for the reimbursement being
unlawful. Tenant anticipates a potential tax rebate from the City of
Oakland. Any tax rebate related solely to Tenant's action in this
capacity to the benefit of the Landlord will be reimbursed to the
Tenant.
7. LATE CHARGES AND INTEREST.
Tenant acknowledges that the late payment of any monthly installment of
Base Rent or other amount which Tenant is obligated to pay under this
Lease will cause Landlord to lose the use of that money and incur costs
and expenses not contemplated under this Lease, including, without
limitation, administrative and collection costs and processing and
accounting expenses, the exact amount of which are extremely difficult to
ascertain. Therefore, if any such installment or other amount is not
received by Landlord when due, Tenant shall pay to Landlord a late charge
equal to five percent (5%) of such installment or other
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amount. Landlord and Tenant agree that this late charge represents a
reasonable estimate of such costs and expenses and is fair compensation to
Landlord for the loss suffered from such late payment by Tenant. In
addition, if Tenant fails to pay when due any Rent or other amount which
Tenant is obligated to pay under the terms of this Lease and such failure
shall continue for ten (10) days, the unpaid amount shall bear interest
at the Interest Rate from the date on which such payment was due until the
date on which Landlord receives such payment. Acceptance of any late
charge and/or interest shall not constitute a waiver of Tenant's default
with respect to such late payment by Tenant or prevent Landlord from
exercising any other rights or remedies available to Landlord under this
Lease.
8. SECURITY DEPOSIT.
Upon execution of this Lease, Tenant shall deposit with Landlord as the
Security Deposit the amount set forth in Article 1 above as security for
Tenant's faithful performance of its obligations under this Lease.
Landlord may commingle the Security Deposit with funds of Landlord, and
Landlord shall have no obligation or liability to pay interest on the
Security Deposit. Tenant shall not pledge, assign, transfer or encumber
the Security Deposit and any attempt by Tenant to do so shall be void,
without force or effect, and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under
this Lease, or fails to perform any of the other terms hereof, Landlord
may apply or use all or any portion of the Security Deposit for Rent
payments or any other amount then due and unpaid, for payment of any
amount for which Landlord has become obligated as a result of Tenant's
default or breach, and for any loss or damage sustained by Landlord as a
result of Tenant's default or breach, and Landlord may so apply or use the
Security Deposit without prejudice to any other remedy Landlord may have
by reason of Tenant's default or breach. If Landlord so applies or uses
any of the Security Deposit, Tenant shall, within ten (10) days after
written demand therefor, restore the Security Deposit to the full amount
originally deposited. Tenant's failure to do so shall constitute a default
hereunder, and Landlord shall have the right to exercise any remedy
provided for in this Lease. If Tenant shall not be in default under this
Lease, Landlord shall return the Security Deposit, or any balance thereof
not applied or used in accordance with the provisions of this Lease, to
Tenant within thirty (30) days following the later of the expiration of
the Term or the date on which Tenant surrenders the Premises to Landlord
in the condition required under this Lease. If Landlord transfers its
interest in the Premises, Landlord may deliver the Security Deposit to the
transferee of Landlord's interest and thereupon be relieved of any further
liability or obligation with respect to the Security Deposit.
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9. TENANT'S USE OF THE PREMISES.
9.1 Use. Tenant shall use the Premises solely for the purposes set forth
as Tenant's Use in Article 1 above. Tenant, at its sole cost and
expense, shall obtain any and all licenses, permits, authorizations
and approvals of governmental authorities required in order to
enable Tenant lawfully to conduct its business in the Premises.
Nothing contained in this Lease shall grant to Tenant the exclusive
right to conduct within the Building or the Premises the business to
be conducted by Tenant in the Premises, or otherwise limit the right
of Landlord to lease space within the Building to such tenants and
for such purposes as Landlord, in its sole discretion, shall deem
appropriate. Tenant shall conduct Tenant's business on the Premises
in a lawful manner, reasonably and in good faith, and shall not do
any act tending to injure the reputation of the Building as
determined by Landlord. Tenant shall not do or permit to be done
anything which will invalidate or increase the cost of any fire,
extended coverage or other insurance policy covering the Building
and/or the property located therein, and shall comply with all
rules, orders, regulations, requirements and recommendations of the
Insurance Service Office or any other organization performing a
similar function. Tenant shall promptly upon demand reimburse
Landlord for any additional premiums charged for any such insurance
policy by reason of Tenant's failure to comply with the provisions
of this Article.
9.2 Nuisance or Waste. Tenant shall not do or permit to be done in or
about the Premises anything which will in any way obstruct or
interfere with the rights of other tenants or occupants of the
Building or injure or annoy them or use or allow the Premises to be
used for any improper, immoral or objectionable purpose, and Tenant
shall not cause, maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer the commission of any
waste in, on or about the Premises. Tenant shall not use or operate
any equipment, machinery or apparatus within the Premises which will
(a) injure, vibrate or shake the Premises or the Building, (b)
overload existing electrical systems or other utilities or equipment
servicing the Premises or the Building, or (c) impair the efficient
operation of the sprinkler system (if any) or the HVAC equipment (if
any) within or servicing the Premises or the Building. All noises or
odors generated by Tenant's use of the Premises shall be muffled or
contained in such manner that they do not interfere with the use or
occupancy of other tenants or occupants of the Building.
9.3 Compliance with Law. Tenant shall not use or occupy the Premises or
permit anything to be done in, on or about the Premises which will
in any way conflict with (a) any statute, ordinance, rule or
regulation of governmental authorities now in force or which may
hereafter be enacted or promulgated, (b) any covenant, condition or
restriction affecting the Building or (c) the certificate of
occupancy issued for the
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Premises or any other portion of the Building, and shall, upon
notice from Landlord, immediately discontinue any use of the
Premises which is declared by any governmental authority having
jurisdiction to be a violation of law or the certificate of
occupancy. Tenant, at Tenant's own cost and expense, shall comply
with all statutes, ordinances, regulations, rules and/or any
directions of any governmental authorities having jurisdiction,
including, without limitation, the Americans with Disabilities Act,
Title 24 or any other handicap accessibility laws, which shall, by
reason of the nature of Tenant's use or occupancy of the Premises,
or by reason of any alteration, addition or improvement made by
Tenant in the Premises, impose any duty upon Tenant or Landlord with
respect to the Premises or its use or occupancy, or with respect to
any other portion of the Building. A judgment of any court of
competent jurisdiction or the admission by Tenant in any action or
proceeding against Tenant that Tenant has violated any such laws,
ordinances, regulations, rules and/or directions in the use of the
Premises shall be deemed to be a conclusive determination of that
fact as between Landlord and Tenant. Landlord and Tenant agree that
Landlord, with regard to Tenant's Premises, will be in full
compliance with all hazardous material statutes, ordinances, rules
and regulations or governmental authorities, in effect prior to the
commencement date of the Lease.
9.4 Hazardous Materials. Without limiting the generality of the
provisions of this Article 9, Tenant, at its sole cost and expense,
shall comply with all statutes, ordinances, rules and regulations of
governmental authorities relating to the storage, use,
transportation, release and/or disposal of radioactive materials,
hazardous waste, toxic or contaminated substances or similar
materials, including, without limitation, any substances which are
"hazardous substances" , "hazardous waste", "hazardous materials" or
"toxic substances" under applicable federal, state and local
environmental statutes, ordinances, rules or regulations
(collectively, "Hazardous Materials"). Tenant shall not store, use,
transport, release or dispose of any Hazardous Materials in, on,
from or about the Premises without the prior written consent of
Landlord. Tenant shall be solely responsible for and shall
indemnify, defend and hold Landlord and its officers, directors,
shareholders, partners, members, agents, employees, contractors,
invitees, representatives, successors and assigns harmless from and
against any and all losses, costs, claims, damages, liabilities and
causes of action, including attorneys' fees, arising out of or in
connection with the storage, use, transportation, release or
disposal of Hazardous Materials by Tenant, its employees, agents,
contractors or invitees, including any claims for the clean-up or
remediation of any Hazardous Materials. Tenant shall give to
Landlord written notice of any communication received by Tenant from
any governmental authority or other party alleging the existing of
Hazardous Materials in, on, under or about the Premises or the
Building, or any alleged violation of environmental laws with
respect to the Premises or the Building.
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Without limiting any other provision of this Lease, Tenant shall
provide Landlord with access to the Premises during all reasonable
times in order to enable Landlord to conduct any inspection,
monitoring, remediation, removal or repair relating to the presence
or alleged presence of Hazardous Materials in, on under or about the
Premises or the Building.
9.5 Common Area Provisions. Landlord shall have the right, from time to
time, temporarily to close portions of the Common Areas in order to
prevent a dedication thereof to the public or the perfection of any
prescriptive rights therein or to perform repair or maintenance on
such portion of the Common Areas; and to change the size, shape,
location and extent of the areas, facilities and improvements
included in the Common Areas, including changes In the location of
driveways, entrances, exits, elevators, stairs, corridors, common
restrooms and other portions of the Common Areas. Landlord's
exercise of such rights shall not subject Landlord to any liability
therefor nor shall Tenant be entitled to any compensation or any
diminution or abatement of rent, provided that Landlord exercises
such rights in such manner as to minimize any interference with
Tenant's use and enjoyment of the Premises to the extent reasonably
possible. In no event shall Landlord's exercise of such rights be
deemed to be a constructive or actual eviction of Tenant, or a
breach of Landlord's covenant of quiet enjoyment.
10. SERVICES AND UTILITIES.
10.1 General. Provided that Tenant is not in default hereunder, Landlord
shall
(a) Operate or cause the operation of the HVAC system serving the
Premises on generally recognized business days and during
hours determined by Landlord in its sole discretion, subject
to the Building rules and regulations, as required in
Landlord's judgment for the comfortable use and occupancy of
the Premises, or as may be permitted or controlled by
applicable statutes, ordinances, rules and regulations of
governmental authorities. If Tenant desires HVAC service at
any other time, Landlord shall use reasonable efforts to
furnish such service upon reasonable written notice from
Tenant, and Tenant shall pay on demand the charges established
by Landlord therefor from time to time (including any
administrative fee imposed by Landlord). Tenant agrees to
cooperate fully with Landlord at all times and to abide by all
regulations and requirements which Landlord may prescribe for
the proper functioning and protection of the HVAC, system, and
Landlord shall not be responsible for the failure of the HVAC
system to perform its function due to Tenant's failure to
abide by such regulations and requirements. If Tenant uses
heat generating machines or equipment in the Premises which
affect the temperature otherwise maintained by the HVAC
system,
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Landlord shall have the right to install supplementary
airconditioning units in the Premises, and the cost thereof,
including the cost of installation, operation and maintenance
thereof, shall be paid by Tenant to Landlord upon demand by
Landlord;
(b) Make customary arrangements with public utilities and/or
governmental authorities to furnish electric current to the
Premises in amount sufficient for normal lighting by overhead
fluorescent fixtures and for normal desktop office equipment
and copying equipment. Tenant shall not, without the prior
written consent of Landlord, use any apparatus or device in
the Premises, including, without limitation, electronic data
processing equipment, special communications equipment,
special lighting or any other electrical equipment, which
(singly) consumes more than one (1.0) kilowatt per hour at
rated capacity or requires a voltage other than 120 volts
single-phase, or which consumes more electricity than is
usually furnished or supplied for the use of premises as
general office space, as determined by Landlord. Landlord
shall not restrict Tenant's reasonable electrical usage.
Tenant shall not connect any apparatus or device with electric
current except through existing electrical outlets in the
Premises. Landlord shall have no obligation to install
dedicated circuits or other special circuitry or wiring.
Tenant shall advise Landlord prior to execution of this Lease
and thereafter within five (5) days after written request
therefor from Landlord of the nature and quantity of all
lights, equipment and machines using electricity in the
Premises. If Landlord determines that Tenant is using
excessive electricity, Landlord shall have the right to
install an electric current meter in or with respect to the
Premises in order to measure the amount of electricity
consumed on the Premises. The cost of any such meter, any
conduits, wiring, panels and other equipment required in
connection with such meter, and the installation, maintenance
and repair thereof, shall be paid by Tenant to Landlord
promptly upon demand, together with the cost of any excessive
electricity consumed by Tenant. If Landlord shall not install
a separate meter, the excessive electricity shall be
determined by Landlord or, at Landlord's option, established
by an estimate by a utility company or an electrical engineer
retained by Landlord at Tenant's expense;
(c) Provide access to water in the restrooms on each floor for
drinking and lavatory purposes only; if Tenant requires, uses
or consumes water for any purposes in addition to ordinary
drinking and lavatory purposes, or in excess of the amount
thereof usually furnished or supplied for the use of premises
as general office space, as determined by Landlord, Landlord
shall have the right to install a separate water meter in or
with respect to the
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Premises in order to measure the amount of water consumed by
Tenant. The cost of any such meter, and the installation,
maintenance, and repair thereof, shall be paid by Tenant to
Landlord promptly upon demand, together with the cost of any
excessive water consumed by Tenant. If Landlord shall not
install a separate meter, the excessive water shall be
determined by Landlord or, at Landlord's option, established
by an estimate by a utility company or a consultant retained
by Landlord at Tenant's expense;
(d) Maintain and keep lighted the common stairs, common entries
and restrooms in the Common Areas of the Building;
(e) Furnish elevator service, fighting replacement for building
standard lights, restroom supplies, window washing and
janitorial service to the extent and in such manner as such
services are customarily furnished to comparable office
buildings in Oakland, California.
(f) Landlord shall provide a lobby attendant, 24 hours a day, 7
days a week, throughout the term of the Lease.
10.2 Supplementary Services. Tenant shall pay to Landlord upon demand, at
the charges established by Landlord from time to time, the cost of
all supplementary services provided by Landlord to Tenant at
Tenant's request, which services are in addition to those which
Landlord is obligated to provide under this Lease, together with an
administrative fee payable to Landlord in the amount established by
Landlord from time to time. Such supplementary services shall
include, without limitation, maintenance, repair, janitorial,
cleaning and other services provided during hours other than
ordinary business hours and/or in amounts reasonably considered by
Landlord to be in excess of the normal and customary usage thereof
for the use of the Premises authorized by this Lease.
10.3 Interruption of Services. Except for Landlord's gross negligence or
willful misconduct, Landlord shall not be in default under this
Lease or liable for any damages directly or indirectly resulting
from (a) the installation, use or interruption of use of any
equipment in connection with the furnishing of any of the foregoing
services; or (b) the failure to furnish or delay in furnishing any
such services, where such failure is caused by any act of God or the
elements; a shortage or unavailability of necessary materials,
supplies or labor; a shortage or interruption in transportation
facilities; riots; civil disturbances; insurrection; war; court
order; public enemy; accidents; breakage; strikes, lockouts or other
labor disputes; the making of repairs, replacements, alterations,
additions or improvements to the Premises or the Building; the
inability to obtain an adequate supply of fuel, gas, steam, water,
electricity or other utilities or services; or any
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other condition beyond Landlord's reasonable control, and Tenant
shall not be entitled to any damages resulting from such failure or
to any diminution or abatement in any Rent or other amounts payable
by Tenant hereunder. In no event shall such failure be construed as
a constructive or other eviction of Tenant. If any governmental
authority promulgates or revises any statute, ordinance or building,
fire or other code, or imposes mandatory controls or guidelines on
Landlord or the Building or any part thereof related to the use or
conservation of energy, water, gas, steam, light or electricity or
the provision of any other utility or service provided under this
Lease, Landlord may, in its sole discretion, comply with such
mandatory controls or guidelines. If at any time, the owners of a
significant number of buildings in Oakland, California comparable to
the Building have elected to comply voluntarily with any request or
guideline of any applicable governmental authority, Landlord may
also comply with such request or guideline. Such compliance shall in
no event entitle Tenant to any damages, or any diminution or
abatement in any Rent or other amounts payable by Tenant under this
Lease, or constitute or be construed as a constructive or other
eviction of Tenant. Tenant shall comply with all rules, regulations
and requirements of applicable governmental authorities or utility
companies concerning the use of utility services, including any
rationing, limitation or other control on the quantity of utilities
used or consumed.
10.4 Payment. - Intentionally Deleted
11. CONDITION OF THE PREMISES.
Tenant acknowledges that Tenant is fully informed independently of
Landlord as to the character, construction and structure of the Building
and the Premises. Tenant's taking possession of the Premises (whether
before or after the Scheduled Commencement Date) shall constitute Tenant's
acceptance of the Premises and acknowledgment that any Tenant improvements
were constructed in accordance with the provisions of this Lease and that
the Premises are in good order and satisfactory condition. Tenant shall
accept the Premises subject to all applicable statutes, ordinances, rules
and regulations of governmental authorities governing and regulating the
use or occupancy of the Premises, including, without limitation, all
applicable zoning, planning, environmental and land use statutes,
ordinances, rules and regulations. Tenant acknowledges that neither
Landlord nor Landlord's employees, agents or contractors have made any
representation or warranty as to the suitability of the Premises for the
conduct of Tenant's business or the consistency of Tenant's proposed use
of the Premises with any applicable zoning, planning, environmental or
land use statutes, ordinances, rules or regulations. With the exception of
the elevator upgrades, security system, lower level Bart entrance and new
front entry doors, no promise of Landlord to alter, remodel, repair or
improve the Premises or the Building, and no representation or warranty,
express or implied, with respect to any matter or thing relating to the
Premises, the Building or this Lease
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(including, without limitation, the condition of the Premises or the
Building) has been made to Tenant by Landlord or its agents, employees or
contractors other than as may be contained herein. To the best of
Landlord's knowledge, Landlord has disclosed all known defects to Tenant.
12. REPAIRS AND MAINTENANCE.
12.1 Landlord's Obligation. Landlord shall repair and maintain in good
order, condition and repair the structural portions of the Building,
including but not limited to the foundations, roof and exterior
surfaces of load-bearing walls, but exclusive of doors, door frames,
entrances, windows and window frames.
12.2 Tenant's Obligation.
(a) Except as provided in Section 12.1 above, Tenant, as a result
of Tenant's actions, at Tenant's sole cost and expense, shall
keep the Premises in good order, condition and repair,
including the interior surfaces of the ceilings, walls and
floors; all doors, door frames, entrances, windows, window
frames and plate glass; all electrical, plumbing, sewer and
other utility lines, equipment and systems, including all
portions of the HVAC system, whether installed or furnished by
Landlord or Tenant, located in or serving the Premises; and
all special items and equipment installed by or at the expense
of Tenant.
(b) Tenant shall be responsible for all repairs and alterations in
and to the Premises and Building and the facilities and
systems thereof, the need for which arises out of (i) Tenant's
use or occupancy of the Premises, (ii) the installation,
removal, use or operation of any Alterations (as defined
below) or any of Tenant's equipment, machinery, trade
fixtures, furniture or other personal property in the
Premises, (iii) the moving of Tenant's equipment, machinery,
trade fixtures, furniture or other personal property into or
out of the Building, or (iv) the negligent or willful act or
omission of Tenant, its agents, contractors, employees or
invitees.
(c) If Tenant fails to keep the Premises in good order, condition
and repair, then Landlord shall have the right to do such acts
and expend such funds at the expense of Tenant as are
reasonably required to perform the work or repair and
maintenance. Any amount so expended by Landlord shall be paid
by Tenant promptly after demand with interest at the Interest
Rate from the date of such work. Landlord shall have no
liability to Tenant for any damage, inconvenience or
interference with the use of the Premises by Tenant as a
result of performing any such work.
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12.3 Compliance with Law. Landlord and Tenant shall each do all acts
required to comply with all applicable statutes, ordinances, rules
and regulations of any governmental authority relating to the
performance of their respective repair and maintenance obligations
as set forth herein.
12.4 Waiver by Tenant. Tenant expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford
Tenant the right to make repairs at Landlord's expense or to
terminate this Lease because of Landlord's failure to keep the
Premises in good order, condition and repair, including, without
limitations Sections 1932, 1941 and 1942 of the California Civil
Code or any other, similar statute, ordinance, rule or regulation
now or hereafter in effect. Notwithstanding the above, Tenant shall
have the right to make repairs at Landlord's expense provided
Landlord has not responded within five (5) days to Tenant's written
notification, and Tenant cannot use the Premises for Tenant's
business.
12.5 Load and Equipment Limits. Tenant shall not place a load upon any
floor of the Premises which exceeds the load per square foot which
such floor was designed to carry, as determined by Landlord or
Landlord's structural engineer. The cost of any such determination
made by Landlord's structural engineer shall be paid for by Tenant
upon demand. Tenant shall not install machines or equipment which
cause noise or vibration to such a degree as to be objectionable to
Landlord or other Building tenant or occupant.
12.6 Landlord Not Liable. Except as otherwise expressly provided in this
Lease, Landlord shall have no liability to Tenant, except to the
extent covered by Landlord's insurance, and Tenant's obligations
under this Lease shall not be reduced or abated in any manner
whatsoever, by reason of any inconvenience, annoyance, interruption
or injury to business arising from Landlord's making any repairs or
changes which Landlord is required or permitted by this Lease or by
any other tenant's lease or required by law to make in or to any
portion of Building or the Premises. Landlord shall nevertheless use
reasonable efforts to minimize any interference with Tenant's
business in the Premises to the extent reasonably possible. In no
event shall Landlord be liable to Tenant for any consequential
damages regardless of the cause of such damages, with the exception
of gross negligence or willful misconduct on the part of Landlord.
12.7 Notice of Condition. Tenant shall give Landlord prompt notice of any
damage to or defective condition in the Building's mechanical,
electric, plumbing, HVAC or other systems serving or located in the
Premises.
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13. ALTERATIONS
13.1 General. Tenant shall not make any additions, alterations or
improvements to the Premises (collectively, "Alterations"),
including, without limitation, those required by Tenant in order to
prepare the Premises for Tenant's occupancy or to enable Tenant to
conduct its business therein, without obtaining the prior written
consent of Landlord. In no event shall Tenant make any Alterations
to the Premises which affect the structural integrity of the
Building or the functioning of any Building systems,, or which
reduce the value of the Premises or the Building. In the event that
Tenant shall desire to make any Alterations, Tenant shall submit to
Landlord such information as Landlord may require prior to the
commencement of construction or installation of such Alterations,
including, without limitation, plans and specifications for the
Alterations and the identity and qualifications of Tenant's proposed
contractor. The plans and specifications for the Alterations,
Tenant's proposed contractor and the time for performance of the
Alterations shall be subject to Landlord's prior written approval.
Tenant shall reimburse Landlord for Landlord's costs of considering
Tenant's requests for approval of any such Alterations, including
any cost or expense which Landlord may incur in electing to have
architects and engineers review plans and specifications. Subsequent
to obtaining Landlord's consent and prior to commencement of
construction or installation of the Alterations, Tenant shall
deliver to Landlord copies of the building permit and executed
construction contract covering the Alterations. Landlord's consent
may be conditioned upon Tenant's removing any such Alterations upon
the expiration or earlier termination of this Lease and restoring
the Premises to the same condition as on the Commencement Date. All
work with respect to any Alterations shall be done in a good and
workmanlike manner by the contractor approved by Landlord, shall
comply with all applicable statutes, ordinances, rules and
regulations of governmental authorities having jurisdiction thereof,
and shall be diligently prosecuted to completion. At Landlord's
option, Landlord shall have the right to construct the Alterations
for Tenant's account. If Landlord so elects, Tenant shall reimburse
Landlord for any and all costs thereof (including, without
limitation, the costs of design, labor, materials, equipment, and a
construction fee of fifteen percent (15%) of the total cost of
construction of the Alterations) within ten (10) days after receipt
of Landlord's Invoice.
13.2 Construction Indemnity. Tenant shall pay the costs of any work done
on the Premises pursuant to Section 13.1, and shall keep the
Premises and Building free and clear of liens of any kind. Tenant
shall indemnify, defend, hold Landlord harmless from and against any
and all losses, costs, claims, damages, liabilities and causes of
action (including attorneys' fees) arising out of or in any way
connected with Tenant's performance of any work of construction,
alteration, addition,
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improvement, repair or maintenance in the Premises, or claims for
work or labor performed, or materials or supplies furnished, to or
at the request of Tenant or in connection with the performance of
any work done for the account of Tenant in the Premises or the
Building, whether or not Tenant obtained Landlord's permission to
have such work done, labor performed or materials or supplies
furnished excluding work performed by Landlord on behalf of Tenant.
13.3 Notices. At least twenty (20) days prior to the actual commencement
of any work for which a claim or lien may be flied, Tenant shall
give Landlord written notice of the intended commencement date to
enable Landlord to post and/or record notices of non-responsibility
or any other notices which Landlord deems necessary for the proper
protection of Landlord's interest in the Premises or the Building,
and Landlord shall have the right to enter the Premises and post
such notices at any reasonable time.
13.4 Bonds. Landlord, at Landlord's option, shall have the right to
require that Tenant provide to Landlord, at Tenant's expense,
payment and/or performance bonds In an amount equal to at least one
and one-half (1 1/2) times the total estimated costs of any
Alterations to be made in or to the Premises to protect Landlord
against any liability for mechanic's and materialmen's liens and to
insure timely completion of the work. Nothing contained in this
Section 13.4 shall relieve Tenant of its obligation under Section
13.2 to keep the Premises and the Building free of all liens.
13.5 Removal. Unless their removal is required by Landlord as provided in
Section 13.1, all Alterations shall become the property of
Landlord and shall be surrendered with the Premises upon the
expiration of the Term or earlier termination of this Lease;
provided, however, that Tenant's equipment, machinery and trade
fixtures which can be removed without damage to the Premises shall
remain the property of Tenant and may be removed by Tenant;
provided, however, that if Tenant shall remove any such equipment,
machinery or trade fixtures, Tenant shall promptly repair any damage
to the Premises or to the Building resulting from such removal, and
shall return the Premises and/or the Building to their condition
prior to the installation of any such equipment, machinery or trade
fixtures.
13.6 Common Area Provisions. Tenant shall not use any portion of the
Common Areas or any other portion of Building other than the
Premises in connection with the making of any Alterations without
Landlord's prior written consent. If any Alterations that Tenant
shall construct result in Tenant or Landlord being required to make
any alterations, additions or improvements to the Premises, or in
Landlord being required to make any alterations, additions or
improvements to any other portions of the
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Building, in any case in order to comply with applicable statutes,
ordinances, rules or regulations of governmental authorities,
including, without limitation, the Americans with Disabilities Act,
Title 24 or any regulations promulgated thereunder, or any similar
state or local statutes, ordinances, rules or regulations, then
Tenant shall be obligated to make all such alterations, additions or
improvements, or, at Landlord's option, Tenant shall reimburse
Landlord upon demand for all cost and expense incurred by Landlord
making such alterations, additions or improvements.
13.7 Initial Tenant Improvements: The initial tenant Improvements are
excluded from clauses 13.1, 13.2, and 13.3.
14. RULES AND REGULATIONS.
Tenant shall comply with (and shall cause its agents, contractors,
employees and invitees to comply with) the rules and regulations attached
hereto as Exhibit "B" and with such modifications thereof and additions
thereto as Landlord may from time to time make. Landlord shall not be
responsible for any violation of such rules and regulations by other
tenants or occupants of the Building. In the event of any conflict between
such rules and regulations and the provisions of this Lease, the
provisions of this Lease shall prevail and be controlling.
15. ENTRY BY LANDLORD.
Landlord shall have the right to enter the Premises at reasonable hours
and after reasonable notice, except In the event of an emergency in which
event no notice shall be required, to: (a) inspect the Premises; (b)
exhibit the same to prospective purchasers, lenders or tenants; (c)
determine whether Tenant is complying with all of its obligations
hereunder; (d) provide janitorial service and any other service to be
provided by Landlord to Tenant hereunder; (e) post notices of
non-responsibility; and (f) make repairs required of Landlord under the
terms hereof or make repairs to any adjoining space or utility services
(including checking, adjusting, calibrating or balancing the HVAC system)
or make repairs, alterations or improvements to any other portion of the
Building. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss
occasioned by such entry, provided that Landlord takes reasonable steps to
minimize the interference with Tenant's use and enjoyment of the Premises.
Landlord shall at all times have and retain a key with which to unlock all
of the doors in, on or about the Premises (including Tenant's vaults,
safes and similar areas agreed upon in writing by Tenant and Landlord).
Landlord shall have the right to use any and all means which Landlord may
deem appropriate to open such doors in an emergency in order to obtain
entry to the Premises, and no entry to the Premises obtained by Landlord
by any of such means shall under any circumstance be construed or deemed
to be a forcible or unlawful entry into, or
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a detainer of, the Premises or an eviction, actual or constructive, of
Tenant from the Premises, or any portion thereof.
16. ASSIGNMENT AND SUBLEASE.
16.1 General. Tenant shall not, voluntarily, involuntarily or by
operation of law, without the prior written consent of Landlord: (a)
assign, mortgage, pledge, hypothecate, encumber or otherwise
transfer Tenant's leasehold interest under this Lease; (b) permit
the Premises or any part thereof to be used or occupied by anyone
other than Tenant (whether as concessionaire, franchisee, licensee
or otherwise); or (c) sublease or offer or market for sublease the
Premises or any part thereof. Subject to the provisions of this
Article 16, Landlord shall not unreasonably withhold its consent to
a proposed assignment or sublease. Any of the foregoing acts done
without Landlord's consent shall be void and shall, at the option of
Landlord, terminate this Lease. If Tenant is a corporation, any
dissolution, merger, consolidation or other reorganization of
Tenant, or the sale or other transfer of greater than fifty percent
(50%) of the capital stock in Tenant, shall be deemed a voluntary
assignment of this Lease by Tenant. If Tenant is a partnership or
limited liability company, a withdrawal or change, voluntarily,
involuntarily or by operation of law, of any general partner or any
manager or managing member, as applicable, or any partner or
partners or member or members, as applicable, owning a total of
greater than fifty percent (50%) of the partnership interest of such
partnership or membership interest of such limited liability
company, as applicable, or the dissolution of the partnership or
limited liability company, shall be deemed a voluntary assignment of
this Lease by Tenant.
16.2 Notice and Procedure. If at any time or from time to time during the
Term, Tenant desires to assign this Lease or sublease all or any
part of the Premises, at least thirty (30) days prior to the date on
which Tenant desires the assignment or sublease to be effective
("Transfer Date"), Tenant shall give written notice to Landlord
setting forth the terms and provisions of the proposed assignment or
sublease, the identity of the proposed assignee or subtenant and the
space proposed to be assigned or subleased ("Subject Space"). Tenant
shall promptly supply Landlord with such information concerning the
business background and financial condition of such proposed
assignee or subtenant, and such additional information concerning
the proposed assignment or sublease, as Landlord may reasonably
request, and Tenant's notice shall not be deemed to have been given
until Landlord receives such information. Landlord shall have the
option, exercisable by notice given to Tenant within thirty (30)
days after Landlord's receipt of Tenant's notice (a) in the case of
an assignment or sublease, to terminate this Lease as to the Subject
Space as of the Transfer Date, (b) in the case of a sublease, to
sublease the Subject Space from Tenant on the terms and provisions
set forth in
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Tenant's notice, or (c) consent or decline to consent to the
proposed assignment or sublease in accordance with the provisions of
this Article 16.
16.3 Landlord's Consent. Landlord shall be entitled to consider any
reasonable factor in determining whether or not to consent to a
proposed assignment or sublease. Without limiting any other
circumstances in which it may be reasonable for Landlord to withhold
its consent to a proposed assignment or sublease, Tenant
acknowledges and agrees that it shall be reasonable for Landlord to
withhold its consent to a proposed assignment or sublease under any
of the following circumstances:
(a) The financial condition of the proposed assignee or subtenant
shall not be equal to or greater than Tenant's financial
condition as of the date hereof or shall not satisfy
Landlord's then-current credit standards for tenants of the
Building, or the proposed assignee or subtenant shall not
otherwise have the financial capacity to perform all
obligations under this Lease to be performed by Tenant;
(b) The proposed use of the Premises by the proposed assignee or
subtenant shall (i) not comply with the provisions of Article
9 hereof, (ii) not be consistent with the general character of
businesses carried on by tenants of a first-class office
building, (iii) increase the likelihood of damage or
destruction to the Premises or Building, (iv) increase the
density of occupancy of the Premises, (v) be likely to cause
an increase in insurance premiums for insurance policies
carried by Landlord with respect to the Building, or (vi)
otherwise adversely impact the Premises, the Building or
Landlord's interest therein; or
(c) Any mortgagee or beneficiary under a deed of trust whose
consent to the assignment or sublease is required shall not
consent thereto.
16.4 Conditions. If Landlord consents to an assignment or sublease in
writing, Tenant shall be entitled to assign or sublease the Subject
Space to the proposed assignee or subtenant, subject to the
following conditions:
(a) As of the effective date of such assignment or sublease,
Tenant shall not be in default under this Lease;
(b) The assignment or sublease shall be on the same terms set
forth in Tenant's notice given to Landlord;
(c) No assignment or sublease shall be valid and no assignee or
subtenant shall take possession of the Premises or any portion
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thereof until an executed counterpart of such assignment or
sublease has been delivered to Landlord;
(d) No assignee or subtenant shall have a further right to assign
or sublease;
(e) Any proposed sublease would not result In more than two
subleases of portions of the Premises being In effect during
the term;
(f) Any assignee shall have assumed in writing the obligations of
Tenant under this Lease;
(g) Any subtenant shall have agreed in writing to comply with all
applicable terms and provisions of this Lease; and
(h) After deducting costs associated with obtaining a subtenant,
such as tenant improvements, leasing commissions and legal
fees, any sums or other economic consideration received by
Tenant as a result of such assignment or sublease, however
denominated under the assignment or sublease, which exceed, in
the aggregate, Base Rent which Tenant is obligated to pay
Landlord under this Lease (prorated as to any sublease to
reflect obligations allocable to that portion of the Premises
subject to such sublease), shall be paid to the Landlord as
additional rent under this Lease without affecting or reducing
any other obligations of Tenant hereunder. At Landlord's
request Tenant shall deliver to Landlord such evidence of the
sums or other economic consideration expended or received by
Tenant as a result of the assignment or sublease as Landlord
shall require from time to time.
16.5 Permitted Assignments. Notwithstanding the foregoing provisions,
Tenant shall have the right to assign this Lease or sublease the
Premises or any portion thereof, without Landlord's consent and
without allowing Landlord to exercise the rights set forth in
Section 16.2 (a) or (b) above, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any
corporation resulting from a merger or consolidation with Tenant or
to any person or entity which acquires all of the assets of Tenant's
business as a going concern; provided that (a) the assignee or
subtenant assumes, in full, the obligations of Tenant under this
Lease, (b) Tenant remains fully liable under this Lease, and (c) the
assignee or subtenant fully complies with the provisions of Article
9 above. Tenant shall give Landlord written notification of Tenant's
intention to assign this Lease as permitted under this Section 16.5
and Landlord shall have five (5) business days to respond.
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16.6 Continuing Liability. Regardless of Landlord's consent, no sublease
or assignment shall release Tenant from any of Tenant's obligations
under this Lease, or alter, impair or diminish the primary
liability of Tenant to pay the Rent and to perform all other
obligations to be performed by Tenant hereunder. The acceptance of
Rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provisions hereof. Consent to one
assignment or sublease shall not be deemed consent to any
subsequent assignment or sublease. In the event of a default by an
assignee or subtenant of Tenant or any successor of Tenant in the
performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting
remedies against such assignee, subtenant or successor. Landlord
may consent to subsequent assignments of the Lease or subleases or
amendments or modifications of the Lease with assignees of Tenant,
without notifying Tenant or any successor of Tenant, and without
obtaining its or their consent thereto, and any such actions shall
not relieve Tenant of liability under this Lease. If Tenant assigns
the Lease or subleases the Premises or requests the consent of
Landlord to any assignment or sublease, then Tenant shall, upon
demand, pay Landlord an administrative fee of Five Hundred Dollars
($500) plus any attorneys' fees incurred by Landlord in connection
with such act or request.
17. HOLDING OVER.
If after expiration of the Term or earlier termination of this Lease,
Tenant remains in possession of the Premises with Landlord's express
permission. Tenant shall become a tenant from month-to-month only, upon
all the provisions of this Lease (except as to term and Base Rent),
including the obligation to pay Tenant's Proportionate Share of Excess
Operating Costs and Tenant's Proportionate Share of Excess Taxes, but the
Rent payable by Tenant shall be increased to one hundred twenty-five
(125%) of the Rent payable by Tenant at the expiration of the Term or
earlier termination of this Lease. Such monthly Rent shall be payable in
advance on or before the first day of each month. Tenant shall indemnify,
defend and hold Landlord harmless from and against any and all claims,
losses, liabilities, damages, costs and liabilities (including attorneys'
fees) resulting from Tenant's failure to surrender possession, including,
without limitation, any claims made by any succeeding tenant.
18. SURRENDER OF PREMISES.
At the expiration of the Term or upon earlier termination of this Lease,
Tenant shall peaceably surrender possession the Premises to Landlord in
broom-clean condition and in as good condition as when Tenant took
possession, except for reasonable wear and tear. Tenant shall have the
right to remove from the Premises any of Tenant's machinery, equipment,
trade fixtures or furnishings which may be removed without causing damage
to the Premises, and Tenant
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shall remove any Alterations and any other alterations, additions,
improvements, machinery, equipment, trade fixtures or furnishings which
Landlord shall direct to be removed in accordance with the provisions of
this Lease. Tenant shall promptly repair any damage to the Premises or the
Building caused by any such removal. Any personal property of Tenant not
removed from the Premises shall be deemed to have been abandoned by Tenant
and, at Landlord's option, shall thereupon become the property of
Landlord. If Landlord elects to remove all or any part of Tenant's
personal property, the cost of removal, including the cost of repairing
any damage to the Premises or the Building caused by such removal, and the
cost of any storage shall be paid by Tenant. At the expiration of the Term
or upon any earlier termination of this Lease, Tenant shall surrender all
keys to the Premises to the Landlord. No act or conduct of Landlord,
including, without limitation, the acceptance of keys to the Premises,
shall constitute an acceptance of the surrender of the Premises by Tenant
before the expiration of the Term. Only a written notice from Landlord to
Tenant shall constitute acceptance of the surrender of the Premises and
accomplish a termination of the Lease.
19. DESTRUCTION OR DAMAGE.
19.1 Insured Casualty. If the Premises or the portion of the Building
necessary for Tenant's occupancy are damaged by fire, earthquake,
act of God, the elements or other casualty, and Landlord shall have
received insurance proceeds sufficient to fully repair and restore
the Premises and Building, Landlord shall, subject to the provisions
of this Article, promptly repair the damage, if such repairs can, in
Landlord's opinion, be completed within ninety (90) days. If
Landlord determines that repairs can be completed within ninety (90)
days, this Lease shall remain in full force and effect, except that
if such damage is not the result of the negligence or willful
misconduct of Tenant or Tenant's agents, employees, contractors,
licensees or invitees, the Base Rent shall be abated to the extent
Tenant's use of the Premises is impaired, commencing with the date
of damage and continuing until completion of the repairs, but only
to the extent of the rental loss insurance proceeds received by
Landlord by reason of such damage. If, in Landlord's opinion, such
repairs to the Premises or portion of the Building necessary for
Tenant's occupancy cannot be completed within forty-five (45) days,
Landlord may elect, upon notice to Tenant given within thirty (30)
days after the date of damage, to (a) repair such damage, in which
event this Lease shall continue in full force and effect, but the
Base Rent shall be abated as provided above, or (b) terminate this
Lease, or (c) Tenant may elect, after receiving Landlord's notice of
the number of days required to make repairs, to terminate this Lease
if the repairs cannot be completed in forty-five (45) days.
19.2 Uninsured Casualty. If the Premises or the portion of the Building
necessary for Tenant's occupancy are damage by fire, earthquake, act
of
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God, the elements or other casualty, and Landlord shall not have
received insurance proceeds sufficient to fully repair and restore
the Premises and Building, Landlord shall have the right to (a)
repair the damage as soon as reasonably possible at Landlord's
expense (unless the damage or destruction was caused by the
negligence or willful misconduct of Tenant, its employees, agents,
contractors or invitees, in which event Tenant shall pay all costs
of repair), in which case this Lease shall continue in full force
and effect, or (b) terminate this Lease, in which event Landlord
shall give written notice to Tenant within thirty (30) days
following the event of damage of Landlord's election to terminate
this Lease as of the date of the event of damage, and if the damage
was caused by the negligence or willful misconduct of Tenant, its
employees, agents, contractors or invitees, Tenant shall be liable
therefor to Landlord, or (c) Tenant may elect, after receiving
Landlord's notice of the number of days required to make repairs, to
terminate this Lease if the repairs cannot be completed in
forty-five (45) days.
19.3 Building. If any other portion of the Building is damaged, Landlord
may elect, upon notice to Tenant given within thirty (30) days after
the date of such damage (but shall not be obligated), to repair such
damage, in which event this Lease shall continue in full force and
effect. If Landlord shall not elect to make such repairs, Landlord
shall have the right to terminate this Lease as of the date of
expiration of such thirty (30) day period.
19.4 Liability for Tenant's Property. In no event shall Landlord have any
liability for, and in no event shall Landlord be required to repair
or restore, any damage to or destruction of any Alterations or any
machinery, equipment, trade fixtures, furniture or other property
installed by or at the expense of Tenant or otherwise located in the
Premises. If Landlord shall not elect to terminate this Lease
pursuant to this Article, Tenant shall promptly repair or restore
all such property to the condition existing immediately prior to the
event of damage. Landlord shall not be liable for any loss of
business, inconvenience or annoyance arising from any repair or
restoration of any portion of the Premises or Building as a result
of any damage from fire or other casualty.
19.5 Waiver of Remedies. Landlord and Tenant acknowledge and agree that
the rights and obligations of the parties in the event of the damage
or destruction of the Premises shall be as set forth in this
Article. Tenant hereby expressly waives any rights to terminate this
Lease upon damage or destruction of the Premises, except as set
forth in Section 19.1(c) above, or the Building, except as
expressly provided by this Lease, including, without limitation, any
rights pursuant to the provisions of Sections 1932(2) and 1933(4)
of the California Civil Code, as amended, or any other similar
provisions of law.
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20. EMINENT DOMAIN.
20.1 Taking. If the entire Building or Premises is taken by condemnation
or in any other lawful manner for any public or quasi-public
purpose, this Lease shall terminate as of the date of such taking,
and Rent shall be prorated to such date. If less than the entire
Building or Premises is so taken, this Lease shall be unaffected by
such taking, provided that (a) Tenant shall have the right to
terminate this Lease by notice to Landlord given within thirty (30)
days after the date of such taking if twenty percent (20%) or more
of the Premises is taken and the remaining area of the Premises is
not reasonably sufficient for Tenant to continue operation of its
business, and (b) Landlord shall have the right to terminate this
Lease by notice to Tenant given within thirty (30) days after the
date of such taking. If either Landlord or Tenant elects to
terminate this Lease, the Lease shall terminate thirty (30) days
after such notice. The Rent shall be prorated to the date of
termination. If this Lease shall not be terminated upon such partial
taking, the Base Rent and Tenant's Proportionate Share shall be
equitably adjusted according to the remaining Rentable Area of the
Premises and Building.
20.2 Temporary Taking. If the Premises shall be temporarily condemned or
taken for governmental occupancy for a period of more than one year,
this Lease shall terminate as of the date of taking, and Landlord
shall be entitled to any and all compensation, damages, income, rent
and awards in connection therewith. If the Premises shall be
temporarily taken for a period of one year or less, this Lease shall
remain in full force and effect, but any condemnation award as a
result of such taking shall be payable to Tenant.
20.3 Condemnation Award. In the event of any taking, all of the proceeds
of any award, judgment or settlement payable by the condemning
authority shall be the exclusive property of Landlord, and Tenant
hereby assigns to Landlord all of its right, title and interest in
any award, judgment or settlement from the condemning authority.
Tenant, however, shall have the right, to the extent that Landlord's
award is not reduced or prejudiced, to claim from the condemning
authority (but not from Landlord) such compensation as may be
recoverable by Tenant in its own right for relocation expenses and
damage to Tenant's personal property. In no event shall Tenant be
entitled to receive any award for any "bonus value" of this Lease or
otherwise attributable to the value of Tenant's interest under this
Lease or in or to the Premises. Each party hereby waives the
provisions of California Code of Civil Procedure Sections 1265.120
and 1265.130 allowing either party to petition the
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Superior Court to terminate this Lease in the event of a partial
taking of the Premises.
20.4 Restoration. In the event of a partial taking of the Premises which
does not result in a termination of this Lease, Landlord shall
restore the remaining portion of the Premises as nearly as
practicable to its condition prior to the condemnation or taking,
but only to the extent of the portion of the condemnation award
expressly made to Landlord for the purpose of making such
restoration to the Premises. Tenant shall be responsible at its sole
cost and expense for the repair, restoration and replacement of any
Alterations or any of Tenant's machinery, equipment, trade fixtures,
furniture or other personal property of Tenant.
21. INDEMNIFICATION; WAIVER.
21.1 Tenant's Indemnity. Tenant shall indemnify, defend and hold Landlord
and Landlord's employees, agents or contractors harmless against and
from losses, costs, claims, damages, liabilities or causes of action
(including attorneys' fees) arising out of or in any way connected
with: (a) Tenant's use or occupancy of the Premises or the conduct
of Tenant's business thereon, or any work, activity or other things
allowed or suffered by Tenant to be done in or on the Premises; (b)
any breach or default by Tenant in any of Tenant's obligations under
this Lease; (c) any negligent or willful act or omission of Tenant,
its agents, employees, invitees or contractors; or (d) any damage to
any property or injury, illness or death of any person occurring in
or on the Premises, or any part thereof, arising at any time and
from any cause whatsoever unless arising out of gross negligence or
willful misconduct of Landlord. As a material part of the
consideration for Landlord's execution of this Lease, Tenant hereby
assumes all risk of damage or injury to any person or property in or
on the Premises from any cause whatsoever.
21.2 Waiver. Neither Landlord or Landlord's agents, employees or
contractors shall be liable for, and Tenant hereby waives all claims
against Landlord and such other parties with respect to, any injury
or damage which may be sustained by the person or property of
Tenant, its employees, agents, invitees or customers, or any other
person in or about the Premises, caused by or resulting from any
cause whatsoever, including, without limitation, fire, steam,
electricity, gas, water or rain which may leak or flow from or into
any part of the Premises; the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing,
air-conditioning or lighting fixtures; the interruption of any
public utility or service; acts of the God or the elements, acts of
public enemy, riot, strike, insurrection, war, court order or order
of governmental authority; or explosion, fire or theft, in any case,
whether such damage or injury results from conditions arising
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upon the Premises or upon other portions of the Building or from
other sources, except as to Landlord's gross negligence or willful
misconduct. Neither Landlord or Landlord's agents, employees or
contractors shall be liable for any damages arising from any act or
omission of any other tenant or occupant of the Building. In no
event shall Landlord be liable or responsible in any way for any
loss of business by Tenant, lost profits of Tenant or any other
consequential damages of Tenant or its employees, agents, invitees
or customers, regardless of the cause therefor.
22. TENANT'S INSURANCE.
22.1 Throughout the Term, Tenant shall procure, pay for and maintain in
effect commercial general liability insurance with respect to
Tenant's construction of improvements on the Premises; the use,
operation or condition of the Premises; and the operations of Tenant
in, on or about the Premises, with a minimum coverage of not less
than Two Million Dollars ($2,000,000) combined single limit for
bodily injury, death and property damage liability.
22.2 Property Insurance. Throughout the term, Tenant shall procure, pay
for and maintain in effect a policy of "all risk" property
insurance, with theft, vandalism and malicious mischief
endorsements, covering any Alterations and Tenant's machinery,
equipment, trade fixtures, furniture and other personal property
from time to time in, on or about the Premises, in an amount not
less than one hundred percent (100%) of their actual replacement
cost from time to time. The proceeds of such insurance shall be used
for the repair or replacement of the property so insured. If this
Lease shall terminate following a casualty as set forth herein, the
proceeds of such insurance allocable to Alterations shall be paid to
Landlord, and the proceeds of such insurance allocable to the other
property set forth above shall be paid to Tenant.
22.3 Additional Insurance. Throughout the Term, Tenant shall procure, pay
for and maintain an effect such additional insurance with such forms
of coverage and in such amounts as Landlord shall reasonably
require, including, without limitation, workers' compensation
insurance and employers' liability insurance as required by law.
22.4 Requirements. All insurance required to be carried by Tenant
hereunder shall be issued by responsible insurance companies
acceptable to Landlord and Landlord's lender and qualified to do
business in the State of California. Each policy shall name
Landlord, Landlord's agents and, at Landlord's request, any
mortgagee of Landlord as an additional insureds, as their respective
interests may appear. Each policy shall contain (a) a
cross-liability endorsement, (b) a provision that such policy and
the coverage evidenced thereby shall be primary and noncontributing
with respect to any policies carried by Landlord and that any
coverage carried
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by Landlord shall be excess insurance, and (c) a waiver by the
Insurer of any right of subrogation against Landlord to the extent
required under Section 22.6 below. A copy of each paid up policy
(authenticated by the insurer) or certificate of the insurer
evidencing the existence and amount of each insurance policy
required hereunder shall be delivered to Landlord before the date
Tenant is first given the right of possession of the Premises, and
thereafter within thirty (30) days after any demand by Landlord
therefor. Landlord may, at any time and from time to time, inspect
and/or copy any insurance policies required to be maintained by
Tenant hereunder. No such policy shall be cancelable except after
thirty (30) days' written notice to Landlord and Landlord's lender.
Tenant shall furnish Landlord with renewals or "binders" of any such
policy at least ten (10) days prior to the expiration thereof.
Tenant agrees that if Tenant does not take out and maintain such
insurance, Landlord may (but shall not be required to) procure such
insurance on Tenant's behalf and charge Tenant for the premiums
together with interest thereon at the Interest Rate, payable upon
demand. Tenant shall have the right to provide such insurance
coverage pursuant to blanket policies obtained by the Tenant,
provided such blanket policies expressly afford coverage to the
Premises, Landlord, Landlord's mortgagee and Tenant as required by
this Lease.
22.5 Adjustments. Landlord shall have the right, periodically during the
Term, but not more frequently than once each twelve (12) months, to
require that Tenant increase the coverage amounts for the insurance
that Tenant is obligated to carry under this Lease to amounts to
equal to the then-prevailing coverage amounts required by prudent
landlords of comparable office buildings in Oakland, California, as
determined by Landlord in its reasonable judgment.
22.6 Waiver of Subrogation. Landlord and Tenant each hereby waive all
rights of recovery against the other party, on account of loss by or
damage to the waiving party or its property or the property of
others under its control, to the extent that such loss or damage is
insured against under any property insurance policy which either may
have in force at the time of the loss or damage. To the extent that
such insurance endorsement is available at no or nominal additional
premium charge and does not adversely affect the ability of such
party to obtain such insurance, Landlord and Tenant each agree to
obtain for the benefit of the other party in the insurance policies
carried by the first party a waiver or any right of subrogation
which any insurer of the party may acquire.
23. SUBORDINATION AND ATTORNMENT.
22.1 Subordination of Lease. This Lease shall be subject and subordinate
at all times to the lien of all mortgages and deeds of trust
securing any amount
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now or hereafter encumbering Landlord's interest in the Premises or
Building, all without the necessity of having further instruments
executed on the part of Tenant in order to effectuate such
subordination. Upon the written request of Landlord, Tenant shall
execute, acknowledge and deliver to Landlord such further
instruments evidencing the subordination of this Lease to the lien
of any such mortgages or deeds of trust as may be required by
Landlord, and Tenant shall attorn to any such mortgagee or
beneficiary under any mortgage or deed of trust in the event of a
foreclosure or a deed in lieu of foreclosure, or other purchaser or
a grantee in respect thereof; provided, however, that each mortgagee
or beneficiary under any such mortgage or deed of trust, or
purchaser or grantee in respect thereof, shall agree not to
terminate or disturb Tenant's possession of the Premises under this
Lease in the event of a foreclosure of such mortgage or deed of
trust or a deed in lieu thereof, as long as Tenant is not in default
under this Lease at such time. Notwithstanding the foregoing, any
mortgagee or beneficiary under a mortgage or deed of trust may at
any time subordinate its mortgage or deed of trust to this Lease in
all or in part, without Tenant's consent, by execution of a written
instrument subordinating such mortgage or deed of trust to this
Lease, in which case this Lease shall be deemed prior to such
mortgage or deed of trust without regard to their respective dates
of execution, delivery and/or recording.
23.2 Approval by Lenders. Tenant acknowledges that the provisions of this
Lease may be subject to the approval of any lender that may
hereafter make a loan secured by a mortgage or deed of trust on the
Premises or Building. If such lender shall require, as a condition
of such financing that reasonable modifications be made to this
Lease, at Lender's request, Tenant agrees to execute appropriate
amendments to this Lease to effect such modifications; provided,
however, that such modifications shall not change the size, location
or dimensions of the Premises or increase the amount of the Rent or
the other amounts payable by Tenant under this Lease.
24. ESTOPPEL CERTIFICATES.
Within ten (10) days after written request from Landlord, Tenant shall
execute and deliver to Landlord or Landlord's designee a written statement
certifying (a) that this Lease is unmodified and in full force and effect,
or is in full force and effect as modified and stating the modifications;
(b) the amount of Base Rent and the date to which Base Rent and additional
rent have been paid; (c) the amount of any Security Deposit made with
Landlord; (d) that Landlord is not in default hereunder or, if Landlord is
claimed to be in default, stating the nature of any claimed default; (e)
that Tenant is not in default hereunder, or stating such defaults as
Tenant shall specify; and (f) certifying as to such other matters as
Landlord may reasonable require. Any such statement may be relied upon by
a purchaser, assignee or lender. Tenant's failure to execute and deliver
such
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statement within the time required shall, at Landlord's election, be a
default under this Lease and shall also be conclusive upon Tenant as to
the matters set forth in such statement.
25. TRANSFER OF LANDLORD'S INTEREST.
The term "Landlord" as used herein shall mean only the owner or owners at
the times in question of title to the Premises or the Building. In the
event of any sale or transfer by Landlord of the Premises or Building,
Landlord shall be and is hereby entirely freed and relieved of any and all
liability and obligations contained in or derived from this Lease arising
out of any act, occurrence or omission relating to the Premises, Building
or Lease occurring after the consummation of such sale or transfer. If any
Security Deposit has been made by Tenant, Landlord may transfer the
Security Deposit to Landlord's successor and upon such transfer, Landlord
shall be relieved of further liability with respect thereto. This Lease
shall not affected by any such sale or transfer, and Tenant agrees to
attorn to the purchaser or transferee, such attornment to be effective and
self-operative without the execution of any further instruments on the
part of Landlord or Tenant.
26. DEFAULT.
26.1 Tenant's Default. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by
Tenant:
(a) Tenant abandons or vacates the Premises; or
(b) Tenant fails to pay when due any Rent or any other amounts
required to be paid by Tenant under this Lease; or
(c) Tenant fails to perform any other covenant, agreement or
obligation contained in this Lease, and such failure continues
for thirty (30) days after written notice thereof from
Landlord to Tenant; or
(d) A writ of attachment or execution is levied on Tenant's
interest under this Lease; or
(e) Tenant makes a general assignment for the benefit of creditor,
or provides for an arrangement, composition, extension or
adjustment with its creditors; or
(f) Tenant files a voluntary petition for relief under the U.S.
Bankruptcy Code or any other federal or state bankruptcy,
insolvency or debtor relief laws (collectively, "Insolvency
Laws"), or a petition for relief is filed against Tenant under
any Insolvency Laws and not withdrawn or dismissed within
forty-five (45) days thereafter; or
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(g) Appointment of a receiver, trustee, custodian or other person
to take possession of all or substantially all of Tenant's
assets; or
(h) Commencement of proceedings for winding up or dissolving
(whether voluntary or involuntary) Tenant, if Tenant is a
corporation, partnership or limited liability company.
26.2 Remedies. In the event of Tenant's default hereunder, then in
addition to any other rights or remedies Landlord may have under any
law, Landlord shall have the right, at Landlord's option, without
further notice or demand of any kind to do the following:
(a) Terminate this Lease and Tenant's right to possession of the
Premises and reenter the Premises and take possession thereof,
and Tenant shall have no further claim to the Premises or
under this Lease;
(b) Continue this Lease in effect, reenter and occupy the Premises
for the account of Tenant, and collect any unpaid Rent or
other charges which have or thereafter become due and payable;
and/or
(c) Reenter the Premises under the provisions of subparagraph (b),
and thereafter elect to terminate this Lease and Tenant's
right to possession of the Premises.
If Landlord reenters the Premises under the provisions of
subparagraphs (b) or (c) above, Landlord shall not be deemed to have
terminated this Lease or the obligation of Tenant to pay any Rent or
other amounts payable hereunder, unless Landlord notifies Tenant in
writing of Landlord's election to terminate this Lease. In the event
of any reentry or retaking of possession by Landlord, Landlord shall
have the right, but not the obligation, to remove all or any part of
Tenant's personal property in the Premises and to place such
property in storage at a public warehouse at the expense and risk of
Tenant. If Landlord elects to relet the Premises for the account of
Tenant, the rent received by Landlord from such reletting shall be
applied as follows: first, to the payment of any indebtedness other
than Rent due hereunder from Tenant to Landlord; second, to the
payment of any costs of such reletting; third, to the payment of the
cost of any alterations or repairs to the Premises; fourth, to the
payment of Rent due and unpaid hereunder; and the balance, if any,
shall be held by Landlord and applied in payment of future Rent as
it becomes due. If that portion of rent received from the reletting
which is applied against the Rent due hereunder is less than the
amount of the Rent due, Tenant shall pay the deficiency to Landlord
promptly upon demand by Landlord. Such deficiency shall be
calculated and paid monthly. Tenant shall also pay to Landlord, as
soon as determined, any costs and expenses incurred by
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Landlord in connection with such reletting or in making alterations
and repairs to the Premises, which are not covered by the rent
received from the reletting.
If Landlord shall terminate this Lease under the provisions of
subparagraphs (a) or (c) above, in addition to any of the rights and
remedies to which Landlord may be entitled under applicable law,
Landlord may recover as damages from Tenant the following:
(1) Past Rent. The worth at the time of the award of any unpaid
Rent which had been earned at the time of termination; plus
(2) Rent Prior to Award. The worth at the time of the award of the
amount by which the unpaid Rent which would have been earned
after termination until the time of award exceeds the amount
of such rental loss that Tenant proves could have been
reasonably avoided; plus
(3) Rent After Award. The worth at the time of the award of the
amount by which the unpaid Rent for the balance of the Term
after the time of award exceeds the amount of the rental loss
that Tenant proves could be reasonably avoided; plus
(4) Proximately Caused Damages. Any other amount necessary to
compensate Landlord for all detriment proximately caused by
Tenant's failure to perform its obligations under this Lease
or which in the ordinary course of things would be likely to
result therefrom, including, but not limited to, any costs or
expenses (including attorneys' fees), incurred by Landlord in
(a) retaking possession of the Premises, (b) maintaining the
Premises after Tenant's default, (c) preparing the Premises
for reletting to a new tenant, including any repairs or
alterations, and (d) reletting the Premises, including
brokers' commissions.
"The worth at the time of the award" as used in subparagraphs (1)
and (2) above is to be computed by allowing interest at the Interest
Rate. "The worth at the time of the award" as used in subparagraph
(3) above is to be computed by discounting the amount at the
discount rate of the Federal Reserve Bank situated nearest to the
Premises at the time of the award plus one percent (1%).
The waiver by Landlord of any breach of any term, covenant or
condition of this Lease shall not be deemed a waiver of such term,
covenant or condition or of any subsequent breach of the same or any
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other term, covenant or condition. Acceptance of Rent by Landlord
subsequent to any breach hereof shall not be deemed a waiver of any
preceding breach other than the failure to pay the particular Rent
so accepted, regardless of Landlord's knowledge of any breach at the
time of such acceptance of Rent. Landlord shall not be deemed to
have waived any term, covenant or condition unless Landlord gives
Tenant written notice of such waiver.
26.3 Landlord's Default. In no event shall Landlord be deemed to be in
default under this Lease unless and until Landlord shall have
defaulted in the performance of its obligations under this Lease and
Tenant shall have given to Landlord written notice of the default
and, within a reasonable period of time following Landlord's receipt
of such notice, but in no event less than thirty (30) days following
Landlord's receipt of such notice, Landlord shall not commence
diligently to prosecute the cure of such default to completion. In
the event of any alleged default on the part of Landlord under this
Lease, Tenant shall give notice by registered mail to any
beneficiary or mortgagee of a deed of trust or mortgage encumbering
the Premises whose address shall have been furnished to Tenant, and
shall offer such beneficiary or mortgagee a reasonable opportunity
to cure the default, including time to obtain possession of the
Premises by power of sale or judicial foreclosure, if such shall be
necessary to effect a cure. Tenant shall not have the right to
terminate this Lease or to withhold, reduce or offset any amount
against any payments of Rent or any other amounts due and payable
under this Lease except as otherwise specifically provided herein.
The liability of Landlord under this Lease or otherwise in the
connection with the Premises or the Building shall be limited to
Landlord's interest in the Building, and in no event shall any other
assets of Landlord or any assets of any constituent partner or
member of Landlord be subject to any liability arising out of or in
connection with this Lease, the Premises or the Building.
27. BROKERS.
Tenant represents and warrants that Tenant has not dealt with any real
estate broker, agent, finder or salesperson in connection with this Lease,
except the real estate broker listed in Article 1. Tenant shall indemnify,
defend and hold Landlord harmless from and against any and all losses,
costs, claims, damages, liabilities and cause of action (including
attorneys' fees) arising out of or relating to any breach of the foregoing
representation warranty or arising out of or related to any claim made by
any broker, agent, finder, or salesperson claiming to have dealt with
Tenant.
28. NOTICES.
All notices and other communications permitted or required to be given
under this Lease shall be in writing and deemed duly served or given when
personally
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delivered or transmitted by a private nationally recognized overnight
courier service, or forty-eight (48) hours after deposit in the United
States mail, certified or registered, postage prepaid, and addressed as
follows: (a) if to Landlord, to Landlord's Notice Address and to the
Building manager, and (b) if to Tenant, to Tenant's Notice Address;
provided, however, notices to Tenant shall be deemed duly served or given
if delivered or mailed to Tenant at the Premises. Landlord and Tenant may
from time to time by written notice to the other party designate another
address for receipt of future notices.
29. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its other obligations
under this Lease, shall peaceably and quietly enjoy the Premises
throughout the Term without any hindrance or interruption by Landlord or
any person lawfully claiming by, through or under Landlord, subject to the
terms of this Lease and to any mortgage, or deed of trust to which this
Lease may be subordinate.
30. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or
Tenant which is due to strikes, lockouts, other labor disputes, inability
to obtain labor, materials, equipment or reasonable substitutes therefor,
acts of God, governmental restrictions or regulations or controls,
judicial orders, enemy or hostile government actions, civil commotion,
fire or other casualty, or other causes beyond the reasonable control of
the party obligated to perform hereunder, shall excuse performance of the
work by that party for a period equal to the duration of that prevention,
delay or stoppage. Notwithstanding the foregoing, in no event shall
Tenant's obligation to pay Rent or other amounts payable under the Lease
be excused or delayed.
31. SIGN CONTROL.
Tenant shall not place or cause to be placed, erected or maintained on any
exterior door, wall, window or roof of the Premises or the Building, or on
the glass of any window or door of the Premises, or on any sidewalk or
other location outside of the Premises, any sign, plaque, decoration,
light, lettering or other advertising material of any kind or description
(collectively, "Signage") without Landlord's prior written consent. The
size, content, design and/or location of any Signage shall be subject to
Landlord's prior written approval, and shall comply with all applicable
statutes, ordinances, rules and regulations of governmental authorities.
If Tenant shall place or cause to be placed or shall maintain any Signage
in violation of the foregoing provisions then, without limiting Landlord's
other rights by reason thereof, Landlord shall have the right to cause the
same to removed without notice to Tenant and without being liable to
Tenant by reason of such removal. Landlord shall have the right to charge
the cost of removal to Tenant as additional rent hereunder, payable within
ten (10) days of written demand by Landlord. Landlord shall have the right
to
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place or cause to be placed and to maintain on the exterior of the
Building such Signage as Landlord shall desire.
32. MISCELLANEOUS.
32.1 Accord and Satisfaction; Allocation of Payments. No payment by
Tenant or receipt by Landlord of a lesser amount than the Rent
provided for in this Lease shall be deemed to be other than on
account of the earliest due Rent. No endorsement or statement on any
check or letter accompanying any check or payment made on account of
Rent shall be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right
to recover the balance of the Rent or pursue any other remedy
provided for in this Lease. In connection with the foregoing,
Landlord shall have the absolute right in its sole discretion to
apply any payment received from Tenant to any amount owing by Tenant
and then due and payable.
32.2 Attorneys' Fees. If any action or proceeding is brought by either
party against the other pertaining to or arising out of this Lease,
the prevailing party in such action or proceeding shall be entitled
to recover all costs and expenses of such action or proceeding,
including attorneys' fees, and costs.
32.3 Captions. The captions of Articles and Sections of this Lease have
been inserted as a matter of convenience and for reference only and
in no way define, limit or enlarge the scope or meaning of this
Lease. All references to Article and Section numbers refer to
Articles and Sections in this Lease.
32.4 Governing Law. This Lease shall be governed by, and construed and
enforced in accordance with, the laws of the State of California.
32.5 Consent. Notwithstanding anything to the contrary contained in this
Lease, Tenant shall have no claim for, and hereby waives the right
to any claim against Landlord for, money damages by reason of any
refusal, withholding or delaying by Landlord of any consent or
approval, and in such event Tenant's only remedies therefor shall be
an action for specific performance, injunction or declaratory
judgment to enforce any right of such consent or approval.
32.6 Authority. If Tenant executes this Lease as a corporation,
partnership or limited liability company, each of the persons
executing this Lease on behalf of Tenant does hereby covenant and
warrant that Tenant is a duly authorized and existing entity, that
Tenant has full right and authority to enter into this Lease, and
that each of the persons executing this Lease on behalf of Tenant
are authorized to do so. Upon Landlord's request,
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Tenant shall provide Landlord with evidence reasonably satisfactory
to Landlord confirming the foregoing covenants and warranties.
Landlord does hereby covenant and warrant that Landlord or
Landlord's Agent, Colliers International, is authorized to sign this
Lease.
32.7 Counterparts. This Lease may be executed in multiple counterparts,
each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same Lease.
32.8 Execution of Lease; No Option. The submission of this Lease to
Tenant shall be for examination purposes only, and does not and
shall not constitute a reservation of or option for Tenant to lease,
or otherwise create any interest of Tenant in the Premises or any
other premises within the Building. The execution of this Lease by
Tenant and its return to Landlord shall not be binding on Landlord
notwithstanding any time interval, until Landlord has in fact signed
and delivered this Lease to Tenant.
32.9 Financial Statements. Tenant shall promptly furnish Landlord, from
time to time, upon Landlord's written request, with financial
statements reflecting Tenant's current financial condition. Tenant
represents and warrants that all financial statements, records and
information furnished by Tenant to Landlord in connection with this
Lease are true, correct and complete in all respects.
32.10 Further Assurances. Each party shall promptly execute all
documents and take such other and further acts as maybe reasonably
requested by the other party in order to give effect to the
provisions of this Lease.
32.11 Prior Agreements; Amendments. This Lease contains all of the
agreements of the parties with respect to any matter covered in this
Lease, and no prior agreement or understanding pertaining to any
such matter shall be effective for any purpose. This Lease may not
be amended except by an agreement in writing signed by the parties
hereto or their respective successors-in-interest.
32.12 Recording. Tenant shall not record this Lease without the prior
written consent of Landlord. Tenant, upon the request of Landlord,
shall execute and acknowledge a "short form" or memorandum of this
Lease for recording purposes.
32.13 Severability. If any provision of this Lease or the application
thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the
application of such provision to persons or circumstances other than
those as to which it is invalid or unenforceable, shall not be
affected thereby, and each provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
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32.14 Successors and Assigns. Subject to the provisions of Article 16 of
this Lease, this Lease shall be binding upon, and shall inure to the
benefit of, the heirs, personal representatives, successors and
assigns of the parties hereto.
32.15 Time of the Essence. Time is of the essence of this Lease and each
and every provision hereof.
32.16 Waiver. No delay or omission in the exercise of any right or remedy
of Landlord upon any default by Tenant shall impair such right or
remedy or be construed as a waiver of such default. The receipt and
acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of
timely payment for the particular Rent payment involved. Landlord's
consent to or approval of any act by Tenant requiring Landlord's
consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act
by Tenant. Any waiver by Landlord or any default must be in writing
and shall not be a waiver of any other default concerning the same
or any other provision of the Lease.
32.17 No Merger. A voluntary or other surrender of this Lease by Tenant,
or a mutual cancellation thereof, shall not work a merger, and
shall, at the option of Landlord, either terminate any existing
subleases or operate as an assignment to Landlord of any such
subleases.
32.18 No Light, Air or View Easement. Nothing contained in this Lease
shall grant to or confer upon Tenant any right to receive any
particular amount or level of light, air or view from the Premises.
Any diminution in or shutting off of light, air or view by any
structure which is now or may hereafter be erected on property
adjacent to the Building shall in no way affect this Lease or impose
any liability upon Landlord. Noise, dust or vibration or other
aspects of the new construction of improvements on property adjacent
to the Building, whether or not owned by Landlord, shall in no way
affect this Lease or impose any liability on Landlord.
32.19 No Representations or Warranties. Neither Landlord nor Landlord's
officers, directors, shareholders, members, partners, employees,
agents or contractors have made any representations or warranties
with respect to the Premises, the Building or this Lease, except as
expressly set forth herein.
32.20 Name. Tenant shall not use the name of the Building for any purpose
other than as an address of the business to be conducted by Tenant
in the Premises. Landlord shall have the right to change the name of
the Building and/or the street address of the Building from time to
time in Landlord's sole discretion.
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32.21 Exhibits, Addendum. The exhibits listed below and the addendum, If
any, listed below, are incorporated by reference into this Lease:
(a) Exhibit "A" - Floor Plan of Premises
(b) Exhibit "B" - Rules and Regulations
(c) Exhibit "C" - Work Agreement
(d) Addendum
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
date first set forth above.
LANDLORD TENANT
CENTRAL BUILDING LLC CYBERGOLD, INC.
By Its Managing Agent By: /s/ CYBERGOLD
--------------------------------
COLLIERS INTERNATIONAL Its: Chief Operating Officer
-------------------------------
By: /s/ COLLIERS INTERNATIONAL
-----------------------------------
Its: Managing Agent
-----------------------------------
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EXHIBIT "A"
FLOOR PLAN OF PREMISES
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EXHIBIT "B"
RULES AND REGULATIONS
Unless otherwise defined herein, capitalized terms used in these Rules and
Regulations have the meanings given to such terms in the Lease.
1. Landlord may from time to time adopt appropriate systems and procedures
for the security or safety of the Building, any persons occupying, using or
entering the Building, or any equipment, furnishings or contents of the
Building, and Tenant will comply with Landlord's requirements relating to such
systems and procedures.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways of the Building may not be obstructed by any Tenant or used by Tenant
for any purpose other than for ingress to and egress from the Premises. Tenant
may not go upon the roof of the Building except as may be permitted in writing
by Landlord. Tenant may not place or install any object (including, without
limitation, radio and television antenna, loud speakers, sound amplifiers,
microwave dishes, solar devices, or similar devices) on the exterior of the
Building or on the roof of the Building.
3. No sign, placard, picture, name, advertisement or written notice
visible from the exterior of the Premises may be inscribed, painted, affixed or
otherwise displayed by Tenant on any part of the Building or the Premises
without the prior written consent of Landlord. Tenant shall conform to
Landlord's general guidelines relating to signs inside the Building on the
office floors. All approved signs or lettering on doors will be printed,
painted, affixed or inscribed at the expense of Tenant by a person approved by
Landlord. Material visible from outside the Building will not be permitted.
Landlord may remove all items in violation of the foregoing without any
liability, and may charge the expense incurred by such removal to Tenant.
4. The Premises shall not be used for the storage of merchandise held for
sale to the general public or for lodging. Tenant shall not use or permit the
use of the Premises in any manner which involves an unusual risk of injury to
any person. No cooking is allowed in the Premises, except in areas of the
Premises which are specially constructed for cooking and except that use by
Tenant of microwave ovens and Underwriters' Laboratory approved equipment for
brewing coffee, tea, hot chocolate and similar beverages will be permitted,
provided that such use is in accordance with all applicable laws.
5. Tenant may not employ any person or persons other than the janitor of
Landlord for the purpose of cleaning the Premises, unless otherwise agreed to by
Landlord in writing. If Tenant's actions result in any increased expense for any
required cleaning, Landlord shall have the right to assess Tenant for such
expenses. Janitorial service will not be furnished on nights rooms are occupied
after 9:00 p.m. unless, by prior agreement, Landlord shall have agreed to extend
service to a later hour for specifically designated rooms.
6. Landlord will furnish Tenant with two (2) keys to the Premises.
Additional keys shall be obtained only from Landlord, and Landlord may impose a
reasonable charge for such additional keys. No additional locking devices shall
be installed in the Premises by Tenant, nor
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shall any locking device be changed or altered in any respect without the prior
written consent of Landlord. Tenant shall provide Landlord with keys to all
locks installed in the Premises, excluding Tenant's vaults and safes. Upon the
expiration or earlier termination of the Lease, Tenant shall deliver to Landlord
all keys to doors in the Premises.
7. The restrooms, toilets, urinals, wash bowls and other plumbing fixtures
may not be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags or other foreign substances may be
deposited in such plumbing fixtures. All damages resulting from Tenant's misuse
of such fixtures will be assessed to Tenant.
8. The elevator designated for freight by Landlord will be available for
use by Tenant during the hours and pursuant to such procedures as Landlord may
determine from time to time. The persons employed to move Tenant's equipment,
material, furnishings, supplies, furniture or other property in or out of the
Building must be acceptable to Landlord. The moving company must be a locally
recognized professional mover, whose primary business is the performing of
relocation services, and must be bonded and fully insured. A certificate or
other verification of such insurance must be received and approved by Landlord
prior to the start of any moving operations. Such insurance must be sufficient
in Landlord's sole opinion to cover all personal liability, theft or damage to
the Premises and the Building, including, but not limited to, floor coverings,
doors, walls, elevators, stairs and landscaping. All moving operations will be
conducted at such times and in such a manner as Landlord will direct, and all
moving will take place during non-business hours unless Landlord otherwise
agrees in writing. Tenant will be responsible for the provision of Building
security during all moving operations, and will be liable for all losses and
damages sustained by any party as a result of the failure to supply adequate
security. Landlord will have the right to prescribe the weight, size and
position of all property brought into the Building. Heavy objects will, if
considered necessary by Landlord, stand on wood strips of such thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss of or damage to any property from any cause, and all damage done to the
Premises or the Building will be repaired at the expense of Tenant. Landlord
reserves the right to inspect all such property to be brought into the Building
and to exclude from the Building all property which violates any of these Rules
and Regulations or the Lease.
9. Tenant will not use or keep in the Premises or the Building any
kerosene, gasoline or inflammable, combustible or explosive fluid or material or
chemical substance. Without Landlord's prior written approval, Tenant will not
use any method of heating or air-conditioning other than that supplied by
Landlord. Tenant will not use or keep or permit to be used or kept any foul or
noxious gas or substance in the Premises.
10. Landlord may from time to time and without any liability to Tenant
change the name and street address of the Building.
11. Landlord may prohibit any advertising by Tenant mentioning the
Building, which, in Landlord's reasonable opinion, tends to impair the
reputation of the Building or its desirability as a building for offices, and
upon written notice from Landlord, Tenant will refrain from or discontinue such
advertising.
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12. Tenant will not permit bicycles or other vehicles inside or on the
sidewalks outside the Building except in areas designated from time to time by
Landlord for such purposes.
13. All persons entering or leaving the Building between the hours of 6:00
p.m. and 7:00 a.m. Monday through Friday, and at all hours on Saturdays, Sundays
and holidays will comply with such off-hour regulations as Landlord may
establish and modify from time to time. Landlord reserves the right to limit or
restrict access to the Building during such time periods.
14. Tenant will store all its trash and garbage within its Premises. No
material will be placed in the trash boxes or receptacles if such material is of
such nature that it may not be disposed of in the ordinary and customary manner
of removing and disposing of trash and garbage without being in violation of any
applicable law. All garbage and refuse disposal will be made only through
entryways and elevators provided for such purposes and at such times as Landlord
designates. Removal of any furniture or furnishings, large equipment, packing
crates, packing materials and boxes will be the responsibility of Tenant and
such items may not be disposed of in the Building trash receptacles nor will
they be removed by the Building's janitorial service, except at Landlord's sole
option and at Tenant's expense. No furniture, appliances, equipment or flammable
products of any type may be disposed of in the Building trash receptacles.
15. Canvassing, peddling, soliciting and distribution of handbills or any
other written materials in the Building are prohibited.
16. Employees, agents and contractors of Landlord will not perform any
work or do anything outside of their regular duties unless under special
instructions from Landlord, and Landlord shall assess the cost thereof, together
with an administrative fee of 15%, upon Tenant.
17. A directory of the Building will be provided for the display of the
name and location of tenants only. All entries on the Building directory display
will conform to standards and style set by Landlord in its sole discretion.
Tenant will not have any right to the use of any exterior sign.
18. Tenant will ensure that the doors of the Premises are closed and
locked and that all water faucets, water apparatus and utilities are shut off
before Tenant leaves the Premises. On multiple-tenant floors, Tenant will keep
the doors to the Building corridors closed at all times except when using them
for ingress and egress.
19. Tenant will not conduct itself in any manner which is inconsistent
with the character of the Building as a first class office building or which
will impair the comfort and convenience of other tenants in the Building.
20. Tenant shall not obtain for use in the Premises any shoe polishing,
massage or other similar services without the prior written consent of Landlord.
The provision of any such goods and services shall be subject to such reasonable
rules and regulations and at such
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reasonable hours as may be established by Landlord. The suppliers of such
services shall be subject to Landlord's prior written approval.
21. Except with the prior written consent of Landlord, Tenant shall not
permit the sale from the Premises of, or use or permit the use of any sidewalk
adjacent to the Premises for the sale of, newspapers, magazines, periodicals,
theater tickets or other goods or services, and Tenant shall not 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.
22. Tenant shall not use in any portion of the Building, including Common
Areas, any hand trucks except those equipped with rubber tires and side guards
or such other material-handling equipment as Landlord shall approve. No other
vehicles of any kind shall be brought by Tenant into the Building or in or about
the Premises.
23. Tenant assumes all responsibility for protecting the Premises from
theft, robbery or vandalism, which includes keeping doors locked and other means
of entry closed.
24. No vending machines shall be maintained or operated within the
Premises of the Building without the prior written consent of Landlord. Any food
or beverages permitted in writing by Landlord to be brought onto the Premises
must be properly stored or maintained at all times.
25. No animal or bird shall be permitted in the Premises to the Building
except seeing eye dogs.
26. The requirements of Tenant will be attended to only upon application
by telephone or in writing at the Building office.
27. No act or thing done or omitted to be done by Landlord or Landlord's
agents, employees or contractors in connection with the enforcement of these
Rules and Regulations will constitute an eviction by Landlord of Tenant. Under
no circumstances will Landlord be liable to Tenant for failing to enforce these
Rules and Regulations against any other tenant in the Building, or for the
breach of these Rules and Regulations by any other Tenant, and Landlord may
modify these Rules and Regulations for any other tenant of the Building. No such
failure to enforce these Rules and Regulations by Landlord, or breach of these
Rules and Regulations by any other tenant, or modification of these Rules and
Regulations for any other tenant, shall relieve Tenant from fully complying with
these Rules and Regulations or preclude Landlord from enforcing these Rules and
Regulations against Tenant.
28. All references to "Tenant" in these Rules and Regulations shall
include, and Tenant shall ensure that these Rules and Regulations are fully
complied with by, all employees, agents, contractors, invitees, customers,
clients and licensees of Tenant and all other persons permitted by Tenant to use
or occupy the Premises.
29. Landlord may waive any one or more of the provisions of these Rules
and Regulations for the benefit of any particular tenant or tenants in the
Building, but no such waiver by Landlord will be construed as a waiver of such
provisions in favor of Tenant, and no
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waiver in any instance of any of the provisions of these Rules and Regulations
in favor of Tenant shall prevent Landlord from thereafter enforcing such
provisions.
30. Tenant shall be responsible for, and shall indemnify, defend and hold
harmless Landlord from and against, all costs, expenses, damages, claims and
liability arising out of the failure by Tenant or any of its employees, agents,
contractors, licensees, invitees, customers, clients, or any other person
occupying or using the Premises, to comply with these Rules and Regulations.
31. Any failure of Tenant to comply with these Rules and Regulations shall
constitute an Event of Default under the Lease, thereby entitling Landlord to
exercise all rights and remedies under Article 26 of the Lease.
32. These Rules and Regulations are in addition to, and will not be
construed to modify or amend, in whole or in part, the terms, covenants,
agreements and provisions of the Lease. These Rules and Regulations may be
amended from time to time by Landlord, and Tenant shall comply with all such
amendments.
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EXHIBIT "C"
WORK AGREEMENT
This Work Agreement is hereby incorporated into and made a part of
the Standard Office Lease dated March 25, 1999 ("Lease"), by and between Central
Building LLC, a Limited Liability corporation, hereinafter referred to as
"Landlord", and Cybergold, Inc., a California corporation, hereinafter referred
to as "Tenant."
1. Immediately upon the execution of this Lease, Landlord and Tenant shall
agree upon a mutually acceptable space plan. Based on this space plan Landlord
shall have Working Drawings prepared for construction. Following Landlord's
preparation of the Working Drawings, Landlord shall enter into a construction
contract with Landlord's contractor which shall provide for the construction of
the Tenant Improvements in accordance with the Working Drawings.
2. The cost of construction and installation of the Tenant Improvements
shall include the following costs and expenses paid or incurred by Landlord: all
costs of the architect's and any engineers' preparation of the Working Drawings;
the costs of obtaining a building permit and any other construction-related
permits from the City of Oakland and any other applicable governmental
authorities which are required in order to authorize Landlord's construction of
the Tenant Improvements; all amounts paid by Landlord to Landlord's contractor
under the construction contract for the Tenant Improvements; and any other costs
and expenses paid or incurred by Landlord in connection with the planning and
construction of the Tenant Improvements ("Tenant Improvement Costs"). Landlord
shall provide Tenant with a Tenant Improvement Allowance in the amount of Twenty
Dollars ($20.00) per rentable square foot for the fourth floor Premises and
Twenty Dollars ($20.00) per rentable square foot for the third floor Premises
("Tenant Improvement Allowance") with respect to the Tenant Improvements, and
the Tenant Improvement Costs shall be charged against the Tenant Improvement
Allowance to the extent thereof. Tenant shall bear all Tenant Improvement Costs
in excess of the amount of the Tenant Improvement Allowance. Tenant's share of
the Tenant Improvements Costs is hereinafter referred as "Tenant's Costs."
Tenant shall pay any Tenant's Costs to Landlord or to the appropriate parties
therefor, at Landlord's option, either prior to Landlord's commencement of
construction and installation of the Tenant Improvements, or as and when Tenant
receives invoices for such amounts from Landlord and/or Landlord's contractor.
If the actual amount of the Tenant Improvement Costs shall be less than the
Tenant Improvement Allowance, Tenant shall have no right to such amounts and
shall not be entitled to any reduction in any of Tenant's rental or other
obligations under this Lease by reason thereof.
3. For the purposes of this Lease, the terms "Substantially Completed" or
"Substantial Completion" shall mean that the Tenant Improvements shall have been
completed except for minor deviations from the Working Drawings and "punch-list"
items that do not materially affect Tenant's use of the Premises for the
purposes permitted under the Lease. The date of Substantial Completion of the
Tenant Improvements shall be established by Landlord in a notice delivered to
Tenant, which notice shall state that the Tenant Improvements are, or on a
future date specified in such notice will be, Substantially Completed, and that
the Premises are, or on such future date will be, ready for occupancy by Tenant.
Notwithstanding the foregoing or
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anything to the contrary contained in Section 3.2 of the Lease, if Landlord
shall be delayed in Substantial Completion of the Tenant Improvements as a
result of:
(a) Delays caused by the acts or omissions of Tenant, its employees,
agents or contractors, including, without limitation, delays caused by Tenant's
failure to furnish any information or approve any item within the time period
specified therefor in this Work Agreement or in the Lease;
(b) Delays caused by change orders requested by Tenant or required
because of any errors or omissions in plans submitted by Tenant; or
(c) Delays caused by Landlord to accommodate Tenant's performance of
any approved construction, installation or other work in the Premises which
Tenant has elected or is required to perform (all of the foregoing being
referred to herein collectively as a "Tenant Delay"), then notwithstanding
anything to the contrary contained in Section 3.2 of the Lease, the Commencement
Date shall be the earlier of the date specified in Section 3.2 of this Lease or
that number of days prior to the date on which the Tenant Improvements shall be
Substantially Completed which is equal to the total number of days of Tenant
Delay.
4. Tenant shall have the right to enter the Premises not earlier than
fifteen (15) days prior to the anticipated date of Substantial Completion of
the Tenant Improvements for the purposes of installing Tenant's telephone
systems, computer lines, cables and equipment in the Premises; provided,
however, that (a) no such entries onto or activities on the Premises by Tenant
shall disrupt or in any manner interfere with Landlord's construction of the
Tenant Improvements, and (b) Tenant shall have no right to move any furniture or
other personal property onto the Premises until Landlord shall deliver
possession of the Premises to Tenant pursuant to this Lease. Any such entries
onto the Premises by Tenant prior to the date of Substantial Completion of the
Tenant Improvements shall be on all of the terms and provisions of this Lease,
except that Tenant shall not be obligated to pay Base Rent for the period of
such early entry.
5. Landlord has not agreed to perform any work in the Premises or to pay
any costs and expenses of Landlord or Tenant in performing any work in the
Premises, other than Landlord's construction of the Tenant Improvements and
Landlord's provision of the Tenant Improvement Allowance in accordance with the
provisions of this Work Agreement with the exception of elevator access controls
which are to be installed with the renovations of the building elevators and the
vestibule walls and doors at both stairwells, at Landlord's sole cost. Until
completion of the elevator renovation project, Landlord agrees to secure
elevators after working hours so that the fourth floor is inaccessible. If at
Tenant's request, Landlord agrees to perform any other work in connection with
the Premises, such work shall be performed at Tenant's sole cost and expense in
accordance with plans, drawings and specifications furnished by Tenant to
Landlord and subject to the approval of Landlord. If Landlord elects to perform
any other work for Tenant, prior to commencing any such work, Landlord shall
submit to Tenant written estimates of the cost thereof (including Landlord's
construction management fee in the percentage specified above) and if Tenant
shall fall to disapprove such estimates within five (5) business days following
Tenant's receipt thereof, such estimates shall be deemed to be approved. If such
work is approved or deemed approved, Landlord shall be authorized to proceed
with such work. Tenant shall pay for the cost of such work to Landlord or to the
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appropriate parties therefor, at Landlord's option, either prior to Landlord's
commencement of construction and installation of such work, or as and when
Tenant receives invoices for such amounts from Landlord and/or Landlord's
contractor.
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ADDENDUM TO STANDARD OFFICE LEASE
THIS ADDENDUM TO STANDARD OFFICE LEASE shall constitute part of that
certain Standard Office Lease dated March 25, 1999 ("Lease"), by and between
Central Building LLC, a Limited Liability corporation ("Landlord") and
Cybergold, Inc., a California corporation ("Tenant"), and the terms hereof shall
for all purposes be deemed incorporated into the Lease and shall supersede any
provisions of the Lease which are inconsistent herewith.
33. RENEWAL OPTION.
33.1 Option. Subject to the provisions set forth below, Tenant shall have
the option to renew this lease for one additional term of five (5)
years (the "Renewal Term"), which Renewal Term shall commence upon
the expiration of the original Term of this Lease ("Initial Term").
All of the terms, covenants and conditions of this Lease shall
govern the Renewal Term, except as otherwise specifically set forth
hereinafter or if inapplicable thereto. As used in this Lease, the
word "Term" shall mean the Term as the same may be extended pursuant
to the provisions of this Section 33, as applicable.
33.2 Terms and Conditions. Tenant's option to renew, as provided above,
shall be conditioned upon and subject to each of the following:
(a) Tenant shall notify Landlord in writing of its exercise of its
option to renew at least one hundred eighty (180) days prior
to the expiration of the Initial Term;
(b) At the time Landlord receives Tenant's notice or at any time
thereafter until the beginning of any Renewal Term, as
provided above, Tenant shall not be in default or shall cure
any default that has occurred during the notification period,
under the Lease;
(c) Tenant shall have no further renewal option other than the
option to extend for the Renewal Term as set forth above;
(d) Tenant shall continue possession of the Premises in their
as-is condition and Landlord shall have no obligation to do
any work or otherwise to prepare the Premises for the Renewal
Term; and
(e) The Base Rent during the Renewal Term shall be at the
Prevailing Market Rate (as defined below).
33.3 Prevailing Market Rate.
(a) As used in this Lease, "Prevailing Market Rate" shall mean the
rate being charged for comparable space in comparable office
buildings in the Central Business District of Oakland,
California as of the date of commencement of
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the Renewal Term, with similar amenities, taking into
consideration the size, location, proposed term of the lease,
extent of services to be provided, the fact that the Premises
have been improved with the Tenant Improvements, the time that
the particular rate under consideration became or is to become
effective, and other relevant factors; provided, however, that
Base Rent shall in no event be less than the Base Rent which
was in effect immediately prior to the date of commencement of
the Renewal Term, nor greater than Four Dollars ($4.00) per
square foot per month. Within thirty (30) days following
receipt of Tenant's Notice, Landlord shall give to Tenant
written notice of Landlord's estimation of Prevailing Market
Rate. If Tenant shall not agree with such estimation of
Prevailing Market Rate, Landlord and Tenant shall negotiate in
good faith to agree upon the Prevailing Market Rate on or
before one hundred twenty (120) days prior to commencement of
the Renewal Term. If Landlord and Tenant shall be unable to
agree upon the Prevailing Market Rate within such period of
time, Prevailing Market Rate shall be determined pursuant to
the arbitration procedure set forth in this Section 33. In the
event that such arbitration not have been concluded prior to
the date of commencement of the Renewal Term, Tenant shall
continue to pay as Base Rent hereunder, until the Prevailing
Market Rate has been determined by arbitration, the Base Rent
payable with respect to the month immediately preceding the
commencement of the Renewal Term. After the Prevailing Market
Rate has been determined by arbitration, then any adjustment
required to adjust the amount previously paid shall be made by
payment by Tenant to Landlord within ten (10) days after such
determination of the Prevailing Market Rate.
(b) In the event that Landlord and Tenant shall be unable to agree
upon Prevailing Market Rate within the period of time
specified in subparagraph (a) above, within ten (10) days
thereafter, each of the parties shall select a commercial real
estate broker from a recognized real estate brokerage firm
having offices in Oakland, California, who has at least five
(5) years' full-time commercial real estate brokerage
experience and who is familiar with the Prevailing Market Rate
of commercial office space in comparable office buildings in
Oakland, California, and shall give written notice of such
selection to the other party specifying therein the name and
address of the person to act as the arbitrator on such party's
behalf. If either party shall fail to notify the other party
of its appointment of a broker having such qualifications
within or by the time specified, then the broker appointed by
the other party shall make the sole determination of
Prevailing Market Rate of the Premises, and such determination
shall be binding upon the parties.
(c) The Prevailing Market Rate shall be determined by the two
brokers appointed by the parties in accordance with the
following procedures. Within thirty (30) days following the
appointment of the brokers by the parties, each of the brokers
shall state, in writing, his determination of the Prevailing
Market Rate supported by the reasons therefor and shall
provide copies to each party. If such determinations do not
differ by more than ten percent (10%), the
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Prevailing Market Rate shall be the average of the two
determinations. If such determinations differ by more than ten
percent (10%) and the two brokers are subsequently unable to
agree upon the Prevailing Market Rate, the two brokers shall
appoint a third broker, who shall be a competent and impartial
person with qualifications similar to those required of the
first two brokers. If the two brokers are unable to agree upon
such appointment within ten (10) days following their
determinations of Prevailing Market Rate, then either Landlord
or Tenant, on behalf of both parties, may request appointment
of such a qualified person by the Presiding Judge of the San
Francisco County Superior Court acting in his individual
capacity. Following appointment of the third broker, he shall
promptly make his determination of Prevailing Market Rate in
the manner provided above, and the average of the three
determinations shall constitute the Prevailing Market Rate.
If, however, the low determination of Prevailing Market Rate
and/or the high determination of Prevailing Market Rate are
more than ten percent (10%) lower and/or higher than the
middle determination, any such low determination and/or high
determination shall be disregarded. If only one determination
is more than ten percent (10%) above or below the middle
determination, such that only one determination needs to be
disregarded, the remaining two determinations shall be added
together and their total divided by two; the resulting
quotient shall be the Prevailing Market Rate. If both the low
determination and the high determination are disregarded, then
the middle determination shall establish the Base Rent for the
Premises for the Renewal Term and shall be final and binding
upon the parties.
(d) In the event of a failure, refusal or inability of any broker
to act, his successor shall be appointed by him, but in the
case of the third broker, his successor shall be appointed in
the same manner as that set forth herein with respect to the
appointment of the original third broker. The brokers shall
make the final determination of Prevailing Market Rate not
later than sixty (60) days prior to the commencement of the
Renewal Term. Each party shall pay the fees and expenses of
its respective broker and both shall pay one-half (1/2) of the
fees and expenses of the third broker. Attorneys' fees and
expenses of counsel and of witnesses for the respective
parties shall be paid by the respective party engaging such
counsel or calling such witnesses.
34. FIRST RIGHT OF REFUSAL
Landlord shall grant to Tenant during the Initial Term of the Lease the
First Right Of Refusal on any full floor which may become available,
Tenant shall notify Landlord within five (5) business days of Tenants
intention to exercise Tenant's First Right of Refusal option.
35. THIRD FLOOR OCCUPANCY
Tenant shall have the right to occupy the third floor premises upon sixty
(60) days written notice to Landlord or by no later than November 1, 1999,
whichever is sooner.
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(a) Term: The term of the Lease for occupancy of the third floor
premises shall start from the date Tenant takes occupancy and shall
terminate on the date the fourth floor premises terminates.
(b) Rent: The Rent for the third floor premises shall be in accordance
with Section 1.1 of the Lease. Rent increase dates for the third
floor premises shall coincide with the date the rent increase is
effective for the fourth floor premises.
36. SIGNAGE
If during Tenants occupancy in the Building, Tenant enters into leases for
six or more full floors, Tenant shall have the right to place a sign on
the exterior of the Building. Landlord shall approve the design, size,
type of installation, and the location of the sign in writing, prior to
installation of the sign. Tenant shall be responsible for all costs
associated with the installation, maintenance and removal of the sign,
including but not limited to any permits or government authorization
requirements.
Upon the expiration of Tenant's Lease, Tenant shall be responsible for all
costs associated with the removal of the sign and the repair of the
Building to its original condition. Said removal and repair shall be
approved by Landlord.
37. AIR CONDITIONING
Landlord has agreed to provide Tenant with air conditioning to the Third
and Fourth Floor Premises. All costs associated with the installation of
the air conditioning units shall be split equally between Landlord and
Tenant.
38. FIRST RIGHT OF NOTIFICATION
Landlord shall notify Tenant of Landlord's intention to sell The Central
Building. Tenant shall have five (5) business days to notify Landlord of
Tenant's interest in purchasing the Building.
39. SECURITY DEPOSIT AND LEASE GUARANTEE
On each anniversary date of the Lease during the Initial Term, Tenant with
prior written authorization from Landlord, shall reduce the obligation as
set forth in Section 1.8 and Section 1.16 of the Lease, by twenty
percent (20%) per year, provided Tenant has not been in default during
each twelve month period prior to each anniversary date. (Sample: On the
anniversary date of the first year if the Commencement Date of the Lease
was May 1, 1999, then on May 1, 2000 Tenants Security Deposit shall be
reduced by twenty percent (20%), $36,000.00 less $7,200.00 = $28,800.
Tenant's Letter of Credit shall be reduced by twenty percent (20%),
$200,000 less $40,000 = $160,000.00). Upon approval from Landlord,
Landlord will issue Tenant a check for each security deposit refund.
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EXHIBIT 10.6
N O R H E I M
[LOGO]
& Y O S T
COMMERCIAL LEASE AND DEPOSIT RECEIPT
RECEIVED FROM CyberGold Inc., a California Corporation, hereinafter referred to
as Lessee, the sum of $31,800.00 evidenced by personal check, as a deposit
which upon acceptance of this lease, shall belong to Lessor and shall be
applied as follows:
Rent for the period March 1, 1996 to March 31, 1996 $10,600.00
A portion of rent for the period February 1, 1999 to
February 28, 1999 $10,600.00
Security deposit $10,600.00
----------
TOTAL $31,800.00
In the event this lease is not accepted by the Lessor within 3 days, the total
deposit received shall be refunded.
Lessee hereby offers to lease from Lessor the premises situated in the City of
Berkeley, County of Alameda, State of California, described as 2921 Adeline
Street, a 6,320 sq. ft. office building and the sublease of the parking lot
across the street under the terms and conditions contained in the parking lot
lease attached hereto as Exhibit "A", upon the following TERMS and CONDITIONS.
1. TERM: The term hereof shall commence on March 1, 1996 and expire on
February 28, 1999.
2. RENT: The base rent shall be payable as follows:
$10,600.00, in advance, on the first day of each month of the first year of the
term hereof.
$10,918.00, in advance, on the first day of each month of the second year of
the term hereof.
$11,245.00, in advance, on the first day of each month on the third year of the
term hereof.
All rents shall be paid to Lessor or his authorized agent, at the following
address; Weilman, Treloar & Co., 94 Ramona Ave., Piedmont, CA 94611: Attn:
Grier Graff.
3. USE: The premises are to be used for general office use associated with
computer software development and sales and for no other purpose without prior
written consent of Lessor. Lessee to have 10 days from acceptance hereof to
obtain all necessary governmental permits for Lessee's occupancy and use.
4. USES PROHIBITED: Lessee shall not use any portion of the premises for
purposes other than those specified hereinabove, and no use shall be made or
permitted to be made upon the premises, nor acts done, which will increase the
existing rate of insurance upon the property, or cause cancellation of
insurance policies covering said property. Lessee shall not conduct or permit
any sale by auction on the premises. Lessee shall not use or store any
substance on the premises that is flammable, explosive, hazardous, toxic; or
that is restrictive by Department of Health Services, California Water Quality
Control Board, or Environmental Protection Agency.
5. ASSIGNMENT AND SUBLETTING: Lessee shall not assign this lease or sublet
any portion of the premises without prior written consent of the Lessor, which
shall not be unreasonably withheld. Any such assignment or subletting without
consent shall be void and, at the option of the Lessor, may terminate this
lease. Lessor gives its consent to Lessee to assign this lease to CyberGold LLC
should the change be necessary due to a change in the corporate structure.
6. ORDINANCES AND STATUTES: Lessee shall comply with all applicable
statutes, ordinances and regulatory requirements of all municipal, state and
federal authorities now in force or which may hereafter be in force pertaining
to the premises, occasioned by or affecting the use thereof by Lessee. The
commencement or pendency of any state or federal court abatement proceeding
affecting the use of the premises shall, at the option of the Lessor, be deemed
a breach hereof.
7. MAINTENANCE, REPAIRS, ALTERATIONS: Lessee acknowledges that the premises
are in good order and repair, unless otherwise indicated herein. Lessee agrees
to deliver to Lessor physical possession of the premises at the end of the
lease term, or any extension of the term, in good condition and repair,
reasonable wear and tear excepted.
Lessee shall, at his own expense and at all times, maintain the premises in
good and safe condition, including scuppers, gutters and drains, plate glass,
electrical wiring, plumbing, HVAC system, phone system and any other system or
equipment upon the premises, and shall surrender the same at termination hereof
in as good condition as received, normal wear and tear excepted. Lessee shall
be responsible for all repairs required, excepting the roof, skylights, exterior
walls, HVAC system, and structural foundations, which shall be maintained by
Lessor. Lessee shall also maintain in good condition such portions adjacent to
the premises, such as sidewalks, driveways, lawns and shrubbery, which would
otherwise be required to be maintained by Lessor.
Lessee to assume the existing HVAC maintenance contract and MSDOS monitoring
requirement. A copy of said contract is attached hereto as Exhibit "B". The
existing phone system is maintained by contract. If Lessee wishes to cancel
said contract during the term of this agreement then they will reinstitute
the contract at the expiration of the lease.
In the event Lessee wishes to change the locks they shall maintain the master
key system and consult with Lessor prior to any key change.
No improvement or alteration of the premises shall be made without the prior
written consent of the
LESSOR________ LESSEE________
1
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Lessor. Prior to the commencement of any substantial repair, improvement, or
alteration, Lessee shall give Lessor at least TEN (10) DAYS WRITTEN NOTICE in
order that Lessor may post appropriate notices to avoid any liability for liens
for any such work of improvement on the premises. Lessee will not at any time
permit any mechanic's laborer's, or materialmen's liens to stand against the
premises for any labor or material furnished to Lessee or claimed to have been
furnished to Lessee or Lessee's agents, contractors, or subtenants, in
connection with work of any character performed or claimed to have been
performed on the premises by or at the direction or sufferance of Lessee. Lessee
will indemnify and defend Lessor for all liens, claims or damages caused by
remodeling, improvements, additions, alterations, and major repairs by Lessee.
If at any time during the term, including renewals or extensions, Lessee fails
to maintain the premises or make any repairs or replacements as required herein,
Lessor may, but shall not be required to, enter the premises and perform the
maintenance or make the repairs or replacements for the account of Lessee. Any
sums expended by Lessor in so doing, together with 6% administrative fee, shall
be deemed additional rent and shall be immediately due from Lessee on demand of
Lessor.
Lessee shall not commit any waste upon the premises, or any nuisance or act
which may disturb the quiet enjoyment of any tenant in the building.
8. ENTRY AND INSPECTION: Lessee shall permit Lessor or Lessor's agents to enter
upon the premises at reasonable times and upon reasonable notice, for the
purpose of inspecting the same, for the purpose of showing prospective
purchasers the premises, and will permit Lessor at any time within NINETY (90)
DAYS prior to the expiration of this lease to place upon the premises any usual
"To Lease" or "Available" signs, and permit persons desiring to lease the same
to inspect the premises thereafter.
9. INDEMNIFICATION OF LESSOR: Lessor shall not be liable for any damage or
injury to Lessee, or any other person, or to any property, occurring on the
demised premises or any part thereof, and Lessee agrees to hold Lessor harmless
from any claims for damages, no matter how caused, except those caused by any
negligent act of Lessor or Lessor's agents acting in the course of their agency.
10. POSSESSION: If Lessor is unable to deliver possession of the premises to
Lessee at the commencement hereof, Lessor shall not be liable for any damage
caused thereby, nor shall this lease be void or voidable, but Lessee shall not
be liable for any rent until possession is delivered. Lessee may at its option
terminate this lease if possession of the premises is not delivered within FIVE
(5) WORKING DAYS of the commencement of the term hereof.
11. OCCUPANCY PRIOR TO THE COMMENCEMENT OF THIS LEASE: Lessee and Lessor agree
that Lessee will occupy a portion of the premises prior to the commencement of
this agreement but under all the terms and conditions of this agreement.
Possession approximately 12/20/95 - Occupancy 1/2/96. At occupancy, Lessee to
pay its prorata share of utilities and a prorata share of rent based on
$10,600.00/month for 100% occupancy. Lessor to allow Lessee the use of the
vacated furniture until Lessor completely vacates the premises.
12. INSURANCE: Lessee, at his expense, shall maintain plate glass and public
liability insurance including bodily injury and property damage covering any
occurrence on or about the premises and common areas insuring Lessee and Lessor
with minimum coverage of $1,000,000.00 per occurrence, combined bodily injury,
personal injury, and property damage.
Lessee shall provide Lessor with a Certificate of Insurance showing Lessor as
additional insured. The Certificate shall provide for a ten-day written notice
to Lessor in the event of cancellation or material change of coverage.
To the maximum extent permitted by insurance policies which may be owned by
Lessor or Lessee, Lessee and Lessor, for the benefit of each other, waive any
and all rights of subrogation which might otherwise exist.
13. UTILITIES: Lessee agrees that he shall be responsible for the payment of
all utilities, including telephone service, water, gas, electricity, heat and
other services delivered to the premises except for one garbage can/week.
14. SIGNS: Lessee shall not construct any exterior sign or awning without the
prior written consent of Lessor which consent shall not be unreasonably
withheld. Lessee shall be able to install a sign that is clearly visible from
the front of the premises.
15. ABANDONMENT OF PREMISES: Lessee shall not vacate or abandon the premises at
any time during the term hereof, and if Lessee shall abandon or vacate the
premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee left upon the premises shall be deemed to be
abandoned, at the option of Lessor.
16. CONDEMNATION: If any part of the premises shall be taken or condemned for
public use, and a part thereof remains which is susceptible of occupation
hereunder, this lease shall, as to the part taken, terminate as of the date the
condemner acquires possession, and thereafter Lessee shall be required to pay
such proportion of the rent for the remaining term as the value of the premises
remaining bears to the total value of the premises at the date of condemnation;
provided however, that Lessor may at his option, terminate this lease as of the
date the condemner acquires possession. In the event that the demised premises
are condemned in whole, or that such portion is condemned that the remainder is
not susceptible for use hereunder by Lessee, this lease shall terminate upon the
date upon which the condemner acquires possession. All sums which may be payable
on account of any condemnation shall belong to the Lessor, and Lessee shall not
be entitled to any part thereof, provided however, that Lessee shall be entitled
to retain any amount awarded to him for his trade fixtures or moving expenses.
LESSOR _______ LESSEE _______
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17. TRADE FIXTURES: Any and all improvements made to the premises during the
term hereof shall belong to the Lessor, except trade fixtures of the Lessee.
Lessee may, upon termination hereof, remove all his trade fixtures, but shall
repair or pay for all repairs necessary for any damages to the premises
occasioned by installation or removal.
18. DESTRUCTION OF PREMISES: In the event of a partial destruction of the
premises during the term hereof from any cause, Lessor shall forthwith repair
the same at Lessor's expense, provided that such repairs can be made within
SIXTY (60) DAYS under existing governmental laws and regulations, but such
partial destruction shall not terminate this lease, except that Lessee shall be
entitled to a proportionate reduction of rent while such repairs are being
made, based upon the extent to which the making of such repairs shall
interfere with the business of Lessee on the premises. If such repairs cannot
be made within said SIXTY (60) DAYS, this lease may be terminated at the option
of either party.
In the event that the building in which the demised premises may be
situated is destroyed to an extent of not less than one-third of the
replacement costs thereof, Lessor may elect to terminate this lease whether
the demised premises be injured or not. A total destruction of the building in
which the premises may be situated shall terminate this lease.
In no event shall Lessor be obligated to repair the premises except to the
extent of insurance proceeds received by Lessor and in no event shall Lessor be
responsible to repair trade fixtures, alterations or modifications made by
Lessee.
19. INSOLVENCY: In the event that a receiver shall be appointed to take over
the business of the Lessee, or in the event that the Lessee shall make a
general assignment for the benefit of creditors, or Lessee shall take or suffer
any action under the insolvency or bankruptcy act, the same shall constitute
breach of this lease by Lessee.
20. REMEDIES OF LESSOR ON DEFAULT: In the event of any breach of this lease by
Lessee, Lessor may at his option terminate the lease and recover from Lessee:
(a) the worth at the time of award of the unpaid rent which was earned at the
time of termination; (b) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time
of the award exceeds the amount of such rental loss that the lessee proves
could have been reasonably avoided; (c) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that Lessee proves could be
reasonably avoided; and (d) any other amount necessary to compensate lessor for
all detriment proximately caused by Lessee's failure to perform his obligations
under the lease or which in the ordinary course of things would be likely to
result therefrom. Lessor may, in the alternative, continue this lease in
effect, as long as Lessor does not terminate Lessee's right to possession, and
Lessor may enforce all his rights and remedies under the lease, including the
right to recover the rent as it becomes due under the lease. If said breach of
lease continues, Lessor may, at any time thereafter, elect to terminate the
lease.
Nothing contained herein shall be deemed to limit any other rights or remedies
which Lessor may have.
21. LATE CHARGES: Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor within FIFTEEN (15) DAYS after such amount shall be due, then, without
any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge
equal to SIX PERCENT (6%) of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee.
22. INTEREST ON PAST DUE OBLIGATIONS: Any amount due to Lessor not paid when
due shall bear interest at EIGHT PERCENT (8%) annually from the date due until
paid.
23. SECURITY: The security deposit set forth above, if any, shall secure the
performance of the Lessee's obligations hereunder. Lessor may, but shall not be
obligated to, apply all or portions of said deposit on account of Lessee's
obligations hereunder. Any balance remaining upon termination shall be returned
to Lessee. Lessee shall not have the right to apply the Security Deposit in
payment of the last month's rent.
24. DEPOSIT REFUNDS: The balance of all deposits shall be refunded within two
weeks from date possession is delivered to Lessor or his authorized Agent,
together with a statement showing any charges made against such deposits by
Lessor.
25. NOTICES: Any notice required or permitted to be given hereunder, except as
required in Paragraphs #29-32, shall be in writing and may be given by personal
delivery or by certified mail, and if given personally or by mail, shall be
deemed sufficiently given if addressed to Lessee or to Lessor at the address
noted below the signature of the respective parties, as the case may be. Either
party may by notice to the other specify a different address for notice
purposes except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for notice purposes. A copy of all
notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
26. HOLDING OVER: Any holding over after the expiration of this lease, without
the consent of
LESSOR__________ LESSEE_____________
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Lessor, shall be construed as a month-to-month tenancy at a rental of
$16,000.00 per month, otherwise in accordance with the terms hereof, as
applicable.
27. TAX INCREASE: In the event there is any increase during any year of the
term of this lease in the real estate taxes over and above the amount of such
taxes assessed for the tax year during which the term of this lease commences,
whether because of increased rate or valuation, Lessee shall pay Lessor upon
presentation of paid tax bills an amount equal to 100% of the amount of any
increase in taxes upon the land and building in which the leased premises are
situated. In the event that such taxes are assessed for a tax year extending
beyond the term of the lease, the obligation of Lessee shall be proportionate
to the portion of the lease term included in such year. The term "real estate
taxes" shall mean any assessments, licenses fees, rental taxes, penalties,
levies, fees, taxes of any kind, or charges in lieu of taxes, levied by any
federal, state, county or municipal government or governmental agency on the
premises and underlying realty or the leasing and income therefrom.
28. PERSONAL PROPERTY TO REMAIN IN THE PREMISES: Lessor, upon vacating the
premises, shall leave the demising office partitions and supporting structures,
all window coverings, all the kitchen appliances, and the telephone system with
secretarial unit and 40 desk sets for the use of Lessee.
29. OPTION TO RENEW LEASE: Provided that Lessee is not in default in the
performance of this lease, Lessee shall have the option to renew this lease
twice for terms of one year each commencing at the expiration of the initial
lease term, and if the first option is exercised, at the expiration of the
first option term. All of the terms and conditions of the lease shall apply
during the renewal term except that the base monthly rent which shall be
increased annually by 5%. The options shall be exercised by written notice
delivered to Lessor by certified mail not less than NINETY (90) DAYS prior to
the expiration of the appropriate lease term. If notice is not given in the
manner provided herein within the time specified, this option shall expire,
provided Lessor provides 10 day notice thereof.
30. LESSEE'S OPTION TO PURCHASE: Provided that Lessee is not in default in
the performance of this lease, Lessee shall have the option during the term of
this agreement to purchase the leased premises and the lease for the parking
lot across the street for the sum of $1,100,000.00 adjusted upward monthly by
.25% through the close of the purchase escrow. The option shall be exercised by
delivery of written notice to Lessor by certified mail not less than 120 days
prior to the expiration of the lease and simultaneously opening a purchase
escrow with Chicago Title Company with a cash deposit of 10% of the purchase
price. Escrow to provide for closing 60 days from the delivery of the written
notice exercising the purchase option.
31. LESSOR'S RIGHT OF SELL THE PROPERTY, TO CANCEL THE LEASE AND LESSEE'S
RIGHT TO PURCHASE THE PROPERTY: In the event Lessor wishes to accept an offer
to sell the property in which the leased premises are located during the term
hereof, Lessor may:
A.) Cancel Lessee's Option to Purchase (Pg. #30) by giving Lessee written
notice by certified mail of his intent to sell the property together with a
copy of the acceptable purchase offer. Upon the cancellation of the Purchase
Option Lessee shall have the right for fifteen days following the receipt of
said notice of cancellation to purchase the property on all the same terms and
conditions contained in the acceptable purchase offer. To exercise this right
to purchase Lessee must within fifteen days notify Lessor by certified mail of
his intent to purchase and execute a purchase agreement upon the same terms and
conditions contained in the acceptable offer. Failure to respond to Lessor
within the fifteen day period shall void all Lessee's right to purchase the
property.
B.) In the event Lessee does not exercise his right to purchase the property
and Lessor proceeds to sell the property then Lessor, at its option, may cancel
this Lease at any time after the first 12 months of the lease term by giving
Lessee written notice, by certified mail, of the sale and of Lessor's intent to
cancel the lease. Said cancellation to be effective 150 days from the date of
receipt of notice.
32. LESSEE'S RIGHT TO CANCEL THIS LEASE: At any time after the first 12
months of the lease term Lessee may cancel this lease by giving Lessor written
notice 90 days prior to its intent to cancel, delivered to Lessee by certified
mail and paying to Lessor at that time a cancellation fee determined as follows:
If the Cancellation is effective during the 13th through 17th month then the
fee is $50,000.00
If the Cancellation is effective during the 18th through 34th month then the
fee is $30,000.00
33. ESTOPPEL CERTIFICATE: (a) Lessee shall at any time upon not less than TEN
(10) DAYS PRIOR WRITTEN NOTICE from Lessor execute, acknowledge and deliver to
Lessor a statement in writing (1) certifying that this Lease is unmodified and
in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified is in full force
and effect), the amount of any security deposit, and the date to which the rent
and other charges are paid in advance, if any, and (2) acknowledging that there
are not, to Lessee's knowledge, any uncured defaults on the part of Lessor
hereunder, or specifying such defaults if any are claimed. Any such statement
may be conclusively relied upon by any prospective purchaser or encumbrancer to
the Premises. (b) At Lessor's option, Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
conclusive upon Lessee (1) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (2) that there are no
uncured defaults in lessor's performance, and (3) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease. (c) If Lessor desires to
finance, refinance, or sell the Premises, or any part thereof, Lessee hereby
LESSOR __________ LESSEE _________
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agrees to deliver to any lender or purchaser designated by Lessor such
financial statements of Lessee as may be reasonably required by such lender or
purchaser. Such statements shall include the past three years financial
statements of Lessee. All such financial statements shall be received by Lessor
and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
34. AMERICAN DISABILITIES ACT (ADA): Lessor, licensed architects, represent
that the leased premises complied when built with the 1990 State of California
Handicapped Requirements and that has been no subsequent remodeling. The
premises may not meet ADA requirements having been constructed prior to
enactment of that legislation. All parties agree and understand that any
required construction or modification to the Premises that may be necessary to
comply with the ADA and which arises consequent to or during the term of this
lease except those triggered by remodeling done by Lessee, shall be the sole
responsibility of the Lessor.
35. COMMERCIAL ENERGY CONSERVATION ORDINANCE (CECO): Berkeley's Commercial
Energy Conservation Ordinance may require that a commercial property meet
certain energy conservation standards at the time of remodel. Any required
energy audit, retrofit, inspection or documentation to satisfy the ordinance
shall be the responsibility of the Lessor. Lessor represents that the H.V.A.C.
system is capable of maintaining the temperature in all parts of the space
except the toilets, telephone equipment room and storage rooms to between 68 and
75 degrees F while maintaining the ventilation standard for the premises of the
California Energy Code.
36. SUBORDINATION: Lessee agrees that this Lease shall be subordinate to any
mortgage or trust deeds that are now upon said premises or that are placed
against the premises at any time in the future provided that any future lender
provide Lessee with a non-disturbance agreement for the balance of the lease
term or extension thereof.
37. ATTORNEY'S FEES: In case arbitration or suit should be brought for
recovery of the premises, or for any sum due hereunder, or because of any act
or omission which may arise out of this Lease or out of the possession of the
premises, by either party, the prevailing party shall be entitled to all costs
incurred in court, arbitration or otherwise in connection with such action,
including a reasonable attorney's fee.
38. LESSOR'S SERVICES: Prior to occupancy Lessor, at Lessor's expense, shall
A.) steam clean the carpets, B.) provide up to 20 hours of work by a painter to
paint and patch walls as directed by Lessee, and C.) provide Lessee with up to
10 hours of services for space planning, wall system design and building system
explanation in conjunction with the move into the leased premises.
39. CONTINGENCIES: This Lease is contingent upon the following:
A.) Lessor and Lessee, within three days of execution hereof, mutually
approving in writing an inventory of furniture and personal property of the
Lessor to be left in the premises for the use of Lessee.
B.) Lessor's written approval, within three days of receipt, of Lessee's
financial statement. In the event these approvals at not forth coming in the
times herein provided then this lease agreement shall be of no further force or
effect to either party.
40. WAIVER: No failure of Lessor to enforce any term hereof shall be deemed
to be a waiver.
41. NO PARTNERSHIP: It is expressly understood that Lessor does not, in any
way or for any purpose, become a partner of Lessee in the conduct of its
business, or otherwise, or joint adventurer or a member of a joint enterprise
with Lessee, and that the provisions of this Lease relating to the percentage
rental payable hereunder, if any, are included solely for the purpose of
providing a method whereby the rental is to be measured and ascertained.
42. INTERPRETATION: This Lease shall be interpreted in accordance with its
fair meaning and not in favor of any party.
43. AUTHORITY: All individuals executing this Lease on behalf of Lessee
represent that they are authorized to execute and deliver this Lease on behalf
of Lessee.
44. TIME: Time is of the essence of this lease.
5
<PAGE> 6
45. HEIRS, ASSIGNS, SUCCESSORS: This lease is binding upon and inures to the
benefit of the heirs, assigns and successors in interest to the parties.
ENTIRE AGREEMENT: The foregoing constitutes the entire agreement between the
parties and may be modified only by a writing signed by both parties.
THE UNDERSIGNED LESSEE HEREBY ACKNOWLEDGES RECEIPT OF A COPY HEREOF.
Dated: 12-20-95
----------------
Donald Yost Agent CyberGold, Inc. Lessee
- -------------------------- ------------------------
NORHEIM & YOST Broker /s/ A. N. Goldhaber By
- -------------------------- ------------------------
A. N. Goldhaber, President
ACCEPTANCE
THE UNDERSIGNED LESSOR HEREBY ACKNOWLEDGES RECEIPT OF A COPY HEREOF.
Dated: 12-20-95
----------------
John Norheim Agent WEILMAN TRELOAR & CO. Lessor
- -------------------------- ------------------------
NORHEIM & YOST Broker /s/ Grier R. Graff By
- -------------------------- ------------------------
LESSOR /s/ [Signature Illegible]
------------------------------
LESSEE /s/ [Signature Illegible]
------------------------------
6
<PAGE> 1
Exhibit 10.7
MERCHANT TRANSACTION PROCESSING
-------------------------------
AGREEMENT
<PAGE> 2
<TABLE>
<S> <C> <C> <C> <C> <C>
Associate: Chain: MID#: DDA#: MCC Code: Date Rec'd
---------- ------ ------ ------- ------- -------
</TABLE>
AGREEMENT
By their execution hereof, the undersigned PARTIES hereby agree to the terms,
conditions, and provisions of the documents, agreements, and rules which are
included herein, which shall become effective as provided. All of the documents
contained are called the "AGREEMENT."
The following documents are attached hereto:
<TABLE>
<S> <C>
Processing Terms.......................................... pp. 1 - 7
Terminal Rental Agreement (included: / / Y / / N)........ pp. 8 - 9
Guarantee................................................. pp. 10
Rules..................................................... pp. 11 - 20
</TABLE>
The following documents are included herein and are located in the inside front
cover of this packet:
Merchant Application
Funds Transfer Instructions
Schedule of Applicable Fees
POS Information
Purchasing Card Information
- --------------------------------------------------------------------------------
BY ITS EXECUTION HEREOF, MERCHANT ACKNOWLEDGES RECEIPT OF THE DOCUMENTS LISTED
ON THIS PAGE. ALL INFORMATION CONTAINED ON THIS APPLICATION WAS COMPLETED OR
SUPPLIED BY ALL CONTRACTING PARTIES. MERCHANT ACCEPTS ALL CONTRACTUAL ASPECTS
OF THE AGREEMENT. MERCHANT UNDERSTANDS THAT THIS AGREEMENT SHALL NOT TAKE EFFECT
UNTIL SIGNED BY FIRST NATIONAL BANK OF OMAHA.
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF THE PARTIES HERETO HAVE CAUSED THIS AGREEMENT TO BE EXECUTED
BY THEIR DULY AUTHORIZED REPRESENTATIVES EFFECTIVE ON THE DATE SIGNED BY FNBO.
<TABLE>
<S> <C>
MERCHANT: CyberGold, Inc. FIRST NATIONAL BANK OF OMAHA
Signature: /s/ MARY K. GLAESER Signature:
------------------------- ------------------------
Name: /s/ Mary K. Glaeser Name:
------------------------------ -----------------------------
Date: 6/17/97 Date:
------------------------------ -----------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
THE UNDERSIGNED AGREES TO THE TERMS OF THE UNDERSIGNED AGREES TO THE
THE TERMINAL RENTAL AGREEMENT: TERMS OF THE GUARANTEE.
SPC, INC. GUARANTOR:
--------------------------------
Signature: By:
----------------------------- ---------------------------------------
Name: Social Security or Tax ID:
---------------------------------- ----------------
Date: Address:
---------------------------------- ----------------------------------
City:
-------------------------------------
State: Zip Code:
------------ -------------
</TABLE>
<PAGE> 3
PROCESSING TERMS
This AGREEMENT shall become effective on the date executed by a duly authorized
representative of FNBO. FNBO and MERCHANT shall be collectively known as the
"PARTIES."
A. WHEREAS FNBO is a Member of VISA U.S.A., Inc. ("VISA") and MasterCard
International, Inc. ("MASTERCARD") and provides transaction processing
and other services, ("SERVICES"), in relation to financial services
cards ("CARDS") issued by VISA, MASTERCARD and other financial service
card organizations, including debit point of sale networks ("DEBIT POS
NETWORKS"). VISA, MASTERCARD, DEBIT POS NETWORKS, and the other
financial service card organizations shall be collectively known as
"ASSOCIATIONS;"
B. WHEREAS MERCHANT, in furtherance of its business operations, wishes to
accept debit and credit CARDS issued by the ASSOCIATIONS and have FNBO
process the resulting transactions ("SALES") pursuant to the terms and
conditions set out below. For purposes of this AGREEMENT, debit
transactions, ("DEBIT"), shall mean those transactions processed on a
DEBIT POS NETWORK, in an on-line real time environment requiring the
entry of a personal identification number, ("PIN");
C. WHEREAS MERCHANT desires to be sponsored as a participant in certain
DEBIT POS NETWORKS, under the terms of the rules and regulations of
each such DEBIT POS NETWORK;
D. WHEREAS ASSOCIATIONS and FNBO each have adopted rules and regulations
relating to all aspects of SALES processing. Such rules and
regulations, as amended from time to time, are incorporated by this
reference herein and shall be referred to as the "RULES."
E. WHEREAS MERCHANT understands that this is an agreement for transaction
processing and that the fees for the services herein are calculated
based on the term of this AGREEMENT, the number of transactions
processed, and the method of processing.
NOW THEREFORE, in consideration of the mutual promises made herein and other
valuable consideration, receipt and sufficiency of which are hereby
acknowledged, the PARTIES do hereby agree as follows:
1. GENERAL:
1.1 The CARDS designated herein will be processed under the terms and
conditions of AGREEMENT as long as FNBO is contractually permitted to offer
such SERVICES by the respective ASSOCIATIONS.
1.2 MERCHANT agrees to submit all SALES from CARDS accepted in MERCHANT's
business as defined in the Application, under Business Profile and
Assumptions, for processing, ("BUSINESS"), to FNBO in accordance with the
RULES and pursuant to the terms of this AGREEMENT.
1.3 MERCHANT agrees that this AGREEMENT is confidential and will not disclose
it to any third party without the prior written consent of FNBO.
1.4 MERCHANT and FNBO agree to abide by the RULES. FNBO and ASSOCIATIONS may
from time to time amend the RULES or operating procedures related to SALES
and SERVICES to be effective upon thirty (30) days written notice to
MERCHANT.
1.5 MERCHANT has been supplied with the RULES and by signing AGREEMENT,
acknowledges that it has received and understands them.
1
<PAGE> 4
1.6 Submission by MERCHANT of SALES at any time after seven (7) days from the
date of distribution of amended RULES to MERCHANT's address for
processing statements, shall be evidence that MERCHANT has received the
amended RULES and has agreed to abide by them.
2. SPECIFIC OPERATING PROCEDURES:
2.1 MERCHANT agrees that it will comply with all CARD Acceptance Procedures
in RULES for each SALE, including, but not limited to the following:
2.1.1 MERCHANT agrees that it will obtain and record a valid positive
authorization for all SALES in accordance with the RULES before
submitting them to FNBO for processing; and
2.1.2 MERCHANT must be able to prove, by evidence of a terminal capture
of a magnetic stripe or signed sales draft showing imprint of the
CARD, that the CARD was present at the time of SALE, unless
specifically set up for Mail Order and Telephone Order ("MO/TO")
transactions.
2.2 MERCHANT may participate in such DEBIT POS NETWORKS as are set forth in
the Schedule Of Applicable Fees. Additional DEBIT POS NETWORKS may be
available from time to time. FNBO does not warrant the continuing
availability of any DEBIT POS NETWORK.
2.3 MERCHANT agrees to accept valid CARDS of each of the DEBIT POS NETWORKS
selected without discrimination and will not impose purchase minimums,
maximums, or surcharges, unless specifically allowed by the DEBIT POS
NETWORKS. MERCHANT agrees to comply with the rules, regulations,
procedures, fees, assessments, penalties, and other obligations of each
DEBIT POS NETWORK, as from time to time are in effect.
2.4 FNBO may provide MERCHANT access through MERCHANT's terminals to the
DEBIT POS NETWORKS if agreed to by MERCHANT herein.
2.5 MERCHANT realizes that there are no voice authorizations for DEBIT
transactions.
3. PAYMENT OF SUMS DUE:
3.1. MERCHANT agrees to pay FNBO the fees as set out in the Schedule of
Applicable Fees and other sums owed to FNBO, including but not limited to
all disputed transactions ("CHARGEBACKS"), (collectively "FEES") for
SERVICES as set forth in this AGREEMENT as amended from time to time.
3.2 As set our in the Schedule of Applicable Fees, discount ("DISCOUNT") is a
transaction charge for SALES submitted by MERCHANT and generally includes
"Processing," "Authorizations," "Assessments," and "Interchange."
Assessments and Interchange are the standard fees that the ASSOCIATIONS
charge for the clearing of SALES transactions and are subject to change
by the ASSOCIATIONS; FNBO has no direct control over these fees. Any
adjustment in Interchange and Assessments by the ASSOCIATIONS may result
in an adjustment in the DISCOUNT charged to MERCHANT. FNBO will notify
MERCHANT of any change in FEES caused by action of ASSOCIATIONS, in
writing, prior to any such change becoming effective. Notice to MERCHANT
of any change in FEES caused by ASSOCIATIONS may be less than thirty (30)
days.
3.3 DISCOUNT is quoted by FNBO based on the information supplied by MERCHANT
in the Application under the Business Profile and Assumptions,
("ASSUMPTIONS"). MERCHANT agrees that the FEES are based on the term of
this AGREEMENT, the ASSUMPTIONS, and the method of processing. MERCHANT
agrees that the ASSUMPTIONS are material facts in the calculation of the
DISCOUNT and other FEES. MERCHANT agrees that if the ASSUMPTIONS are
shown to be incorrect, FNBO may amend FEES as set out herein to reflect
such change. MERCHANT agrees to pay such amended FEES.
3.4 The FEES may be amended by FNBO on thirty (30) days written notice to
MERCHANT unless provided otherwise herein.
2
<PAGE> 5
3.5 MERCHANT understands that FNBO is in no way financially responsible for
CHARGEBACKS. Failure to comply with the RULES will increase MERCHANT's
exposure to CHARGEBACKS. MERCHANT's obligation to pay chargebacks shall
survive the termination or expiration of AGREEMENT.
3.6 In the event that ASSOCIATIONS should levy a fine or penalty or assess a
charge to FNBO as a result of MERCHANT's SALES or CHARGEBACK activity,
MERCHANT agrees to pay such fines, penalties, or charges, and any
administrative fees associated with such fines, penalties, or charges.
3.7 MERCHANT shall establish a designated account ("DESIGNATED ACCOUNT") for
the credit and debit of sums between the PARTIES. MERCHANT agrees to
maintain a positive balance in the DESIGNATED ACCOUNT and to deposit
funds so that the balance required by FNBO is maintained. If AGREEMENT is
terminated for any reason, the DESIGNATED ACCOUNT shall be maintained for
a minimum period of six months in order to secure the obligations of
MERCHANT hereunder unless otherwise agreed in writing by the PARTIES
hereto.
3.8 FNBO agrees to pay MERCHANT for SALES less FEES owed to FNBO by
MERCHANT. FNBO shall deduct FEES from income transactions or debit the
same from MERCHANT's DESIGNATED ACCOUNT.
3.9 In the event that FNBO invoices MERCHANT for any FEES and MERCHANT does
not pay such sums within thirty (30) days from date of receipt of
invoice, FNBO will charge, and MERCHANT agrees to pay, a late fee of one
and one-half percent (1.5%) on the balance outstanding on the unpaid
invoices accruing on a monthly basis.
3.10 If MERCHANT breaches AGREEMENT or if FNBO identifies suspicious or
irregular activity related to SALES, FNBO may refuse to process SALES
and/or may hold funds pending the cure of such breach or resolution of
such activity.
3.11 Electronic Authorizations are the number of authorizations requested per
month which exceed one hundred percent (100%) (unless a different
authorization percentage is provided for in the ASSUMPTIONS) of the
number of VISA and MASTERCARD SALES transactions processed in that month.
In the event MERCHANT pays the per item authorization fee this section
does not apply.
3.12 Voice Authorizations are the number of Voice Authorizations requested per
month of the number of VISA and MASTERCARD transactions processed in that
month.
3.13 Voice Assisted Class are considered to be any call to the Voice
Authorization Center for any reason other than a Voice Authorization.
3.14 In the event AGREEMENT is terminated early for any reason other than set
out in paragraph 5.1, 5.2.1, 5.2.2, MERCHANT agrees to pay FNBO a
liquidated damages sum ("LIQUIDATED DAMAGES") to be determined by
computing the number of months remaining from the effective date of
termination to the end of the current term of this AGREEMENT and
multiplying that number by fifty-five dollars ($55.00). MERCHANT and FNBO
agree that the damages suffered by FNBO as a result of such early
termination would be extremely difficult to calculate with precision. For
that reason, the PARTIES agree that the LIQUIDATED DAMAGES should be
computed as set forth above.
3.15 MERCHANT agrees that LIQUIDATED DAMAGES shall also be due to FNBO if
MERCHANT discontinues submitting SALES for processing during the term of
AGREEMENT.
3.16 In the event of a termination of this AGREEMENT, MERCHANT shall pay FNBO
all costs of deconversion, including but not limited to, costs of
communication and attorney's fees of FNBO's counsel.
3.17 In the event FNBO takes any action against MERCHANT to collect any FEES
or monies due FNBO from MERCHANT, MERCHANT agrees to pay all costs of
collection, including but not limited to, attorney's fees, to the extent
allowed by law.
3
<PAGE> 6
4. TERM OF AGREEMENT:
4.1 The initial term of this AGREEMENT shall be for the term of three (3)
years (the "INITIAL TERM") commencing on the date this AGREEMENT is
executed by an authorized agent of FNBO.
4.2 At the expiration of the INITIAL TERM, this AGREEMENT will automatically
renew for successive one (1) year periods ("RENEWAL TERM") unless
terminated as set out below.
5. TERMINATION OF AGREEMENT:
5.1 This AGREEMENT, except for any included terminal rental agreement, may
be terminated by FNBO at any time effective upon thirty (30) days written
notice.
5.2 This AGREEMENT may be terminated by MERCHANT as follows:
5.2.1 Upon FNBO's default of any material obligation to MERCHANT
thereunder and the failure of FNBO to cure such default within
thirty (30) days after written notice of such default; or
5.2.2 Upon written notice of non-renewal at least thirty (30) days prior
to the commencement of any RENEWAL TERM; or
5.2.3 On thirty (30) days written notice of termination accompanied by
payment to FNBO of the LIQUIDATED DAMAGES due at that time.
5.3 In order to protect the ASSOCIATIONS and FNBO, FNBO may terminate this
AGREEMENT effective immediately for any of the following reasons:
5.3.1 In the event of insolvency, receivership or voluntary or
involuntary bankruptcy; or in the event of an assignment of any of
MERCHANT's assets for the benefit of MERCHANT's property creditors,
or in the event that any part of MERCHANT's property is or becomes
subject to any levy, seizure, assignment or sale for or by any
creditor or governmental agency without being released within
thirty (30) days thereafter; or
5.3.2 If MERCHANT fails to pay any FEES when due; or
5.3.3 If MERCHANT has misrepresented or omitted any material information
provided to FNBO; or
5.3.4 If MERCHANT is in breach of the RULES; or
5.3.5 If MERCHANT, after FNBO's request, fails to send copies of SALES
drafts to FNBO; or
5.3.6 If MERCHANT submits for processing SALES that were not originated
as a result of a direct SALE transaction between a cardholder and
MERCHANT in the normal course of business ("LAUNDERING"); or
5.3.7 If the number of CHARGEBACKS experienced by MERCHANT in any one
month exceed one percent (1%) of the number of SALES in that or any
prior month; or
5.3.9 In the event of a material change of BUSINESS; or
5.3.10 In the event that MERCHANT, its principal, or associated parties,
is identified by the ASSOCIATIONS under any program designed to
monitor merchants; or
5.3.11 If MERCHANT is inactive for ninety (90) days and is not a seasonal
MERCHANT; or
5.3.12 In the event that Guarantor (if designated) shall give notice of
its intention to withdraw the Guarantee.
5.4. Upon the notice of termination or expiration of the AGREEMENT, FNBO is
entitled to retain sufficient funds to cover anticipated FEES. In the
event that there is not enough money retained to cover the anticipated
FEES, FNBO may require MERCHANT to deposit sufficient funds. This sum will
be retained by FNBO for a period of one hundred eighty (180) days, plus
the period of any warranty or guarantee on goods and/or services sold by
MERCHANT and processed as SALES, from the date of the last SALE processed
by MERCHANT under AGREEMENT. FEES due to FNBO received during this period
will be
4
<PAGE> 7
debited from this sum. At the end of the period defined above FNBO will
release to MERCHANT the balance of the sums retained, net of any FEES that
are then being processed or disputed.
6. BANKRUPTCY:
6.1 It is not the intention of the PARTIES that FNBO remain obligated to
continue processing SALES in the event of a Bankruptcy filing by MERCHANT.
Upon filing voluntary or involuntary bankruptcy proceedings by or against
MERCHANT, MERCHANT must notify FNBO in writing within five (5) days.
Notification must be sent by certified mail to FNBO at the address for
NOTICES set out herein.
6.2 Credits to MERCHANT's DESIGNATED ACCOUNT and other payments to MERCHANT
are provisional and the PARTIES agree that AGREEMENT is a contract whereby
FNBO is extending financial accommodations to MERCHANT within the meaning
of Section 365 of the Bankruptcy Code as amended from time to time. The
right or MERCHANT to receive any amounts due or to become due from FNBO is
expressly subject and subordinate to the CHARGEBACKS, setoff, lien, and
security interest rights of FNBO under this AGREEMENT without regard to
whether such CHARGEBACKS, setoff, lien, and/or security interest rights
are being applied to claims that are liquidated, unliquidated, fixed,
contingent, matured, or unmatured.
7. INFORMATION AND DOCUMENTATION:
7.1 MERCHANT agrees to comply with all requests for information and
documentation regarding SALES and CARDS processed under AGREEMENT within
the time period stated by FNBO in its request.
7.2 Upon FNBO's request MERCHANT shall provide FNBO with current financial
statements in a format acceptable to FNBO.
7.3 MERCHANT understands that credit reports of principal(s) of MERCHANT will
be requested and authorizes the same, on behalf of itself and those
parties. MERCHANT authorizes parties contacted by FNBO, or any of its
affiliates, in relation to this AGREEMENT to release the credit
information requested by FNBO or any affiliate.
7.4 If the opinion of FNBO, information received or discovered about MERCHANT
reflects an adverse change in status, or in the event that any information
requested by FNBO is not received, FNBO may withhold the payment for SALES
or require a reserve of funds be deposited in an account at FNBO with the
deposit established to cover MERCHANT's obligations under AGREEMENT.
7.5 MERCHANT is supplied with monthly reports by FNBO regarding MERCHANT's
SALES activity. It is MERCHANT's sole responsibility to report any error
or discrepancies detected by MERCHANT in writing to FNBO within ninety
(90) days following the end of the monthly reporting period. After such
period, MERCHANT will be deemed to have accepted the monthly reports as
delivered.
8. PROCESSING RESTRICTIONS:
8.1 MERCHANT understands that FNBO is not responsible for and is not able to
provide customer service for the POS devices installed by and/or operated
by any Third Party with which MERCHANT has contracted. MERCHANT should
contact the Third Party for service in respect of this equipment. MERCHANT
shall not allow any Third Party to install, remove, or modify any terminal
software application at MERCHANT's location without the express written
consent of FNBO. MERCHANT understands and agrees that FNBO can only
process SALES that are received by FNBO, and that any Third Party is
responsible for ensuring that the SALES are formatted and transmitted to
FNBO in accordance with the then current FNBO and ASSOCIATIONS'
requirements. MERCHANT also understands and agrees that in the event that
a Third Party presents SALES transactions that are not in accordance with
the then current ASSOCIATIONS' requirements that the FEES charged to
MERCHANT by FNBO may increase.
8.2 MERCHANT agrees that it will not materially change its BUSINESS or the
method in which it markets or sells the goods and services of BUSINESS
without informing FNBO. FNBO may only process SALES from BUSINESS as
defined in the Application.
5
<PAGE> 8
8.3 In the event actual monthly SALES volume substantially exceeds the
projected annual SALES volume as provided in the ASSUMPTIONS and pro-rated
to one month, FNBO may, at its option, either refuse to process SALES in
excess of such sum and/or process such SALES and retain the proceeds of
such SALES until the next month and release such sums to MERCHANT at that
time (and count this volume as SALES volume for that month) and/or
terminate AGREEMENT; and/or amend this AGREEMENT in a way to ensure that
FNBO has security for the increased volume. Such rights of termination and
retention of funds are in addition to those already provided for herein.
9 WARRANTIES AND INDEMNITIES:
9.1 MERCHANT understands that FNBO merely provides processing services for
SALES and is neither a partner in MERCHANT's business operations nor a
guarantor of the receipt by MERCHANT of the proceeds of SALES.
Furthermore, FNBO does not guarantee that SALES will not be subject to
CHARGEBACKS.
9.2 MERCHANT warrants that it has not been terminated form depositing SALES
with any other member of the ASSOCIATIONS.
9.3 MERCHANT warrants that at the time of depositing SALES for processing (i)
it has the right to assign such SALES to FNBO and does by this reference
assign all its rights, title, and interest to payment for such SALES to
FNBO so that FNBO may process SALES under AGREEMENT; (ii) it has no
knowledge of any fact that would impair the collectability of the SALES;
and (iii) that the SALES represent a valid obligation of the cardholder in
the amount indicated for merchandise sold and delivered or services
rendered to the cardholder by the MERCHANT only and does not involve any
element of credit for any other purpose.
9.4 MERCHANT agrees to indemnify and hold harmless FNBO from and against any
claims, demands, or judgments, made or recovered against it and arising
out of any breach by MERCHANT of the terms of this AGREEMENT or arising
from any act or omission by MERCHANT which violates any applicable
federal, state, or local laws, regulations, or the RULES. FNBO may defend
on its own any such claims or demands or request MERCHANT to take up such
defense. In either event MERCHANT will further indemnify FNBO for
reasonable attorneys' fees or any other necessary expenses incurred by
FNBO by reason of such defense.
9.5 MERCHANT shall be solely responsible for losses and CHARGEBACKS, incurred
as a result of, or arising out of any fraud including LAUNDERING,
negligence, or willful misconduct on the part of MERCHANT, or one or more
of MERCHANT's employees or agents.
10. NOTICES:
10.1 All notices required under this AGREEMENT shall be written notices
effective, unless otherwise stated in AGREEMENT, upon the earlier of
actual receipt thereof or the third (3rd) business day following such
notices being deposited postage prepaid in the United States Postal System.
10.2 All notices shall be sent to the following addresses:
10.3 If to FNBO or SPC:
First National Bank of Omaha.
One First National Center
16th & Dodge Street
P.O. Box 2196
Omaha, NE 68102
Attention: Merchant Legal and Compliance
10.4 If to MERCHANT: At the address set out in the Application or such
alternative address as designated in writing by MERCHANT.
6
<PAGE> 9
10.5 Either PARTY may designate alternate addresses by giving the other
fourteen (14) days written notice of the change in address.
11. MISCELLANEOUS:
11.1 FNBO, may from time to time, delegate duties under AGREEMENT without
giving notice to MERCHANT, provided, however, that FNBO will remain
liable to MERCHANT for any obligations existing under AGREEMENT.
Except as expressly provided in AGREEMENT, MERCHANT may not assign its
rights or delegate its responsibilities under this AGREEMENT without
the prior written consent of FNBO.
11.2 This AGREEMENT and the guarantee contained herein shall be governed by
and construed in accordance with the laws of the State of Nebraska.
The PARTIES also agree that in the event of any dispute regarding this
AGREEMENT, the courts of the State of Nebraska shall have and be
vested with personal jurisdiction over the PARTIES.
11.3 No delay or failure by either PARTY to exercise any right under
AGREEMENT, and no partial or single exercise of that right, shall
constitute a waiver of that right or any other right, unless expressly
provided for in AGREEMENT.
11.4 FNBO is not liable or responsible for any failure or delay in
performance caused by any Act of God, strikes, flood, fire, war,
public enemy, electrical or equipment failure, failures by third
PARTIES, or other events beyond its control.
11.5 This AGREEMENT constitutes the entire understandings of the PARTIES
and supersedes all prior contracts, agreements, and negotiations
between the PARTIES whether verbal or written.
11.6 FNBO shall not be responsible for the costs incurred by MERCHANT in
negotiating or implementing this AGREEMENT.
11.7 The obligations of all PARTIES incurred prior to the effective date of
termination of AGREEMENT will survive the termination of AGREEMENT. In
the event that any portion of AGREEMENT is held invalid or
unenforceable for any reason, it is agreed that any invalidity or
unenforceability will not affect the remainder of the same and the
remaining provisions will remain in full force and effect. The PARTIES
agree that any Court of competent jurisdiction may modify any
objectionable provision of the AGREEMENT so as to render it valid,
reasonable and enforceable.
11.8 This AGREEMENT may be amended or modified by FNBO effective upon
thirty (30) days written notice.
11.9 By signing the AGREEMENT, MERCHANT represents that it has the full
legal power and authority to enter into performance obligations under
AGREEMENT. MERCHANT also represents that the entering into of this
AGREEMENT has been duly authorized by MERCHANT, that the signer is a
duly authorized signatory for the MERCHANT and that this AGREEMENT
constitutes a legal, valid, and binding obligation of MERCHANT and is
enforceable against MERCHANT in accordance with its terms.
11.10 FNBO agrees not to use any information supplied by MERCHANT in the
Purchasing Card Information which is required for acceptance of
purchasing cards, in its decision as to whether to accept MERCHANT for
processing. MERCHANT agrees to hold FNBO harmless from any and all
claims relating to the collection, processing, dissemination, and use
or misuse of the information contained in the Purchasing Card
Information. MERCHANT acknowledges that the information from the
Purchasing Card Information will be sent to MERCHANT's corporate
customers who pay with a purchasing card. MERCHANT agrees that FNBO is
not responsible for any actions or omissions of others regarding this
information.
11.11 This AGREEMENT shall not become a binding AGREEMENT between the
PARTIES until (i) it is signed by an authorized Agent of FNBO; and
(ii) FNBO has received a negative response to its inquiry of the
ASSOCIATIONS' programs designed to monitor merchants.
7
<PAGE> 10
TERMINAL RENTAL AGREEMENT
If the first page of this AGREEMENT is executed by the PARTIES the following
hereby applies. This Terminal Rental Agreement, ("RENTAL AGREEMENT"), by and
between SPC, Inc. d/b/a First of Omaha Merchant Processing, a Nebraska
Corporation ("SPC") and MERCHANT shall become effective on the date executed by
a duly authorized representative of SPC.
1. SPC agrees to rent to MERCHANT and MERCHANT agrees to rent from SPC the
equipment described in the attached POS Information form ("EQUIPMENT") for
a term of three (3) years and shall automatically renew for additional one
(1) year terms. Following the initial term either PARTY may terminate by
providing 30 days written notice of termination to the PARTY.
2. MERCHANT agrees to pay SPC a monthly RENTAL FEE for the EQUIPMENT which
will be debited monthly from the MERCHANT's DESIGNATED ACCOUNT established
under the RENTAL AGREEMENT.
3. MERCHANT agrees to pay the fee set out in the POS Information per month as
rental for the EQUIPMENT.
4. The PARTIES hereto agree to each of the terms and conditions forth herein
and acknowledge that such provisions are binding upon each of them, their
successors, heirs and assigns.
5. MERCHANT understands that a telephone jack and other equipment may be
required for its phone system to be compatible with EQUIPMENT at MERCHANTS
expenses.
6. Upon expiration of the rental of the EQUIPMENT, MERCHANT agrees to remove
the EQUIPMENT from its locations and deliver it to SPC at MERCHANTS cost in
the same condition as when the EQUIPMENT was installed, normal wear and
tear excepted. The PARTIES agree that the EQUIPMENT is and will remain
personal property of SPC.
7. MERCHANT hereby assumes the entire risk of loss, damage or destruction of
the EQUIPMENT from any cause whatsoever during the term of the rental,
until the delivery of the EQUIPMENT to SPC. In the event of damage to or
loss of EQUIPMENT, MERCHANT shall at the option of SPC either repair
EQUIPMENT at MERCHANT's expense or pay SPC the cost of replacing the same
at the current replacement cost.
8. MERCHANT hereby grants to SPC the right, during normal business hours, to
enter any location under MERCHANT's control for the purpose of inspecting,
repairing, or replacing EQUIPMENT.
9. MERCHANT shall and does hereby agree to indemnify and hold SPC, its agents,
employees, successors and assigns harmless from any and all liability,
damages or loss (including attorney fees and costs) arising out of the
ownership, selection, possession, leasing or renting, operation (regardless
of where, how and by whom operated), control, use, condition (included but
not limited to, latent and other defects, whether or not discoverable by
SPC) maintenance, delivery and return of the EQUIPMENT. This
indemnification and the obligations contained herein shall survive
termination or expiration of RENTAL AGREEMENT.
10. MERCHANT shall keep EQUIPMENT insured against all risks for not less than
replacement costs of EQUIPMENT, naming SPC as an additional insured as its
interest may appear. All such insurance shall be in form and with companies
acceptable to, and approved in writing by SPC.
11. In the event of termination of this rental, SPC shall have the right to
enter onto MERCHANT's locations for the purpose of recovering EQUIPMENT.
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12. MERCHANT is not authorized to make any alterations, repairs or changes
including programming changes to EQUIPMENT. Any personal property attached
to EQUIPMENT shall become part of the EQUIPMENT.
13. SPC has no liability whatsoever for any indirect, special or consequential
damages, such as, but not limited to, loss of anticipated profits, or
other economic loss in connection with any use of EQUIPMENT or services
provided by SPC pursuant to this or any other agreement. SPC is not
responsible for any loss or damages whatsoever sustained by MERCHANT
arising as a result of any acts of God, strikes, flood, weather, shortages
of parts or supplies or other events beyond its reasonable control.
14. SPC will provide maintenance service to EQUIPMENT during the term of the
RENTAL. MERCHANT shall not allow any other person or entity to maintain or
tamper with EQUIPMENT without the express written consent of SPC.
15. MERCHANT has examined EQUIPMENT and relies on no warranties or
representations of SPC as to the quantity or nature of EQUIPMENT. SPC makes
no warranty express or implied as to the merchantability or fitness for any
particular purpose of EQUIPMENT.
16. Except as expressly provided herein, MERCHANT may not assign its rights or
delegate its responsibilities under this RENTAL AGREEMENT without the prior
written consent of SPC, which will not be unreasonably withheld.
17. This RENTAL AGREEMENT shall be governed by and construed in accordance with
the laws of the State of Nebraska. The PARTIES further agree that in the
event of any dispute regarding this RENTAL AGREEMENT, the courts of the
State of Nebraska shall have and be vested with personal jurisdiction over
the PARTIES to this RENTAL AGREEMENT.
18. No delay or failure by either PARTY to exercise any right under RENTAL
AGREEMENT, and no partial or single exercise of that right, shall
constitute a waiver of fact or any other right, unless expressly provided
herein.
19. This RENTAL AGREEMENT constitutes the entire understandings of the PARTIES
and supersedes all prior contracts, agreements and negotiations whether
oral or written. This RENTAL AGREEMENT includes any and all Addenda and
Exhibits attached and/or referenced hereto.
20. SPC shall not be responsible for the costs incurred by MERCHANT for
negotiating or implementing this RENTAL AGREEMENT.
21. The obligations of all PARTIES hereto incurred prior to the effective date
of termination of RENTAL AGREEMENT shall survive the termination of RENTAL
AGREEMENT.
22. In the event that any portion of RENTAL AGREEMENT shall be held invalid
or unenforceable for any reason, it is agreed that any invalidity or
unenforceability shall not affect the remainder of the same and the
remaining provisions shall remain full force and effect, and any court of
competent jurisdiction may so modify any objectionable provision of the
same so as to render it valid, reasonable and enforceable.
23. This RENTAL AGREEMENT may only be amended or modified by a subsequent
written agreement by and between the PARTIES hereto.
24. MERCHANT hereby represents that the entering into of this RENTAL AGREEMENT
has been duly authorized by MERCHANT and that this RENTAL AGREEMENT
constitutes a legal, valid and binding obligation of MERCHANT, and is
enforceable against MERCHANT in accordance with its terms.
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GUARANTEE
For value received, and in consideration of the mutual undertakings contained in
this AGREEMENT, the undersigned, ("GUARANTOR"), being interested in the business
and success of MERCHANT and to induce FNBO to enter into AGREEMENT, does hereby
absolutely and unconditionally guarantee the full and faithful performance and
prompt payment by MERCHANT of all its obligations to FNBO, together with all
costs, expenses and attorney's fees incurred by FNBO in connection with any
actions, inaction's, or defaults of MERCHANT. The liability of GUARANTOR shall
not be effected by any settlement, modification, release, waiver, discharge or
variation of terms of any obligation of MERCHANT, of GUARANTOR, or any other
person or by any failure of FNBO to exercise or enforce any of its rights
against MERCHANT. GUARANTOR hereby waives notice of acceptance of guarantee,
notice of demand, prosecution of collection, all exemption and homestead laws
and all setoffs and counterclaims. The GUARANTOR waives any right to require
FNBO to proceed against other persons or MERCHANT or to require MERCHANT to
comply with AGREEMENT. This is a guarantee of payment and not of collection.
This is a continuing guarantee and shall remain in effect until one
hundred-eighty (180) days after receipt by FNBO of written notice by GUARANTOR
terminating or modifying the same. The GUARANTOR agrees to provide on FNBO's
request financial statements and/or tax returns to verify ability to guarantee
the MERCHANT's liabilities under AGREEMENT. The termination of AGREEMENT or
guarantee shall not release GUARANTOR from liability with respect to any
obligations incurred prior to the effective date of termination. No termination
of guarantee shall be effected by the dissolution of GUARANTOR, by any change in
legal status of GUARANTOR or any change in the relationship between MERCHANT and
GUARANTOR. Guarantee shall bind and inure to the benefit of the personal
representatives, heirs, administrators, successors and assigns of GUARANTOR and
FNBO.
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THE RULES
CARD ACCEPTANCE PROCEDURES
1. HONOR ALL CARDS
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1.1 MERCHANT shall honor all CARDS issued by an ASSOCIATION when presented
in accordance with these RULES for the purchase of goods or services by
an authorized holder of CARD or in a request for credit following such
a transaction.
1.2 MERCHANT shall not establish minimum or maximum SALE amounts as a
condition for honoring CARDS.
1.3 MERCHANT shall not impose any surcharge on SALES. Any tax required to
be collected by the MERCHANT must be included in the total transaction
amount.
2. SALES TRANSACTIONS
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2.1 No SALE may be completed if cardholder (the duly authorized holder and
user of CARD) fails to present his CARD to MERCHANT at time of SALE,
except in the case of MAIL ORDER ("MO") or TELEPHONE ORDER ("TO") where
permitted by FNBO.
2.2 MERCHANT must date each sales draft, resulting from the use of a CARD
("SALES DRAFT") with the transaction date and should include thereon a
brief description of the merchandise and/or services sold and the price
thereof (including any applicable taxes) in detail sufficient to
identify the SALE.
2.3 MERCHANT MUST IMPRINT THE CARD, UNLESS SUCCESSFULLY READ BY A MAGNETIC
STRIPE CARD READER/TERMINAL, with printer attached. Failure to obtain a
signed and imprinted SALES DRAFT when a transaction is not captured by
swiping through a magnetic stripe reader (this includes transactions
that are key entered on such a terminal) will expose MERCHANT to a
CHARGEBACK on such a transaction regardless of the authorization that
may or may not be received.
2.4 MERCHANT shall require cardholder to sign the SALES DRAFT. The risk of
CHARGEBACK or SALE dispute is far higher on a transaction when the CARD
and the cardholder are not present at the SALE location at the time of
the SALE.
2.5 Unless specifically permitted by FNBO, goods and services purchased
must be delivered to cardholder at time of SALE.
2.6 MERCHANT shall not require cardholders to provide personal information
(such as telephone number or address) as a condition for honoring a
CARD SALE unless required by the RULES.
3. SECURITY FEATURES
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3.1 MERCHANT is required to examine one or more card security features
prior to completing a SALE. In all cases, MERCHANT will complete a SALE
only if the signature on the SALES DRAFT appears to be the same as the
signature on the CARD, and the person presenting the CARD resembles the
person depicted in the picture on the CARD, if any and that the
appropriate VISA or MASTERCARD hologram is present on CARD. MERCHANT
must also check the valid dates on the CARD to ensure that CARD is
valid and has not expired.
3.2 Specific CARD Security features:
A. VISA
------------
(1) The "DOVE" hologram should appear to fly when tilted.
(2) All VISA account numbers begin with a "4" and can be 13
or 16 digits long.
(3) Check that the first four digits of the embossed account
number matches the four digits printed above the account
number of the CARD.
(4) Be sure the signature panel has not been tampered with.
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(5) The "V" to the right of the expiration date will be
included with a second letter either "CV", "GV", "PV", or
"BV". The "V" should be a special letter (a "Flying V",
not a normal "V".)
B. MASTERCARD
(1) The "World" hologram should appear as two separate spheres
when tilted.
(2) All MASTERCARD account numbers begin with "51" through "55"
and are 16 digits long.
(3) Be sure that the signature panel has not been tampered with.
3.3 When the CARD is "Mag-stripe read" by an Electronic Cash Register ("ECR")
or Electronic Draft Capture ("EDC") terminal, MERCHANT must check the
CARD account number on the terminal (if displayed) against the account
number embossed on the CARD or follow such other security check as is
mandated by FNBO from time to time. If the CARD is read with a terminal
that displays the CARD number and the receipt is printed, MERCHANT shall
verify that the account number displayed on the terminal and the printed
card numbers on the receipt match the embossed numbers on the face of the
CARD. In the event that they do not match the SALE must not be completed.
Failure to follow these checks and procedures will expose MERCHANT to
chargebacks.
3.4 In the event that terminal is programmed to require MERCHANT to key the
last four (or more) digits of each CARD used for a SALE, and the terminal
indicates that the numbers keyed are not the same as those present on the
card, the SALE must not be completed.
3.5 In order to protect the integrity of the ASSOCIATIONS' systems, FNBO
reserves the right to hold funds settled by MERCHANT in the event of a
breach of AGREEMENT, irregular SALES activity, or receipt of detrimental
financial information.
4. AUTHORIZATION
4.1 On all SALES, MERCHANT shall request an authorization for the total amount
of the SALE and shall record the positive authorization response code on
the SALES DRAFT prior to completing the SALE. If MERCHANT receives a
negative authorization response, MERCHANT may not complete the SALE and may
be requested to recover the CARD, if MERCHANT can do so by reasonable
peaceful means. If MERCHANT does not recover the CARD, MERCHANT should
notify VOICE AUTHORIZATION CENTER and ask for further instructions.
4.2 MERCHANT may not, after receiving a negative response or decline on an
authorization attempt, split the SALE amount into multiple transactions in
order to obtain a valid authorization for each one, so that the separate
transactions total the original amount of the SALE.
4.3 In the event that an unsigned CARD is presented at the point of sale,
MERCHANT must request that cardholder provide proof of identification and
sign the card before completing the SALE. Identifying details of the
identification provided must be placed on the SALES DRAFT unless prohibited
by local law. In the event that the cardholder refuses to do so, the SALE
must not be completed. If the SALE is completed, MERCHANT must write the
account number and expiration date on the SALES DRAFT.
4.4 In any of the following cases, MERCHANT shall obtain authorization from
the VOICE AUTHORIZATION CENTER designated or approved by FNBO before
completing a SALES transaction:
A. Paper MERCHANTS whose SALES exceeds MERCHANT's floor limit as
established by FNBO, or amended from time to time;
B. An unsigned CARD is presented;
C. MERCHANT believes the CARD may be counterfeit or stolen or that the
SALE is in some other manner suspicious or unusual; in this situation
MERCHANT should proceed only through voice authorization procedures
and MERCHANT should state to the voice authorization clerk, "This is a
Code 10" and await further instruction.
D. In any other circumstances hereinafter established by FNBO or stated
in the RULES and/or AGREEMENT.
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4.5 If permitted in writing by FNBO, a retail store that accepts an infrequent
telephone order transaction should authorize using the above
authorization acceptance procedures. The floor limit for MO/TO
authorization is zero. In such cases the authorization DOES NOT protect
the MERCHANT from CHARGEBACKS where the cardholder disputes that the CARD
use was authorized.
4.6 MERCHANT shall indicate to the authorization center the reason for the
authorization request in any case except where the sole reason for the
request is that the SALE exceeds the MERCHANT's floor limit.
4.7 When MERCHANT requests and receives a positive authorization code,
MERCHANT shall enter such code onto the SALES DRAFT. In the event that a
negative response is obtained, the MERCHANT shall not complete the SALE
and shall, if instructed, attempt to pick up CARD (by reasonable and
peaceful means) and if successful, inform FNBO of the fact.
5. SALES DRAFT - DISTRIBUTION AND STORAGE OF INFORMATION
5.1 MERCHANT shall deliver to the cardholder at the time of a SALE a true and
completed copy of the SALES DRAFT, or suitable receipt, evidencing a
SALE involving use of CARD.
5.2 The following information must be included on the SALES DRAFT: CARD
account number; MERCHANT's DBA name; MERCHANT's city and state; amount of
SALE; SALE date and CARD expiration date.
5.3 MERCHANT shall not disclose a cardholder's account information or any
other personal information to third parties other than to MERCHANT's
agents for the purpose of completing the transaction or as specifically
required by law or by the RULES.
5.4 MERCHANT shall store in a limited access area for at least one (1) year
after the date of SALES all SALES DRAFTS and transaction records and
MERCHANT shall make and retain for at least three (3) years the original
or legible microfilm copies of both sides of all SALES DRAFTS and
transaction records. Prior to discarding, MERCHANT shall destroy or make
unreadable all material containing cardholder account numbers, card
imprints such as SALES DRAFTS and credit vouchers, vehicle leasing
agreements, and carbons.
6. RECOVERY OF CARDS
6.1 MERCHANT shall use his best effort to recover any CARD, by reasonable and
peaceful means, if:
A. The account number thereon is listed on a Electronic Exception File;
B. The printed four digits above the embossed account number do not match
the first four digits of the account number (VISA);
C. MERCHANT is advised to do so by the authorization center; or
D. MERCHANT has reasonable grounds to believe such CARD is counterfeit,
fraudulent, or stolen.
6.2 This obligation upon MERCHANT in no way authorizes a breach of the peace
or any injury to persons or property, and MERCHANT will hold FNBO
harmless from any claim arising from any injury to person or property or
other breach of peace.
7. MULTIPLE SALES AND SALES DRAFTS AND PARTIAL CONSIDERATION
7.1 Generally, all SALES accomplished at the same time should be included on
one SALES DRAFT.
7.2 MERCHANT shall not effect a SALE when only part of the account due is
included on the single SALES DRAFT except:
A. When the balance of the amount due is paid by the cardholder at the
time of the SALE in cash, by check with another CARD, or any
combination thereof; or
B. When the cardholder executes two separate SALES DRAFT in a delayed
delivery transaction, whereby a deposit is made by completion of one
SALES DRAFT and payment of the balance is
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tendered by completion of a second SALES DRAFT, conditioned upon
delivery of merchandise or performance of services. If the total
amount of both SALES DRAFTS exceeds the floor limit, authorization
must be obtained.
7.3 The use of multiple different CARDS for one purchase is permissible as
long as an individual SALE and SALES DRAFT is used for each CARD. The use
of multiple SALES on one CARD for one purchase is not permitted (this is
done to bring the value of each SALE below the authorization threshold of
the CARD Issuer). In the event that this is done the SALE may be reversed.
8. RETURNED MERCHANDISE AND ADJUSTMENTS
8.1 In the event that any merchandise, that was the subject of a SALE is
accepted for return or any services terminated or canceled, or any price
adjustment allowed by MERCHANT, the MERCHANT shall not make any cash
refund to the cardholder, but shall deliver promptly to FNBO a credit
voucher evidencing such refund or adjustments on the same CARD as the
original SALE was processed. The refund or adjustment indicated on the
credit voucher may not exceed the original SALE amount.
8.2 MERCHANT may limit its acceptance of returned merchandise or establish a
policy to make price adjustments for any SALE provided proper disclosure
is made and purchased goods and service are delivered to the cardholder at
the time of the SALE.
8.3 Proper disclosure by MERCHANT shall only be determined to have been given
at the time of the SALE if cardholder is present at the time of SALE and
words such as "NO REFUND", "EXCHANGE ONLY", or "IN STORE CREDIT ONLY" are
printed in large letters on all copies of the SALES DRAFT prior to
obtaining the cardholder's signature on the SALES DRAFT. MERCHANT may
stipulate other special circumstances or terms of the SALE on the SALES
DRAFT.
8.4 For each credit or return transaction, MERCHANT must be able to provide
FNBO with evidence of the original purchase if requested.
9. CASH TRANSACTION
9.1 MERCHANT shall not receive any payments from a cardholder with respect to
charges for merchandise or services which are included on the SALES DRAFT
resulting from the use of a CARD, nor shall MERCHANT receive money from a
cardholder and subsequently prepare a credit voucher for purpose of
affecting a deposit to the cardholder's account.
9.2 Cash disbursement by MERCHANT to a cardholder is not permitted. MERCHANT
shall not make any cash advance to an employee or principal of MERCHANT, or
family member of the same, who is a cardholder.
9.3 MERCHANT will not accept SALES from cardholders related to the business
where the primary purpose of the transaction is for the provision of
working capital to said business and not the purchase of goods and/or
services from the business.
10. RECURRING TRANSACTIONS AND QUASI CASH TRANSACTIONS
10.1 MERCHANT will not accept recurring SALE transactions where the delivery,
provision of or billing is performed on a periodic basis ("RECURRING
TRANSACTIONS") without the express written consent of FNBO.
10.2 MERCHANT shall not accept SALES for processing that are classified as
"Quasi-Cash Transactions" including, but not limited to, the sale of
Casino Gaming chips, money orders, opening deposits on financial or other
accounts, wire transfer money orders, or the issuance of Scrip.
10.3 No MERCHANT shall use accept a CARD or use a VISA and MASTERCARD
processing terminal to issue "scrip" exchangeable for cash or products or
services as a result of a SALE.
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11. PROMOTIONAL MATERIALS
11.1 MERCHANT will adequately display promotional materials provided by FNBO
to inform the public that CARDS will be honored by MERCHANT.
11.2 All uses by MERCHANT of decals, signs, printed and broadcast materials
and other promotional materials must be in conformity with the
requirements of ASSOCIATIONS.
11.3 MERCHANT may use promotional materials only to indicate that CARDS are
accepted for payment and shall not indicate, directly or indirectly, that
MERCHANT has received endorsement of any goods or services other than the
CARDS' services.
11.4 MERCHANT may not refer to the CARDS in stating eligibility for its
products, services, or membership.
12. RULES SPECIFIC TO CARDS OTHER THAN VISA AND MASTERCARD
12.1 In the event that AGREEMENT provides for the acceptance of CARDS other
than VISA and MASTERCARD, the following regulations apply specifically to
these CARDS in addition to the regulations set out above.
13. SPECIFIC CARD REGULATIONS
13.1 MERCHANT is required to comply with the specific regulations as set out
in its agreements with ASSOCIATIONS other than VISA and/or MASTERCARD
with regard to the acceptance of cards issued by such ASSOCIATIONS.
CHARGEBACKS
14. GENERAL
14.1 MERCHANT has agreed to pay FNBO for each CHARGEBACK and any ASSOCIATION
fees, fines or charges imposed on MERCHANT or FNBO associated therewith.
Such reimbursement will be accomplished by the debit of the sum(s)
involved from the MERCHANT's DEPOSITORY ACCOUNT.
14.2 Failure to comply with the RULES will reduce FNBO's ability to reverse
CHARGEBACKS and increase the likelihood of MERCHANT receiving a
CHARGEBACK.
14.3 MERCHANT may be subject to a CHARGEBACK on SALES for a minimum period of
180 days from the date the SALE was entered into the ASSOCIATION's
processing system.
14.4 FNBO agrees to mail all CHARGEBACK documentation to MERCHANT promptly to
MERCHANT's address shown on CONTRACT. MERCHANT agrees to respond promptly
to all CHARGEBACKS. If FNBO elects, at its discretion, to take action on
CHARGEBACKS after the MASTERCARD or VISA time limits have expired, such
action shall be done at additional cost.
14.5 MERCHANT agrees that it will not re-deposit SALES that have been
previously charged back and not represented. This restriction applies
whether or not the cardholder consents to such activity.
15. CHARGEBACK REASONS
15.1 The summary of reasons for CHARGEBACKS includes, but is not limited to,
an invalid CARD account number submitted by MERCHANT, or any one of the
following cardholder complaints:
A. Neither the cardholder nor a person authorized by the cardholder
received the goods or services requested;
B. The cardholder received the good or services but disputes the quality;
C. The cardholder never received credit for a returned item or a
canceled order;
D. The cardholder was charged incorrectly;
E. The amount of the SALE exceeded the Floor Limit and authorization was
not requested and obtained, or was denied;
F. The SALE was authorized but not for the correct amount;
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G. The authorization code provided is invalid;
H. The CARD was expired at the time of the SALE or had not reached its
effective date;
I. The SALES DRAFT was not signed. An exception will be made for Mail
Order and Telephone Order SALES where authorized;
J. The CARD issuer has information that a MERCHANT fraud has occurred;
K. The CARD account number and the amount of SALE is missing from SALES
DRAFT or is illegible;
L. The SALES DRAFT bears the imprint of a CARD which to MASTERCARD or
VISA, is a counterfeit CARD, as defined in their regulations, but
which is not embossed in accordance with the standards set forth in
the VISA and MASTERCARD regulations and the SALE was not authorized.
16. CHARGEBACK MONITORING PROGRAMS
16.1 In the event that MERCHANT exceeds a one (1) percent CHARGEBACK to
interchange ratio in two months out of three for Consumer Dispute
CHARGEBACKS ("CDCS") or a two and three-quarters (2.75) percent
CHARGEBACK to interchange ratio for all incoming chargebacks, MERCHANT
will be defined as a "REVIEW-MERCHANT". On notification of Review
Merchant status MERCHANT will supply FNBO with a business plan as to how
to reduce the amount of CDCs in the event that MERCHANT is unable to
reduce CDCs below one (1) percent within 120 days and maintain them at
that level for a six (6) month probationary period FNBO or VISA may
terminate MERCHANT's agreement to process SALES. In this event MERCHANT
will pay FNBO for any fine or charge levied on FNBO or MERCHANT as a
result of such classification or notification. The parameters of this
section may be amended from time to time as a result of action by
ASSOCIATIONS.
17. OTHER ASSOCIATION MONITORING PROGRAMS
17.1 In the event that MERCHANT is identified by certain ASSOCIATION
monitoring programs, the ability FNBO to reverse CHARGEBACKS can be
severely restricted.
17.2 Under normal procedures, if a MERCHANT is able to show that it complied
with the CARD ACCEPTANCE PROCEDURES by producing evidence (a SALES DRAFT)
that the CARD was present at the time of SALE and that the evidence bears
the signature of the cardholder, MERCHANT may not be liable for a SALE
that was made with a Lost, Stolen or Counterfeit CARD.
17.3 Certain Monitoring Programs review the number of Lost, Stolen and
Counterfeit CARDS accepted by MERCHANT in its normal course of business
as well as the percentage of CARDS used for SALES that were not read
electronically by terminals or ECRs. The purpose of these Programs is to
reduce the use of Lost, Stolen and Counterfeit CARDS.
17.4 In the event that MERCHANT is identified under these PROGRAMS as
exceeding the acceptable threshold value of such CARDS, MERCHANT may
become liable for CHARGEBACKS and SALES on Lost, Stolen, or Counterfeit
CARDS regardless of the CARD ACCEPTANCE PROCEDURES followed, and AGREEMENT
may be terminated on notice by FNBO.
UNIQUE BUSINESS REQUIREMENTS
18. MAIL ORDER AND TELEPHONE ORDER MERCHANTS
18.1 MERCHANTS may not accept MO/TO SALES unless AGREEMENT specifically refers
to MO/TO SALES in the description of BUSINESS. If this is not the case,
MERCHANT should contact FNBO if they wish to accept MO/TO SALES and
provide descriptions of product types and marketing methods. FNBO
reserves the right to refuse MERCHANT permission to accept MO/TO SALES.
18.2 In the event that MERCHANT is specifically authorized to accept MO/TO
SALES by FNBO, no SALE shall be submitted for processing with FNBO prior
to shipping of the product purchased to the cardholder, unless
specifically authorized in AGREEMENT.
18.3 MO/TO SALES do not require that the cardholder's signature be on the
SALES DRAFT. MERCHANT is required to obtain the Valid Dates for each CARD
used for a SALE. The Expiration Date must be submitted as part of the
Authorization Inquiry.
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18.4 In the event that MERCHANT supplies goods and/or services under a
Pre-Authorized Order, it shall not charge a cardholder for goods after
receiving notice from a cardholder that that the authorization is
canceled. In the absence of such data, the following substitute data shall
be inserted: for VISA "1111" and MASTERCARD "1099".
18.5 The receipt of a valid Authorization does not protect MERCHANT from
CHARGEBACKS on SALES for the Unauthorized Purchaser reason code. The
supply of shipping documents indicating the address the goods were shipped
to and a signature of an individual (even cardholder) will not normally be
sufficient to reverse an Unauthorized Purchaser reason code.
18.6 MO/TO MERCHANTS are encouraged to investigate the CHARGEBACK protection
attributes of the various Address Verification Services available from the
ASSOCIATIONS.
19. VEHICLE RENTAL AUTHORIZATION PROCEDURES
19.1 A special authorization procedure is available for the use of the MERCHANT
if MERCHANT estimates the transaction amount based upon cardholder's
intended rental length at time of rental, the applicable rental rate, tax,
and/or mileage rates. Such estimated transaction amount shall not include
ancillary charges representing amounts to cover potential vehicle damages
or insurance deductibles when cardholder waives insurance at time of
rental.
19.2 MERCHANT shall record on the SALES DRAFT the date, amount, and all
authorization approvals obtained.
19.3 MERCHANT shall disclose such amount authorized to cardholder at the time
of rental.
19.4 Subsequent Authorization:
A. If no authorization was obtained at time of rental and MERCHANT,
based upon cardholder's actual charges later estimates the
transaction amount will exceed the applicable floor limit, MERCHANT
may obtain an authorization approval code for the new estimated
amount.
B. MERCHANT may obtain authorization for additional amounts (not
cumulative of previous amounts) at any time on or between the vehicle
rental check-out date and check-in date, as necessary. MERCHANT may
not seek authorization for, nor charge to cardholder charges for
traffic violations, parking tickets, or other related items.
Additional authorization is not necessary if the sales transaction
does not exceed the applicable floor limit or 115 percent of the sum
of the authorized amounts.
20. PAPER PROCESSING MERCHANTS
20.1 Paper Processing MERCHANTS shall authorize by using the established Floor
Limits. Any MERCHANT that wishes to accept a sales transaction under the
established Floor Limits, and which is not authorized, is liable for the
resulting CHARGEBACKS from those CARD numbers listed on the Electronic
Exception File.
20.2 In the case of a MERCHANT depositing paper drafts, such drafts shall be
deposited with FNBO within five (5) days of the transaction or SALE date.
21. EXPRESS PAYMENT SERVICES ("EPS/QPS")
21.1 Any "Fast Food", motion picture theater, or parking lot merchant that
wishes to participate in the VISA or MASTERCARD EPS/QPS program must first
be in possession of a signed EPS/QPS Addendum with FNBO.
21.2 This Addendum must be in place prior to the offering of the program.
22. LODGING MERCHANTS
22.1 Hotel Management Companies are responsible for all CHARGEBACKS and FEES
for hotels managed at the time of the SALE.
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22.2 VISA Hotel Services: Any MERCHANT that participates or wishes to
participate in any of the VISA Hotel Services (the "Services"), namely the
Advanced Lodging Deposit Service, the Priority Check Out Service, or the
Cash Disbursement Service must be in possession of a current VISA Hotel
Service addendum to their AGREEMENT. This Addendum covers all the
contractual and operational requirements to implement the Services and
must be in place before the offering of the Services by MERCHANT to
cardholders.
22.3 VISA Reservation Service: Any MERCHANT which accepts CARDS to guarantee
reservations must do so in accordance with the following requirements:
A. MERCHANT must accept all VISA CARDS.
B. MERCHANT must inform the cardholder that accommodations will be held
until check out time the following day unless canceled by 6:00 pm
MERCHANT's time, on the scheduled arrival date. If a MERCHANT
requires a cancellation time prior to 6:00 pm MERCHANT's time, on
the scheduled arrival date, the cancellation date and time may vary
but must not exceed 72 hours prior to the scheduled arrival date and
the cardholder must be informed of this time when making the
reservation. If, in such a situation, a reservation is made within
72 hours of scheduled arrival, the cancellation time of 6:00 pm
MERCHANT's time on the scheduled arrival date applies.
C. MERCHANT will obtain the cardholder's account number, expiration
date, and name embossed on the CARD. MERCHANT must confirm this
information by reciting it back to the cardholder. Advise the
cardholder that if he has not checked in by checkout time the
following day after his scheduled arrival date and the reservation
was not properly canceled, the cardholder will be billed for one
night's lodging plus applicable taxes.
D. MERCHANT must quote to cardholder the following information: i) rate
of reserved accommodation; ii) MERCHANT name and address; and iii)
Confirmation Code (advising that it be retained). If requested, the
MERCHANT will provide the above information in written form along
with the provisions of the VISA reservation services relating to the
cardholder's obligations related to the accommodation reserved.
E. If cardholder complies with the cancellation procedures above,
MERCHANT must accept all cancellation requests and provide
cardholder with a cancellation code and advise that it must be
retained in order to protect cardholder's rights in case of dispute.
If requested, MERCHANT must provide cardholder with written
confirmation of all this information including the CARD information.
F. If cardholder does not claim accommodation that has been reserved
under these procedures or canceled prior to the specified
cancellation time, the room(s) must be held available in accordance
with the reservation. If the cardholder does not cancel the
reservation or check in within the prescribed time, MERCHANT will
deposit a SALES DRAFT for one night's lodging plus applicable tax,
indicating the cardholder's account number, expiration date, and
name embossed on the CARD and the words "NO SHOW" on the cardholder
signature line. MERCHANT should then follow the required
authorization procedures for hotel transactions.
G. If accommodations that were guaranteed under this service are
unavailable, MERCHANT must provide cardholder with: i) at least
comparable accommodations for one night at another establishment;
ii) provide transportation to the location of the alternative
establishment; and iii) if requested, provide cardholder with a
three (3) minute telephone call and forward all messages and calls
to the location of the alternate establishment. These services shall
be provided at no cost to cardholder.
H. If a CHARGEBACK occurs and involves a dispute between the Lodging
MERCHANT and the cardholder over cancellation of reservations or
advance deposits, FNBO may request resolution of the dispute by VISA
or MASTERCARD. If the dispute is resolved successfully, FNBO will
charge the MERCHANT, and the MERCHANT agrees to pay FNBO a
"Resolution Fee."
23. PRE-AUTHORIZED HEALTH CARE TRANSACTIONS
23.1 Any MERCHANT that participates in the VISA Pre-authorized Health Care
Program must be in possession of a current Addendum for this program.
23.2 This Addendum must be in place prior to the offering of the Program by
MERCHANT.
18
<PAGE> 21
24. VISA SUPERMARKET PROGRAM
24.1 Any MERCHANT that wishes to participate in the VISA Supermarket Incentives
Program must be in possession of the FNBO current addendum for this
program.
24.2 This addendum must be in place prior to the offering of the Program by
MERCHANT.
25. ELECTRON CARD PROGRAM
25.1 At its option, a MERCHANT may accept Electron Cards. If a MERCHANT chooses
to accept Electron Cards, it must accept all Electron Cards when properly
presented. In addition, the MERCHANT must:
A. Display the Electron symbol;
B. Obtain authorization;
C. Use a Point of Transaction Terminal for authorization and data
capture; such Point of Transaction device must print a receipt;
D. Accept Electron Cards only for "face to face" transactions in which
both the CARD and cardholder are present; and
E. Process all transaction resulting from CARDS bearing an Electron
symbol as Electron transactions and be subject to all VISA
International Operating Regulations governing the Electron Program.
OPERATIONAL REQUIREMENTS
26. MERCHANT NAME AND ADDRESS
26.1 All forms submitted to FNBO must bear both the corporate and "Doing
Business As" ("DBA") name.
26.2 FNBO expects to sign all corporate entities with the signature of a
corporate officer.
26.3 MERCHANT will inform FNBO immediately of any change in:
A. Corporate or "DBA" name and location address
B. The information contained on MERCHANT's imprinter plates
27. IMPRINTERS
27.1 All MERCHANTS must be in possession of a working imprinter, supply of
blank sales drafts and an accurate imprinter plate showing their DBA name,
city, state, and FNBO merchant number. In the event that MERCHANT is not
in possession of the above equipment, MERCHANT must contact FNBO to obtain
such equipment.
27.2 Failure to be in possession of the equipment and supplies listed above
will seriously increase MERCHANT's liability for CHARGEBACKS where
transactions cannot be mag-stripe read by a terminal and, as a result, are
key entered and a signed imprinted SALES DRAFT not completed.
28. INCORPORATION
28.1 FNBO and MERCHANT are parties to an agreement for the processing of SALES
("AGREEMENT") into which these RULES (as amended from time to time) have
been incorporated by reference. The capitalized terms in AGREEMENT will
have the same meaning in RULES.
29. USE OF NON-FNBO TERMINALS AND/OR SOFTWARE
29.1 If MERCHANT elects to use the terminal of AMEX or Discover or other third
party providers of software (such as a POS or Accounting System Vendors)
to capture and transmit VISA and MASTERCARD SALES to FNBO, MERCHANT
assumes full responsibility and liability for third party providers
failure to comply with the RULES. The third party provider is the source
for information regarding authorizations and CHARGEBACKS that may be
needed by FNBO. Certain CHARGEBACKS require authorization information to
reverse. MERCHANT is responsible to obtain this information from third
party provider. FNBO is not liable for SALES that were not received by it.
19
<PAGE> 22
30. COMMUNICATION VENDORS
30.1 MERCHANT understands that in the event FNBO terminals are used by
MERCHANT, the communications vendor is not responsible for losses
arising from the transactions processed using the vendor's service.
31. EFFECT OF TERMINATION OF PROCESSING AGREEMENT
31.1 In the event that AGREEMENT is terminated by FNBO for cause, FNBO is
required by ASSOCIATIONS to file the name and address of MERCHANT and
MERCHANT's principals on the "Combined Terminated Merchant File."
31.2 In the event that AGREEMENT is terminated for cause and MERCHANT is
obligated to MERCHANT for sums due and the principals of MERCHANT are
liable for such debts, a negative credit report may be submitted to a
credit reporting agency.
32. MEMBER SERVICE PROVIDER SERVICES
32.1 If MERCHANT is using a Member Service Provider's terminal, (i.e. dial
terminal or equivalent sales capture device), and the Member Service
Provider is providing the customer service, then such Member Service
Provider is a separate entity and is not an agent of FNBO.
32.2 MERCHANT agrees that FNBO's obligation to pay MERCHANT for SALES
captured by use of non-FNBO terminals is limited to the amount, less
DISCOUNT, received by FNBO from the Member Service Provider.
32.3 Any problems or complaints regarding such should be reported in writing
to Member Service Provider Coordinator, First National Bank of Omaha,
P.O. Box 3190 Omaha, Nebraska 68102-0190.
32.4 MERCHANT shall understand the AGREEMENT is between FNBO and MERCHANT.
Issues involving Member Service Provider shall be dealt with independent
of FNBO. In the event that issues are unresolved and relate to services
provided under the AGREEMENT, FNBO should be notified. Failure to pay
FNBO due to issues with Member Service Provider is not permitted.
33. SUBMISSION OF ALL SALES
33.1 In order to ensure that there is no duplicate processing of SALES by
multiple processors, MERCHANT agrees to submit all SALES from the
BUSINESS originating within the United States of America to FNBO under
AGREEMENT.
33.2 Subsequent Amendments to these RULES:
A. The AGREEMENT provides that MERCHANT will comply with the terms of
RULES as if they were specific terms of AGREEMENT set out therein.
Due to changes in the processing industry and the requirements of the
ASSOCIATIONS and FNBO, the RULES are amended from time to time and
amendments to these RULES are distributed to MERCHANT at the address
currently on record for the distribution of statements.
B. Submission of SALES at any time after seven (7) days from the date of
distribution of RULES to MERCHANT's Address for processing
statements, shall be evidence that MERCHANT has received the amended
RULES and has agreed to abide by them.
34. MERCHANT STATEMENTS
34.1 MERCHANT will receive periodic statements reflecting activity on its
account. MERCHANT agrees to examine and reconcile its MERCHANT statement
and notify FNBO of any error or discrepancy. Unless MERCHANT provides
written notice to FNBO of any error or discrepancy within ninety (90)
days of the statement date, the statement shall be deemed correct for
all purposes and FNBO shall not be liable for any error or discrepancy
reflected thereon. No legal proceedings or action may thereafter be
brought against FNBO to recover for any error or discrepancy.
20
<PAGE> 23
FIRST AMENDMENT TO THE MERCHANT TRANSACTION PROCESSING AGREEMENT
THIS Amendment ("AMENDMENT"), by and between FIRST NATIONAL BANK OF OMAHA
("FNBO"), a national banking association with principal offices at One First
National Center, Omaha, Nebraska, and CyberGold, Inc., ("MERCHANT"), a
California corporation with offices at 2921 Adeline St., Berkeley, Calif.
94703, shall become effective on the date executed by a duly authorized
representative of FNBO. FNBO and MERCHANT shall be collectively known hereafter
as the "PARTIES."
WHEREAS, FNBO and MERCHANT are parties to a Merchant Transaction Processing
Agreement, ("AGREEMENT"), of certain date under which FNBO provides processing
and other services regarding credit card sales transactions, ("SALES"), subject
to the terms and conditions more fully set out in AGREEMENT.
WHEREAS MERCHANT desires to have FNBO participate in the Pilot test ("PILOT")
of Visa card usage by MERCHANT for payments to MERCHANT's customers residing in
the United States for viewing commercial messages transmitted over the Internet
and for related activities as described in MERCHANT's program ("PROGRAM") which
is attached as Exhibit 1 to this AMENDMENT, and incorporated herein by this
reference.
1. GENERAL:
- ----------------
1.1 Capitalized terms which are not defined herein shall have the same
meaning as when defined in the AGREEMENT.
1.2 MERCHANT agrees to operate in accordance with Exhibit 1 which describes
the procedures used for the PROGRAM. If any deviation is made to the
PROGRAM, MERCHANT must notify FNBO in writing at least sixty (60) days
before the implementation to ensure that the change does not materially
change any Visa procedure.
1.3 MERCHANT understands that special conditions will apply to the PILOT
including the processing arrangements necessary to avoid VisaNet and
Visa issuers systems changes.
1.4 MERCHANT agrees that the PILOT will include the following products: Visa
Check Card and Visa Credit Card. All Visa commercial cards and all
non-U.S. Visa products will be excluded.
1.5 MERCHANT shall use the personal data provided by the cardholder during
the registration process only for the purpose of providing the PROGRAM.
MERCHANT shall obtain the cardholder's consent for any other
disclosures of cardholder data.
1.6 MERCHANT agrees to comply with all applicable laws and regulations.
2. PAYMENT OF SUMS DUE:
- ----------------------------
2.1 MERCHANT shall deposit transactions with FNBO on a daily basis.
MERCHANT agrees that under no conditions will transactions be created
more than thirty (30) days after the initial cardholder's use in a
given period; nor will such transactions pass through VisaNet more than
thirty-five (35) days after the initial cardholder's use in a given
period.
2.2 MERCHANT and FNBO shall establish one (1) designated account,
("DESIGNATED ACCOUNTS"), for the credit and debit of sums between the
PARTIES. MERCHANT agrees to maintain a minimum amount of ________ in
each account and if the total amount in any account becomes less than
this sum, FNBO may debit another account or MERCHANT may deposit funds
so that the balance required by FNBO is maintained. If this AGREEMENT
is terminated for any reason, MERCHANT agrees to maintain these
accounts for a period of six (6) months in order to secure the
obligation of MERCHANT hereunder unless otherwise agreed in writing by
the PARTIES.
2.3 MERCHANT agrees to pay FNBO the FEES set out in Exhibit 2, attached
hereto and incorporated herein by this reference. FNBO shall deduct
FEES from incoming transactions or debit the same from MERCHANT's
DESIGNATED ACCOUNT.
2.4 During the PILOT, MERCHANT shall (i) create a separate transaction for
any individual payment of twenty dollars ($20.00) or more and (ii) be
allowed to aggregate small value transactions until either twenty
dollars ($20.00) has been accumulated or thirty (30) days have passed
since the initial cardholder's use in a given period. When the dollar
amount or time limit has been reached, MERCHANT will create a
transaction for deposit with FNBO.
<PAGE> 24
2.5 MERCHANT agrees that no one cardholder shall receive more than one hundred
dollars ($100.00) per month in one Visa account during the PILOT, in order
to control fraud.
2.6 MERCHANT shall offer Visa cardholders a transfer of money into their
accounts. MERCHANT shall not accept Visa cards for purchases or allow
transfers from cardholders' accounts.
2.7 MERCHANT understands that credit card issuers may apply the credit to the
outstanding balance and MERCHANT shall offer only to transfer money into
the account and not to the cardholder. MERCHANT must make appropriate
disclosures to the cardholders.
2.8 If an Issuer returns a transaction to FNBO, MERCHANT is liable for any cost
and must resolve the disposition of the transactions directly with its
customers.
2.9 MERCHANT agrees that it is liable for all FEES, costs, fines, penalties,
charges, and or any administrative or legal fees and costs associated with
the PROGRAM or the PILOT.
3. TERM AND TERMINATION:
3.1 The PILOT shall commence on such date as the PARTIES agree upon in writing
and will terminate after twelve(12) full months of operation unless
terminated sooner in accordance with this AGREEMENT. At the end of PILOT,
FNBO will review the results to determine whether to allow the PROGRAM to
continue. FNBO has no obligation to continue the PROGRAM.
3.2 FNBO may terminate this PILOT on thirty (30) days notice.
3.3 MERCHANT understands that Visa may terminate this PILOT on thirty (30) days
notice in the event Visa determines, in its sole discretion, that
cardholder disputes and service events occur with greater than acceptable
frequency. If the PILOT is terminated by Visa, FNBO is not obligated to
continue with the PILOT.
3.4 [***]*
4. OPERATING CONSIDERATIONS:
4.1 MERCHANT agrees to monitor performance and provide volume statistics for
such things as customer service visits to the MERCHANT web site and
telephone calls to the 800 number customer service desk.
4.2 MERCHANT shall use the best industry practices for the security of its
procedures and the interface with the Visa system. This includes but is not
limited to the registration process, protection of MERCHANT transactions on
the Internet, and database protection. MERCHANT must use a separate
procedure from the standard MERCHANT Internet registration process to
obtain the cardholder's account number and expiration date in order to
protect the Visa account number. MERCHANT shall have this procedure
approved by Visa. MERCHANT shall use the best industry practices to protect
the database of Visa account numbers from both internal and external
compromise. MERCHANT agrees that all appropriate industry and account
procedure controls will be in place at all times.
4.3 MERCHANT may use the VisaNet authorization system or Visa's address
verification service without additional cost.
4.4 MERCHANT must inform cardholders in a conspicuous manner that all disputes
are to be resolved by MERCHANT, either through its web site or toll-free
number, and not by the issuer.
4.5 MERCHANT shall monitor activity by Visa cardholders and report the results
to FNBO on a monthly basis, including but not limited to, customer service
hits on the Internet site and 1(800) service calls.
4.6 MERCHANT agrees to use its best efforts to implement the Secure Electronic
Transactions ("SET") procedures on the Internet in a timely manner once
they are available for general use.
4.7 MERCHANT agrees to establish a hyperlink to a Visa site to assist Visa,
U.S.A., in downline loading software to first time Visa cardholders who are
registering for PROGRAM and who do not have a digital signature.
4.8 MERCHANT agrees to work with Visa, U.S.A., in defining appropriate
procedures and make its best effort to assist Visa in the registration
process for Internet merchants.
- ------------
* - Confidential Treatment Requested. Confidential portion has been filed with
the Securities and Exchange Commission.
<PAGE> 25
4.9 MERCHANT will supply Visa, U.S.A., with a copy of its registration template
so that Visa U.S.A. may evaluate the overlap between SET cardholder
registration data requirements and MERCHANT's registration data
requirements.
5. OTHER CONSIDERATIONS:
5.1 MERCHANT agrees that all marketing information, including but not limited
to press or news releases dealing with AGREEMENT or the PROGRAM must be
approved by FNBO prior to the release of any such information.
5.2 Under normal business conditions, MERCHANT will be able to inform the
public that it accepts the agreed-upon Visa products. MERCHANT agrees that
no expressed or implied endorsement by Visa or FNBO of MERCHANT or its
PROGRAM can be claimed or implied. Nothing in this AGREEMENT grants
MERCHANT the right to use the Visa marks without the express written
consent of Visa, U.S.A. Nothing in this AGREEMENT grants MERCHANT the right
to use the FNBO trademarks without the express written consent of FNBO.
Upon termination of this AGREEMENT, MERCHANT shall immediately cease use of
all Visa or FNBO marks.
5.3 This AMENDMENT and AGREEMENT constitutes the entire understandings of the
PARTIES and supersedes all prior contracts, agreements, and negotiations
between the PARTIES whether verbal or written, as to the matter contained
herein.
IN WITNESS WHEREOF, the PARTIES hereto have caused this AGREEMENT to be
executed by their duly authorized officers, effective as of the date executed
by FNBO.
<TABLE>
<S> <C>
First National Bank of Omaha CyberGold Inc.
By: /s/ First National Bank of Omaha By: /s/ A. NATHANIEL GOLDHABER
------------------------------------- ---------------------------------
Print Name: First National Bank of Omaha Print Name: A. NATHANIEL GOLDHABER
----------------------------- -------------------------
Title: Executive Vice President Title: President
---------------------------------- ------------------------------
Date: July 21, 1997
-----------------------------------
</TABLE>
<PAGE> 26
EXHIBIT 1
The PROGRAM description
- --------------------------------------------------------------------------------
THE CYBERGOLD PROGRAM
- --------------------------------------------------------------------------------
CyberGold is an Internet direct marketing product that allows advertisers
to draw consumers to their content by paying them directly for their active
attention on the Internet.
CyberGold can offer Visa cardholders a bonus - the opportunity to earn cash
on the Internet, transfer it to their Visa card and spend it.
THE CONSUMER CYBERGOLD EXPERIENCE
1) Consumers are alerted to a CyberGold reward opportunity by seeing a
CyberGold coin symbol; initially only on another Internet site and
eventually on our CyberGold site where consumers will go to view ads
presented to them based on their demographic profiles as well. The
coins direct consumers' attention to the advertisers content/message.
2) Consumers read and then demonstrate their understanding of the
advertiser's message by completing an attention test and interacting
with content/message. This could include their answering questions on
the content, playing an interactive game or completing a survey. They
could also receive an instant rebate for buying on-line. On
successful completion they are eligible to receive their reward.
3) First time users of the system are directed to the CyberGold Web site
(if they're not already there) to register. They choose a login name
and password. They then enter identity information including their
name, email and home address and phone number. Once this step is
complete, their CyberGold reward is automatically deposited in their
CyberGold account.
4) Once consumers have registered, they have access to their CyberGold
account on the CyberGold site through their login name and password.
Their account aggregates payments from multiple advertisers and
opportunities. Consumers can get item-level details of all CyberGold
transactions at the CyberGold site.
5) Consumers can transfer monies from their CyberGold account; today to
their bank account, into a CyberCash wallet or donate to charity.
Tomorrow they will be able to transfer to their Visa account.
CYBERGOLD/VISA TRANSFERS
o Transactions between CyberGold and Visa will be transmitted through a
secure channel that will meet 100% of Visa's requirements.
o Consumers can be given the option of entering their Visa account
number every time they request a transfer or leaving it "in Trust"
with CyberGold in which event it will be secured as bank account
numbers and passwords are currently secured.
1
<PAGE> 27
o Consumers can be limited to crediting their Visa account either by a
minimum dollar amount or time frame or both as selected by Visa; for
example, once per month or with a $20 minimum.
SECURITY
o All financial transactions between the consumer and CyberGold are
encrypted using SSL and DES technology.
o CyberGold's financial databases are protected through triple firewalls,
Sybase stored procedure database security and encoded account numbers.
o All reports, printed or electronic, have sensitive information removed
automatically before they are created.
o The Databases are physically secure in a locked facility with 24 hour
security.
o All backup tapes are subject to the same security applicable to computers
containing the information.
o All financial transactions are separately logged and tracked.
SYSTEM PERFORMANCE:
o High volume: The system is architected to handle 300 transactions per
second with an essentially unlimited number of user accounts. CyberGold
is projected to handle $4 million in payments in 1997, over $20 million
in 1998 and over $100 million by the year 2000.
o Scalability: CyberGold currently features multiple, redundant high
performance UNIX servers for handling transactions. The architecture is
fully scaleable - performance can be ramped up merely by adding
additional hardware.
CUSTOMER SERVICE AND AUDITS
o Customer service: Consumers can contact CyberGold 24 hours a day through
CyberGold's on line Customer Service System which is based on Lotus
Notes. Credits to cardmember's accounts list www.cybergold.com as the
merchant to remind consumers to contact CyberGold's web site where they
will be able to review item-level detail to determine for themselves the
state of their account and the amount of the Visa transfer. All account
inquires are handled through CyberGold's centralized customer service
database.
o Auditing: Auditing procedures are reviewed by Arthur Andersen & Co.
2
<PAGE> 28
EXHIBIT 2
FEES
MERCHANT agrees to pay FNBO the following:
1. DISCOUNT Rate: [***]* % + $[***]* per item.
2. Monthly Minimum fee: $[***]* for first two months
(begins when FNBO receives first $[***]* for next two months
transaction from MERCHANT) $[***]* for next two months
$[***]* for next two months
$[***]* for next two months
$[***]* per month thereafter
3. Service/Programming fee: $[***]*, one time fee
4. Chargeback fee: $[***]* per chargeback
5. Rejected Item fee: $[***]* per rejected item at Visa
6. Retrieval fee: $[***]* per ticket retrieval request
- -------------
* Confidential Treatment Requested. Confidential portion has been filed
with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.8
LETTER OF AGREEMENT BETWEEN CYBERGOLD AND EARTHLINK NETWORK
CyberGold and EarthLink Network, Inc. agree to extend their partnership as
follows:
PURCHASE INCENTIVE PROGRAM:
CyberGold will provide the mechanism for an EarthLink mall-wide and site-wide
purchase incentive program. The program will reward EarthLink users for
any purchase performed with an EarthLink Partner Merchant through the EarthLink
site. The rewards will take the form of rebates paid by EarthLink to consumers
in CyberGold currency, with the rewards deposited into users' online CyberGold
accounts. EarthLink will determine the percentage of the rebates, which may
change over time, and EarthLink will pay to CyberGold the rebate amounts, which
CyberGold will in turn credit to the users' CyberGold accounts. In addition to
paying the rebate sums, EarthLink will pay CyberGold a transaction-processing
fee of $[***]* for each incentive rebate transaction processed through this
program. Further, EarthLink will pay CyberGold a one-time non-recurring
engineering and setup fee of $[***]* upon executing this agreement. All
other billing associated with this program will be done monthly, with net 30
payment terms.
ADDITIONAL PROGRAMS AND CONSIDERATIONS:
Revenue Sharing: If EarthLink introduces CyberGold to a merchant, and that
merchant, as a result of EarthLink's introduction, chooses to run an incentive
promotion program with CyberGold off of the EarthLink site (e.g. at the
CyberGold site or at partner sites), then CyberGold will pay to EarthLink
[***]*% of the transaction fee revenue generated by that merchant's CyberGold
incentive programs during the term of this agreement.
If at some future time EarthLink Partner Merchants offer users CyberGold
incentive rewards on the EarthLink site for which the Partner Merchants pay,
EarthLink and CyberGold will share the transaction fees generated by those
reward transactions as follows. In cases where EarthLink originally acquired the
merchant and brought the merchant to the EarthLink-CyberGold partnership,
EarthLink will earn [***]*% of the transaction fee and CyberGold will earn
[***]*% of the transaction fee, with a minimum fee to CyberGold of $[***]*. In
cases where CyberGold originally acquired the merchant and brought the merchant
to the EarthLink-CyberGold partnership, CyberGold will earn [***]*% of the
transaction fee and EarthLink will earn [***]*% of the transaction fee, with a
minimum fee to CyberGold of $[***]*. At present we do not know what such fees
will be, since at present EarthLink will be paying the entire consumer reward.
Sprint Promotions: CyberGold and EarthLink will run co-promotions using
CyberGold incentive rewards to drive adoption of Sprint Long Distance, Sprint
PCS, and Sprint/EarthLink ISP services. These promotions will run at the
EarthLink site, at the CyberGold site, and broadly at other Internet Partner
sites and on banners throughout the Internet. The specific reward amounts, fee
structures, and terms of these promotions have yet to be determined.
- -------------
* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
<PAGE> 2
Micropayments: CyberGold will develop a micropayment-billing product that
requires minimal action by EarthLink I.S. resources to implement. CyberGold
will aggregate microbillings on the CyberGold server and ship data to EarthLink
regularly, at periods to be determined. EarthLink will add these aggregated
microbillings to the monthly credit card billings that EarthLink already makes
to each of its ISP customers. Once this micropayment billing system is
operational, EarthLink will assist CyberGold with promoting it to EarthLink
Partner Merchants. EarthLink's participation is contingent upon a technical
feasibility evaluation by EarthLink's MIS staff.
[***]*
Partnership: CyberGold will become an EarthLink Platinum Partner. Fees for this
status are still to be determined.
PR Activities: EarthLink and CyberGold will issue joint Press Releases and
engage in other joint PR activities to promote the purchase rebate program, and
other programs they undertake together in the future.
Term:
This agreement is valid for one year and is renewable by EarthLink in the event
CyberGold earns net revenues of $[***]* or greater from all sources relating
to the promotions contemplated herein.
Agreed:
/s/ HOWARD LEFKOWITZ /s/ NAT GOLDHABER
- ------------------------------------ ---------------------------------------
Howard Lefkowitz Nat Goldhaber
VF Business Development CEO
EarthLink Network, Inc. CyberGold
Dated: 8/7/98 Dated: 8/10/98
------------------- --------------------
- -------------
* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.9
LINC CAPITAL MANAGEMENT, A DIVISION OF LINC Capital Management, a division of
SCIENTIFIC LEASING INC. Scientific Leasing Inc.
MASTER LEASE AGREEMENT 303 East Wacker Drive
Chicago, Illinois 60601
(312) 946-1000
Lessee: CyberGold, Inc. Master Lease Agreement No. 6869
Address: 2921 Adeline Street Date: March 27, 1997
Berkeley, CA 94703
LINC Capital Management, a division of Scientific Leasing Inc. ("Lessor")
hereby leases to Lessee and Lessee leases from Lessor, in accordance with the
terms and conditions hereinafter set forth, the equipment and property together
with all replacement parts, additions, accessories, alterations and repairs
incorporated therein or now or hereafter affixed thereto (herein collectively
referred to as the "Equipment") described in each Equipment Schedule which may
be executed by Lessor and Lessee from time to time (individually a "Schedule"
and collectively, the "Schedules"), each of which is made a part hereof. For
all purposes of this Master Lease Agreement ("Lease"), each Equipment Schedule
relating to one or more items of Equipment shall be deemed a separate lease
incorporating all of the terms and provisions of this Lease. In the event of a
conflict between the terms of this Lease and the terms and conditions of an
Equipment Schedule, the terms and conditions of the Equipment Schedule shall
govern and control that Equipment Schedule.
- --------------------------------------------------------------------------------
1. TERM AND RENTAL. The term of this Lease (the "Initial Lease Term") for any
item of Equipment shall be set forth in the Equipment Schedule relating to such
items of Equipment and shall commence (the "Commencement Date") on the
Acceptance Date ("Acceptance Date"), which shall be the applicable of: (1) the
date of delivery of the Equipment to Lessee; (2) in the case of Equipment which
is the subject of a sale and leaseback between Lessor and Lessee, the date upon
which Lessor purchases such Equipment from Lessee; or (3) in the case of
Equipment requiring installation, the date of installation of the Equipment. If
the Acceptance Date is other than the first day of a calendar quarter, then the
Commencement Date of the Initial Lease Term set forth in any Equipment Schedule
shall be the first day of the calendar quarter following the month which
includes the Acceptance Date and Lessee shall pay to Lessor, in addition to all
other sums due hereunder, an amount equal to one-thirtieth of the amount of the
average monthly rental payment due or to become due hereunder multiplied by the
number of days from and including the Acceptance Date to the Commencement Date
of the Initial Lease Term set forth in the Equipment Schedule. Lessee agrees to
pay the total rental for the entire term hereof, which shall be the total
amount of all rental payments set forth in the Equipment Schedule plus such
additional amounts as may become due hereunder or pursuant to any written
modification hereof or additional written agreement hereto. Except as otherwise
specified in the Equipment Schedule, rental payments hereunder shall be monthly
and shall be payable in advance on the first day of each month during the term
of this Lease beginning with the Commencement Date of the Initial Lease Term and
shall be sent to the address of the Lessor specified in this Lease or in the
Equipment Schedule or as otherwise directed by the Lessor in writing. Rental
payments or any other payments due hereunder not receivable on or before five
(5) days after the due date shall be overdue and shall be subject to a service
charge in an amount equal to two percent (2%) per month of the overdue payments
or the maximum rate permitted by law whichever is less (the "Service Charge
Rate"). If Lessor shall at any time accept a rental payment after it shall
become due, such acceptance shall not constitute or be construed as a waiver of
any or all of Lessor's rights hereunder, including without limitation those
rights of Lessor set forth in Sections 12 and 13 hereof.
2. TITLE. This is an agreement of lease only. Lessee shall have no right, title
or interest in or to the Equipment leased hereunder, except as to the use
thereof subject to the terms and conditions of this Lease. All of the Equipment
shall remain personal property (whether or not the Equipment may at any time
become attached or affixed to real property). The Equipment is and shall remain
the sole and exclusive property of Lessor or its assignees. All replacement
parts, modifications, repairs, alterations, additions and accessories
incorporated in or affixed to the Equipment (herein collectively called
"additions" and included in the definition of "Equipment"), whether before or
after the Commencement Date, shall become the property of Lessor upon being so
incorporated or affixed and shall be returned to Lessor as provided in Section
3. Upon the request of Lessor, Lessee will affix to the Equipment labels or
other markings supplied by Lessor indicating its ownership of the Equipment and
shall keep the same affixed for the entire term of this Lease. Lessee agrees to
promptly execute and deliver or cause to be executed and delivered to Lessor and
Lessor is hereby authorized to record or file, any statement and/or instrument
requested by Lessor for the purpose of showing Lessor's interest in the
Equipment, including without limitation, financing statements, security
agreements, and waivers with respect to rights in the Equipment from any owners
or mortgagees of any real estate where the Equipment may be located. In the
event that Lessee fails or refuses to execute and/or file Uniform Commercial
Code financing statements or other instruments or recordings which Lessor or
its assignee reasonably deems necessary to perfect or maintain perfection of
Lessor's or its assignee's interests hereunder, Lessee hereby appoints Lessor as
Lessee's limited attorney-in-fact to execute and record all documents necessary
to perfect or maintain the perfection of Lessor's interest hereunder. Lessee
shall pay Lessor for any costs and fees relating to any filings hereunder
including, but not limited to, costs, fees, searches, document preparation,
documentary stamps, privilege taxes and reasonable attorneys' fees. If any item
of Equipment includes computer software, Lessee shall execute and deliver and
shall cause Seller (as hereinafter defined) to deliver all such documents as
are necessary to effectuate assignment of all applicable software licenses to
Lessor. Lessee shall at its expense: (i) indemnify, protect and defend Lessor's
title to the Equipment from and against all persons claiming against or through
Lessee; (ii) at all times keep the Equipment free from any and all liens,
encumbrances, attachments, levies, executions, burdens, charges or legal
process of any and every type whatsoever, (iii) give Lessor immediate written
notice of any breach of this Lease described in clause (ii); and (iv)
indemnify, protect and save Lessor harmless from any loss, cost or expense
(including reasonable attorneys' fees) caused by the Lessee's breach of
<PAGE> 2
any of the provisions of this Lease, whether incurred by Lessor in pursuing its
rights against Lessee or defending against any claims or defenses asserted by or
through Lessee.
3. ACCEPTANCE AND RETURN OF EQUIPMENT. Lessor shall, at any time prior to
unconditional acceptance of all Equipment by Lessee, have the right to cancel
this Lease with respect to such Equipment (and if the Equipment or any portion
thereof has not previously been delivered, Lessor may refuse to pay for the
Equipment or any portion thereof or refuse to cause the same to be delivered)
if: (a) the Acceptance Date with respect to any item of Equipment to be leased
pursuant to any Equipment Schedule has not occurred within sixty (60) days of
the estimated Acceptance Date set forth in such Equipment Schedule or (b) there
shall be, in the reasonable judgment of Lessor, a material adverse change in the
financial condition or credit standing of Lessee or of any guarantor of Lessee's
performance under this Lease since the date of the most recent financial
statements of Lessee or of such guarantor submitted to Lessor. Upon any
cancellation by Lessor pursuant to this Section or the provisions of any
Equipment Schedule, Lessee shall forthwith reimburse to Lessor all sums paid by
Lessor with respect to such Equipment plus all costs and expenses of Lessor
incurred in connection with such Equipment and any interest or rentals due
hereunder in connection with such Equipment and shall pay to Lessor all other
sums then due hereunder, whereupon if Lessee is not in then in default and has
fully performed all of its obligations hereunder, Lessor will, upon request of
Lessee, transfer to Lessee without warranty or recourse any rights that Lessor
may then have with respect to such Equipment. Lessee agrees to promptly execute
and deliver to Lessor (in no event later than 15 days after the Acceptance Date)
a confirmation by Lessee of unconditional acceptance of the Equipment in the
form supplied by Lessor (the "Equipment Acceptance"). Lessee agrees, before
execution of the aforesaid Equipment Acceptance, to inform Lessor in writing of
any defects in the Equipment, or in the installation thereof, which have come to
the attention of Lessee or its agents and which might give rise to a claim by
Lessee against the Seller or any other person. If Lessee fails to give notice to
Lessor of any such defects or fails to deliver to Lessor the Equipment
Acceptance as provided herein, it shall be deemed an acknowledgement by Lessee
(for purposes of this Lease only) that no such defects in the Equipment or its
installation exist and it shall be conclusively presumed, solely as between
Lessor and its assignees and Lessee, that such Equipment has been
unconditionally accepted by Lessee for lease hereunder. Except as otherwise
provided in any Equipment Schedule, Lessee shall provide Lessor ninety (90) days
prior written notice of its intention to return the Equipment upon expiration of
the Initial Lease Term. Upon expiration or the cancellation or termination of
the Lease with respect to any Equipment, Lessee shall, at its own expense,
assemble, crate, insure and deliver all of the Equipment and all of the service
records and all software and software documentation subject to this Lease and
any Equipment Schedules hereto to Lessor in the same good condition and repair
as when received, reasonable wear and tear resulting only from proper use
thereof excepted, to such reasonable destination within the continental United
States as Lessor shall designate. Lessee shall, immediately prior to such return
of each item of Equipment, provide to Lessor a letter from the manufacturer of
the equipment or another service organization reasonably acceptable to Lessor
certifying that said item is in good working order, reasonable wear and tear
resulting only from proper use thereof excepted, that such item is eligible for
a maintenance agreement by such manufacturer and all software is included
thereon. If any computer software requires relicensing when removed from
Lessee's premises, Lessee shall bear all costs of such relicensing. Except as
otherwise expressly provided in the Equipment Schedule, if Lessee fails for any
reason to provide the notice set forth above or to re-deliver the Equipment back
to Lessor in accordance with the terms set forth above, Lessee shall pay to
Lessor, at Lessor's election, an amount equal to the highest monthly payment set
forth in the Equipment Schedule for a period of not less than three (3) months
and at the end of such period of time ("Holdover Period"), Lessee shall return
the Equipment to Lessor as provided herein. Except as otherwise expressly
provided in the Equipment Schedule, if Lessee fails or refuses to return the
Equipment as provided herein at the end of any Holdover Period, Lessee shall pay
to Lessor, at Lessor's option, an amount equal to one hundred percent (100%) of
the highest monthly payment set forth in the Equipment Schedule or the highest
rate permitted by law, whichever is less, for each month or portion thereof,
until Lessee so returns the Equipment to Lessor.
4. DISCLAIMER OF WARRANTIES. LESSEE HAS EXCLUSIVELY SELECTED AND CHOSEN THE
TYPE, DESIGN, CONFIGURATION, SPECIFICATION AND QUALITY OF THE EQUIPMENT HEREIN
LEASED AND THE VENDOR, DEALER, SELLER, MANUFACTURER OR SUPPLIER THEREOF (HEREIN
COLLECTIVELY CALLED "SELLER"), AS SET FORTH IN THE EQUIPMENT SCHEDULES. LESSOR
MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO ANY
MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE
EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS, ADAPTABILITY, ANY IMPLIED
WARRANTY OF QUIET ENJOYMENT OR NON-INTERFERENCE OR SUITABILITY FOR ANY
PARTICULAR PURPOSE, AND, LESSEE LEASES, HIRES AND RENTS THE EQUIPMENT "AS IS,
WHERE IS." Lessee understands and agrees that neither Seller, nor any agent of
Seller, is an agent of Lessor or is in any manner authorized to waive or alter
any term or condition of this Lease. Lessor shall not be liable for any loss or
damage suffered by Lessee or by any other person or entity, direct or indirect
or consequential, including, but not limited to, business interruption and
injury to persons or property, resulting from non-delivery or late delivery,
installation, failure or faulty operation, condition, suitability or use of the
Equipment leased by Lessee hereunder, or for any failure of any
representations, warranties or covenants made by the Seller. Any claims of
Lessee shall not be made against Lessor but shall be made, if at all, solely
and exclusively against Seller, or any persons other than the Lessor. Lessor
hereby authorizes Lessee to enforce during the term of this Lease, in its name
but at Lessee's sole effort and expense, all warranties, agreements or
representations, if any, which may have been made by Seller to Lessor or to
Lessee, and Lessor hereby assigns to Lessee solely for the limited purpose of
making and prosecuting any such claim, all rights which Lessor may have against
Seller for breach of warranty or other representation respecting the Equipment.
5. CARE, TRANSFER AND USE OF EQUIPMENT. Lessee, at its own expense, shall
maintain the Equipment in good operating condition, repair and appearance in
accordance with Seller's specifications and in compliance with all applicable
laws and regulations and shall protect the Equipment from deterioration except
for reasonable wear and tear resulting only from proper use thereof. When
generally offered, Lessee shall, at its expense, keep a maintenance contract in
full force and effect, throughout the term of this Lease and any Equipment
Schedule hereto. The disrepair or inoperability of the Equipment regardless of
the cause thereof shall not relieve Lessee of the obligation to pay rental
hereunder. Lessee shall not make any modification, alteration or addition to the
Equipment (other than normal operating accessories or controls). Lessee will
not, and will not permit anyone other than the authorized field engineering
representatives of Seller or other maintenance organization reasonably
acceptable to Lessor to effect any inspection, adjustment, preventative or
remedial maintenance or repair to the
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<PAGE> 3
Equipment. Lessee may not (a) relocate or operate the Equipment at locations
other than the premises of Lessee specified in the applicable Equipment Schedule
(the "Premises"), except with Lessor's prior written consent, which shall not be
unreasonably withheld if such other location within the continental United
States, or (b) SELL, CONVEY, TRANSFER, ENCUMBER, PART WITH POSSESSION OF, OR
ASSIGN ANY ITEM OF EQUIPMENT OR ANY OF ITS RIGHTS HEREUNDER, AND ANY SUCH
PURPORTED TRANSACTION SHALL BE NULL AND VOID AND OF NO FORCE OR EFFECT. In the
event of a relocation of the Equipment or any item thereof to which Lessor
consents, all costs (including any additional property taxes or other taxes and
any additional expense of insurance coverage) resulting from any such
relocation, shall be promptly paid by Lessee upon presentation to Lessee of
evidence supporting such cost. Lessor shall have the right during normal hours
upon reasonable notice to Lessee, subject to applicable laws and regulations, to
enter Lessee's Premises in order to inspect, observe, affix labels or other
markings, or to exhibit the Equipment to prospective purchasers or future
lessees thereof, or to otherwise protect Lessor's interest therein.
6. NET LEASE. THIS LEASE AND ANY EQUIPMENT SCHEDULE HERETO IS A NET LEASE, AND
ALL PAYMENTS HEREUNDER ARE NET TO LESSOR. All taxes, assessments, licenses, and
other charges (including, without limitation personal property taxes and sales,
use and leasing taxes and penalties and interest on such taxes) imposed, levied
or assessed on the ownership, possession, rental or use of the Equipment during
the term of this Lease and any Equipment Schedule hereto (except for Lessor's
federal or state net income taxes) shall be paid by Lessee when due and before
the same shall become delinquent, whether such taxes are assessed or would
ordinarily be assessed against Lessor or Lessee. To the extent possible under
applicable law, for personal property or advalorem tax return purposes only,
Lessee shall include the Equipment on such returns as may be required, which
returns shall be timely filed by it. In any event, Lessee shall file all tax
returns required for itself or Lessor and Lessor hereby appoints Lessee as its
attorney-in-fact for such purpose. In case of failure by Lessee to co-pay said
taxes, assessments, licenses or other charges, Lessor may pay all or any part of
such items, in which event the amount so paid by Lessor including any interest
or penalties thereon and reasonable attorneys' fees incurred by Lessor in
pursuing its rights against Lessee or defending against any claims or defenses
asserted by or through Lessee shall be immediately paid by Lessee to Lessor as
additional rental hereunder. Lessee shall promptly pay all costs, expenses and
obligations of every kind and nature incurred in connection with the use or
operation of the Equipment which may arise or become due during the term of this
Lease and any Equipment Schedule hereto, whether or not specifically mentioned
herein. In case of failure by Lessee to comply with any provision of this Lease
and any Equipment Schedule hereto, Lessor shall have the right, but not the
obligation, to effect such compliance on behalf of Lessee. In such event, all
costs and expenses incurred by Lessor in effecting such compliance shall be
immediately paid by Lessee to Lessor as additional rental hereunder.
7. INDEMNITY. Lessee shall and does hereby agree to indemnify, defend and hold
Lessor and its assigns harmless from and against any and all liability, loss,
costs, injury, damage, penalties, suits, judgements, demands, claims, expenses
and disbursements (including without limitation, reasonable attorneys' fees
incurred by Lessor in pursuing its rights against Lessee or defending against
any claims or defenses asserted by or through Lessee) of any kind whatsoever
arising out of, on account of, or in connection with this Lease and the
Equipment leased hereunder, including, without limitation, its manufacture,
selection, purchase, delivery, rejection installation, ownership, possession,
leasing, renting, operation, control, use, maintenance and the return thereof.
This indemnity shall survive the Initial Lease Term or earlier cancellation or
termination of this Lease and any Equipment Schedule hereto.
8. INSURANCE. Commencing on the date that risk of loss or damage passes to
Lessor from the Seller and continuing until Lessee has re-delivered possession
of the Equipment to Lessor, Lessee shall, at its own expense, keep the Equipment
(including all additions thereto) insured against all risks of loss or damage
from every and any cause whatsoever in such amounts (but in no event less than
the greater of the replacement value thereof or the amount set forth in the
applicable Casualty Schedule, whichever is higher) with such deductibles and
exclusions as approved by Lessor and in such form as is satisfactory to Lessor.
All such insurance policies shall protect Lessor and Lessor's assignee(s) as
loss payees as their interests may appear. Lessee shall also, at its own
expense, carry public liability insurance, with Lessor and Lessor's assignee(s)
as an additional insured, in such amounts with such companies and in such form
as is satisfactory to Lessor, with respect to injury to person or property
resulting from or based in any way upon or in any way connected with or relating
to the installation, use or alleged use, or operation of any or all of the
Equipment, or its location or condition. Not less than ten days prior to the
Acceptance Date, Lessee shall deliver to Lessor satisfactory evidence of such
insurance and shall further deliver evidence of renewal of each such policy not
less than thirty (30) days prior to expiration thereunder. Each such policy
shall contain an endorsement providing that the insurer will give Lessor not
less than thirty (30) days prior written notice of the effective date of any
alteration, change, cancellation, or modification of such policy or the failure
by Lessee to timely pay all required premiums, costs or charges with respect
thereto. Upon Lessor's request, Lessee shall cause its insurance agent(s) to
execute and deliver to Lessor Loss Payable Clause Endorsement and Additional
Insured Endorsement (bodily injury and property damage liability insurance)
forms provided to Lessee by Lessor. In case of the failure to procure or
maintain such insurance, Lessor shall have the right, but not the obligation, to
obtain such insurance and any premium paid by Lessor shall be immediately due
and payable by Lessee to Lessor as additional rent hereunder. The maintenance of
any policy or policies of insurance pursuant to this Section shall not limit any
obligation or liability of Lessee pursuant to Sections 7 or 9 or any other
provision of this Lease and any Equipment Schedule hereto.
9. RISK OF LOSS. Until such time as the Equipment is returned and delivered to
and accepted by Lessor, pursuant to the terms of this Lease and any Equipment
Schedule hereto, Lessee hereby assumes and shall bear the entire risk of loss,
damage, theft and destruction of the Equipment, or any portion thereof, from any
cause whatsoever ("Equipment Loss"). Without limitation of the foregoing, no
Equipment Loss shall relieve Lessee in any way from its obligations hereunder.
Lessee shall promptly notify Lessor in writing of any Equipment Loss. In the
event of any such Equipment Loss, Lessee shall: (a) in the event Lessor
determines such Equipment to be repairable, promptly place, at Lessee's expense,
the Equipment in good repaid, condition and working order in accordance with
Seller's specifications and to the satisfaction of Lessor; or (b) in the event
of an actual or constructive total loss of any item of Equipment, at Lessor's
option: (i) promptly replace, at Lessee's expense, the Equipment with like
equipment of the same or a later model with the same additions as the Equipment,
and in good repaid, condition and working order in accordance with the Seller's
specifications and to the satisfaction of Lessor; or (ii) immediately pay to
Lessor the amount obtained by multiplying the Actual Equipment Cost as specified
in the applicable Equipment Schedule by the percentage contained in the
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<PAGE> 4
applicable Casualty Schedule for the date of such Equipment Loss plus, any
unpaid rentals or any amounts due hereunder or, if no Casualty Schedule has been
made a part of any applicable Equipment Schedule, an amount equal to the present
value of the total amount of unpaid rentals and all other amounts due and to
become due under any applicable Equipment Schedule during the term thereof as of
the date of any payment, discounted at a rate equal to discount rate of the
Federal Reserve Bank of Chicago as of the Commencement Date of the Lease with
respect to each applicable Equipment Schedule, plus an additional amount equal
to the fair market value of the Equipment immediately prior to the loss, theft,
damage, or destruction, but in no event shall the amount of such fair market
value be less than twenty percent (20%) of the actual cost of the Equipment. In
the event Lessee is required to repair or replace any such item of Equipment
pursuant to Subsections (a) or (b)(i) of the preceding sentence, the insurance
proceeds received by Lessor, if any, pursuant to Section 8, after the use of
such funds to pay any unpaid amounts then due hereunder, shall be paid to Lessee
or, if applicable, to a third party repairing or replacing the Equipment upon
Lessee's furnishing proof satisfactory to Lessor that such repair or replacement
has been completed in a satisfactory manner. In the event Lessor elects option
(b)(ii), Lessee shall be entitled to a credit against the payment required by
said Subsection in an amount equal to such insurance proceeds actually received
by Lessor pursuant to Section 8 on account of such Equipment, and, upon payment
by Lessee to Lessor of all of the sums required pursuant to Subsection (b)(ii),
the applicable Equipment Schedule shall terminate with respect to such item of
Equipment and Lessee shall be entitled to whatever interest Lessor may have in
such item "as is, where is" and "with all faults" in its then condition and
location without warranties of any type whatsoever, express or implied.
10. COVENANTS OF LESSEE. Lessee agrees that its obligations under this Lease and
any Equipment Schedule hereto, including without limitation, the obligation to
pay rental, are irrevocable and absolute, shall not abate for any reason
whatsoever (including any claims against Lessor), and shall continue in full
force and effect regardless of any inability of Lessee to use the Equipment or
any part thereof for any reason whatsoever including, without limitation, war,
act of God, storms, governmental regulations, strike or other labor troubles,
loss, damage, destruction, disrepair, obsolescence, failure of or delay in
delivery of the Equipment, or failure of the Equipment to properly operate for
any cause. In the event of any alleged claim (including a claim which would
otherwise be in the nature of a set-off) against Lessor, Lessee shall fully
perform and pay its obligations hereunder (including all rents, without set-off
or defense of any kind) and its only exclusive recourse against Lessor shall be
by a separate action. Lessee agrees to furnish promptly to Lessor the annual
financial statements of Lessee (and of any guarantors of Lessee's performance
under this Lease and any Equipment Schedule hereto), prepared in accordance with
generally accepted accounting principles and certified by independent certified
public accountants, and such interim financial statements of Lessee as Lessor
may require during the entire term of this Lease and any Equipment Schedule
hereto. Lessee, if requested, shall provide at Lessee's expense an opinion of
its counsel acceptable to Lessor affirming the covenants, representations and
warranties of Lessee under this Lease and any Equipment Schedule hereto.
11. REPRESENTATIONS AND WARRANTIES. In order to induce Lessor in enter into this
Lease and any Equipment Schedule hereto and to lease the Equipment to Lessee
hereunder, Lessee represents and warrants that: (a) FINANCIAL STATEMENTS. (i)
applications, financial statements, and reports which have been submitted by
Lessee and any Obligors (as hereinafter defined) to Lessor are, and all
information hereafter furnished by Lessee and Obligors to Lessor will be, true
and correct in all material respects as of the date submitted; (ii) as of the
date hereof, the date of any Equipment Schedule and any Acceptance Date, there
has been no material adverse change in any matter stated in such applications,
financial statements and reports; and, (iii) none of the foregoing omit or
omitted to state any material fact. (b) ORGANIZATION. Lessee is an
organizational entity described on the signature page hereof and is duly
organized, validly existing and is duly qualified to do business and is in good
standing in each State in which the Equipment will be located. (c) AUTHORITY.
Lessee has full power, authority and right to execute, deliver and perform this
Lease and any Equipment Schedule hereto, and the execution, delivery and
performance hereof has been authorized by all necessary action of Lessee. (d)
ENFORCEABILITY. This Lease and any Equipment Schedule or other document executed
in connection therewith has been duly executed and delivered by Lessee and any
Obligor and constitutes a legal, valid and binding obligation of Lessee and any
Obligor enforceable in accordance with its terms. (e) CONSENTS. The execution,
delivery and performance of this Lease and any Equipment Schedule hereto does
not require any approval or consent of any stockholders, partners or proprietors
or of any trustee or holders of any indebtedness or obligations of Lessee, and
will not contravene any law, regulation, judgment or decree applicable to
Lessee, or the certificate of incorporation, partnership agreement, by-laws or
other governing documents of Lessee, or contravene the provisions of, or
constitute a default under, or result in the creation of any lien upon any
property of Lessee under any mortgage, instrument or other agreement to which
Lessee is a party or by which Lessee or its assets may be bound or affected.
Except as disclosed, no authorization, approval, license, filing or registration
with any court or governmental agency or instrumentality is necessary in
connection with the execution, delivery, performance, validity and
enforceability of this Lease and any Equipment Schedule hereto. (f) TITLE. On
each Commencement Date, Lessor shall have good and marketable title to the items
of Equipment which is subject to this Lease and any Equipment Schedule hereto on
such date, free and clear of all liens, except the lien of Seller which will be
released upon receipt of payment. Lessee warrants that no party has a security
interest in the Equipment which will not be released on or before payment by
Lessor to Seller of the Equipment and that the Equipment is and shall at all
times remain personal property regardless of how it may be affixed to any real
property. (g) LITIGATION. There is no action, suit, investigation or proceeding
by or before any court, arbitrator, agency or governmental authority pending or
threatened against or affecting Lessee: (i) which involves the Equipment or the
transactions contemplated by this Lease and any Equipment Schedule hereto; or
(ii) which, if adversely determined, could have a material adverse effect on the
financial condition, business or operation of Lessee.
12. EVENTS OF DEFAULT. An event of default ("Event of Default") shall occur
hereunder if Lessee or any Obligor ("Obligor" shall include any guarantor or
surety of any obligations of Lessee to Lessor under this Lease and any Equipment
Schedule hereto): (i) fails to pay any installment of rent or other payment
required hereunder when due; or (ii) attempts to or does remove from the
Premises (except a relocation with Lessor's consent as provided in Section 5),
sell, transfer, encumber, part with possession of, or sublet any item of the
Equipment; or (iii) shall suffer or have suffered, in the reasonable judgment of
Lessor, a material adverse change in its financial condition since the date of
the last financial statements submitted to Lessor, and as a result thereof
Lessor deems itself to be insecure, or any of the statements or other documents
or information submitted at any time heretofore or hereafter by Lessee or
Obligor to Lessor has misstated or shall misstate or has failed or shall fail to
state a material fact; or (iv) breaches or shall have breached any
representation or warranty made or given by Lessee or Obligor in this Lease or
in any other document furnished to Lessor in connection herewith, or any such
representation or warranty shall be untrue or, by
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<PAGE> 5
reason of failure to state a material fact or otherwise, shall be misleading;
or (v) fails to perform or observe any other covenant, condition or agreement
to be performed or observed by it hereunder, and such failure or breach shall
continue unremedied for a period of ten days after the earlier of (a) the date
on which Lessee obtains, or should have obtained knowledge of such failure or
breach, or (b) the date on which notice thereof shall be given by Lessor to
Lessee; or (vi) shall become insolvent or bankrupt or make an assignment for
the benefit of creditors or consent to the appointment of a trustee or
receiver, or a trustee or receiver shall be appointed for a substantial part of
its property without its consent, or bankruptcy or reorganization or insolvency
proceeding shall be instituted by or against Lessee or Obligor; or (vii)
conveys, sells, transfers or assigns substantially all of Lessee's or Obligor's
assets or ceases doing business as a going concern, or, if a corporation,
ceases to be in good standing or files a statement of intent to dissolve, or
abandons any or all of the Equipment; or (viii) shall be in breach of or
default under any lease or other agreement at any time executed with Lessor or
any other lessor or with any lender to Lessee or Obligor.
13. REMEDIES. Upon the occurrence of an Event of Default (the "Default Date")
set forth in Section 12 and at any time thereafter, Lessor may, in its sole and
absolute discretion, do any one or more of the following: (a) upon notice to
Lessee cancel all or any portion of this Lease and some or all Equipment
Schedules executed pursuant thereto; (b) enter Lessee's Premises and without
removal of the Equipment, render the Equipment unusable or, require Lessee to
assemble the Equipment and make it available to Lessor at a place designated by
Lessor, and/or dispose of the Equipment by sale or otherwise (all of which
determinations may be made by Lessor in its sole and absolute discretion)
without any duty to account for such action or inaction or for any proceeds or
profits with respect thereto; (c) declare immediately due and payable all sums
due and to become due hereunder for the full term of the Lease (including any
renewal or purchase obligations which Lessee has contracted to pay); (d) with
or without canceling this Lease, recover from Lessee damages, in an amount
equal to the sum of: (i) all unpaid rent and other amounts that became due and
payable on, or prior to, the Default Date, (ii) the present value of all future
rentals and other amounts described in the Lease and not included in (i) above
discounted to the Default Date at a rate equal to the discount rate of the
Federal Reserve Bank of Chicago as of the Commencement Date of the Lease with
respect to each Equipment Schedule (which discount rate, Lessee agrees is a
commercially reasonable rate which takes into account the facts and
circumstances at the time such Equipment Schedule commenced), (iii) all
commercially reasonable costs and expenses incurred by Lessor in enforcing
Lessor's rights under this Lease, or defending against any claims or defenses
asserted by or through Lessee, including but not limited to, costs of
repossession, recovery, storage, repair, sale, re-lease and reasonable
attorneys' fees, (iv) the estimated residual value of the Equipment as of the
expiration of the Lease, (v) any indemnity amount payable to Lessor; and (vi)
interest on all of the foregoing from the Default Date until the date payment
is received by Lessor at 2 1/2% in excess of the Prime Rate (or its equivalent)
per annum in effect on the date of such payment at the First National Bank of
Chicago) or the highest rate permitted by law, whichever is less; (e) exercise
any other right or remedy which may be available to it under the Uniform
Commercial Code or any other applicable law. Lessor reserves the right, in its
sole and absolute discretion, to release or sell any or all of the Equipment at
a public auction or in a private sale, at such time, on such terms and with
such notice as Lessor shall in its sole and absolute discretion deem reasonable.
In such event, without any duty on Lessor's part to effect any such re-lease or
sale of the Equipment, Lessor will credit the present value of any proceeds from
such sale or re-lease actually received and retainable by it (net of any and all
costs or expenses) discounted from the date of Lessor's receipt thereof to the
Default Date at 2 1/2% in excess of the Prime Rate (or its equivalent) per annum
in effect on the date of such payment at the First National Bank of Chicago, or
the highest rate permitted by law, whichever is less to the amounts due to
Lessor from Lessee under the provisions of (c), (d) and/or (e) above. A
cancellation of this Lease shall occur only upon notice by Lessor and only as to
such items of Equipment as Lessor specifically elects to cancel and this Lease
shall continue in full force and effect as to the remaining items of Equipment,
if any. If this Lease and/or any Equipment Schedule is deemed at any time to be
one intended as security, Lessee agrees that the Equipment shall secure, in
addition to the indebtedness set forth herein, any other indebtedness at any
time owing by Lessee to Lessor. No remedy referred to in this Section is
intended to be exclusive, but shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lessor at law or in equity.
No express or implied waiver by Lessor of any default shall constitute a waiver
of any other default by Lessee or a waiver of any of Lessor's rights.
14. ASSIGNMENT BY LESSOR. LESSOR MAY (WITH OR WITHOUT NOTICE TO LESSEE) SELL,
TRANSFER, ASSIGN OR GRANT A SECURITY INTEREST IN ALL OR ANY PART OF ITS
INTEREST IN THIS LEASE, ANY EQUIPMENT SCHEDULE, ANY ITEMS OF EQUIPMENT OR ANY
AMOUNT PAYABLE HEREUNDER. In such an event, Lessee shall, upon receipt of
notice, acknowledge any such sale, transfer, assignment or grant of a security
interest and shall pay its obligations hereunder or amounts equal thereto to
the respective transferee, assignee or secured party in the manner specified in
any instructions received from Lessor. Notwithstanding any such sale, transfer,
assignment or grant of a security interest by Lessor and so long as no event of
default shall have occurred hereunder, neither Lessor nor any transferee,
assignee or secured party shall interfere with Lessee's right of use or quiet
enjoyment of the Equipment. In the event of such sale, transfer, assignment or
grant of a security interest in all or any part of this Lease and any Equipment
Schedule hereto, or in the Equipment or in sums payable hereunder, as
aforesaid, Lessee agrees to execute such documents as may be reasonably
necessary to evidence, secure and complete such sale, transfer, assignment or
grant of a security interest and to perfect the transferee's, assignee's or
secured party's interest therein and Lessee further agrees that the rights of
any transferee, assignee or secured party shall not be subject to any defense,
set-off or counterclaim that Lessee may have against Lessor or any other party,
including the Seller, which defenses, set-offs and counterclaims shall be
asserted only against such party, and that any such transferee, assignee or
secured party shall have all of Lessor's rights hereunder, but shall assume
none of Lessor's obligations hereunder. Lessee acknowledges that any assignment
or transfer by Lessor shall not materially change Lessee's duties or
obligations under this Lease nor materially increase the burdens and risks
imposed on Lessee. Lessee agrees that Lessor may assign or transfer this Lease
or Lessor's interest in the Equipment even if said assignment or transfer could
be deemed to materially affect the interests of Lessee. Nothing in the
preceding sentence shall affect or impair the provisions of Section 4, Section
10 or any other provision of this Lease.
15. AMENDMENTS. This Lease and any Equipment Schedule hereto contain the
entire agreement between the parties with respect to the Equipment, this Lease
and any Equipment Schedule hereto and there is no agreement or understanding,
oral or written, which is not set forth herein. This Lease and any Equipment
Schedule hereto may not be altered, modified, terminated or discharged except
by a writing assigned by the party against whom such alteration, modification,
termination or discharge is sought.
5
<PAGE> 6
Lessee's Initials _____
16. LAW. This Lease and any Equipment Schedule hereto shall be binding only
when accepted by Lessor at its corporate headquarters in Illinois and shall in
all respects be governed and construed, and the rights and the liabilities of
the parties hereto determined, except for local filing requirements, in
accordance with the laws of the State of Illinois. LESSEE WAIVES TRIAL BY JURY
AND SUBMITS TO THE JURISDICTION OF THE FEDERAL DISTRICT COURTS OF COMPETENT
JURISDICTION OR ANY STATE COURT WITHIN THE STATE OF ILLINOIS AND WAIVES ANY
RIGHT TO ASSERT THAT ANY ACTION INSTITUTED BY LESSOR IN ANY SUCH COURT IS IN
THE IMPROPER VENUE OR SHOULD BE TRANSFERRED TO A MORE CONVENIENT FORUM.
Lessee's Initials _____
17. INVALIDITY. In the event that any provision of this Lease and any
Equipment Schedule hereto shall be unenforceable in whole or in part, such
provision shall be limited to the extent necessary to render the same valid, or
shall be exercised from this Lease or any Equipment Schedule hereto, as
circumstances may require, and this Lease and the applicable Equipment Schedule
shall be construed as if said provision had been incorporated herein as so
limited, or as if said provision had not been included herein, as the case may
be without invalidating any of the remaining provisions hereof.
18. MISCELLANEOUS. All notices and demands relating hereto shall be in
writing and mailed by certified mail, return receipt requested, to Lessor or
Lessee at their respective addresses above or shown in the Equipment Schedule,
or at any other address designated by notice served in accordance herewith.
Notice shall become effective when deposited in the United States mail, with
proper postage prepaid, addressed to the party intended to be served at the
address designated herein. All obligations of Lessee shall survive the
termination or expiration of this Lease and any Equipment Schedule hereto.
Should Lessor permit use by Lessee of any Equipment beyond the Initial Lease
Term, or, if applicable, any exercised extension or renewal term, the lease
obligations of Lessee shall continue and such permissive use shall not be
construed as a renewal of the term thereof, or as a waiver of any right or
continuation of any obligation of Lessor hereunder, and Lessor may take
possession of any such Equipment at any time upon demand. If more than one
Lessee is named in this Lease, the liability of each shall be joint and
several. Lessee shall, upon request of Lessor from time to time, perform all
acts and execute and deliver to Lessor all documents which Lessor deems
reasonably necessary to implement this Lease and any Equipment Schedule hereto,
including, without limitation, certificates addressed to such persons as Lessor
may direct stating that this Lease and the Equipment Schedule hereto is in full
force and effect, that there are no amendments or modifications thereto, that
Lessor is not in default hereof or breach hereunder, setting forth the date to
which rentals due hereunder have been paid, and stating such other matters as
Lessor may request. This Lease and any Equipment Schedule hereto shall be
binding upon the parties and their successors, legal representatives and
assigns. Lessee's successors and assigns shall include, without limitation, a
receiver, debtor-in-possession, or trustee of or for Lessee. If any person,
firm, corporation or other entity shall guarantee this Lease and the
performance by Lessee of its obligations hereunder, all of the terms and
provisions hereof shall be duly applicable to such Obligor.
19. LESSEE'S WAIVERS. To the extent permitted by applicable law, Lessee
hereby waives any and all rights and remedies conferred upon a Lessee by
Article 2A of the Uniform Commercial Code as adopted in any jurisdiction,
including but not limited to Lessee's rights to: (i) cancel this Lease; (ii)
repudiate this Lease; (iii) reject the Equipment; (iv) revoke acceptance of the
Equipment; (v) recover damages from Lessor for any breaches of warranty or for
any other reason; (vi) claim a security interest in the Equipment in Lessee's
possession or control for any reason (vii) deduct all or any part of any
claimed damages resulting from Lessor's default, if any, under this Lease;
(viii) accept partial delivery of the Equipment (ix) "cover" by making any
purchase or lease of or contract to purchase or lease Equipment in substitution
for those due from Lessor; (x) recover any general, special, incidental, or
consequential damages for any reason whatsoever; and (xi) specific performance,
replevin, detinue, sequestration, claim, and delivery of the like for any
Equipment identified to this Lease. To the extent permitted by applicable law,
Lessee also hereby waives any rights now or hereafter conferred by statute or
otherwise which may require Lessor to sell, lease or otherwise use any
Equipment in mitigation of Lessor's damages as set forth in Paragraph 13 or
which may otherwise limit or modify any of Lessor's rights or remedies under
Paragraph 13. Any action by Lessee against Lessor for any default by Lessor
under this Lease, including breach of warranty or indemnity, shall be commenced
within one (1) year after any such cause of action accrues.
20. COUNTERPARTS. This Lease may be executed in any number of counterparts,
each of which shall be deemed an original. Each Equipment Schedule shall be
executed in three (3) serially numbered counterparts each of which shall be
deemed an original but only counterpart number 1 shall constitute "chattel
paper" or "collateral" within the meaning of the Uniform Commercial Code in any
jurisdiction.
21. ADDENDUM. ("X" if applicable) [X] See Addendum(s) attached hereto and
made a part hereof.
6
<PAGE> 7
THE PERSON EXECUTING THIS LEASE FOR AND ON BEHALF OF LESSEE WARRANTS AND
REPRESENTS, WHICH WARRANTY AND REPRESENTATION SHALL SURVIVE THE EXPIRATION OR
TERMINATION OF THIS LEASE, THAT THIS LEASE AND THE EXECUTION HEREOF HAS BEEN
DULY AND VALIDLY AUTHORIZED BY LESSEE, CONSTITUTES A VALID AND BINDING
OBLIGATION OF LESSEE AND THAT HE HAS AUTHORITY TO MAKE SUCH EXECUTION FOR AND
ON BEHALF OF LESSEE.
IN WITNESS WHEREOF, this Lease has been executed by lessee this 4th day of
April, 1997.
ACCEPTED AT CHICAGO, ILLINOIS
CYBERGOLD, INC. LINC CAPITAL MANAGEMENT, A DIVISION OF
SCIENTIFIC LEASING INC.
Lessee Lessor
By: A.Nathaniel Goldhaber By: LINC CAPITAL MANAGEMENT
-------------------------------- --------------------------------------
Title: CEO TITLE: Vice President
----------------------------- -----------------------------------
Date: 4-4-97 Date: September 16, 1997
------------------------------ ------------------------------------
7
<PAGE> 8
ADDENDUM NO. 1 TO
MASTER LEASE AGREEMENT NO. 6869
DATED AS OF MARCH 28, 1997
BETWEEN
LINC CAPITAL MANAGEMENT,
A DIVISION OF SCIENTIFIC LEASING INC., AS LESSOR
AND
CYBERGOLD, INC., AS LESSEE
This Addendum is attached to and forms part of that certain Master
Lease Agreement No. 6869 dated as of March 18, 1997, between LINC Capital
Management, a division of Scientific Leasing Inc., ("Lessor" or "LINC") and
CyberGold, Inc. ("Lessee" or "CyberGold"), (the "Lease") agreeing as follows:
A. Terms defined in the Lease shall have the same meanings herein unless
otherwise expressly set forth herein or otherwise required by context
hereof.
B. The following shall be added to the terms of the lease and are hereby
incorporated therein by reference.
2. LEASING OF EQUIPMENT.
a. Lease Line. Subject to the terms and conditions herein set
forth and in the applicable Equipment Schedule, and provided no event of
default under the Lease shall have occurred and be then continuing, Lessor
agrees to purchase and lease to Lessee, from time to time, the "Equipment" (as
defined below). The aggregate "Cost" (as defined below) of Equipment purchased
by Lessor pursuant to this Section 22.a shall in no event exceed $350,000.00
(the "Lease Line Amount"). All Takedowns" (as defined below) shall be completed
on or before April 1, 1998 (the "Last Takedown Date").
b. Equipment. (1) Lessor will purchase certain computer
equipment, and ancillary equipment related thereto (the "Equipment") from Lessee
or from vendors designated by Lessee. The purchase price for the Equipment will
be equal to the lesser of either (i) 100% of the manufacturers' net invoice
price (excluding applicable sales or use taxes, freight, installation, and
similar charges) for the Equipment or (ii) the Net Book Value of the Equipment
(as defined below); and (iii) the then fair market value for each item or
commercial unit of the Equipment as determined by Lessor ("Cost").
(2) All Equipment shall be tangible personal property
eligible for MACRS depreciation under the Internal Revenue Code of 1986, as
amended. The depreciation benefits arising from the Equipment will be for the
account of Lessor.
(3) Each item of or commercial unit of the Equipment, its
vendor and all purchase orders, invoices and related documents will be subject
to review and approval by Lessor prior to funding any Takedown. The minimum Cost
for an individual item of or commercial unit of the Equipment shall not be less
than $1,000.
(4) Notwithstanding the provisions of subsection (1) above,
the "Cost" of for any Equipment placed in service by Lessee more than ninety
(90) days prior to purchase by LINC ("Used Equipment") shall be as follows:
(i) The Sale Leaseback Amount ("SLB Amount") paid by LINC for used Equipment
shall be equal to the lesser of either (a) 100% of the Net Book Value of the
Equipment or (b) the then fair market value for each item or commercial unit of
the type of Used Equipment acceptable to LINC but in either event not more or
less than $250,000.00 for Used Equipment purchased by LINC in connection with
Equipment Schedule No. 001. The SLB Amount shall be funded by LINC immediately
upon execution of the Master Lease Agreement and all related documents required
by Lessor including Equipment Schedule No. 001 to the Lease. Title to all Used
Equipment described in Equipment Schedule No. 001 shall pass to Lessor upon
payment of the SLB Amount.
(5) The Net Book Value shall mean the depreciated value of
the Equipment (determined in accordance with generally accepted accounting
principles according to the books and records of Lessee) and shall be supported
by the original manufacturer's net invoice amount actually paid by Lessee
(excluding applicable sales or use taxes, freight, installation and other
similar charges) as evidenced by canceled checks, copies of which are to be
delivered to Lessor prior to any purchase of Equipment by LINC.
c. Initial Lease Term and Monthly Lease Rate. The Initial Lease
Term shall be 36 months. The applicable Monthly Lease Rate factor shall be
3.2552% of Cost per month, subject to Rate Adjustments described below.
<PAGE> 9
d. Rate Adjustment. The Monthly Lease Rate Factor will be indexed to the
yield for U.S. Treasury Notes maturing closest to the date (3) years from the
Commencement Date of each Equipment Schedule (the "Index Instrument")
[(currently 5.97% for the 7 3/4% Treasury Notes maturing December, 1999 as
reported in the Wall Street Journal dated December 24, 1996)].
The Monthly Lease Rate Factor shall be adjusted by Lessor to provide for any
increase in the yield of the Index Instrument on the Commencement Date of each
Equipment Schedule. Upon commencement of each Equipment Schedule, the Monthly
Lease Rate Factor (as adjusted) shall be fixed for the Lease Term of each such
Equipment Schedule.
e. TAKEDOWNS. "Takedowns" means the date of the final payment of the Cost
of the Equipment for the applicable Equipment Schedules by LINC. All Takedowns
shall commence on the first day of the calendar quarter following Lessee's
acceptance of all Equipment on each Equipment Schedule. The initial Takedown
shall include any Used Equipment accepted by LINC as a separate Equipment
Schedule for the SLB Amount. Any Equipment purchased after the Initial Takedown
shall be ended on subsequent Takedowns through additional Equipment schedules
of at least $50,000.00 each up to the amount of the Cost of such Equipment.
Each Equipment Schedule will include all purchases of Equipment made for
Equipment on a progress payment basis in the previous calendar quarter not
previously included in an Equipment Schedule. Aggregate takedowns prior to
April 15, 1997 shall be for at least $50,000. All Equipment Schedules shall
takedown prior to the Last Takedown Date.
f. FIRST MONTH'S RENT. An amount equal to the first month's rental payment
shall be payable to Lessor upon commencement of each Equipment Schedule and may
be retained by Lessor from the amount of any other sums payable by Lessor to
Lessee or on behalf of Lessee
g. LAST MONTH'S RENT. An amount equal to $11,393.20 representing Lessor's
estimate of the last month's rental amount based upon the Monthly Lease Rate
Factor and based upon Equipment Cost equal to the aggregate Lease Line Amount,
will be due at the time of the commencement of Equipment Schedule 001 and this
rent will be applied to the last Monthly Lease Payment due under each Equipment
Schedule on a pro rata basis. If the entire Lease Line Amount is not fully
funded by April 1, 1998, then the unused amount of the last payment paid under
this paragraph shall be retained by Lessor.
h. END OF TERM OPTIONS. Provided that the Lease has not been terminated and
that no Event of Default or event which, with notice or lapse of time or both,
would become an Event of Default shall have occurred and be continuing, Lessee
shall at the end of the Initial Lease Term of each Equipment Schedule, renew the
Lease with respect to all, and not less than all, of the Equipment under each
Equipment Schedule to the Lease at their respective expiration dates for 12
months at 60% of the applicable Monthly Lease Rate Factor, which shall be
payable monthly in advance plus any applicable taxes. At the end of such renewal
term, Lessee will purchase the Equipment for $1.00. When Lessee so purchases the
Equipment, the purchase shall take place on the day immediately following the
date of expiration of the renewal Lease Term, and by the delivery at such time
by Lessee to Lessor of payment of the amount of the purchase price for the
Equipment. The purchase of the Equipment by Lessee pursuant to any options
herein granted shall be "AS IS WHERE IS," "WITH ALL FAULTS" without recourse to
or any warranty by Lessor, other than a warranty that the Equipment is free and
clear of liens and encumbrances resulting by or through acts of Lessor.
i. EARNEST MONEY DEPOSIT. Lessor acknowledges receipt of 5,000,00 (the
"Earnest Money Deposit") from Lessee. The Earnest Money Deposit will be first
applied to legal and due diligence expenses, then to the documentation fee of
2,000.00. Any remainder shall then be applied pro rata to the initial months
rent on each schedule. If Lessee does not utilize the entire Lease Line Amount
contemplated by this Agreement or execute and deliver all documents required by
Lessor, the Earnest Money Deposit or any unapplied portion thereof will be
retained by Lessor as a fee and not as a penalty.
j. CONDITIONS PRECEDENT TO LEASING. (i) lessor shall have no obligation to
purchase any Equipment for lease to Lessee unless or until acceptable
documentation, the form of which will be provided by Lessor has been executed
by Lessee and delivered to Lessor and (ii) Lessor has confirmed with Lessee
that no material adverse change in Lessee's financial condition and business
prospects prior to each takedown. In addition to items (i) and (ii) above and
any other document or item requested by Lessor, Lessee shall deliver the items
set forth below in form and substance acceptable to Lessor.
(1) Execution and delivery by Lessee to Lessor the following documents prior to
the Initial Takedown.
(a) Master Lease Agreement;
(b) Addendum No. 1, Master Lease Agreement;
(c) Equipment Schedule(s), as required by Lessor;
(d) Secretary's certificate as to board of director's resolutions and
incumbency:
(e) UCC-1 financing statements and protective fixture filings signed by
Lessee (to be filed prior to the earlier of funding or, for Equipment delivered
after the date of the Lease, delivery of Equipment to Lessee) along with any
UCC Amendments relating thereto for any prior, present or subsequent Equipment
Schedule.
(f) Progress Payment Authorization (if applicable);
(g) Bill(s) of sale for Equipment sold by Lessee to Lessor (if
applicable);
(h) Purchase Agreement Assignment of agreements between Lessee and its
Equipment vendors for new Equipment (if applicable); and
(i) The Warrant described in Section 24 below.
(2) Delivery to Lessor of executed copies of the following Documents prior to
the Initial Takedown.
<PAGE> 10
(a) Certificate of insurance:
(b) Release or subordination of all security interests in favor of any other
party granted by Lessee or the owners of Equipment to be sold to Lessor
which cover either the Equipment to be sold or include "after acquired"
Equipment clauses in favor of such other party ("Equipment Liens"), (if
applicable); and
(c) Release, disclaimer or subordination agreements (if required by Lessor) by
each owner of any premises in which Equipment will be located of any
landlord's lien or other right which a real property owner might claim in
the Equipment to be leased hereunder.
(3) With respect to Subsequent Takedowns occurring prior to January 17, 1998,
the following items will be required to be delivered and executed, if
applicable, prior to each Subsequent Shakedown:
(a) Equipment Schedule(s), as needed by Lessor;
(b) Secretary's certificate as to board of directors' resolutions and
incumbency (if requested by Lessor);
(c) UCC-1 financing statements and protective fixture filings signed by Lessee
(to be filed prior to the earlier of funding or delivery of Equipment to
Lessee) along with any UCC Amendments relating thereto for any prior,
present, or subsequent Equipment Schedule;
(d) Progress Payment Authorization, (if applicable);
(e) Bill(s) of sale for Equipment sold by Lessee to Lessor (if applicable);
(f) Purchase Agreement Assignment of agreements between Lessee and its
Equipment vendors for new Equipment (if applicable);
(g) Certificate of insurance (if requested by Lessor);
(h) Release of "Equipment Liens" (if applicable);
(i) Landlord subordination agreements or Equipment Waiver agreements acceptable
to Lessor; (if applicable);
(j) Original invoices issued to Lessor (or copies of invoices to Lessee and
canceled checks of Lessee);
(k) Amendments to Articles of Incorporation and By-Laws (if applicable);
(4) The following other documents shall also be required to be delivered by
Lessee prior to any Takedown:
(a) Copies of invoices to Lessee and canceled checks of Lessee or original
invoices billed to Lessor for all Items of Equipment proposed for the
initial Takedown(s)
(b) Certified copies of the Lessee's Articles of Incorporation
(c) Current Financial Statements prepared by Lessee or its independent auditor
not previously furnished to Lessor, if any.
23. PROGRESS PAYMENTS. If requested, progress payments will be made for any
amount over $1,000 per invoice to vendors in accordance with Lessor's standard
procedures. Unless otherwise agreed by Lessor the minimum progress payment
amount shall not be less than $5,000.00. Interim rent, on progress payments on
Equipment, shall be payable from the date progress payments are made to the
Commencement Date of the corresponding Equipment Schedule. Interim rent shall
be calculated at the daily equivalent of the Monthly Lease Rate Factor.
Lessee shall deliver to Lessor Lessee's authorization not less than 30 days
prior to the due date thereof and in a form acceptable to Lessor, to make a
progress payment and, provided on such due date no Events of Default have
occurred and be continuing hereunder or under the Lease. Lessor shall make the
progress payment set forth to the manufacturer(s) or supplier(s) as set forth
in such authorization. In respect of such progress payments so made by Lessor,
Lessee agrees as follows:
(i) to pay the Lessor or Lessor's Assignee a daily rental amount equal to the
product of the aggregate amount of progress payments actually made by Lessor
multiplied by the Lease Rate Factor as set forth in each applicable Equipment
Schedule divided by thirty (30) from the date such progress payments are in
fact made. Such payment shall be made by Lessee to Lessor immediately upon
Lessee's receipt of a written request therefor (but not more than one such
payment shall be made within any given period of thirty (30) days accompanied by
evidence reasonably satisfactory to Lessee indicating the amount and date of
payment by Lessor of the progress payments in respect of which such payment is
so requested.
(ii) in the event Lessee shall not deliver Lessee's Equipment Acceptance Form
in respect of the Equipment to Lessor on or before three (3) months from the
date of the first progress payment made hereunder (unless such period is
extended by mutual written agreement of Lessor and Lessee), to pay to Lessor or
Lessor's Assignee, upon demand, an amount equal to the sum of all progress
payments theretofore made by Lessor pursuant to this provision, together with
unpaid daily rental amounts thereon;
(iii) Lessee acknowledges and understands that Lessor may elect to borrow all
or a portion of the progress payments required of Lessor under this provision
and that as security therefor, Lessor may assign the applicable Equipment
Schedule, including but not limited to Lessor's rights hereunder, to the lender
of such amounts so borrowed. Lessee agrees, without notice to Lessee, Lessor
may make such assignment in connection with any such borrowing and for the
protection and benefit of Lessor and any such assignee, the rights of Lessor or
its assignee in and to such payments shall be absolute and unconditional under
all circumstances, notwithstanding: (i) any set-off, abatement, reduction,
counterclaim, recoupment, defense or other right which Lessee may have against
Lessor, the manufacturer(s) or seller(s) of the Equipment, or any other person
for any reason whatsoever; or (ii) any defect in condition, operation, fitness
or use, damage or destruction of the Equipment, or failure of the
manufacturer(s) or supplier(s) to deliver the Equipment for any reason
whatsoever; or (iii) or any insolvency, bankruptcy, reorganization or similar
proceedings instituted by or against the Lessor or Lessee.
24. WARRANTS. In connection with the Master Lease Agreement No. 6869 and prior
to the Initial Takedown, CyberGold shall issue to LINC warrants to purchase
$35,000 (thirty-five thousand dollars)
-3-
<PAGE> 11
of CyberGold Preferred Stock Series B Shares at an exercise price equal to the
actual Series B price unless the closing of the Series B round takes place in
the excess of 90 days from the execution of the lease. If this occurs, the
price per share of the warrant shall be equal to the Series A Preferred price.
The warrants shall be issued and delivered to Lessor upon execution of the
lease documents and shall be exercisable at any time within ten (10) years from
the date of the final acceptance of the equipment under the Lease. The terms of
the warrant shall include piggyback registration rights on a pro rata basis
with the shares of other shareholders, acceptable anti-dilution rights, and
shall provide for a "cashless" exercise provision in the event of exercise by
LINC.
25. REPORTS. So long as there are amounts due LINC under the Lease (or LINC
holds any unexpired and unexercised warrants) Lessee shall supply LINC with
financial and operating performance data as is provided to Board Members and
investors and, if applicable, the S.E.C., and shall immediately notify LINC of
any material adverse change in its financial condition or business prospects.
IN WITNESS WHEREOF, this Addendum has been executed by a duly authorized
officer of Lessee as of the _________ day of _______________, 1997.
Cybergold, Inc.
(Lessee)
By: CyberGold, Inc.
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
LINC CAPITAL MANAGEMENT, A DIVISION OF
SCIENTIFIC LEASING INC.
(Lessor)
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
Date:
-----------------------------------
-4-
<PAGE> 1
EXHIBIT 10.10
SENIOR LOAN AND SECURITY AGREEMENT NO. 6209
THIS SENIOR LOAN AND SECURITY AGREEMENT NO. 6209 (this "Security Agreement") is
dated as of December 10, 1998 between CYBERGOLD, INC., a California corporation
("Borrower") and PHOENIX LEASING INCORPORATED, a California corporation
("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings an
amount not to exceed $400,000 in the aggregate, and Lender desires to loan,
subject to the terms and conditions herein set forth, such amount to Borrower
(each, a "Loan" and collectively, the "Loans"). Such borrowings shall be
evidenced by one or more Senior Secured Promissory Notes (each a "Note" and
collectively, the "Notes"), in the form attached hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes, and any other agreement between Borrower and Lender,
Borrower will grant to Lender hereunder a first priority security interest in
certain of its equipment, machinery, fixtures, other items and intangibles,
including but not limited to high-end computers, peripherals, workstations,
servers, routers, hubs, RAIDs, office equipment, furniture, and also certain
custom use equipment, installation and delivery costs, purchase tax, toolings,
software, tenant improvements and items generally considered fungible or
expendable ("Soft Costs") whether now owned by Borrower or hereafter acquired,
and all substitutions and replacements of and additions, improvements,
accessions and accumulations to said equipment, machinery and fixtures and other
items, together with all rents, issues, income, profits and proceeds therefrom
(collectively, the "Collateral") which is described on the Note attached hereto
or any subsequently-executed Note entered into by Lender and Borrower and which
incorporates this Security Agreement by reference.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on the
date set forth above and shall continue thereafter and be in effect so long as
and at any time any Note entered into pursuant to this Security Agreement is in
effect. The Term and monthly payment amount payable with respect to each item of
Collateral shall be as set forth in and as stated in the respective Note(s). The
terms of each Note hereto are subject to all conditions and provisions of this
Security Agreement as it may at any time be amended. Each Note shall constitute
a separate and independent Loan and contractual obligation of Borrower and shall
incorporate the terms and conditions of this Security Agreement and any
additional provisions contained in such Note. In the event of a conflict between
the terms and conditions of this Security Agreement and any provisions of such
Note, the provisions of such Note shall prevail with respect to such Note only.
SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot be
canceled or terminated except as expressly provided herein. Borrower agrees that
its obligations to pay all monthly payment amounts and other sums payable
hereunder (and under any Note) and the rights of Lender and any assignee in and
to such monthly payment amounts and other sums, are absolute and unconditional
and are not subject to any abatement, reduction, setoff, defense, counterclaim
or recoupment due or alleged to be due to, or by reason of, any past, present or
future claims which Borrower may have against Lender, any assignee, the
manufacturer or seller of the Collateral, or against any person for any reason
whatsoever.
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SECTION 3. LENDER COMMITMENT. (a) General Terms. Subject to the terms and
conditions of this Security Agreement and so long as no Event of Default or
event which with the giving of notice or passage of time, or both, could become
an Event of Default has occurred, Lender hereby agrees to make one or more
senior secured Loans to Borrower, subject to the following conditions: (i) each
Loan shall be evidenced by a Note; (ii) the total principal amount of the Loans
shall not exceed $400,000 in the aggregate (the "Commitment") provided that no
more than 25% of the amount of the utilized Commitment may be used to finance
Soft Costs; (iii) at the time of each Loan, no Event of Default or event which
with the giving of notice or passage of time, or both, could become an Event of
Default shall have occurred and be continuing, as reasonably determined by
Lender, and certified by Borrower; (iv) the amount of each Loan shall be at
least $25,000 except for a final Loan which may be less than $25,000; (v) Lender
shall not be obligated to make any Loan after December 31, 1999; (vi) for each
Loan, Borrower shall present to Lender a list of proposed Collateral for
approval by Lender in its sole discretion; (vii) for each Loan, Borrower shall
have provided Lender with each of the closing documents described in Exhibit A
hereto (which documents shall be in form and substance reasonably acceptable to
Lender); (viii) Borrower is performing according to its business plan referred
to as "Cybergold Inc. Balance Sheet, Profit Loss and Cash Flow Analysis FY
98/99," as may be amended from time to time in form and substance acceptable to
Lender (collectively the "Business Plan"); (ix) there shall be no material
adverse change in Borrower's condition, financial or otherwise, that would
materially impair the ability of Borrower to meet its payment and other
obligations under this Loan (a "Material Adverse Effect") as reasonably
determined by Lender, and Borrower so certifies, from (yy) the date of the most
recent financial statements delivered by Borrower to Lender to (zz) the date of
the proposed Loan; (x) prior to payment in full of all Notes, Borrower shall not
offer any loan secured by any equipment, furniture or fixtures to any other
person or entity other than Lender, unless Lender declines to finance such
transaction or Borrower and Lender are unable to agree on the terms of such
financing; (xi) Borrower shall use the proceeds of all Loans hereunder to
purchase or reimburse the purchase of Collateral; (xii) at the time of each
Loan, Borrower has reimbursed Lender for all UCC filing and search costs,
inspection and labeling costs, and appraisal fees, if any; (xiii) all Collateral
has been marked and labeled by Lender or Lender's agent; and (xiv) Lender has
received in form and substance acceptable to Lender: (a) Borrower's interim
financial statements signed by a financial officer of Borrower, (b) prior to the
first funding, evidence of Borrower's receipt of $5,600,000 equity by August 20,
1998; (c) prior to the first funding, evidence of Borrower's $3,790,000 cash
position as of October 31, 1998; and (d) complete copies of the Borrower's audit
reports for its most recent fiscal year, which shall include at least Borrower's
balance sheet as of the close of such year, and Borrower's statement of income
and retained earnings and of changes in financial position for such year,
prepared on a consolidated basis and certified by independent public
accountants. Such certificate shall not be qualified or limited because of
restricted or limited examination by such accountant of any material portion of
the company's records. Such reports shall be prepared in accordance with
generally accepted accounting principles and practices consistently applied.
(b) The Notes. Each Loan shall be evidenced by a Note which may not be
prepaid in whole or in part. Each Note shall bear interest and be payable at
the times and in the manner provided therein. Following payment of the
Indebtedness related to each Note, Lender shall promptly return such Note,
marked "canceled," to Borrower.
SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first
security interest in all Collateral; (b) This Security Agreement secures (i)
the payment of the principal and interest on the Notes and all other sums due
thereunder and under this Security Agreement (the "Indebtedness") and (ii) the
performance by Borrower of all of its other covenants now or hereafter existing
under the Notes, this Security Agreement and any other obligation owed by
Borrower to Lender (the "Obligations").
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SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants that (a) it is in good standing under the laws of the state of its
formation, duly qualified to do business and will remain duly qualified during
the term of each Loan in each state where necessary to carry on its present
business and operations, including the jurisdiction(s) where the Collateral
will be located as specified on each Exhibit A to each Note, except where
failure to be so qualified would not have a Material Adverse Effect; (b) it has
full authority to execute and deliver this Security Agreement and the Notes and
perform the terms hereof and thereof, and this Security Agreement and the Notes
have been duly authorized, executed and delivered and constitute valid and
binding obligations of Borrower enforceable in accordance with their terms; (c)
the execution and delivery of this Security Agreement and the Notes will not
contravene any law, regulation or judgment affecting Borrower or result in any
breach of any material agreement or other instrument binding on Borrower; (d)
no consent of Borrower's shareholders or holder of any indebtedness, or filing
with, or approval of, any governmental agency or commission, which has not
already been obtained or performed, as appropriate, is a condition to the
performance of the terms of this Security Agreement or the Notes; (e) there is
no action or proceeding pending or threatened against Borrower before any court
or administrative agency which might have a Material Adverse Effect on the
business, financial condition or operations of Borrower; (f) at the time any
Loan is made hereunder, Borrower owns and will keep all of the Collateral free
and clear of all liens, claims and encumbrances, and, except for this Security
Agreement, there is no deed of trust, mortgage, security agreement or other
third party interest against any of the Collateral; (g) at the time any Loan is
made hereunder, Borrower has good and marketable title to the Collateral; (h)
at the time any Loan is made hereunder, all Collateral has been received,
installed and is ready for use and is satisfactory in all respects for the
purposes of this Security Agreement; (i) the Collateral is, and will remain at
all times under applicable law, removable personal property, which is free and
clear of any lien or encumbrance except in favor of Lender, notwithstanding the
manner in which the Collateral may be attached to any real property; (j) all
credit and financial information submitted to Lender herewith or at any other
time is and will at the time given be true and correct in all material
respects; and (k) the security interest granted to Lender hereunder is a first
priority security interest, and (l) on or before January 1, 2000, Borrower's
computer system shall be Year 2000 performance compliant and will thus be able
to accurately process date data from, into and between the twentieth and
twenty-first centuries including leap year calculations.
SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such
address as Lender specifies in writing, all amounts payable to it under this
Security Agreement and the Notes.
SECTION 7. LOCATION; INSPECTION; LABELS. All of the Collateral shall be located
at the address (the "Collateral Location") shown on Exhibit A to each Note and
shall not be moved without Lender's prior written consent which location shall
in all events be within the United States. All of the records regarding the
Collateral shall be located at 2921 Adeline Street, Berkeley, California 94703,
or such other location of which Borrower has given notice to Lender in
accordance with this Security Agreement. Lender shall have the right to inspect
Collateral, including records relating thereto, and Borrower's books and
records at any time (upon reasonable notification) during regular business
hours, such books and records to be maintained in accordance with generally
accepted accounting principles. Borrower shall be responsible for all labor,
material and freight charges incurred in connection with any removal or
relocation of Collateral which is requested by Borrower and consented to by
Lender, as well as for any charges due to the installation or moving of the
Collateral. Payments under the Notes and under this Security Agreement shall
continue during any period in which the Collateral is in transit during a
relocation. During Borrower's regular business hours and upon at least two
days' notice to Borrower, Lender or its agent shall mark and label Collateral,
which labels (to be provided by Lender) shall state that such Collateral is
subject to a security interest of Lender, and Borrower shall keep such labels
on the Collateral as so labeled.
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SECTION 8. COLLATERAL MAINTENANCE. (a) General. Borrower will reasonably permit
Lender to inspect each item of Collateral and its maintenance records during
Borrower's regular business hours. Borrower will at its sole expense comply with
all applicable laws, rules, regulations, requirements and orders with respect to
the use, maintenance, repair, condition, storage and operation of each item of
Collateral. Any addition or improvement that is so required or cannot be so
removed will immediately become Collateral of Lender. (b) Service and Repair.
With respect to computer equipment, other than personal computers, Borrower has
entered into, and will maintain in effect, vendor's standard maintenance
contract or another contract satisfactory to Lender for a period equal to the
term of each Loan and extensions thereto which provides for the maintenance of
the Collateral in good condition and working order and repairs and replacement
of parts thereof, all in accordance with the terms of such maintenance contract.
Borrower shall have that Collateral certified for the vendor's standard
maintenance agreement before Lender acquires any interest in the Collateral as
provided in this Security Agreement. With respect to any other Collateral,
Borrower will at its sole expense maintain and service and repair any damage to
each item of Collateral in a manner consistent with prudent industry practice
and Borrower's own practice so that such item of Collateral is at all times (i)
in the same condition as when delivered to Borrower, except for ordinary wear
and tear, and (ii) in good operating order for the function intended by its
manufacturer's warranties and recommendations.
SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." No later than the first payment date following such
Casualty Occurrence, or, if there is no such payment date, no later than thirty
(30) days after such Casualty Occurrence, Borrower shall, at its election,
either: (a) repair the Collateral returning it to good operating condition, or
(b) replace the Collateral with Collateral acceptable to Lender in its
reasonable discretion, in good condition and repair taking all steps required by
Lender to perfect Lender's first priority security interest therein, which
replacement Collateral shall be subject to the terms of this Security Agreement,
or (c) on the first day payment is due on any Note following the Casualty
Occurrence, or if there is no such payment date, thirty (30) days after such
Casualty Occurrence, pay to Lender an amount equal to the Balance Due (as
defined below) for each lost or damaged item of Collateral. The Balance Due for
each such item is the sum of: (i) all amounts for each item which may be then
due or accrued to the payment date, plus (ii) as of such payment date, an amount
equal to the product of the fraction specified below times the sum of all
remaining payments under the respective Note, including the amount of any
mandatory or optional payment required or permitted to be paid by Borrower to
Lender at the maturity of the Note. The numerator of the fraction shall be the
collateral value (as set forth on the applicable Note) of the item and the
denominator shall be the aggregate collateral value of all items under the Note.
Upon the making of such payments, Lender shall release such item of Collateral
from its lien hereunder.
SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral insured
against all risks of physical loss for at least the replacement value of the
Collateral and in no event for less than the amount payable following a Casualty
Occurrence (as provided in Section 9). Such insurance shall provide for a loss
payable endorsement to Lender and/or any assignee of Lender. Borrower shall
maintain commercial general liability insurance, including products liability
and completed operations coverage, with respect to loss or damage for personal
injury, death or property damage in an amount not less than $2,000,000 in the
aggregate, naming Lender and/or Lender's assignee as additional insured. Such
insurance shall contain insurer's agreement to give thirty (30) days' advance
written notice to Lender before cancellation or material change of any policy of
insurance. Borrower will provide Lender and any assignee of Lender with a
certificate of insurance from the insurer evidencing Lender's or such assignee's
interest in the policy of insurance. Such insurance shall cover any Casualty
Occurrence to any unit of Collateral. Notwithstanding anything in Section 9 or
this Section 10 to the contrary, this Security
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Agreement and Borrower's obligations hereunder shall remain in full force and
effect with respect to any unit of Collateral which is not subject to a Casualty
Occurrence. if Borrower fails to provide or maintain insurance as required
herein, Lender shall have the right, but shall not be obligated, to obtain such
insurance. In that event, Borrower shall pay to Lender the cost thereof.
SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the
Indebtedness is unpaid and as long as any of the Obligations are outstanding
Borrower will: (a) duly pay all governmental taxes and assessments at the time
they become due and payable; provided, however, Borrower may contest the same in
good faith so long as no payment default by Borrower has occurred and is
continuing; (b) comply with all applicable material governmental laws, rules and
regulations relating to its business and the Collateral where a failure to
comply would have a Material Adverse Effect; (c) take no action to adversely
affect Lender's security interest in the Collateral as a first and prior
perfected security interest; (d) furnish Lender with its annual audited
financial statements within ninety (90) days following the end of Borrower's
fiscal year, unaudited quarterly financial statements within forty-five (45)
days after the end of each fiscal quarter, and within thirty (30) days of the
end of each month a financial statement for that month prepared by Borrower, and
including an income statement and balance sheet, all of which shall be certified
by an officer of Borrower as true and correct and shall be prepared in
accordance with generally accepted accounting principles consistently applied,
and such other information as Lender may reasonably request; and (e) promptly
(but in no event more than five (5) days after the occurrence of such event)
notify Lender of any change in Borrower's condition during the commitment period
which constitutes a Material Adverse Effect, and of the occurrence of any Event
of Default.
SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless
Lender and any assignees from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including reasonable
attorneys' fees and expenses), imposed upon or incurred by or asserted against
Lender or any assignee of Lender by Borrower or any third party by reason of the
occurrence or existence (or alleged occurrence or existence) of any act or event
relating to or caused by any portion of the Collateral, or its purchase,
acceptance, possession, use, maintenance or transportation, including without
limitation, consequential or special damages of any kind, any failure on the
part of Borrower to perform or comply with any of the terms of this Security
Agreement or any Note, claims for latent or other defects, claims for patent,
trademark or copyright infringement and claims for personal injury, death or
property damage, including those based on Lender's negligence or strict
liability in tort and excluding only those based on Lender's gross negligence or
willful misconduct. In the event that any action, suit or proceeding is brought
against Lender by reason of any such occurrence, Borrower, upon Lender's
request, will, at Borrower's expense, resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by counsel designated
and approved by Lender. Borrower's obligations under this Section 12 shall
survive the payment in full of all the Indebtedness and the performance of all
Obligations with respect to acts or events occurring or alleged to have occurred
prior to the payment in full of all the Indebtedness and the performance of all
Obligations.
SECTION 13. TAXES. Borrower agrees to reimburse Lender (or pay directly if
instructed by Lender) and any assignee of Lender for, and to indemnify and hold
Lender and any assignee harmless from, all fees (including, but not limited to,
license, documentation, recording and registration fees), and all sales, use,
gross receipts, personal property, occupational, value added or other taxes,
levies, imposts, duties, assessments, charges, or withholdings of any nature
whatsoever, together with any penalties, fines, additions to tax, or interest
thereon (the foregoing collectively "Impositions"), except same as may be
attributable to Lender's income, arising at any time prior to or during the term
of any Notes or of this Security Agreement, or upon termination or early
termination of this Security Agreement and levied or imposed upon Lender
directly or otherwise by any Federal, state or local government in the United
States or by any foreign country or foreign or international taxing authority
upon or with respect to (a) the
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Collateral, (b) the exportation, importation, registration, purchase, ownership,
delivery, leasing, financing, possession, use, operation, storage, maintenance,
repair, return, sale, transfer of title, or other disposition thereof, (c) the
rentals, receipts, or earnings arising from the Collateral, or any disposition
of the rights to such rentals, receipts, or earnings, (d) any payment pursuant
to this Security Agreement or the Notes, or (e) this Security Agreement, the
Notes or any transaction or any part hereof or thereof.
SECTION 14. RELEASE OF LIENS. Upon payment of all of the Indebtedness and
performance of all of the Obligations, Lender shall execute UCC termination
statements and such other documents as Borrower shall reasonably request to
evidence the release of Lender's lien relating to the Collateral.
SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD OR DELAYED, BORROWER SHALL NOT (a) ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT,
ANY NOTE, ANY COLLATERAL, OR ANY INTEREST THEREIN, (b) LEASE OR LEND COLLATERAL
OR PERMIT IT TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES,
CONTRACTORS AND AGENTS OR (c) MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER
ITS PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY EXCEPT
TO A SUCCESSOR IN INTEREST TO ALL OR SUBSTANTIALLY ALL OF THE BUSINESS OF
BORROWER; PROVIDED, HOWEVER, THAT, THE FINANCIAL CONDITION OF SUCH SUCCESSOR IS
GREATER THAN OR EQUAL TO BORROWER AS DETERMINED IN GOOD FAITH BY LENDER AND THE
SUCCESSOR'S BUSINESS AND ITS MAJOR INVESTORS ARE REASONABLY ACCEPTABLE TO
LENDER. LENDER MAY ASSIGN ANY OF THE NOTES, THIS SECURITY AGREEMENT OR ITS
SECURITY INTEREST IN ANY OR ALL COLLATERAL, OR ANY OR ALL OF THE ABOVE, IN WHOLE
OR IN PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO
BORROWER. If Borrower is given notice of such assignment it agrees to
acknowledge receipt thereof in writing and Borrower shall execute such
additional documentation as Lender's assignee and/or secured party shall
reasonably require at Lender's expense. Each such assignee and/or secured party
shall have all of the rights, but (except as provided in this Section 15) none
of the obligations, of Lender under this Security Agreement, unless such
assignee or secured party expressly agrees to assume such obligations in
writing. Borrower shall not assert against any assignee and/or secured party any
defense, counterclaim or offset that Borrower may have against Lender.
Notwithstanding any such assignment, and providing no Event of Default has
occurred and is continuing, Lender, or its assignees, secured parties, or their
agents or assigns, shall not interfere with Borrower's right to quietly enjoy
use of Collateral subject to the terms and conditions of this Security
Agreement. Subject to the foregoing, the Notes and this Security Agreement shall
inure to the benefit of, and are binding upon, the successors and assignees of
the parties hereto. Borrower acknowledges that any such assignment by Lender
will not change Borrower's duties or obligations under this Security Agreement
and the Notes or increase any burden or risk on Borrower.
SECTION 16. DEFAULT. (a) Events of Default. Any of the following events or
conditions shall constitute an "Event of Default" hereunder: (i) Borrower's
failure to pay any monies due to Lender hereunder or under any Note beyond the
tenth (10th) day after the same is due; (ii) Borrower's failure to comply with
its obligations under Section 10 or Section 15; (iii) any representation or
warranty of Borrower made in this Security Agreement or the Notes or in any
other agreement, statement or certificate furnished to Lender in connection with
this Security Agreement or the Notes shall prove to have been incorrect in any
material respect when made or given; (iv) Borrower's failure to comply with or
perform any material term, covenant or condition of this Security Agreement or
any Note or under any other agreement between Borrower and Lender or under any
lease or mortgage of real property covering the location of the Collateral if
such failure to comply or perform is not cured by Borrower within thirty (30)
days after Borrower knows of the noncompliance or nonperformance or notice from
Lender or such
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longer period that Borrower is diligently attempting to effect such cure; (v)
seizure of any of the Collateral under legal process: (vi) the filing by or
against Borrower or any guarantor under any guaranty executed in connection with
this Security Agreement ("Guarantor") of a petition for reorganization or
liquidation under the Bankruptcy Code or any amendment thereto or under any
other insolvency law providing for the relief of debtors: (vii) the voluntary or
involuntary making of an assignment of a substantial portion of its assets by
Borrower or by any Guarantor for the benefit of its creditors, the appointment
of a receiver or trustee for Borrower or any Guarantor or for any of Borrowers
or Guarantor's assets, the institution by or against Borrower or any Guarantor
of any formal or informal proceeding for dissolution, liquidation, settlement of
claims against or winding up of the affairs of Borrower or any Guarantor
provided that in the case of all such involuntary proceedings, same are not
dismissed within sixty (60) days after commencement; (viii) the making by
Borrower or by any Guarantor of a transfer of all or a material portion of
Borrower's Guarantor's assets or inventory not in the ordinary course of
business; or (ix) any default or breach by any Guarantor of any of the terms of
its guaranty to Lender in connection with this Security Agreement.
(b) Remedies. If any Event of Default has occurred, Lender may in its sole
discretion exercise one or more of the following remedies with respect to any or
all of the Collateral: (i) declare due any or all of the aggregate sum of all
remaining payments under the Notes, including the amount of any mandatory or
optional payment required or permitted to be paid by Borrower to Lender at the
maturity of the Notes ("Remaining Payments"); (ii) proceed by appropriate court
action or actions either as law or in equity to enforce Borrower's performance
of the applicable covenants of the Notes and this Security Agreement or to
recover all damages and expenses incurred by Lender by reason of an Event of
Default; (iii) except as provided by law, without court order or prior demand,
enter upon the premises where the Collateral is located and take immediate
possession of and remove it without liability of Lender to Borrower or any other
person or entity; (iv) terminate this Security Agreement and sell the Collateral
at public or private sale, or otherwise dispose of, hold, use or lease any of
all of the Collateral in a commercially reasonable manner; or (v) exercise any
other right or remedy available ????? order applicable law. If Lender has
declared due any or all of the Remaining Payments, Borrower will pay immediately
to Lender, without duplication, (A) the Remaining Payments, (B) all amounts
which may be then due or accrued, and (C) all other amounts due under this
Security Agreement and under the Notes (Lender's return, as referred to below,
means the amounts described in clauses (A), (B) and (C) above). The net proceeds
of any sale or lease of such Collateral will be credited against Lender's
Return. The net proceeds of a sale of the Collateral pursuant to this Section
16(b) is defined as the sales price of the Collateral less selling expenses,
including, without limitation, costs of remarketing the Collateral and all
refurbishing costs and commissions paid with respect to such remarketing. The
net proceeds of a lease of the Collateral pursuant to this Section 16(b) is
defined as the amount equal to the monthly payments due under such lease
(discounted at 6% per annum compounder monthly on the basis of a ???? any year
(the "Discount Rate") plus the residual value of the Collateral at the end of
the basic term of such lease, as reasonably determined by Lender, and discounted
at the Discount Rate.
Borrower agrees to pay all reasonable out-of-pocket costs of Lender incurred in
enforcement of this Security Agreement, the Notes or any instrument or agreement
required under this Security agreement, including, but not limited to reasonable
attorneys' fees and litigation expenses and fees of ????????? agencies ("Remedy
Expenses"). At Lender's request, Borrower shall assemble the Collateral and make
it available to Lender at such time and location as Lender may reasonably.
Borrowers waives any right it may have to redeem the Collateral.
Declaration that any or all amounts under this Security Agreement and/or the
Notes are immediately due and payable and Lender's taking possession of any or
all Equipment shall not terminate this Security Agreement or any of the Notes
unless Lender so notifies Borrower in writing. None of the above
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remedies is intended to be exclusive but each is cumulative and may be enforced
separately or concurrently.
In addition to the foregoing remedies, if an Event of Default hereunder shall
have occurred and be continuing, Lender shall have the right to cause its
representative or representatives to attend any meeting of Borrower's Board of
Directors or any committee thereof. In such case, Borrower shall provide Lender
with the same notice of any such Board or committee meeting that is given to the
members of Borrower's Board or committee thereof.
(c) Application of Proceeds. The proceeds of any sale of all or any part of
the Collateral and the proceeds of any remedy afforded to Lender by this
Security Agreement shall be paid to and applied as follows:
First, to the payment of reasonable costs and expense of suit or
foreclosure, if any, and of the sale, if any, including, without limitation,
refurbishing costs, costs of remarketing and commissions related to remarketing,
all Remedy Expenses, all expenses, liabilities and advances incurred or made
pursuant to this Security Agreement or any Note by Lender in connection with
foreclosure, suit, sale or enforcement of this Security Agreement or the Notes,
and taxes, assessments or liens superior to Lender's security interest granted
by this Security Agreement;
Second, to the payment of all other amounts not described in item
Third below due under this Security Agreement and all Notes;
Third, to pay Lender an amount equal to Lender's Return, to the extent
not previously paid by Borrower; and
Fourth, to the payment of any surplus to borrower or to whomever may
lawfully be entitled to receive it.
(d) Effect of Delay; Waiver; Foreclosure on Collateral. No delay or
omission of Lender, in exercising any right or power arising from any Event of
Default shall prevent Lender from exercising that right or power if the Event of
Default continues. No waiver of an Event of Default, whether full or partial, by
Lender or such holder shall be taken to extend to any subsequent Event of
Default, or to impair the rights of Lender in respect of any damages suffered as
a result of the Event of Default. The giving, taking or enforcement of any other
or additional security, collateral or guaranty for the payment or discharge of
the Indebtedness and performance of the Obligations shall in no way operate to
prejudice, waive or affect the security interest created by this Security
Agreement or any rights, powers or remedies exercised hereunder or thereunder.
Lender shall not be required first to foreclose on the Collateral prior to
bringing an action against Borrower for sums owed to Lender under this Security
Agreement or under any Note.
SECTION 17. LATE PAYMENTS. Borrower shall pay Lender a late charge of 10% of any
payment owed Lender by Borrower which is not paid when due (taking into account
applicable grace periods), for every month such payment is not paid when due,
but in no event an amount greater than the highest rate permitted by applicable
law. If such amounts have not been received by Lender at Lender's place of
business or by Lender's designated agent by the date such amounts are due under
this Security Agreement or the Notes, Lender shall bill borrower for such
charges. Borrower acknowledges that invoices for amounts due hereunder or under
the notes are sent by Lender for Borrower's convenience only. Borrower's
non-receipt of an invoice will not relieve Borrower of its obligation to make
payments hereunder or under the Notes.
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SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or
perform any act required hereunder (including, but not limited to, maintenance
of any insurance required by Section 10), then Lender may, but shall not be
required to, after such notice to Borrower as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Borrower. Borrower will upon demand reimburse Lender for
all sums paid and all reasonable costs and expenses incurred in connection with
the performance of any such act.
SECTION 19. FINANCING STATEMENTS. Borrower hereby appoints Lender (and each of
Lender's officers, employees or agents designated by Lender) with full power of
substitution by Lender, as Borrower's attorney, with power to execute and
deliver on Borrower's behalf, financing statements and other documents
necessary to perfect and/or give notice of Lender's security interest in any of
the Collateral. Notwithstanding the above, Borrower will, upon Lender's
request, execute all financing statements pursuant to the Uniform Commercial
Code and all such other documents reasonably requested by Lender to perfect
Lender's security interests hereunder. Borrower authorizes Lender to file
financing statements signed only by Lender (where such authorization is
permitted by law) at all places where Lender deems necessary.
SECTION 20. NATURE OF TRANSACTION. Lender makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
SECTION 21. SUSPENSION OF LENDER'S OBLIGATIONS. The obligations of Lender
hereunder will be suspended to the extent that Lender is hindered or prevented
from complying therewith because of labor disturbances, including but not
limited to strikes and lockouts, acts of God, fires, floods, storms, accidents,
industrial unrest, acts of war, insurrection, riot or civil disorder, any
order, decree, law or governmental regulations or interference, failure of the
manufacturer to deliver any item of Collateral or any cause whatsoever not
within the sole and exclusive control of Lender.
SECTION 22. LENDER'S EXPENSE. Borrower shall pay Lender all reasonable costs
and expenses including reasonable attorney's fees and the fees of collection
agencies, incurred by Lender (a) in enforcing any of the terms, conditions or
provisions hereof and related to the exercise of its remedies, and (b) in
connection with any bankruptcy or post-judgment proceeding, whether or not suit
is filed and, in each and every action, suit or proceeding, including any and
all appeals and petitions therefrom.
SECTION 23. ALTERATIONS, ATTACHMENTS. No alterations or attachments shall be
made to the Collateral without Lender's prior written consent, which shall not
be given for changes that will affect the reliability and utility of the
Collateral or which cannot be removed without damage to the Collateral, or
which in any way affect the value of the Collateral for purposes of resale or
lease. All attachments and improvements to the Collateral shall be deemed to be
"Collateral" for purposes of the Security Agreement, and a first priority
security interest therein shall immediately vest in Lender.
SECTION 24. CHATTEL PAPER. (a) One executed copy of the Security Agreement will
be marked "Original" and all other counterparts will be duplicates. To the
extent, if any, that this Security Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in the Security Agreement may be created in
any documents other than the "Original." (b) There shall be only one original
of each Note and it shall be marked "Original," and all other counterparts will
be duplicates. To the extent, if any, that any Notes to this Security Agreement
constitutes chattel paper (or as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction) no security interest in any
Note(s) may be created in any documents other than the "Original."
9
<PAGE> 10
SECTION 25. COMMITMENT FEE. Borrower has paid to Lender a commitment fee ("Fee")
of $10,000. The Fee shall be applied by Lender first to reimburse Lender for all
out-of-pocket UCC and other search costs, inspections and labeling costs and
appraisal fees, if any, incurred by Lender, and then proportionally to the first
monthly payment for each Note hereunder in the proportion that the Collateral
value for such Note bears to Lender's entire commitment. However, the portion of
the Fee which is not applied to such monthly payments shall be non-refundable
except if Lender defaults in its obligation to fund Loans pursuant to Section 3.
SECTION 26. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service (including overnight service)
and shall be directed, as the case may be, to Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, Attention: Asset Management and to Borrower at
2921 Adeline Street, Berkeley, California 94703, Attention: Mr. John Steuart,
CFO.
SECTION 27. MISCELLANEOUS. (a) Borrower shall provide Lender with such corporate
resolutions, financial statements and other documents as Lender shall reasonably
request from time to time. (b) Borrower represents that the Collateral hereunder
is used solely for business purposes. (c) Time is of the essence with respect to
this Security Agreement. (d) Borrower acknowledges that Borrower has read this
Security Agreement and the Notes, understands them and agrees to be bound by
their terms and further agrees that this Security Agreement and the Notes
constitute the entire agreement between Lender and Borrower with respect to the
subject matter hereof and supersede all previous agreements, promises, or
representations. (e) This Security Agreement and the Notes may not be changed,
altered or modified except by an instrument signed by an officer or authorized
representative of Lender and Borrower. (f) Any failure of Lender to require
strict performance by Borrower or any waiver by Lender of any provision herein
or in a Note shall not be construed as a consent or waiver of any other breach
of the same or any other provision. (g) If any provision of this Security
Agreement or any Note is held invalid, such invalidity shall not affect any
other provisions hereof or thereof. (h) The obligations of Borrower to pay the
Indebtedness and perform the Obligations shall survive the expiration or earlier
termination of this Security Agreement and each Note until all Obligations of
Borrower to Lender have been met and all liabilities of Borrower to Lender and
any assignee have been paid in full. (i) Borrower will notify Lender at least 30
days before changing its name, principal place of business or chief executive
office. (j) Borrower will, at its expense, promptly execute and deliver to
Lender such documents and assurances (including financing statements) and take
such further action as Lender may reasonably request in order to carry out the
intent of this Security Agreement and Lender's rights and remedies.
SECTION 28. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and
each Note shall be deemed to have been made under and shall be governed by the
laws of the State of California in all respects, including matters of
construction, validity and performance. At Lender's sole discretion, option and
election, jurisdiction and venue for any legal action between the parties
arising out of or relating to this Security Agreement or any Note shall be in
the Superior Court of Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California located in San Francisco, California. BORROWER,
TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN
ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, ANY NOTE, ANY
SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH.
SECTION 29. ADDITIONAL INTEREST COMPENSATION. (a) General. Borrower be required
to choose a final payment or Note extension election ("Additional Interest
Compensation") at the expiration of the first Note's term. Borrower shall
provide written notice of its election to Lender at least 90 days prior to the
end of the term of the first Note. That choice shall be an election of
Borrower's additional
10
<PAGE> 11
interest compensation election for all, but not less than all, of the Collateral
under all Notes under the Security Agreement.
In the event Borrower does not provide 90 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No. 2.
(b) End of Loan Position Elections. As Addition Interest Compensation, Borrower
shall be required to:
Election No. 1: Make a final payment equal to 20% of the Note's original
principal amount.
Election No. 2: Extend the Note's term for an additional 12 months ("Extended
Term") for a monthly rate of 1.95% of the Note's original principal amount.
SECTION 30. ADJUST-A-LOAN OPTION: General: During the term of any Note ("Old
Note"), Borrower shall have the option to remove all or part of such Old Note's
Collateral ("Removed Collateral") and obtain financing from Lender for new
Collateral ("New Collateral") under a new Note ("New Note"), subject to the
following:
(a) New Note Amount: The principal amount of the New Note shall be the sum
of: (i) the remaining payments attributable to the Removed Collateral due under
the Old Note, including the Additional Interest Compensation payment,
("Remaining Payments") and (ii) the cost of the New Collateral. The Remaining
Payments shall be discounted to present value at a rate of 6% per annum,
compounded monthly. The principal amount of the New Note shall be reduced by any
trade-in value or resale proceeds received by Lender for the Removed Collateral.
For purposes of this Section, the Additional Interest Compensation payment shall
be assumed to be the greatest amount Borrower would be required to pay under
Election No. 1 in Section 29 above.
(b) Old Note Amount: If any item of Collateral remains on the Old Note, the
monthly payment amount for the Old Note will be reduced in proportion to the
Removed Collateral's value.
(c) Option Preconditions: Borrower's right to exercise this Adjust-A-Loan
Option ("Option") is conditioned upon the following: (i) no Event of Default
under the Security Agreement has theretofore occurred and is continuing; (ii)
the New Note financing terms are subject to Lender's then current loan rates and
documentation requirements; (iii) Lender is satisfied with Borrower's credit
worthiness; (iv) the New Collateral is acceptable to Lender; (v) Borrower has
given Lender at least 90 days' prior written notice of its desire to exercise
the Option; (vi) the principal amount of the New Note using the formula set
forth in (a) above is not less than zero.
IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to
be executed as of the date and year first above written.
PHOENIX LEASING INCORPORATED CYBERGOLD, INC.
By: /s/ PHOENIX LEASING INCORPORATED By: /s/ JOHN STEUART
-------------------------------- ----------------------------
Name: Name (Print): JOHN STEUART
------------------------------ ------------------
Title: VP Title: CFO
----------------------------- -------------------------
11
<PAGE> 12
HEADQUARTERS LOCATION:
2921 Adeline Street
Berkeley, CA 9470
County of Alameda
EXHIBITS AND SCHEDULES:
Exhibit A -- Closing Memorandum
12
<PAGE> 13
EXHIBIT A TO
SENIOR LOAN AND SECURITY AGREEMENT NO. 6209
DATED DECEMBER 10, 1998
CLOSING MEMORANDUM
1.* Duly executed Senior Loan and Security Agreement.
2. Duly executed Senior Security Promissory Note with Exhibit A Collateral
description attached.
3. Insurance certificates reflecting coverage required under Section 10 of
the Senior Loan and Security Agreement.
4.* Resolutions of Borrower's board of directors.
5. Real Property Waiver.**
6. UCC-1 Financing Statements with respect to the Collateral.
7. UCC search (Lender will obtain).
8. Certificate of Chief Financial Officer stating that (i) there are no
liens, charges, security interests or other encumbrances that may affect
Lender's right, title and interest in the Collateral and there are no
UCC-1 financing statements filed or in the process of being filed against
any of the Collateral, (ii) Borrower is performing according to
Borrower's business plan, (iii) no change which is a Material Adverse
Effect has occurred in the financial condition of Borrower, (iv) no
default has occurred, and (v) the representations and warranties in
Section 5 of the Senior Loan and Security Agreement are true and correct
as if made on the date of the Loan.
9.* Certificate from the Secretary of State of Borrower's state of
incorporation, and from the state in which Borrower's chief executive
office is located, if different, stating the Borrower is in good standing
or is authorized to transact business, as the case may be, dated not more
than thirty days prior to the first Loan (Lender will obtain).
10.* Borrower's Business Plan.
11. Borrower's most recent financial statements.
12. List of proposed Collateral.
13. Purchase documentation verifying Borrower's ownership of equipment.
14. See Section 3 of the Senior Loan and Security Agreement for additional
conditions to closing.
15. Intercreditor Agreement, if applicable.
* First Loan only.
** Required if any Equipment is a fixture, i.e., attached to real property,
or located in certain states.
13
<PAGE> 1
EXHIBIT 10.11
AGREEMENT
THIS AGREEMENT is made and entered into as of the 17 day of March, 1997 by
and between AUDITS & SURVEYS WORLDWIDE, INC., a Delaware corporation ("ASW"),
with its principal business address of 650 Avenue of the Americas, New York, NY
10011, and CYBERGOLD, INC., a California corporation ("CyberGold"), with its
principal business address of 2921 Adeline Street, Berkeley, CA 94703.
RECITALS:
A. CyberGold has developed and owns the rights to a site on the World
Wide Web of the Internet (the "Web") known as the CyberGold Site and having the
domain name of "CyberGold.com" (the "CyberGold Site"), and CyberGold owns or is
authorized to use certain proprietary computer software for on-line real-time
access through the CyberGold Site to advertisements and other types of
incentive and informational products on the CyberGold Site or on other sites on
the Web, all as described in CyberGold's promotional materials (collectively
with the CyberGold Site, the "CyberGold System").
B. In connection with the CyberGold System, CyberGold utilizes a direct
compensation program which encourages Internet users to establish CyberGold
accounts (whereupon they become "CyberGold Members") and to read the
advertisements and other incentive and informational products available on or
through the CyberGold Site.
C. CyberGold compensates CyberGold Members for reading those
advertisements and products by "paying" to those CyberGold Members an
intangible, non-legal currency referred to as "cybergold" which is deposited in
the respective CyberGold Member's on-line account with CyberGold.
D. CyberGold intends to create and own a database (the "CyberGold
Database") containing profile information regarding each CyberGold Member,
including such CyberGold Member's name and address, demographic information,
product preferences (as provided by such CyberGold Member), as well as
historical data regarding that CyberGold Member's exposure to particular
advertisements and other products.
E. ASW is a full service marketing research firm offering leading
commercial, technological, financial and institutional clients a wide variety
of custom and syndicated research services designed to provide solutions to
complex marketing, strategy and policy problems (the "ASW Business").
F. ASW desires to provide to CyberGold certain survey and audit research
services regarding the CyberGold Members and certain analysis regarding the
data comprising the CyberGold Database, and CyberGold desires to obtain such
services from ASW, all in accordance with the terms and conditions set forth in
this Agreement.
G. ASW desires to use the CyberGold Site and have access to the
CyberGold Database to better enable ASW to conduct on the Internet the ASW
Business.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties, intending to be legally
bound hereby, agree as follows:
1. Recitals: The foregoing recitals are incorporated herein by reference
thereto.
2. Term: The term of this Agreement shall commence on the date hereof and
shall continue until February 1, 2001. Thereafter, the term of this Agreement
shall automatically renew for consecutive renewal terms of one year each unless
and until either party gives to the other at least 180 days' prior written
notice that the term of this Agreement shall not so renew. Any amounts accruing
prior to the expiration or termination of the term of this Agreement and
remaining unpaid as of such expiration or termination shall remain due and
owning until fully paid.
3. Development of the CyberGold Database.
3.1 On or before August 1, 1997, CyberGold will create or cause to be
created the initial CyberGold Database after consultation with ASW. From and
after the creation of the CyberGold Database, CyberGold hereby grants to ASW,
for the term of this Agreement, a non-exclusive, nontransferable license to use,
without payment of any fee or royalty whatsoever for such right, the CyberGold
Database, but only to the extent expressly contemplated in this Agreement, most
particularly as provided for in section 5 hereof, and necessary for ASW to
conduct the ASW Business on the Internet and to carry out its obligations under
this Agreement and to obtain for itself the benefits to it contemplated in this
Agreement.
3.2 ASW acknowledges that the CyberGold Database represents and will
continue to represent the valuable, confidential and proprietary property of
CyberGold and the CyberGold Site represents the valuable property of CyberGold.
CyberGold is not by this Agreement conveying to ASW any [***]* rights in the
CyberGold Database or the CyberGold Site, including, but not limited to, any
patent, copyright, trademark, service mark, trade secret, trade name or other
intellectual property rights (collectively, the "CyberGold Proprietary Rights"),
except that ASW will have the limited rights expressly set forth in this
Agreement. Accordingly, ASW acknowledges that, except as expressly provided for
in this Agreement, ASW possesses no title to or ownership of the CyberGold
Database or the CyberGold Site or any portion thereof. ASW will use reasonable
efforts to protect the CyberGold Proprietary Rights and will not sell, license,
transfer or otherwise dispose of any of the CyberGold Proprietary Rights.
3.3 The parties recognize the importance of accurate, complete and timely
data on the CyberGold Database. Accordingly, as an initial matter, the parties
will work together in good faith to develop a plan to "clean" the data on the
CyberGold and to maintain as an on-going matter the data on the CyberGold
Database. All manipulation of such data in connection with such "cleaning" and
maintenance will be performed solely by CyberGold or its agents.
4. Creation of the ASW Site and Establishment of a Link From the
CyberGold Site to the ASW Site and vice versa.
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* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
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<PAGE> 3
4.1 On or before August 1, 1997, ASW will create and establish its own
site on the Web with a domain name of its choosing (the "ASW Site"). The ASW
Site will be designed in a manner as consistent as is reasonable possible in
quality and user impression with the CyberGold Site, with the intent that the
ASW Site will appear to CyberGold Members as an extension of the CyberGold
Site. CyberGold will provide to ASW, at no cost to ASW, creative and technical
assistance in connection with the design and development of the ASW Site, but
ASW will undertake the creation of the ASW Site itself, at its own cost and
expense.
4.2 CyberGold acknowledges that the ASW Site will represent the valuable
property of ASW. ASW is not by this Agreement conveying to CyberGold any
proprietary or other rights in the ASW Site, including, but not limited to, any
patent, copyright, trademark, service mark, trade secret, trade name or other
intellectual property rights (collectively, the "ASW Proprietary Rights").
Accordingly, CyberGold acknowledges that, except as expressly provided for in
this Agreement, CyberGold possesses no title to or ownership of the ASW Site or
any portion thereof. CyberGold will use reasonable efforts to protect the ASW
Proprietary Rights and will not sell, transfer or otherwise dispose of any of
the ASW Proprietary Rights.
4.3 Within thirty days after the creation of the ASW Site, CyberGold will
establish on the CyberGold Site home [a] [***]* "surveys" link to the
ASW Site, and ASW will establish on the ASW Site home page [a] [***]* link to
the CyberGold Site, with each such link accompanied by prominent descriptive
and/or persuasive text. The parties will jointly develop, and will jointly own,
the interface between the CyberGold Site and the ASW Site and any other
interface required to accomplish the purposes of this Agreement.
5. Surveys, Audits and Analysis.
5.1 ASW will have the [***]* right to use the CyberGold Database for
the survey and analytical purposes contemplated in this Agreement; provided,
however, that ASW's access to the CyberGold Database will be electronic (i.e.,
no hard copy will be provided) and such access shall be restricted to "read
only". CyberGold shall make the CyberGold Database reasonably available to ASW
as necessary to facilitate ASW's timely performance of its obligations
hereunder and to obtain for itself the benefits contemplated under this
Agreement, subject always to the security provisions set forth elsewhere in
this Agreement.
5.2 During the term of this Agreement, ASW will perform, from time to
time and at its own cost and expense unless otherwise agreed by the parties,
surveys and audit research among the CyberGold Members and analysis of the
CyberGold Database for the benefit of CyberGold. Among the goals of such
surveys, audits and analysis by ASW will be the development of profiles and
other aggregate-level analysis of the CyberGold Members. The frequency and
extent of the services to be provided hereunder by ASW shall be determined by
the mutual agreement of the parties from time to time during the term of this
Agreement.
5.3 In connection with ASW's performance of its obligations under this
section 5, ASW will at the request of CyberGold design the research to be
undertaken, develop appropriate questionnaires to be completed by CyberGold
Members, undertake such research, question the CyberGold Members and tabulate
and analyze the results thereof. ASW will conduct all such activities in
accordance with a plan or plans theretofore prepared by ASW and
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* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
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<PAGE> 4
submitted to CyberGold. At ASW's request, CyberGold will (i) conduct some or all
of the planned surveys of CyberGold Members, if deemed appropriate in any
particular instance by CyberGold, and (ii) provide at its own cost and expense,
or that of any sponsor it may obtain, incentive compensation for responding
CyberGold Members.
CyberGold will maintain a separate redacted database containing all data
accumulated with respect to each member except identifiers for individual
members and information which may be deemed proprietary by CyberGold, if any.
Each member in the redacted database will be identified by a unique associated
ID# also associated with the members records in the main database. This database
will be made available to ASW to analyze the characteristics of CyberGold's
database for research purposes only. To the extent ASW research requires member
contact, CyberGold will match the ID#'s ASW chooses from the redacted database
and deliver the information previously withheld from the main database, for the
purpose of research only, if authorized in advance by the member directly to
CyberGold or through ASW at its site, satisfactory evidence of which is
delivered to CyberGold. CyberGold will then, at the expense of ASW, send e-mails
to the other prospective panel members requesting their approval, forwarding
information ASW requires where approval is obtained. ASW may continue the
process until it fills its panel. No research reports based on the provision of
information aforesaid will contain identifiers of any CyberGold member.
Notwithstanding anything to the contrary in this section 5.3 or elsewhere
in this Agreement, ASW will not directly or indirectly contact any CyberGold
Member without, as to each program it proposes to undertake for the creation of
Panels or otherwise (but not as to each individual contact pursuant to such
program), the prior written consent of CyberGold, which consent will not
unreasonably be withheld.
5.4 ASW shall deliver to CyberGold, at no cost or expense to CyberGold,
copies of all reports prepared by ASW for CyberGold pursuant to its obligations
herein set forth, which reports shall be reasonably acceptable as to form and
substance to CyberGold. CyberGold and ASW will jointly own all such reports, but
CyberGold shall have the use thereof without cost. The parties intend that such
reports shall be appropriately prepared for presentation to a professional
advertising industry audience. The parties contemplate that ASW will provide
such services to CyberGold at no cost to CyberGold; provided, however, that if,
in ASW's reasonable opinion, the frequency and/or complexities of such services
create an undue and unanticipated financial burden on ASW, the parties will
negotiate in good faith the equitable allocation of such costs between them.
5.5 Subject to the last sentence 5.3 above, ASW shall, from time to time,
create panels ("Panels") comprised of individuals, both CyberGold Members and
individuals who are not CyberGold Members, who voluntarily agree to serve
thereon and who express a willingness to participate occasionally in surveys.
The individuals shall have a separate and distinct contractual relationship with
ASW in respect of any such Panel, and CyberGold will not be a party thereto. In
respect of each Panel, ASW will, at its own costs and expense, conduct
enrollment surveys, build a database that includes detailed information
regarding each member of the Panel, maintain regular contact with each member of
the Panel, and otherwise maintain the Panel. When Panel members are paid
incentive compensation for participation in a survey, compensation shall be
offered, in the form of CyberGold currency, subject always to the respondent's
right to refuse it as an incentive. To the extent the members of a Panel are
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<PAGE> 5
not CyberGold Members, ASW will encourage such Panel members to become
CyberGold Members. All Panel information, survey data, databases or other
information created, collected or assembled by ASW from any such Panel will
remain the property of ASW, regardless of the future relationship between, or
status of, ASW, CyberGold, or any other parties to or agents of the CyberGold
business.
5.6 ASW may also provide research and strategic marketing services to
third parties, including without limitation advertisers on and through the
CyberGold Site, and will recruit, through CyberGold, CyberGold Members for the
Panels. CyberGold shall refer to ASW any CyberGold advertisers or content
providers requesting surveys, reporting and analysis pertaining to the
CyberGold Database, but such advertisers or content providers shall not be
required to use or retain ASW. All surveys, reporting and analysis conducted by
ASW, whether for third parties (including CyberGold clients), for publicity, or
for other ASW uses, will be conducted by ASW at no cost or expense to
CyberGold. In all of these instances, as between CyberGold and ASW, ASW shall
bear the cost of CyberGold electronic "cybergold" paid to any CyberGold Member
when that cybergold is used for respondent incentives.
5.7 ASW may create databases that combine data for reporting on an
aggregate basis only (i.e., no CyberGold Member-specific data) from the
CyberGold Database with demographic or other information lawfully available to
ASW for research, analytic, publicity or other purposes. ASW may also use the
CyberGold Database to conduct surveys for CyberGold clients at the request of
CyberGold or any CyberGold client, and to conduct surveys for other clients and
for other ASW purposes. Unless the parties agree otherwise, all such surveys
will be conducted by ASW on the ASW Site. Even if respondents to such surveys
are not then CyberGold Members, ASW will offer cybergold currency as respondent
incentive in any cases in which ASW offers financial incentives to respondents
subject to respondent's refusal. Any respondent who is not then a CyberGold
Member who accepts cybergold as an incentive will be required by ASW, as a
condition to such response, to (i) provide directly to CyberGold (or to ASW who
will transfer it to CyberGold) the information necessary to establish a
CyberGold account in such respondent's name and (ii) enter the CyberGold Site
to acquire a CyberGold password and PIN number.
5.8 [***]*
5.9 Notwithstanding anything to the contrary elsewhere in this Agreement,
CyberGold acknowledges and agrees that ASW shall not be required under this
Agreement to provide any measurement or validation analysis of traffic or
"hits" on the CyberGold Site.
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* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
-5-
<PAGE> 6
5.10 CyberGold will be paid its cost of managing any CyberGold credit
transaction interaction on behalf of ASW or its clients, currently estimated at
approximately [***]*.
6. Reciprocal Promotion.
6.1 During the term of this Agreement, (i) CyberGold will prominently
feature ASW and its services in appropriate CyberGold public relations,
marketing and promotional materials, subject in each instance to ASW's prior
approval thereof; and ASW will prominently feature CyberGold and its services in
appropriate ASW public relations, marketing and promotional materials, subject
in each instance to CyberGold's prior approval thereof.
6.2 During the term of this Agreement, the parties will work together in
good faith to aggressively and consistently market their own and the other's
services to selected CyberGold and ASW clients and potential clients. In
connection therewith, either party may, from time to time, convene a meeting of
the parties upon 15 business days' prior notice to discuss marketing strategy,
which meeting may, at the request of either party, be telephonic. Upon any such
request, each party shall cause its representative to participate in such
meeting. Beyond such participation, neither party shall have any obligation in
respect of any such meeting.
7. Confidentiality. ASW agrees that it will maintain in confidence the
identity of, and any other information relating specifically to, any individual
CyberGold Member. Under no circumstances will ASW release or use, or suffer the
releasing or using of, any name or other information relating specifically to
any individual CyberGold Member that is obtained by ASW from CyberGold or
through its access hereunder to the CyberGold Database; provided that nothing
herein should limit ASW's contractual relationship and/or agreements with
CyberGold Members who are also members of any Panel created by ASW. ASW will
inform its employees, agents and other representatives of the restrictions set
forth in this section 7, and ASW will be responsible for any unauthorized
disclosures of information by any such employee, agent or representative.
8. Security Measures Regarding the CyberGold Database. ASW acknowledges
the importance to CyberGold and its members of maintaining the maximum security
of the content of the CyberGold Database and agrees to take all steps and
implement all procedures internally required to do so as recommended from time
to time by CyberGold.
9. Joint Participation in Product Planning, Development Marketing and
Operations.
During the term of this Agreement, CyberGold and ASW will cooperate in planning,
implementing and operating the research aspect of CyberGold's operations;
provided, however, that the foregoing shall not be construed to entitle ASW to
control or direct in any manner whatsoever the conduct by CyberGold of its
business or operations or vice versa. This cooperative effort will encompass,
among other things as may, from time to time, be agreed to between the parties,
the following:
(i) joint participation in the development of marketing and promotional
materials;
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* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
-6-
<PAGE> 7
(ii) joint participation in "co-selling" CyberGold and the ASW Business
and research programs relating thereto, including without limitation
introductions to and common sales calls on, and joint presentations to, ASW and
CyberGold clients and prospects;
(iii) the active participation of CyberGold's and ASW's technology staffs
in integrating the CyberGold Site, the CyberGold Database and other technology
with the ASW Site and any other requirements of ASW, for survey research and
analytical purposes; and
(iv) designing and implementing ASW Site pages and applications which may
from time to time be developed by ASW at its own cost and expense, whether they
are to be run on the ASW Site or the CyberGold Site, to be used for research
purposes in conjunction with the CyberGold Site.
10. Representation of Parties in Publicly Released Materials.
CyberGold and ASW will cooperate in good faith in an attempt to reach mutual
agreement on the following:
(i) how ASW and its participation under this Agreement with CyberGold will
be represented to third parties, and on where such references are to be
positioned, in materials, including promotional documents and news releases, to
be released to clients, prospects and/or the public by CyberGold; and
(ii) how and when CyberGold will be represented in reports, surveys, etc.
issued by ASW based on Internet research.
11. Note on Early Stages.
During the initial period of approximately six months, in which the "Popup"
version of the CyberGold Site will be in use, the ASW/CyberGold relationship
under this Agreement will be in an early state. ASW activities under this
Agreement during such six-month period are anticipated to include the following:
(i) Implementing interviewing software and web site;
(ii) Pilot studies & database analysis for CyberGold for purposes of
measuring the effectiveness of the advertising on the CyberGold Site,
the effect of such advertising on product awareness and the
demographics of people who read the ads;
(iii) Review of academic study;
(iv) Research product development; and
(v) Early panelist recruiting.
Links to surveys, probably hosted on the CyberGold Site at first, might be
appropriate in at least four places: following CyberGold signup, following
refusal of CyberGold signup, after
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<PAGE> 8
login of existing member, and after completion of other CyberGold business.
12. Confidentiality.
Each party acknowledges that its violation of its confidentiality or
nondisclosure obligations under this Agreement may cause irreparable damage to
the other that cannot be fully remedied by money damages. Accordingly, in the
event of any such violation or threatened violation, the injured party will be
entitled, in addition to pursuing any other remedy available to it under this
Agreement or at law, to obtain injunctive or other equitable relief from any
court of competent jurisdiction as may be necessary or appropriate to prevent
any further violations thereof.
13. Infringement.
The parties each agree that as to its respective Web site and other
intellectual property that is the subject of, or that becomes the subject of,
litigation it will defend, at its own expense, any action brought against the
other party to the extent that such action is based solely on a claim that use
of its Web site or other intellectual property, infringes a United States
patent or copyright or the trade secret or other proprietary right of a third
party, and the indemnifying party will hold the other party harmless from any
resulting losses, liabilities, damages, costs and expenses, including, without
limitation, reasonable attorneys' fees, provided that the other party provides
it with prompt written notice of such actions.
14. General Provisions.
A. Notices. Any and all notices given under this Agreement will be
in writing and will be effective (a) when mailed to the address set forth
herein (or such substitute address provided in writing) by certified or
registered mail bearing proper postage, or (b) if by other means when received.
Notices will be sent to the following addresses:
If to ASW:
Audits & Surveys Worldwide, Inc.
650 Avenue of the Americas
New York, NY 10011
Attn: H. Arthur Bellows, Jr., President
If to CyberGold:
CyberGold, Inc.
2921 Adeline Street
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<PAGE> 9
Berkeley, CA 94703
Attn: A. Nathaniel Goldhaber, President
with a copy (which shall not constitute notice) to:
Eckert Seamans Cherin & Mellott
1700 Market St., Suite 3232
Philadelphia, PA 19103
Attn: Abraham H. Frumkin, Esq.
B. Binding Effect. This Agreement will inure to the benefit of and
be binding upon ASW and CyberGold and their respective successors and permitted
assigns.
C. Non-Waiver. No delay or omission or failure to exercise any
right or remedy provided for herein will be deemed to be a waiver thereof or
acquiescence to the event giving rise to such right or remedy, but every such
right and remedy may be exercised from time to time and so often as may be
deemed expedient by the party exercising such right or remedy.
D. Captions. The captions of the sections herein are for
convenience only and do not affect in any way the scope, intent or meaning of
the provisions to which they refer.
E. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
its conflicts of laws provisions.
F. Severability. In the event that any provision of this Agreement
is held to be illegal, invalid or unenforceable under present or future laws by
any court of competent jurisdiction, then such provision will be fully
severable and this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision were not a part hereof.
G. Attorney Fees and Costs. In the event that this Agreement is
placed with an attorney to enforce any of its material provisions, then the
prevailing party will be entitled to recover its attorneys' fees and related
costs from the other party.
H. Entire Agreement and Modification. This Agreement constitutes
the full and complete understanding and agreement of ASW and CyberGold and
supersedes all prior negotiations, understandings and agreements between the
parties related to the subject matter hereof. Except as expressly stated in
this Agreement, any waiver, modification or amendment of any provision of this
Agreement will be effective only if in a writing signed by ASW and CyberGold.
IN WITNESS WHEREOF, each party has caused its duly authorized
representative to execute this Agreement as of the day and year first above
written.
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<PAGE> 10
AUDITS & SURVEYS WORLDWIDE, INC.
By: /s/ AUDITS & SURVEYS WORLDWIDE, INC.
------------------------------------
Its: President
-----------------------------------
CYBERGOLD, INC.
By: /s/ A. NATHANIEL GOLDHABER
------------------------------------
Its: President
-----------------------------------
<PAGE> 1
EXHIBIT 10.12
CYBERGOLD, INC.
A F F I N I T Y A G R E E M E N T
This Agreement is entered into as of this 20th day of November, 1998 (the
"Effective Date") by and between MBNA AMERICA BANK, N.A., a national banking
association having its principal place of business in Wilmington, Delaware
("MBNA America"), and CYBERGOLD, INC., a corporation having its principal place
of business in Berkeley, California ("CYBERGOLD") for themselves, and their
respective successors and assigns.
1. DEFINITIONS
When used in this Agreement,
(a) "Agreement" means this agreement and Schedules A, B, C and D.
(b) "Credit Card Account" means a credit card account opened by a Member in
response to marketing efforts made pursuant to the Program.
(c) "Customer" means any Member who is a participant in the Program.
(d) "Financial Service Products" means credit card programs, charge card
programs, and debit card programs (that either contain a credit feature or that
utilize a MasterCard, Visa, American Express, Novus system or other major debit
card system). The definition of Financial Service Products shall not include
private label card programs (i.e. individual store branded card program)
provided no Trademarks appear on the front/face of the credit device.
(e) "Group Incentive Program" or "GIP" means any marketing or other program
whereby CYBERGOLD conducts solicitation efforts for the Program, and the
parties mutually agree that such marketing or other program shall constitute a
GIP.
(f) "GIP Account" means a Credit Card Account opened by a Member pursuant to a
GIP in which CYBERGOLD complies with the GIP provisions of this Agreement.
(g) "Mailing Lists" means updated and current lists and/or magnetic tapes (in a
format designated by MBNA America) containing names, postal addresses and, when
available, telephone numbers of Members segmented by zip codes or reasonably
selected membership characteristics.
(h) "Member" means a member of CYBERGOLD and/or other potential participants
mutually agreed to by CYBERGOLD and MBNA America.
(i) "Program" means those programs and services of the Financial Service
Products MBNA America agrees to offer pursuant to this Agreement to the Members
from time to time.
(j) "Royalties" means the compensation set forth in Schedule B.
<PAGE> 2
(k) "Trademarks" means any design, image, visual representation, logo, service
mark, trade dress, trade name, or trademark used or acquired by CYBERGOLD
during the term of this Agreement.
(l) "CYBERGOLD Affiliate" means any entity controlling, controlled by or under
the common control with CYBERGOLD.
2. RIGHTS AND RESPONSIBILITIES OF CYBERGOLD
(a) CYBERGOLD agrees that during the term of this Agreement it will endorse
the Program exclusively and that neither CYBERGOLD nor any CYBERGOLD Affiliate
shall, by itself or in conjunction with others, directly or indirectly: (i)
sponsor, advertise, aid, develop, market, solicit proposals for programs
offering, or discuss with any organization (other than MBNA America) the
providing of, any Financial Service Products issued and/or marketed in the
United States or its territories of any organization other than MBNA America;
(ii) license or allow others to license issued and/or marketed in the United
States or its territories the Trademarks in relation to or for promoting any
Financial Service Products of any entity other than MBNA America; and (iii)
sell, rent or otherwise make available or allow others to sell, rent or
otherwise make available any of its mailing lists or information about any
current or potential Members in relation to or for promoting any Financial
Service Products of any entity other than MBNA America. Notwithstanding
anything else in this Agreement to the contrary, CYBERGOLD may accept
advertising from any financial institution provided that the advertisement does
not contain an express or implied endorsement by CYBERGOLD of said financial
institution or an express or implied endorsement by CYBERGOLD of the advertised
Financial Service Product.
(b) CYBERGOLD agrees to provide MBNA America with such information and
assistance as may be reasonably requested by MBNA America in connection with
the Program.
(c) CYBERGOLD authorizes, upon CYBERGOLD's approval, MBNA America to solicit
its Members by mail, direct promotion, advertisements and/or telephone for
participation in the Program.
(d) CYBERGOLD shall have the right of prior approval of all Program
advertising and solicitation materials to be used by MBNA America, which
contain CYBERGOLD's Trademark; such approval shall not be unreasonably withheld
or delayed. In the event that MBNA America incurs a cost because of a change in
the Trademarks (e.g., the cost of reissuing new credit cards), MBNA America may
deduct such costs from Royalties due CYBERGOLD. In the event such costs exceed
Royalties then due CYBERGOLD, CYBERGOLD shall promptly reimburse MBNA America
for all such costs.
(e) Upon the request of MBNA America, CYBERGOLD shall provide MBNA America
with Mailing Lists free of any charge (the parties understand and agree that
any Mailing List provided by CYBERGOLD pursuant to this Agreement may not
include those names and addresses of Members who have expressly prohibited
CYBERGOLD from transferring their names and
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addresses to third parties. Upon the request of MBNA America, CYBERGOLD shall
provide MBNA America with the e-mail addresses of Customers free of any charge
(the parties understand and agree that any e-mail addresses provided by
CYBERGOLD pursuant to this Agreement may not include those e-mail addresses of
Customers who have expressly prohibited CYBERGOLD from transferring their
e-mail addresses to third parties).
(f) CYBERGOLD shall only provide information to or otherwise communicate with
Members or potential Members about the Program with MBNA America's prior
written approval, except for current advertising and solicitation materials
provided by MBNA America to CYBERGOLD. Notwithstanding the above, CYBERGOLD may
respond to individual inquiries about the Program from its Members on an
individual basis, provided that said responses are accurate and consistent with
the then-current materials provided by MBNA America to CYBERGOLD. Any
correspondence (i.e., mail, e-mail, etc.) received by CYBERGOLD that is
intended for MBNA America (e.g., applications, payments, billing inquiries,
etc.) shall be forwarded to the MBNA America account executive via overnight
courier within 24 hours of receipt. All charges incurred for this service will
be paid by MBNA America.
(g) CYBERGOLD hereby grants MBNA America and its affiliates a limited,
exclusive license to use the Trademarks solely in conjunction with the Program,
including the promotion thereof. This license shall be transferred upon
assignment of this Agreement. This license shall remain in effect for the
duration of this Agreement and shall apply to the Trademarks, notwithstanding
the transfer of such Trademarks by operation of law or otherwise to any
permitted successor, corporation, organization or individual. CYBERGOLD shall
provide MBNA America all Trademark production materials (e.g., camera ready
art) required by MBNA America for the Program, as soon as possible but no later
than thirty (30) days after CYBERGOLD's execution of this Agreement. Nothing
stated in this Agreement prohibits CYBERGOLD from granting to other persons a
license to use the Trademarks in conjunction with the providing of any other
service or product, except for any Financial Service Products.
(h) During the term of this Agreement and for a period after the termination
of this Agreement (as such period is set forth in Schedule D), CYBERGOLD, at
its sole cost and expense (except as otherwise provided herein), shall provide
the Customers with the benefits and services set forth in Schedule D, in
accordance with the terms and provisions contained therein.
3. RIGHTS AND RESPONSIBILITIES OF MBNA AMERICA
(a) MBNA America shall design, develop and administer the Program for the
Members.
(b) Except as otherwise provided in Section 4(a), MBNA America shall design
all advertising, solicitation and promotional materials with regard to the
Program. MBNA America reserves the right of prior written approval of all
advertising and solicitation materials concerning or related to the Program,
which may be developed by or on behalf of CYBERGOLD.
(c) MBNA America shall bear all costs of producing and mailing materials for
the Program.
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(d) MBNA America shall make all credit decisions and shall bear all credit
risks with respect to each Customer's account(s) independently of CYBERGOLD.
(e) MBNA America shall use the Mailing Lists (and e-mail addresses provided by
CYBERGOLD) provided pursuant to this Agreement consistent with this Agreement
and shall not permit those entities handling these Mailing Lists to use them
for any other purpose. MBNA America shall have the sole right to designate
Members on these Mailing Lists to whom promotional material will not be sent.
These Mailing Lists are and shall remain the sole property of CYBERGOLD.
However, MBNA America may maintain separately all information which it obtains
as a result of an account relationship or an application for an account
relationship. This information becomes a part of MBNA America's own files and
shall not be subject to this Agreement; provided however that MBNA America will
not use this separate information in a manner that would imply an endorsement
by CYBERGOLD.
4. GROUP INCENTIVE PROGRAM
(a) MBNA America shall design all advertising, solicitation and promotional
material with regard to the Program, except with respect to those materials
designed by CYBERGOLD pursuant to any GIP. In that regard, CYBERGOLD shall give
MBNA America thirty (30) days prior notice of its desire to engage in marketing
efforts regarding the Program itself, specifying that accounts generated from
such efforts will entitle CYBERGOLD to the Royalty specified in Schedule B,
subject to the other terms and conditions of this Agreement. The parties agree
to use commercially reasonable efforts to begin marketing the Program as
quickly as possible after the Effective Date. The parties understand and agree
that notwithstanding such efforts, marketing of the Program will not begin
until after December 15, 1998.
(b) All marketing materials generated as a result of such GIP programs shall
be source coded by CYBERGOLD for tracking purposes with source codes provided
by MBNA. Marketing materials or telemarketing inquiries from Members which, in
either case, do not contain or reference such coding shall not be considered
eligible for any of the GIP Royalty as set forth in Schedule B.
(c) In addition to all other rights it may have under this Agreement, MBNA
America shall have the right of prior approval of all advertising and
solicitation materials distributed by CYBERGOLD pursuant to any GIP. MBNA
America shall have approval and control of the scope, timing, content and
continuation of any GIP.
(d) All costs incurred by MBNA America in producing and mailing materials
created pursuant to any GIP or of supporting the marketing efforts of CYBERGOLD
pursuant to any GIP shall be deducted from any or all Royalty payments due
CYBERGOLD under this Agreement.
(e) CYBERGOLD shall comply with MBNA America's instructions and all applicable
laws, including, without limitation, the Truth in Lending Act and the Equal
Credit Opportunity Act, with regard to any GIP.
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(f) Subject to MBNA America's approval and the provisions in this Agreement,
CYBERGOLD shall conduct a minimum of three (3) marketing efforts to all of its
Members (excluding those Members who have expressly requested that CYBERGOLD not
correspond with such Member through e-mail) each calendar year of the Agreement.
Such marketing efforts will be conducted via e-mail solicitation and the e-mail
message will prominently feature and promote the Program. In addition, during
the term of this Agreement, CYBERGOLD agrees to prominently advertise the
Program continuously on their Website.
5. REPRESENTATIONS AND WARRANTIES
(a) CYBERGOLD and MBNA America each represents and warrants to the other that
as of the Effective Date and throughout the term of this Agreement:
(i) It is duly organized, validly existing and in good standing.
(ii) It has all necessary power and authority to execute and deliver
this Agreement and to perform its obligations under this Agreement.
(iii) This Agreement constitutes a legal, valid and binding obligation of
such party, enforceable against such party in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, receivership,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity.
(iv) No consent, approval or authorization from any third party is
required in connection with the execution, delivery and performance of this
Agreement, except such as have been obtained and are in full force and effect.
(v) The execution, delivery and performance of this Agreement by such
party will not constitute a violation of any law, rule, regulation, court order
or ruling applicable to such party.
(b) CYBERGOLD represents and warrants to MBNA America as of the date hereof and
throughout the term of this Agreement that it has the right and power to license
the Trademarks to MBNA America for use as contemplated by this Agreement.
CYBERGOLD will hold MBNA America, its directors, officers, agents, employees,
affiliates, successors and assigns harmless from and against all liability,
causes of action, and claims, and will reimburse MBNA America's reasonable and
actual costs in connection therewith, arising from the Trademark license granted
herein or from MBNA America's use of the Trademarks in reliance thereon. Each
party shall promptly notify the other party in the manner provided herein upon
learning of any claims or complaints relating to such license or the use of any
Trademarks.
(c) CYBERGOLD and MBNA America each will indemnify and hold harmless the other
party, its directors, officers, agents, employees, affiliates, insurers,
successors and assigns (the "Indemnitees") from and against any and all
liability, causes of action, claims, and the reasonable and actual costs
incurred in connection therewith ("Losses"), resulting from the material breach
of this Agreement by CYBERGOLD or MBNA America, respectively as the case may be,
or its
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directors, officers or employees. CYBERGOLD will indemnify and hold harmless
MBNA America and its Indemnities from and against any and all Losses arising
from the Trademark license granted herein or from MBNA America's use of the
Trademarks in reliance thereon. Each party shall promptly notify the other
party in the manner provided herein upon learning of any claims or complaints
that may reasonably result in the indemnification by the other party.
6. ROYALTIES.
(a) During the term of this Agreement, MBNA America shall pay Royalties to
CYBERGOLD. Royalties will not be paid without a completed Schedule C. Except as
otherwise provided in Schedule B, payment of Royalties then due shall be made
approximately forty-five (45) days after the end of the calendar quarter.
(b) On or before the forty fifth (45th) day after the end of each calendar
quarter during the term of this Agreement, MBNA America will provide CYBERGOLD
with a statement showing the number of Credit Card Accounts opened, the number
of Credit Card Accounts renewed and the number of retail purchase transactions
(excluding those transactions that relate to refunds, returns and unauthorized
transactions), made during the preceding calendar period.
(c) If during the term of this Agreement and for any Winddown Period (as such
term is defined herein), CYBERGOLD is unable or fails to fulfill its
obligations under Schedule D of this Agreement, MBNA America may, in addition to
any other right or remedy it has under this Agreement, utilize any Royalties
accrued by CYBERGOLD and otherwise payable to CYBERGOLD to perform some or all
of CYBERGOLD'S obligations set forth in Schedule, as appropriate, or to provide
the Customers with a benefit similar in quality and value to the benefits set
forth in Schedule D.
7. PROGRAM ADJUSTMENTS
A summary of the current features of the Program are set forth in Schedule A.
MBNA America reserves the right to make periodic adjustments to the Program and
its terms and features.
8. CONFIDENTIALITY OF AGREEMENT
The terms of this Agreement, any proposal, financial information and
proprietary information provided by or on behalf of one party to the other party
prior to, contemporaneously with, or subsequent to, the execution of this
Agreement ("Information") are confidential as of the date of disclosure. Such
Information will not be disclosed by such other party to any other person or
entity, except as permitted under this Agreement or as mutually agreed in
writing. MBNA America and CYBERGOLD shall be permitted to disclose such
Information (i) to their accountants, legal, financial and marketing advisors,
and employees as necessary for the performance of their respective duties,
provided that said persons agree to treat the Information as confidential in the
above described manner and (ii) as required by law or by any governmental
regulatory authority.
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9. TERM OF AGREEMENT
The initial term of this Agreement will begin on the Effective Date and
end on November 30, 2003. This Agreement will automatically extend at the end of
the initial term or any renewal term for successive two-year periods, unless
either party gives written notice of its intention not to renew at least ninety
(90) days, but not more than one hundred eighty (180) days, prior to the last
date of such term or renewal term, as applicable.
10. STATE LAW GOVERNING AGREEMENT
This Agreement shall be governed by and subject to the laws of the State
of Delaware (without regard to its conflict of laws principles) and shall be
deemed for all purposes to be made and fully performed in Delaware.
11. TERMINATION
(a) In the event of any material breach of this Agreement by MBNA America or
CYBERGOLD, the other party may terminate this Agreement by giving notice, as
provided herein, to the breaching party. This notice shall (i) describe the
material breach; and (ii) state the party's intention to terminate this
Agreement. If the breaching party does not cure or substantially cure such
breach within sixty (60) days after receipt of notice, as provided herein (the
"Cure Period"), then this Agreement shall terminate sixty (60) days after the
Cure Period.
(b) If either MBNA America or CYBERGOLD becomes insolvent in that its
liabilities exceed its assets, or is adjudicated insolvent, or takes advantage
of or is subject to any insolvency proceeding, or makes an assignment for the
benefit of creditors or is subject to receivership, conservatorship or
liquidation then the other party may immediately terminate this Agreement.
(c) Upon termination of this Agreement, MBNA America shall, in a manner
consistent with Section 11(d) of this Agreement, cease to use the Trademarks.
MBNA America agrees that upon such termination it will not claim any right,
title, or interest in or to the Trademarks or to the Mailing Lists provided
pursuant to this Agreement. However, MBNA America may conclude all solicitation
that is required by law.
(d) MBNA America shall have the right to prior review and approval of any
notice in connection with, relating or referring to the termination of this
Agreement to be communicated by CYBERGOLD to the Members. Such approval shall
not be unreasonably withheld. Upon termination of this Agreement, CYBERGOLD
shall not attempt to cause the removal of CYBERGOLD's identification or
Trademarks from any person's credit devices, checks or records of any Customer
existing as of the effective date of termination of this Agreement.
(e) In the event that any material change in any applicable law, statute,
operating rule or regulation, or any material change in any operating rule or
regulation of either VISA or MasterCard makes the continued performance of this
Agreement under the then current terms and conditions unduly burdensome, then
MBNA America shall have the right to terminate this
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Agreement upon ninety (90) days advance written notice. Such written notice
shall include an explanation and evidence of the burden imposed as a result of
such change.
(f) For a one (1) year period following the termination of this Agreement for
any reason, CYBERGOLD agrees that neither CYBERGOLD nor any CYBERGOLD Affiliate
shall, by itself or in conjunction with others, directly or indirectly,
specifically target any offer of a credit or charge card or credit or charge
card related product to persons who were Customers. Notwithstanding the
foregoing, CYBERGOLD may, after termination of this Agreement, offer persons
who were Customers the opportunity to participate in another credit or charge
card program endorsed by CYBERGOLD provided the opportunity is not only made
available to such persons but rather as a part of a general solicitation to all
Members and provided further no such persons are directly or indirectly
identified as a customer of MBNA America, or offered any terms or incentives
different from that offered to all Members.
12. CUSTOMER LIST
(a) So long as CYBERGOLD continues to provide the Customers with the
enhancements that require CYBERGOLD to receive a Customer List, as defined
below, each month MBNA America shall provide CYBERGOLD with a list of
information (e.g., names and addresses) about Customers as may be mutually
agreed upon by the parties (hereinafter the "Customer List"). When used in this
Agreement, the term "Customer List" includes any whole or partial copies or
compilations of a Customer List in any form or any medium, any information
derived solely from a Customer List, and all Customer Information, as
hereinafter defined.
(b) CYBERGOLD shall return to MBNA America each Customer List, in the same
form as received by CYBERGOLD within thirty (30) days of receipt of such
Customer List. CYBERGOLD agrees that upon termination of the Agreement it
shall: (i) immediately destroy and purge from all its systems all information
within each Customer List to the extent that such information in any way
relates to MBNA America, the Program or Credit Card Accounts ("Customer
Information"), except CYBERGOLD may retain on the respective Customer's
CYBERGOLD account the merchant account transactions between the Customer's
Credit Card Account and the Customer's CYBERGOLD account ("Individual History")
(provided however that such Individual History shall continue to be governed by
this Section and the Agreement); and (ii) return or destroy within thirty (30)
days all Customer Information (excluding Individual History) that is in
tangible form, including any and all full or partial copies, or reproductions
thereof in any medium whatsoever. All destruction of Customer Lists shall be
done in strict accordance with MBNA America's then current reasonable
destruction policy.
(c) Any Customer List provided to CYBERGOLD may contain "dummy" information
(e.g., names, account information, addresses, etc.) so that unauthorized use of
a Customer List may be detained. This information will be unknown to CYBERGOLD.
A violation of this Section if conclusively proven and the damages named
hereinafter shall be deemed owed when MBNA America establishes the following:
(i) that MBNA America placed "dummy" information on the list (e.g.,
name(s), account information, address(es), etc.);
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(ii) that the "dummy" information received any mailings which were sent or
generated outside the scope of the permitted use of the Customer
List; and
(iii) that identical "dummy" information was not provided by MBNA America
or its affiliates to any third party.
(d) All Customer Lists are (i) confidential and proprietary and (ii) shall
remain the sole property of MBNA America. CYBERGOLD expressly acknowledges and
agrees that CYBERGOLD has no property right or interest whatsoever in any
Customer List. CYBERGOLD shall hold all Customer Lists in strict and absolute
confidence and shall not provide, trade, give away, barter, lend, send, sell or
otherwise disclose (collectively "transfer") any Customer List and shall not
make any copies of a Customer List of any type whatsoever except as expressly
approved in a separate writing by MBNA America. (This paragraph would prohibit,
by means of example only, transferring a list composed substantially of MBNA
America cardholders names, or target market or solicit (unless otherwise agreed
to by MBNA America) a list composed substantially of MBNA America cardholders
names). At all times CYBERGOLD shall keep in confidence and trust all Customer
Lists. CYBERGOLD further agrees that it shall not transfer any Customer List to
any other organization or individual under any circumstances, and CYBERGOLD
specifically but not by way of limitation agrees that no subcontractors and/or
affiliates shall be transferred any Customer List unless agreed to in writing by
MBNA America prior to any such transfer. (This paragraph would prohibit, by
means of example only, transferring any list of MBNA America cardholders to any
financial institution during the term of the Agreement or after the termination
of the Agreement.)
(e) CYBERGOLD shall have no authority to use the Customer List for any purpose
not expressly permitted by MBNA America to fulfill CYBERGOLD's obligations under
the Loyalty Program (as such term is defined in Schedule D) or otherwise agreed
to by MBNA America in a separate writing. CYBERGOLD shall comply with any
reasonable request of MBNA America with respect to security precautions to
maintain the security of the Customer List. CYBERGOLD agrees to secure and
safeguard the Customer List in strict accordance with the requirements of this
Section and MBNA America's instructions, as communicated by MBNA America to
CYBERGOLD from time to time. CYBERGOLD shall only permit access to the Customer
List to those employees, volunteers, agents and/or representatives of CYBERGOLD
who need such access to perform their duties for CYBERGOLD. In view of the
confidential nature of the Customer List, CYBERGOLD warrants that CYBERGOLD and
all its employees, volunteers, agents and/or representatives who work with any
Customer List shall be made aware of the obligations contained in this Section
and shall be under strict legal obligation not to copy any Customer List,
transfer any Customer List or make any other use of any Customer List other than
as specifically approved by this Section.
(1) Because the nature of the Customer List makes an evaluation of damages
after a violation of this Section impossible, then in the event that any
Customer List is handled or used in a fashion that violates this Section by
CYBERGOLD or its employees, volunteers, agents, and/or representatives, MBNA
America will be entitled to damages of twenty dollars ($20.00) for each use of
each category of information (e.g., names, addresses, etc.) used in violation of
this Section, with the amount of damages not to exceed one hundred fifty
thousand dollars ($150,000.00) per breach. In addition, CYBERGOLD agrees that
MBNA America shall be
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entitled to injunctive relief to prevent violation or further violation by
CYBERGOLD and/or its employees, volunteers, agents or representatives of this
Section, and consents to submit to jurisdiction of the courts of the State of
Delaware and of the United States of America located in the State of Delaware
for any actions, suits or proceedings arising out of or related to this Section
or the Agreement. Nothing herein shall be construed as prohibiting MBNA America
from pursuing any other remedy on account of such breach or threatened breach.
(g) In the event CYBERGOLD receives a request to disclose a Customer List
pursuant to a subpoena, order of court of competent jurisdiction or by judicial
or administrative agency or legislative body or committee, CYBERGOLD agrees to:
(i) immediately notify MBNA America of the existence, terms and circumstances
surrounding such request; (ii) consult with MBNA America on the advisability of
taking legally available steps to resist or narrow such request; and (iii) if
disclosure of such Customer List is required or deemed advisable, exercise its
best efforts to obtain an order or other reliable assurance that confidential
treatment will be accorded to such portion of the Customer List to be disclosed
which MBNA America designates.
13. MISCELLANEOUS
(a) This Agreement cannot be amended except by written agreement signed by the
authorized agents of both parties hereto.
(b) The obligations in Sections 2(h), 5(b), 5(c), 6(c), 8, 11(c), 11(d), 11(f),
12(b), 12(c), 12(d), 12(e), 12(f), 12(g), and 13(b) shall survive any
termination of this Agreement.
(c) The failure of any party to exercise any rights under this Agreement shall
not be deemed a waiver of such right or any other rights.
(d) The section captions are inserted only for convenience and are in no way to
be construed as part of this Agreement.
(e) If any part of this Agreement shall for any reason be found or held invalid
or unenforceable by any court or governmental agency of competent jurisdiction,
such invalidity or unenforceability shall not affect the remainder of this
Agreement which shall survive and be construed as if such invalid or
unenforceable part had not been contained herein.
(f) All notices relating to this Agreement shall be in writing and shall be
deemed given (i) upon receipt by and delivery, facsimile or overnight courier,
or (ii) three (3) business days after mailing by registered or certified mail,
postage prepaid, return receipt requested. All notices shall be addressed as
follows:
(1) If to CYBERGOLD:
CYBERGOLD, INC.
2921 Adeline Street
Berkeley, CA 94703
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<PAGE> 11
ATTENTION: Mr. Pieter Hartsook,
Vice President, Business Development
Fax #: (510) 845-5257
(2) If to MBNA America:
MBNA AMERICA BANK, N.A.
Rodney Square
Wilmington, Delaware 19713
ATTENTION: Terrance R. Flynn,
Vice Chairman, Business Development
Fax#: (302) 432-0842
Any party may change the address to which communications are to be sent by
giving notice, as provided herein, of such change of address.
(g) This Agreement contains the entire agreement of the parties with respect
to the matters covered herein and supersedes all prior promises and agreements,
written or oral, with respect to the matters covered herein. Without the prior
written consent of MBNA America, which shall not be unreasonably withheld,
CYBERGOLD may not assign any of its rights or obligations under or arising from
this Agreement. MBNA America may assign any of its rights or obligations under
this Agreement to any other person without the prior written consent of
CYBERGOLD. MBNA America may utilize the services of any third party in
fulfilling its obligations under this Agreement.
(h) MBNA America and CYBERGOLD are not agents, representatives or employees
of each other and neither party shall have the power to obligate or bind the
other in any manner except as otherwise expressly provided by this Agreement.
(i) Nothing expressed or implied in this Agreement is intended or shall be
construed to confer upon or give any person other than CYBERGOLD and MBNA
America, their successors and assigns, any rights or remedies under or by
reason of this Agreement.
(j) CYBERGOLD recognizes and agrees that MBNA America's goodwill and
reputation in the marketplace are valuable and intangible assets; therefore,
CYBERGOLD agrees that it shall not conduct itself or engage in any activity in
a manner which may adversely affect these assets. In the event MBNA America
determines that CYBERGOLD does not so conduct itself, MBNA America may
terminate this Agreement, effective immediately.
(k) Neither party shall be in breach hereunder by reason of its delay in the
performance of or failure to perform any of its obligations herein if such delay
or failure is caused by strikes, acts of God or the public enemy, riots,
incendiaries, interference by civil or military authorities,
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<PAGE> 12
compliance with governmental laws, rules, regulations, delays in transit or
delivery, or any event beyond its reasonable control or without its fault or
negligence.
SIGNATURE PAGE AND SECTION 13(l) CONTINUE ON NEXT PAGE
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<PAGE> 13
(l) This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, each of the parties, by its representative, has executed
this Agreement as of the Effective Date.
CYBERGOLD, INC. MBNA AMERICA BANK, N.A.
By: /s/ NAT GOLDHABER By: /s/ JOHN C. RICHMOND
------------------------------ -----------------------------------
Name: Nat Goldhaber Name: John C. Richmond
------------------------------ -----------------------------------
Title: CEO/President Title: SEVP
----------------------------- ----------------------------------
Date: 11/20/98 Date: 11/20/98
------------------------------ -----------------------------------
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<PAGE> 14
SCHEDULE A
TERMS AND FEATURES
Subject to (i) MBNA America's right to vary the Program and its terms and
features, and (ii) the applicable agreement entered into between MBNA America
and each Customer:
A. CREDIT CARD ACCOUNTS
1. There is NO annual fee for the first year.
2. The current annual percentage rate will be a fixed rate of 12.99%.
3. Customers may be offered opportunities to select credit insurance
as a benefit under the Program.
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<PAGE> 15
SCHEDULE B
ROYALTY ARRANGEMENT
During the term of this Agreement, MBNA America will pay CYBERGOLD a Royalty
calculated as follows, for those accounts with active charging privileges. MBNA
America may create a special class of accounts for CYBERGOLD employees under the
Program, and will not pay compensation for such designated accounts. All Royalty
payments due hereunder are subject to adjustment by MBNA America for any prior
overpayment of Royalties by MBNA America:
A. CREDIT CARD ACCOUNTS
1. $[***]* ([***]*) for each new Credit Card Account opened, which
remains open for at least [***]* consecutive days and which is
utilized by the Customer for at least one purchase or cash advance
which is not subsequently rescinded, the subject of a charge back
request, or otherwise disputed.
2. $[***]* ([***]*) for each Credit Card Account for which the annual fee
is paid by the Customer. If no annual fee is assessed by MBNA America
(other than as a result of a courtesy waiver by MBNA America), then
such royalty will be paid for each Credit Card Account which: 1) has a
balance great than zero as of the last business day of every twelfth
month after the opening of that Credit Card Account; and 2) has had
active charging privileges for each of the preceding twelve months.
3. [***]*% ([***]* percent) of all retail purchase transaction dollar
volume generated by Customers using a Credit Card Account (excluding
those transactions that (1) relate to refunds, returns and/or
unauthorized transactions, and/or (2) are cash equivalent transactions
(e.g., the purchase of wire transfers, money orders, bets, lottery
tickets, or casino gaming chips)).
B. GIP ACCOUNTS
$[***]* ([***]*) for each GIP Account opened, which remains open for at
least [***]* consecutive days and which is utilized by the Customer for at
least one purchase or cash advance during the aforementioned [***]* day
period which is not subsequently rescinded, the subject of a charge back
request, or otherwise disputed. Such GIP Accounts will not qualify for any
other opening-of-an-account Royalty.
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- ----------------
* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
<PAGE> 16
SCHEDULE C
TAXPAYER IDENTIFICATION NUMBER REQUEST
<TABLE>
<S> <C> <C>
FORM W-9 For Accounts Payable Use Only
To: ____________________________ Account Number: ____________ Oracle Vendor #: ________________
</TABLE>
Please complete the following information. We are required by law to obtain this
information from you when making a reportable payment to you. If you do not
provide us with this information, your payments may be subject to 31% federal
income tax backup withholding. Additionally, you may be subject to a $50 penalty
imposed by the Internal Revenue Service under section 6723.
INSTRUCTIONS: Complete Part 1 by filling in the row of boxes that corresponds
to your tax status.
Complete Part 2 if you are exempt from 1099 reporting.
Complete Part 3 to sign and date the form, and return it to us.
PART 1 - TAX STATUS: (Complete one row of boxes)
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------
INDIVIDUAL: Individual's Name Individual's Social Security Number
__ __ __ - __ __ - __ __ __ __
- -----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
SOLE PROPRIETOR: Business Owner's Name Business Owner's Social Security Number Business or Trade Name
__ __ __ - __ __ - __ __ __ __
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
PARTNERSHIP: Name of Partnership Partnership's Employer Identification Number Partnership's Legal Name
(Name of first partner)
__ __ __ - __ __ - __ __ __ __
- ----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
CORPORATION, Name of Corporation or entity Employer Identification Number
EXEMPT CHARITY,
OR OTHER ENTITY: __ __ __ - __ __ - __ __ __ __
- -----------------------------------------------------------------------------------------
</TABLE>
PART 2 - EXEMPTION: IF EXEMPT FROM BACKUP WITHHOLDING AND FORM 1099
REPORTING, CHECK HERE: [ ] AND CIRCLE YOUR QUALIFYING
EXEMPTION REASON BELOW.
1. Corporation
2. Tax Exempt Charity under Section 501 (a) or IRA
3. The United States or any of its agencies or
instrumentalities
4. A state, the District of Columbia, a possession of
the United States, or any of their political
subdivisions or instrumentalities
5. A foreign government or any of its political
subdivisions, agencies or instrumentalities
PART 3 - CERTIFICATION: I certify under penalties of perjury that the Taxpayer
Identification Number I have provided is correct.
<TABLE>
<S> <C>
Person completing this form: _________________________________ Please provide address if different:
Signature: ___________________________________________________ ____________________________________
Date: ________________________________________________________ ____________________________________
Phone: ( _____ ) _____________________________________________
</TABLE>
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<PAGE> 17
SCHEDULE D
ENHANCEMENTS
CYBERGOLD shall develop a loyalty enhancement program that encourages
participation in the Program and Credit Card Account retail purchase
transactions from the Customers (the "Loyalty Program").
Except as otherwise provided herein, CYBERGOLD agrees to provide and administer,
at its cost and expenses, the Loyalty Program generally described in this
Schedule for the Program or any other program agreed to by the parties.
MBNA America will provide the appropriate monthly reports to enable CYBERGOLD
to fulfill the requirements set forth in this Schedule D.
A. New Account Activation Enhancements for the Loyalty Program
1. If a Customer makes a retail purchase transaction on a Credit Card Account
in the first month after the Credit Card Account is opened, then CYBERGOLD
will credit [***]* in CYBERGOLD dollars to the Customer's account with
CYBERGOLD and then immediately credit the Customer's Credit Card Account
$[***]*. Said credit will appear on the Customer's Credit Card Account
within 10 calendar days after CYBERGOLD receives the necessary reports
from MBNA America.
2. If a Customer makes a retail purchase transaction on a Credit Card Account
in the second month after the Credit Card Account is opened, then
CYBERGOLD will credit $[***]* in CYBERGOLD dollars to the Customer's
account with CYBERGOLD and then immediately credit the Customer's Credit
Card Account $[***]*. Said credit will appear on the Customer's Credit
Card Account within 10 calendar days after CYBERGOLD receives the
necessary reports from MBNA America.
3. If a Customer makes a retail purchase transaction on a Credit Card Account
in the third month after the Credit Card Account is opened, then CYBERGOLD
will credit $[***]* in CYBERGOLD dollars to the Customer's account with
CYBERGOLD and then immediately credit the Customer's Credit Card Account
$[***]*. Said credit will appear on the Customer's Credit Card Account
within 10 calendar days after CYBERGOLD receives the necessary reports
from MBNA America.
4. MBNA America will share in [***]* of the interchange/merchant costs (up to
[***]* ($[***]*) per transaction) incurred by CYBERGOLD to process the
each of credits described in Section A.2., A.3., and A.4., above, from
each Customer's CYBERGOLD account to the Customer's Credit Card Account
through the MasterCard/Visa interchange system.
5. In the event the Customer does no have a CYBERGOLD account, CYBERGOLD will
immediately establish such an account for the Customer.
- --------------
* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
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<PAGE> 18
6. No change to the structure or operation of the New Account Activation
Enhancements for the Loyalty Program in this Section A or any premium
to be offered in connection therewith shall be instituted without the
mutual agreement of the parties.
7. The provisions in this Section A of Schedule D, shall survive
termination of the Agreement.
B. Ongoing Enhancements for the Loyalty Program
Each qualifying Customer shall have the opportunity to continuously participate
in ongoing enhancements for the Loyalty Program ("Ongoing Enhancements")
established, fulfilled and funded by CYBERGOLD. Said Ongoing Enhancement shall
be initially established within 60 days of the Effective Date.
1. CYBERGOLD will continuously test a variety of reward programs to
encourage use and promotion of the Program and the co-branded
CYBERGOLD/MBNA credit card. CYBERGOLD will utilize all of the
compensation paid to CYBERGOLD pursuant to Subpart 3, Schedule B
towards the funding of the Ongoing Enhancements.
2. The Ongoing Enhancements established by CYBERGOLD will also provide
rewards of no less than[***]* basis points of the compensation paid to
CYBERGOLD pursuant to Subpart A.3 of Schedule B, in the aggregate, to
the active Customers.
3. The Ongoing Enhancements may be in the form of chances to win prizes
or the establishment of a point program. The Ongoing Enhancements
will include, but are not limited to chances to win vacation trips,
computer equipment, consumer electronics, and payment of internet
services. The number of chances the Customer of a Credit Card Account
receives and the value of the prizes will depend on the level of the
Customer's Credit Card Account purchase transactions. CYBERGOLD will
shall be solely responsible for all development and fulfillment of
all Ongoing Enhancements including, but not limited to all sweepstakes
or similar promotions, and shall be responsible for all costs related
to such programs, including but not limited to, marketing,
operational and administration costs.
C. Any tax or similar reporting or remittance obligations imposed by any
authority upon the awarding of points, sweepstakes or other Ongoing
Enhancements shall be solely and exclusively the responsibility of CYBERGOLD.
D. No material change to the structure of operation of the Ongoing
Enhancements or any premium to be offered in connection therewith shall be
instituted without the mutual agreement of the parties.
E. CYBERGOLD agrees that this Schedule D, the Loyalty Program, and the
respective rights and obligations hereunder, shall be subject to, and CYBERGOLD
shall comply with, the provisions and/or requirements of all applicable state,
federal and local law.
- --------------
* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
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<PAGE> 19
F. During the term of this agreement, CYBERGOLD and MBNA America on an
ongoing basis, will work together to further develop the Loyalty Program (at
CYBERGOLD's expense, unless otherwise agreed to by the parties).
G. As between CYBERGOLD and MBNA America, the parties agree that CYBERGOLD
is solely and exclusively responsible and liable for all suits, causes of
action, express or implied warranties, damages, losses and claims of negligence
or product liability arising from any and all items provided by, or sold or to
be sold by or on behalf of CYBERGOLD, or services provided or to be provided by
or on behalf of CYBERGOLD, in each case regardless of whether such items or
serves were provided for a price or free of charge.
H. CYBERGOLD must notify the Cardholders (in a format mutually agreed to by
CYBERGOLD MBNA America) of the mutual termination of the Loyalty Program, (the
termination of Loyalty Program either through the mutual Agreement by the
parties, or through the termination of the Agreement) in writing at least one
hundred and eighty (180) days prior to the effective date of the termination
("Winddown Period"). CYBERGOLD agrees to fulfill any point rewards, premiums,
sweepstakes, or other enhancements during the Winddown Period, unless CYBERGOLD
issued certificates, coupons or marketing materials that indicated CYBERGOLD
would redeem such Ongoing Enhancements for a longer period of time. CYBERGOLD
shall then redeem such Ongoing Enhancements for the time period represented to
the Customers.
I. The parties agree that if the Winddown Period of the Loyalty Program (as
described in Section H above) occurs after the termination of this Agreement,
then MBNA America agrees to pay only the following compensation after
termination of the Agreement during any period of time that Customers may be
eligible to continue to accrue points (if any) for the Ongoing Enhancements
(but not longer than 3 full calendar months after the termination of the
Program):
[***]*% ([***]* percent) of all retail purchase transaction dollar
volume generated by Customers using a Credit Card Account (excluding those
transactions that (1) relate to refunds, returns and/or unauthorized
transactions, and/or (2) are cash equivalent transactions (e.g., the
purchase of wire transfers, money orders, bets, lottery tickets, or casino
gaming chips)).
- --------------------
* Confidential Treatment Requested. Confidential portion
has been filed with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
June 7, 1999
San Francisco, California
