<PAGE>
As filed with the Securities and Exchange Commission on January 14, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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coolsavings.com inc.
(Exact name of registrant as specified in its charter)
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Michigan 7379 38-3216102
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number)Identification No.)
incorporation or
organization)
8755 West Higgins Road, Suite 100
Chicago, Illinois 60631
(773) 693-1300
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
Steven M. Golden
8755 West Higgins Road, Suite 100
Chicago, Illinois 60631
(773) 693-1300
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
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with copies to:
PETER SUGAR DAVID R. LAMARRE
JEFFREY M. WEISS DAVINA K. KAILE
ERIC S. BRONSTEIN DANIEL T. DASHIELL
Jaffe, Raitt, Heuer & Weiss, P.C. Pillsbury Madison & Sutro LLP
One Woodward Avenue, Suite 2400 P.O. Box 7880
Detroit, Michigan 48226 San Francisco, California 94120
(313) 961-8380 (415) 983-1000
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of each class of Proposed maximum Amount of
Securities to be registered aggregate offering price(1) registration fee
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<S> <C> <C>
Common Stock .............................. $57,500,000 $15,180
</TABLE>
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(1) Estimated pursuant to Rule 457(o) under the Securities Act of 1933 solely
for the purpose of calculating the registration fee.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+Underwriters may not confirm sales of these securities until the registration +
+statement filed with the Securities and +
+Exchange Commission becomes effective. This prospectus is not an offer to +
+sell these securities and it is not soliciting offers to buy these securities +
+in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
Shares
[LOGO OF COOLSAVINGS.COM APPEARS HERE]
Common Stock
This is an initial public offering of common stock by coolsavings.com inc.
All of the shares of common stock are being sold by CoolSavings. The estimated
initial offering price will be between $ and $ per share.
--------
There is currently no public market for the common stock. We have applied to
list the common stock on the Nasdaq National Market under the symbol CSAV.
--------
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to CoolSavings, before expenses.................... $ $
</TABLE>
CoolSavings has granted the underwriters an option for a period of 30 days to
purchase up to additional shares of common stock.
--------
Investing in the common stock involves a high degree of risk.
See "Risk Factors" beginning on page 4.
--------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
CHASE H&Q
LEHMAN BROTHERS
THOMAS WEISEL PARTNERS LLC
, 2000
<PAGE>
Inside Front Cover
Comprehensive E-Marketing Services
[Logo]
coolsavings.com
attract advertisers attracts consumers
household targeting online and office advertising
tracking variety of incentives
screenshot of coolsavings.com
home page
single source for personalized
e-marketing promotions
to build one-to-one established brand
customer relationships for customers to
save, then shop
<PAGE>
FIRST PAGE OF GATEFOLD
Screenshot of advertisers'
site offer Tracking leads to
more effective campaigns
Broad array of incentives
on our web site customer logos
Building one-to-one
relationships
Screenshot of targeted e-mail
Variety of places for redemption
and in our targeted e-mails online retailers mall stores national and
regional chains
<PAGE>
SECOND PAGE OF GATEFOLD
Advertisers can deliver, target
and track a wide array of incentives
Broad range of promotional to promote
incentives products or
services in any
online or offline
environment
graphic of
member database
We capture and store
incentives drive detailed member
sales demographic information,
track shopping preferences
and behavior, and
neighborhood businesses with advertiser
cooperation can
track redemption of
these incentives back
to the member household
We use sophisticated
data mining to create
predictive models to
make future targeting
even more effective
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................................................. 1
Risk Factors....................................................... 4
Forward-Looking Statements......................................... 18
Use of Proceeds.................................................... 19
Dividend Policy.................................................... 19
Capitalization..................................................... 20
Dilution........................................................... 21
Selected Financial Data............................................ 22
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 23
Business........................................................... 31
Management......................................................... 44
Certain Transactions............................................... 52
Principal Stockholders............................................. 55
Description of Capital Stock....................................... 57
Shares Eligible For Future Sale.................................... 61
Underwriting....................................................... 63
Legal Matters...................................................... 65
Experts............................................................ 65
Where You Can Find Additional Information.......................... 65
Index to Financial Statements...................................... F-1
</TABLE>
We were incorporated as Interactive Coupon Marketing Group, Inc. in Michigan
in December 1994. In November 1998, we changed our corporate name to
coolsavings.com inc. References in this prospectus to "us," "our" and "we" mean
coolsavings.com inc., and references to "CoolSavings" mean coolsavings.com inc.
or our web site, as the context requires.
Unless otherwise indicated, all statistical data regarding CoolSavings
referenced in this prospectus is as of December 31, 1999. This prospectus
contains statistical data regarding Internet usage and the advertising and
marketing industry that we obtained from industry publications, including
reports generated by Forrester Research, Inc., International Data Corporation,
the Direct Marketing Association, Mediamark Research Inc., NPD Research and
Media Metrix, Inc. These industry publications generally indicate that they
have obtained their information from sources believed to be reliable, but do
not guarantee the accuracy and completeness of their information. While we
believe that these publications are reliable, we have not independently
verified their data.
We own service mark registrations for the mark COOLSAVINGS, as well as
several other service marks, including, among others, COOLMALLS, COOLTRAVEL,
COOLSAMPLES and COOLCATALOGS, in the United States. We also own common law
rights in these and other marks. In addition, we have applied for United States
federal registrations of several service marks, including our stylized piggy-
bank logo, SAVE. THEN SHOP., SQUEALS OF THE DAY, COOLSAVINGS COUPON MANAGER and
SAVINGSCENTER. We have also obtained a trademark registration in Australia for
COOLSAVINGS and have registration applications pending in the United Kingdom
and Canada. All other trademarks or service marks appearing in this prospectus
are trademarks or service marks of others.
i
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including "Risk Factors" and
the financial statements, before making an investment decision.
CoolSavings
We are a leading provider of a comprehensive set of e-marketing services
used by online and offline advertisers to build one-to-one customer
relationships. Under our established brand, advertisers can deliver, target and
track a wide array of incentives to promote their products or services in any
online or offline environment. We deliver these incentives to targeted segments
of our large audience of consumers, who have registered their demographic
profiles with us and have given us permission to deliver personalized savings
opportunities to them. In 1999, our advertisers included leading brands such as
barnesandnoble.com, Bigstar, CDNow, First USA, JC Penney, Kids "R" Us, MCI
WorldCom, MotherNature.com, NetGrocer, petsmart.com, Service Merchandise,
SmarterKids.com and US News & World Report. As of December 31, 1999, we had
over 5.0 million registered members, representing nearly 3.9 million
households.
The compelling advantages of the Internet as a direct marketing medium have
led to the development of e-marketing services that enable businesses to drive
customer acquisition, retention and loyalty. Forrester Research projects that
online direct marketing will account for 50% to 70% of a projected $10.4
billion in total U.S. online advertising spending in 2002. While online
companies are the most frequent users of
e-marketing services, traditional offline businesses such as national retailers
and consumer packaged goods manufacturers are increasingly seeking to use e-
marketing services to drive offline sales and build consumer relationships. In
doing so, many online companies and traditional businesses are devoting larger
portions of their marketing budgets to Internet direct marketing.
Our web site, coolsavings.com, offers convenient and personalized incentives
for goods and services from a broad range of advertisers, including online
retailers, national brick-and-mortar chains, consumer packaged goods
manufacturers, large consumer service providers and neighborhood businesses. We
offer a wide array of promotional services for advertisers including printed
and electronic coupons, personalized e-mails, rebates, samples, sales notices,
loyalty programs, gift certificates, contests and banner advertisements.
According to Media Metrix, for November 1999, CoolSavings was the eighth most
popular shopping web site for women (believed to be the principal shoppers in
74% of U.S. households) and received 3.2 million unique visitors. We sent
approximately 22.0 million e-mails to our members in December 1999.
Although we keep our members' identities private, we capture and store
detailed member demographic information, track shopping preferences and
behavior, and with advertiser cooperation can track redemption of these
incentives back to our members' households. In doing so, we have developed a
valuable database of information that we use for the benefit of our
advertisers. We analyze our database with sophisticated data mining, targeting
and tracking technology to help our advertisers execute effective promotional
campaigns. The diversity of the incentives we offer and the variety of places
where our members can redeem them further enrich our member profiles for future
database marketing.
Our objective is to be the leading provider of e-marketing services to
advertisers. To achieve this objective, we plan to continue to add to our base
of members and advertisers through an active online and offline marketing
program that enhances the CoolSavings brand. We must also continue to enrich
our database and develop deeper data for predictive modeling and targeting
purposes. In order to offer a comprehensive e-marketing solution for
advertisers, we plan to expand the promotional services we offer. Finally, we
intend to continue to pursue strategic relationships with co-branding partners.
Our corporate offices are located at 8755 West Higgins Road, Suite 100,
Chicago, Illinois 60631. Our telephone number at that location is (773) 693-
1300. Our Internet address is http://www.coolsavings.com. Information contained
on our web site is not a part of this prospectus.
1
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by CoolSavings................. shares
Common stock to be outstanding after this offering.. shares
Use of proceeds..................................... For general corporate
purposes, including
working capital, capital
expenditures and
additional sales and
marketing efforts. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol.............. CSAV
</TABLE>
Unless otherwise indicated, share information in this prospectus:
. is based on our shares outstanding as of December 31, 1999;
. assumes conversion of our convertible subordinated notes into
shares of common stock upon completion of this offering, based on an
assumed initial public offering price of $ per share;
. assumes conversion of our Series A convertible preferred stock into
shares of common stock upon completion of this offering;
. gives effect to a for stock split which will occur prior to
completion of this offering; and
. assumes the underwriters' over-allotment option is not exercised.
The number of shares to be outstanding after this offering excludes, as of
December 31, 1999:
. 4,136.798 shares of common stock reserved for issuance under our 1997
Stock Option Plan, of which 3,635.580 shares are subject to outstanding
options at a weighted average exercise price of $3,996.74 per share;
. 282.380 shares subject to options granted outside of our 1997 Stock
Option Plan at an exercise price of $318.72 per share; and
. 551.573 shares of common stock reserved for issuance under our 1999 Non-
Employee Director Stock Option Plan, of which 55.000 shares are subject
to outstanding options at a weighted average exercise price of $5,394.18
per share.
2
<PAGE>
The summary financial data presented below are derived from the financial
statements of CoolSavings. The quarterly financial data have been derived from
unaudited financial statements. The shares used to compute pro forma loss per
share include convertible subordinated notes and Series A convertible preferred
stock on an as-converted basis, as well as common stock. The as adjusted
balance sheet data presented below reflect the receipt of the net proceeds from
the sale of the shares of common stock offered by CoolSavings at an
assumed initial public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and the estimated offering
expenses.
Summary Financial Data
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Inception Nine Months Ended
through Year Ended December 31, September 30,
December 31, ------------------------------------- ------------------------
1995 1996 1997 1998 1998 1999
------------ ----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues.......... $ -- $ -- $ 110 $ 1,143 $ 663 $ 6,240
Gross profit (loss)... -- -- (38) 715 399 5,197
Loss from operations.. (16) (883) (2,725) (5,346) (3,180) (10,035)
Net loss.............. (16) (874) (2,732) (5,741) (3,609) (9,786)
Historical loss per
common share, basic
and diluted.......... $ (0.00) $ (73.40) $ (171.97) $ (306.42) $ (185.72) $ (355.21)
Weighted average
shares used to
compute historical
basic and diluted
loss per common
share................ 9,532.877 11,910.725 15,883.975 18,736.675 19,430.790 27,548.912
Pro forma loss per
common share, basic
and diluted.......... $ $
Weighted average
shares used to
compute pro forma
basic and diluted
loss per share.......
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
-------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- ----- -----------
(unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........................... $ 5,295
Working capital..................................... 3,941
Total assets........................................ 14,275
Long-term debt...................................... 829
Convertible subordinated debt....................... 1,500
Total stockholders' equity.......................... 6,314
</TABLE>
3
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially and adversely affect our business and
quarterly and annual results of operations and could result in a complete loss
of your investment.
Risks Related to Our Business
Our unproven business model and short operating history make it difficult to
evaluate our business
We were incorporated in December 1994 and launched our web site in February
1997. Because we have an unproven business model and a limited operating
history, it may be difficult for you to evaluate an investment in our common
stock. In addition, we face risks, uncertainties, expenses and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets, including the Internet advertising and direct marketing market. To
address these risks and uncertainties, we must, among other things:
. maintain relationships with existing advertisers and attract additional
advertisers;
. attract members who actively take advantage of our offers and make
purchases, request information and otherwise interact with our
advertisers;
. attract, integrate, motivate and retain qualified personnel;
. enhance our brand recognition;
. develop new promotions and services;
. continue to upgrade and develop our systems and infrastructure to
accommodate potential growth;
. anticipate and adapt to the evolving Internet advertising and direct
marketing market and changes in advertisers' promotional needs and
policies;
. maintain and defend our intellectual property rights; and
. respond to changes in government regulations.
We may not be successful in accomplishing these objectives. Our failure to
do so could harm our business, results of operations and financial condition.
We have a history of losses and we anticipate future losses
We incurred net losses of $5.7 million in 1998 and $9.8 million for the nine
months ended September 30, 1999. As of September 30, 1999, our accumulated
deficit was $19.1 million. We expect to continue to incur significant operating
losses and capital expenditures. In particular, we expect to invest heavily in
sales and marketing activities, hiring new personnel, enhancing services and
technology, expanding and relocating our facilities and defending our
intellectual property. As a result, we will need to generate significant
revenues to achieve and maintain profitability. Although our revenues have
grown in recent quarters, this growth may not be sustained and we may never
become profitable. Even if we do achieve profitability, we may not sustain or
increase profitability on a quarterly or annual basis.
Our quarterly financial results may fluctuate, making our future financial
results difficult to forecast
Our future operating results may vary significantly due to a variety of
factors, many of which are beyond our control, including:
. advertisers' demand for and use of our services;
.seasonality of our advertisers' offers and their budgeting cycles;
4
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. performance-based contracts, under which our revenues depend on our
members' responsiveness to advertisers' offers;
. loss of advertisers, many of which are under short-term contracts with
us;
. changes in our pricing policies or those of our competitors;
. the mix of advertisements and services we sell;
. our members' demand for our services and response to the offers we make
available to them;
. litigation costs;
. the timing and amount of costs related to expansion of our operations;
and
. changes in and the timing of the costs we incur to attract members.
As a result, we believe that quarter-to-quarter comparisons of our operating
results may not be meaningful. Moreover, these factors make our revenues
difficult to forecast. In addition, we plan to significantly increase our sales
and marketing, product development and other operating expenses. Because of our
brief operating history, we cannot estimate expenses based on our historical
results. We therefore base our estimated expenses in part on projections of
future revenue, which are inherently uncertain. We may be unable to reduce
spending quickly enough to offset any unexpected revenue shortfall, which could
cause our business and operating results to suffer. This would likely affect
the market price of our common stock in a manner which may be unrelated to our
long-term operating performance. It is likely that in one or more future
quarters our operating results will fall below the expectations of securities
analysts and investors. If this happens, our stock price will likely decline,
perhaps significantly.
We derive most of our revenues from short-term contracts with our advertisers
Most of our current advertising contracts have stated terms of less than one
year and are generally subject to earlier termination. We may be unsuccessful
in securing longer commitments. For example, some advertisers prefer short-term
contracts because they use our service to promote limited-time promotional
events or seasonal products and services. In addition, new advertisers often
request a short-term trial to assess the effectiveness of our services,
particularly because Internet-based promotional services are relatively new and
unproven. The limited duration of our advertising contracts makes it difficult
for us to forecast our revenues. If we cannot renew our contracts or attract
new advertisers, our results of operations and financial condition will be
seriously harmed.
Our operating results are subject to seasonal fluctuations
We believe our operating results will be subject to seasonal fluctuations
that may make our stock price more volatile. Advertising sales in traditional
media, such as television and radio, generally are lower in the first and third
calendar quarters of each year. We anticipate that our future revenues will
reflect these seasonal patterns. However, our limited operating history and the
evolving nature of the Internet advertising market make it difficult for us to
predict the precise future impact of seasonal factors on our business.
We depend on compelling promotional offers by our advertisers
Our members' usage of our services, and the resulting attractiveness of our
service to advertisers, depend upon the quality of the promotional offers we
deliver and our members' interest in them. In addition, under some of our
advertising contracts, our revenues depend on members' responsiveness to
specific promotions. We currently consult with our advertisers about the type
and frequency of incentives they offer, but we cannot control their choice of
promotions or their fulfillment of incentives. If our advertisers' promotional
offers are not attractive to our members, we will not be able to maintain or
expand our membership or generate adequate revenues based on the size of our
membership or on the responses
5
<PAGE>
we produce. Moreover, if our members are not satisfied with the offers our
advertisers make available to them, or with the products or services they
receive upon redemption of offers, their negative experiences might result in
publicity that could damage our reputation, which would harm our efforts to
attract and retain members and advertisers.
We depend on the successful introduction of new services and features
To retain and attract members and advertisers, we intend to introduce
additional services and new features on our web site. For example, we plan to
offer advertisers the ability to deliver promotional incentives to small
businesses, in addition to individual consumers. These new features and
services may require us to spend significant funds on product development and
on educating our advertisers and consumers about our new service offerings. New
services and features may contain errors or defects that are discovered only
after introduction. Correcting these defects may result in significant costs,
service interruptions, loss of advertisers' and members' goodwill and damage to
our reputation. In addition, our successful introduction of new technologies
may depend on our advertisers' ability to adapt to use these technologies, over
which we have no control. If we introduce a service or feature that is not
favorably received, our current members may use our web site and other services
less frequently, our existing advertisers may not renew their contracts and we
may be unable to attract new members and advertisers.
We must be able to establish and maintain relationships with operators of other
web sites to attract new members
We rely on third-party web sites as sources of potential new members.
Competition for placements on the highest traffic web sites is intense, and we
may not be able to enter into these relationships on commercially reasonable
terms, or at all. Moreover, we may have to pay significant fees to establish
these relationships. Even if we enter into or maintain our current
relationships with other web site operators, those sites may not attract
significant numbers of users or increase traffic to our web site. Some
operators of other web sites may also offer competing services, alone or
through an arrangement with one of our competitors. These operators may be
reluctant to enter into strategic relationships with us. Our business could be
harmed if we do not establish and maintain relationships with other web site
operators on commercially reasonable terms or if our relationships do not
result in additional member registrations on our web site.
Intellectual property litigation against us can be costly and could result in
the loss of significant rights
We expect that, as the number of services and competitors in Internet
advertising and direct marketing grows, we will be increasingly subject to
intellectual property infringement, unfair competition and related claims
against us. Third parties may also seek to invalidate our patent. Currently, we
are a defendant in two lawsuits filed by competitors, each of which alleges
that our technology or business methods infringe on the competitor's patent.
The lawsuits seek, among other things, to prevent us from using methods that
allegedly violate the competitors' patents. While we intend to defend these
actions vigorously, our efforts may not be successful. Our failure to prevail
in this litigation could result in:
. our paying monetary damages, which could be tripled if the infringement
is found to have been willful;
. an injunction requiring us to stop offering our services in their current
form;
. our having to redesign our technology and business methods, which could
be costly and time-consuming even where a redesign is feasible; or
. our having to pay fees to license intellectual property rights, which may
result in unanticipated or higher costs.
Because of the ongoing technical efforts of others in our market and the
relatively recent introduction of our technology, we may be involved with one
or more of our competitors in legal proceedings to
6
<PAGE>
determine the parties' rights to various intellectual property. Our failure to
prevail in these proceedings could harm our business.
We cannot predict whether other third parties will assert claims of
infringement or similar charges against us, or whether any past or future
claims will harm our business. For example, a third party recently informed us
that it believes its patent may be relevant to our business, which we are
currently evaluating. We believe that participants in our market are
increasingly attempting to obtain patent protection for their business methods,
and some competitors such as Catalina Marketing and e-centives have announced
that they have applied for additional patents. We cannot predict when or if
patents will result from these efforts, or whether any of these third parties'
patents will cover aspects of our business. The details of United States patent
applications are not publicly disclosed until the patent is issued. Any third-
party claim, with or without merit, could be time-consuming, result in costly
litigation, cause us to reduce or alter our services, delay or prevent service
enhancements or require us to enter into royalty or licensing agreements. In
addition, legal standards regarding the validity, enforceability and scope of
intellectual property in Internet-related businesses are unproven and continue
to evolve. In this legal environment, we may be required to license other
parties' proprietary rights in an effort to clarify our ability to conduct
business or develop new services. For example, we have entered into two license
agreements with the owner of patents covering aspects of the issuance of
printed coupons and the conduct of interactive games and contests. Further
royalty or licensing agreements, if required, might not be available on terms
acceptable to us, or at all. If there is a successful claim of infringement
against us and we are unable to develop non-infringing technology or license
the infringed or similar technology on a timely basis, our business could be
substantially harmed. Please see "Business--Legal Proceedings."
Protecting our patents, trademarks and proprietary rights may be costly and may
distract our management
We regard the protection of our patent rights, copyrights, service marks,
trademarks, trade dress and trade secrets as critical to our future success.
However, the steps we take to protect these and other proprietary rights will
be costly, may require significant management resources and may be inadequate.
If we are unsuccessful in protecting our proprietary rights, our business will
be seriously harmed.
Patents
We currently hold one issued United States patent, No. 5,761,648, entitled
"Interactive Marketing Network and Process Using Electronic Certificates." In
addition, we have pending three United States and 17 foreign patent
applications directed to different aspects of our technology and business
processes. Nevertheless, it is possible that:
. our U.S. Patent No. 5,761,648, and any other patent we may obtain, could
be successfully challenged by one or more third parties, which could
deprive us of the right to prevent others from exploiting the electronic
certificate issuing and processing method or other inventions claimed in
our current or future patents;
. current and future competitors could devise new methods of competing with
our business that are not covered by our issued patent or any patents we
may obtain, or against which our patent and any other patent we may
obtain may be ineffective;
. our pending patent applications may not result in the issuance of
patents; and
. a third party may have or obtain one or more patents that cause specific
aspects of our business to be restricted or that require us to pay
license fees.
In addition, we cannot predict how recently enacted United States laws may
impact our proprietary rights. For example, the American Inventor's Protection
Act, which became law in October 1999, may grant partial or full immunity to
certain qualified methods of doing business from the full exclusionary rights
otherwise afforded to validly issued patents. There currently is no substantial
judicial precedent addressing
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<PAGE>
this new law. We are also uncertain as to whether countries other than the
United States will grant patents for inventions pertaining to Internet-related
businesses, or as to the extent of protection those foreign patents would
afford if issued. As in the United States, the legal standards applied abroad
for intellectual property in Internet-related businesses are evolving and
unproven. Any ruling or legislation that reduces the validity or enforceability
of our patents will seriously harm our business.
We presently have six lawsuits pending against companies we believe have
infringed on our patent. This litigation has been and will continue to be
costly, and is likely to continue over the course of several years. These
lawsuits are at an early stage, and the outcome of these lawsuits may not be
favorable to us. We may not prevail and prevent others from infringing on our
patents and using our proprietary rights. Furthermore, some of the companies we
have sued have filed counterclaims or separate lawsuits against us seeking
damages or to prevent us from using features of our system or business, and
others may do so. Please see "Business--Legal Proceedings."
Trademarks, Copyrights and Trade Secrets
We rely on a combination of laws and contractual restrictions to establish
and protect our proprietary rights. We generally have entered into
confidentiality and invention assignment agreements with our employees and
contractors, and into non-disclosure agreements with parties with which we
conduct business, in order to limit access to and disclosure of our proprietary
information. These contractual arrangements and other steps we have taken to
protect our intellectual property may not prevent misappropriation of our
proprietary rights or deter independent third-party development or use of
similar intellectual property. In addition, we have registered and have applied
for registration of trademarks and service marks in the United States and in
other countries. However, our pending registrations might not be issued and our
registered marks may not prevent others from using similar marks.
Domain Names
We currently hold the Internet domain name coolsavings.com, as well as
various other related names. Domain names generally are regulated by the
Internet's regulatory bodies. The regulation of domain names in the United
States and in foreign countries is subject to change. Regulatory bodies could
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
may not acquire or maintain the "coolsavings.com" domain name in all of the
countries in which we conduct business or in which we wish to conduct business
in the future.
Licenses
In the future, we may license portions of our intellectual property,
including our issued patent, to third parties. To date, we have granted one
competitor immunity from suit under our patent, on the condition that the
competitor restrict its coupon distribution in ways acceptable to us.
Similarly, we have also licensed two other competitors under our patent on the
condition that they restrict their coupon distribution in ways acceptable to
us. If the nature or scope of the immunity or licenses were disputed, we would
need to institute proceedings to enforce our rights under these agreements or
under our patent.
We may lose business or incur liabilities to our advertisers due to
uncertainties or inaccuracies in our database information
It is important to our advertisers that we accurately track our members'
demographics, our delivery of offers and advertisements and, in some instances,
redemptions of incentives offered through CoolSavings. We have developed
systems designed to record information about our members' demographic profiles,
usage of our web site and other member information. If these systems do not
perform as intended, we may not be able to evaluate accurately our members'
household characteristics or the success of an advertiser's promotional
campaign. Advertisers' willingness to use our services depends in part on the
size of our membership base. In addition, in some cases our advertising rates
increase as our registered membership increases and some of our advertising
contracts require us to maintain or attain specified membership or
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usage levels. It is difficult to report our membership numbers accurately
because some individuals may register more than once under different e-mail
addresses, and members of households already registered with us may
subsequently register themselves individually. Many of our members were
registered on our web site by other members of their households and tend to use
our web site less frequently than the members who registered them, if at all.
Furthermore, we rely on the accuracy of the demographic, income and other
information provided by our registering members. If advertisers perceive our
tracking and evaluations to be unreliable or if our members' self-reported
information proves to be inaccurate, we may lose current and potential
advertisers, suffer erosion in our advertising rates or face disputes over
proper advertising charges.
We may be subject to claims as a result of our data mining activities, which
could result in loss of members
The information in our database is an integral part of our business. We have
designed our technology infrastructure and services to allow us to aggregate
data regarding specific member behavior. We have a strict privacy policy that
governs how we use information about our members. We currently do not sell
member-identifying information to third parties without the consent of the
member and have no plans to do so in the future. Furthermore, our e-mail
notices are only sent to members who have elected to receive them. However,
some people who receive promotions from us may still be unhappy that we
contacted them. In addition, while we strictly protect the identity of
individual members, we do provide advertisers with aggregate information
regarding member demographics, shopping preferences and past behavior. Our use
of this aggregated information may cause dissatisfaction among our members or
otherwise lead to negative publicity. There has been substantial publicity
regarding privacy issues involving the Internet. To the extent that our data
mining activities conflict with any privacy protection initiatives or if any
private information is inadvertently made public, we may be subject to legal
claims. If our members become unhappy with our use of the information in our
database, or if we are subject to legal proceedings regarding our use of our
database, our business will be harmed.
Failure to promote and protect our brand will harm our business
We believe that strengthening our brand will be increasingly important
because our market is competitive and has low barriers to entry. Our ability to
promote and position our brand depends on the success of our marketing efforts
and whether we can provide high quality services that motivate our members to
use CoolSavings. To promote our brand, we will need to invest heavily in
marketing to create and maintain brand loyalty among members. We intend to
continue to expand our offline marketing efforts in such media as broadcast and
print, where we have limited experience. These initiatives have involved and
will continue to involve significant expenses. The outcome of our marketing
efforts is difficult to predict. If our brand enhancement strategy is
unsuccessful, our business will be harmed. In addition, we rely on co-branding
arrangements with third parties as sources for new members and for advertising
revenues. To the extent any of our co-branding partners are subject to negative
publicity, the goodwill associated with our brand may be harmed.
We may not be able to compete successfully against current and future
competitors
The market for e-marketing services is new, rapidly evolving and intensely
competitive. Barriers to entry for companies in our market are low, and current
and potential competitors can launch new web sites and e-marketing services at
relatively low cost.
Currently, we compete directly with online marketing companies in several
fields:
. direct marketers, such as FreeShop, LifeMinders and YesMail;
. incentive services, such as Cybergold, MyPoints and Netcentives;
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. coupon providers, such as the online division of Catalina Marketing, e-
centives and planet U; and
. sweepstakes providers, such as Webstakes.
We also face competition from traditional direct marketers, including
leading distributors of traditional coupons by mail or newspaper inserts and
from companies offering affinity rewards tied to responses to advertisements.
We expect that some of the leading distributors of traditional newspaper-insert
coupons, which have significant existing relationships with advertisers such as
consumer packaged goods companies, will compete against us directly by
delivering their promotions over the Internet. For example, Valassis
Communications, a leading distributor of newspaper-insert coupons, recently
began to offer online services. We also compete with other web sites, portals
and advertising networks, as well as traditional offline media such as
television, radio and print, for a share of advertisers' total advertising
budgets and for consumers' attention.
Many of our current and potential competitors have longer operating
histories, greater brand recognition, larger customer or user bases, and
significantly greater financial, marketing, technical and other resources than
we do. In addition, our competitors may be acquired by, receive investments
from or enter into other commercial relationships with larger, well-established
and well-financed companies. Therefore, some of our competitors may be able to
devote greater resources to marketing and promotional campaigns, adopt more
aggressive pricing policies and devote substantially more resources to web site
and systems development. They may also try to attract advertisers by offering
free services. Increased competition may cause us to lose brand recognition and
market share and could otherwise harm our business.
Our revenues are concentrated among a limited number of advertisers
During the nine months ended September 30, 1999, although no advertiser
accounted for more than 6.0% of our revenues, approximately 19.0% of our
revenues was derived from our five largest advertisers. We believe that a
relatively small number of advertisers may account for a substantial portion of
our revenues in future periods. If any of our major advertisers were to reduce
their advertising purchases substantially or to stop using our services, our
business would be seriously harmed.
Many of our customers are emerging Internet companies that represent credit
risks
A significant portion of our revenues is derived from sales of advertising
to online retailers and service providers. Many of these companies have limited
operating histories, are incurring substantial losses and have limited access
to capital. Many of these businesses represent credit risks and could fail. If
these advertisers experience financial difficulties or fail to achieve
commercial success, our business will suffer.
If we do not manage our growth, our business will be seriously harmed
We recently began to expand our operations rapidly and we anticipate that
further expansion will be required to address potential growth in our member
and advertiser base and market opportunities. From June 1, 1996 to December 31,
1999, we expanded from three to 121 employees. Our new employees include a
number of key managerial, marketing, planning, technical and operations
personnel who have not yet been fully integrated into our business, and we
expect to add additional key personnel in the near future. This expansion has
placed a significant strain on our management, operational and financial
resources, and we expect that strain to continue. To manage the expected growth
of our operations, we will need to improve our existing and implement new
operational and financial systems, procedures and controls. We will also need
to expand our finance, administrative, client services and operations staff and
train and manage our growing employee base effectively. Our current and planned
personnel, systems, procedures and controls may not be adequate to support our
future operations. Additionally, we plan to relocate our headquarters to
downtown Chicago during mid-2000, which could be costly and disruptive. If our
new office space proves to be inadequate for our growth, we may have to spend
additional resources to accommodate our operations.
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Furthermore, although we expect to sublease our existing office space or
negotiate other lease termination arrangements with our current landlords, we
may be unable to do so on terms acceptable to us or at all. We may also pursue
acquisition or investment opportunities that would complement our current
business. If we are unable to make these acquisitions or investments, or have
difficulty integrating any new entities or technologies, our business could be
harmed. Our business, results of operations and financial condition will suffer
if we do not effectively manage our growth.
Our failure to attract, assimilate and retain highly skilled personnel would
seriously harm our business
Our future success depends on the continued services of our senior
management and other key sales and technical personnel, particularly Steven M.
Golden, our Chairman, Chief Executive Officer and President, David H. Jacobson,
our Executive Vice President, Finance and Chief Financial Officer, Matthew
Moog, our Executive Vice President, Sales and Marketing, John J. Adams, our
Executive Vice President, Operations and Technology, and Jonathan J. Smith, our
Executive Vice President, Strategic Business Development. We do not have long-
term employment agreements with any of our key personnel and maintain no "key
person" life insurance policies. The loss of the services of any of our
executive officers or other key employees would likely have a negative effect
on our business, results of operations and financial condition. Our future
success also depends on our ability to identify, attract, retain and motivate
highly skilled employees, particularly additional technical, sales and
marketing personnel. Competition for employees in our industry is intense. We
have occasionally encountered and expect to continue to encounter difficulties
in hiring and retaining highly skilled employees, particularly qualified
software developers for our web site and database systems. We may be unable to
retain our key employees or identify, attract, assimilate or retain other
highly qualified employees in the future, which may in turn harm our business.
Our reputation and business could be damaged if we encounter system
interruptions or capacity limitations
We seek to generate a high volume of traffic and transactions on our web
site. Our database must also handle a large volume of member data and
information about members' usage of our web site. The satisfactory performance,
reliability and availability of our web site, database systems and network
infrastructure are critical to our reputation and our ability to attract and
retain large numbers of members. Our revenues depend on promotional offers
being readily available for members and our ability to process their coupon
downloads, e-mail responses or other transactions on our web site. Any system
interruptions that result in the unavailability of our service or reduced
member activity would impair the effectiveness of our service for advertisers.
Interruptions of service may also inhibit our ability to attract and retain
members, which in turn will hinder our sales and marketing efforts. We have
experienced periodic system interruptions, which may occur from time to time in
the future. For instance, for two weeks during the summer of 1998, we
experienced network access interruptions that lasted minutes at a time because
of a problem with the access routers in the local access network of our primary
Internet service provider.
A substantial increase in rate of traffic on our web site will require us to
expand and upgrade our technology, processing systems and network
infrastructure. These upgrades could be disruptive and costly. In addition, our
existing systems may encounter unexpected problems as our member base expands.
Our failure to handle the growth of our databases could lead to system
failures, inadequate response times or corruption of our data, and could
negatively affect our business, results of operations and financial condition.
We may be unable to expand and upgrade our systems and infrastructure to
accommodate this growth in a timely manner. Any failure to expand or upgrade
our systems could damage our reputation and our business.
We rely on third-party service providers, and any disruption or failure in the
services they provide will harm our business
We rely on three third-party service providers to provide access to our web
site and support its operation. Any interruption or failure in these services
or a deterioration in their performance could disrupt our business. Our support
arrangements with these providers are short-term and may be canceled on short
notice. In the event these arrangements are terminated, we may not be able to
find alternative service
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providers on a timely basis or on terms acceptable to us, or at all, which in
turn would harm our business. In addition, we rely on software licenses from
third parties, such as two software packages from L-Soft International, Inc.
that we use to transmit e-mail to our members. If these licenses are
terminated, we may not be able to find and install satisfactory alternate
software on a timely basis or on terms acceptable to us, or at all, which will
harm our business.
Our facilities and systems are vulnerable to natural disasters and other
unexpected problems
Our success and our ability to attract new members and motivate our members
to respond to our advertisers' offers depend on the efficient and uninterrupted
operation of our computer and communications hardware systems. Our web servers
and the database behind our system are currently located at our Chicago
headquarters. In addition, the servers we use to perform data mining are housed
at an Exodus Communications data center in Oak Brook, Illinois. Although we
have also contracted with Exodus to host a redundant system, we have not yet
directed substantial traffic to this Exodus system. The computer systems at
each of our two hosting sites are vulnerable to damage or interruption from
floods, fires, power loss, telecommunication failures, and other natural
disasters. In addition, our Chicago facility has only two hours of emergency
back-up power. Although we are currently working with a third party consulting
firm to develop a disaster recovery plan, we do not yet have a formal disaster
recovery plan in place. The occurrence of a natural disaster or other
unanticipated problems at our facility or at the Exodus facility could result
in interruptions in or degradation of our services. Our business interruption
insurance may not adequately compensate us for resulting losses. Furthermore,
the computer servers running our system are vulnerable to general mechanical
breakdown or component failure, computer viruses, physical or electronic break-
ins, sabotage, vandalism and similar disruptions, which could lead to loss or
corruption of data or prevent us from posting offers on our web site, sending
e-mail notifications of new offers or delivering coupons or other certificates
to our members. System failure or degradation resulting from under-capacity or
from any of these risks could harm our business.
Our business will be seriously harmed if our online security measures fail
Because our efforts to attract and retain members depend on potential
members' expectations of privacy in using our services, our business could be
damaged by any security breach of our database or web site. We may be required
to spend significant capital and other resources to protect against security
breaches or to alleviate problems caused by these breaches. Someone
circumventing our security measures could misappropriate proprietary
information, corrupt our database or otherwise interrupt our operations. We
could also be subject to liability as a result of any security breach or
misappropriation of our members' personal data. This could include claims for
unauthorized purchases with credit card information, impersonation or other
similar fraud claims, as well as claims based upon other misuses of personal
information, such as unauthorized marketing. These claims could result in
costly litigation and could limit our ability to attract and retain advertisers
and members. Our security measures may fail to prevent security breaches. Any
failure to prevent security breaches will damage our reputation and harm our
business.
We may be liable for supplying inaccurate promotional information to consumers
We may face liability if the promotional information in the offers available
to our members is inaccurate. Our employees may make errors in posting our
advertisers' promotions. Our advertisers can enter promotional offers directly
into CoolSavings using our SavingsCenter software, and we do not proofread or
otherwise verify all of these offers. Any liabilities which we may incur
because of inaccurate information in the offers we deliver could harm our
business, results of operations and financial condition. Additionally, any
negative publicity generated as a result of inaccurate information in the
offers we deliver could damage our reputation and diminish the value of our
brand name.
We may be harmed by certain activities of our advertisers
Our success depends largely upon retailers honoring our printed coupons and
upon advertisers reliably delivering and accurately representing the listed
goods and services. We have occasionally received, and
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expect to continue to receive, complaints from our members about retailers'
failure to honor our coupons or about the quality of the goods and services
featured in our promotions. These complaints may be accompanied by requests for
reimbursement or threats of legal action against us. Any resulting
reimbursements or related litigation could be costly for us, divert management
attention, increase our costs of doing business or otherwise harm our business,
financial condition or results of operations. In addition, our advertisers'
promotion of their goods and services may not comply with federal, state and
local laws. Our role in facilitating advertisers' sales activities may expose
us to liability under these laws. If we are exposed to this kind of liability,
we could be required to pay substantial fines or penalties, redesign our web
site or business processes, discontinue some of our services or otherwise spend
resources to avoid liability.
Expanding internationally could be costly and disruptive
We intend to expand our business internationally, which will require
significant management attention and financial resources. We have no experience
in operating internationally, and we may be unable to compete effectively in
international markets. International operations are subject to a number of
risks and uncertainties, including:
. potentially more stringent regulation and liability standards;
. unexpected changes in regulatory requirements;
. difficulties and costs of staffing and managing international operations;
. differing technological standards;
. varying and evolving legal standards for intellectual property covering
Internet-related inventions;
. inadequate protection of intellectual property in some countries;
. difficulties and costs involved in tailoring our services to local
advertising practices and customer preferences;
. difficulties in collecting accounts receivable through foreign legal
systems;
. fluctuations in the value of the U.S. dollar relative to other
currencies; and
. potentially adverse tax consequences.
Any of these factors could impair our ability to expand into international
markets, or could significantly increase our expenses in future periods. In
addition, we may pursue our international expansion strategy by entering into
joint ventures or licensing our intellectual property to third parties. We may
be unable to control these parties' activities, which could hinder our
expansion efforts and could damage our brand.
We are a defendant in a securities-related lawsuit
We have been named as a co-defendant in a lawsuit filed in 1999 against our
Chief Executive Officer by his ex-wife. This lawsuit is based upon the
plaintiff's sale of shares of our common stock to our Chief Executive Officer
in March 1998 and makes various allegations including fraud. The suit seeks
damages in excess of $6.5 million. While we believe that this lawsuit lacks
merit, a negative outcome in this litigation could subject us to substantial
damages and negative publicity. Our defense of this litigation, even if
successful, could be costly and time-consuming.
Risks Related To Our Industry
We depend on widespread acceptance of online direct marketing and promotions
Our success depends on the continued growth and acceptance by both consumers
and advertisers of online direct marketing and other promotional services
available through the Internet. Although incentive promotions and direct
marketing have been provided for many years through newspaper inserts, direct
mailing and other conventional marketing and sales channels, they have only
recently been offered on the Internet. Many of our current or potential
advertising customers, particularly traditional offline businesses,
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have little or no experience using the Internet for advertising purposes, and
may be reluctant to spend money on our services. As a result, we face a longer
sales cycle when dealing with traditional offline businesses. In addition, some
traditional retailers may not readily accept our computer-generated
certificates as valid, in part because of their cashiers' lack of familiarity
with them and the perceived risk that these coupons can be counterfeited. The
other services we offer, including the use of targeted e-mails to alert
consumers to savings opportunities, also represent new marketing methods whose
acceptance by consumers and advertisers is less certain than traditional
marketing methods. Although we do not send unsolicited e-mail, known as "spam,"
negative public perception associated with "spam" could reduce the demand for
our services.
Changes in consumer and advertiser trends could harm our business
We derive substantially all of our revenues from fees charged to
advertisers. Therefore, we will be affected by changing trends in retail
advertising, such as the trend away from periodic promotions and toward
"everyday low prices." In addition, many of our advertisers are national
retailers and suppliers of consumer products and services. These businesses are
affected by the general economy as well as consumer confidence, which has at
times diminished despite otherwise strong financial conditions. Consumer
spending also can be affected by trends related to lifestyle, such as changing
tastes in fashion or entertainment. Any decline in demand for our services as a
result of changes in consumer or advertiser trends could harm our business,
results of operations and financial condition.
We may not be able to keep up with rapid technological developments and
evolving industry standards
The Internet is characterized by rapidly changing technology, evolving
industry standards, frequent new service and product announcements,
introductions and enhancements and changing consumer and advertiser demands.
Our future success will depend on our ability to adapt our services to rapidly
changing technologies and evolving industry standards and to continually
improve the performance, features and reliability of our services. For example,
we may be required to adapt our services to be compatible with Internet-
connected devices other than traditional personal computers, such as handheld
and wireless devices. We may also need to adapt to evolving standards resulting
from the convergence of the Internet, television and other media. The
widespread adoption of new Internet, networking or telecommunications
technologies or other technological changes could require us to incur
substantial expenditures to modify or adapt our services or infrastructure.
Government regulations could substantially harm our business
The adoption or modification of laws or regulations relating to the Internet
and Internet-based advertising could harm our business. In particular, our
business could be severely damaged by any regulatory restrictions on our
collection or use of information about our members.
Laws and regulations that apply to Internet advertising and communications
and Internet users' privacy are becoming more prevalent. For example, the
United States Congress and Federal Trade Commission recently adopted laws and
regulations regarding the online collection and use of information from
children and the content of Internet communications, and various states
regulate e-mail marketing. However, even in areas where there has been some
legislative action, the laws governing the Internet remain largely unsettled.
There is no single government body overseeing our industry, and some existing
state laws have different and sometimes inconsistent application to our
business. It may take years to determine whether and how existing laws, such as
those governing intellectual property, privacy, libel, taxation and the need to
qualify to do business in a particular state, apply to the Internet and
Internet advertising. Also, we conduct trivia quizzes and other contests and
sweepstakes on our web site, which may be subject to gaming and sweepstakes
laws. Our attempts to comply with these laws may be inadequate, in part because
the effect of these laws on our activities is often unclear.
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We expect that regulation of the Internet and Internet advertising will
intensify. New laws could slow the growth in Internet use and decrease the
acceptance of the Internet as a commercial medium, which would harm our
business. For example, a number of proposals to tax Internet-based transactions
are under consideration by federal, state, local and foreign governmental
organizations. A three-year federal moratorium on new state Internet sales tax
legislation is currently in effect, but it is scheduled to expire in 2001 and
does not preempt existing state tax laws. An increase in the taxation of online
transactions or other new regulations could increase our costs of doing
business or otherwise harm us by making the Internet less attractive for
consumers and businesses. In addition, existing laws such as those governing
intellectual property and privacy may be interpreted to apply to the Internet
and Internet advertising. Our strategy to expand into international markets
will likely subject us to additional regulation. Foreign countries, for example
those in the European Union, often regulate areas such as Internet user privacy
more strictly than the United States.
Any enforcement of existing laws and regulations against us, new legislation
or regulation, government investigation of our privacy practices or other
business methods, or the application of laws from jurisdictions whose laws do
not currently apply to us could:
. create uncertainty in the marketplace that could reduce demand for our
services;
. limit our ability to collect and to use data from our members, which
could prevent us from attracting and retaining advertisers;
. result in expensive litigation, costly and disruptive efforts to respond
to governmental investigations and burdensome fines or penalties;
. require us to redesign our web site, registration process, database or
targeting methods, any of which could be expensive and disruptive to our
business;
. increase the cost of delivering our services to advertisers;
. require us to qualify to do business in additional jurisdictions, or
subject us to liability for having failed to qualify to do business
wherever our members reside;
. reduce the efficacy of our targeted promotional services; or
. in some other manner harm our business, results of operations and
financial condition.
Our success depends on the continued growth and performance of the Internet as
a medium for commerce
Rapid growth and use of the Internet is a recent development. We do not know
if use of the Internet will continue to grow or if a sufficiently broad base of
consumers will adopt and continue to use the Internet as a medium for commerce.
Demand for services and products sold over the Internet is uncertain for a
number of reasons, including concerns related to the security of transactions,
network reliability and poor performance. Changes in or insufficient
availability of telecommunications services to support the Internet also could
result in slower response times and reduce usage of the Internet. If use of the
Internet does not continue to grow, grows more slowly than expected or does not
become a viable commercial marketplace, our business, results of operations and
financial condition will suffer.
Our business may suffer if the security of Internet commerce is compromised
Concerns about the security of transactions conducted on the Internet and
consumer privacy may inhibit the growth of the Internet generally, and online
commerce in particular. Any compromise of security involving Internet-based
transactions could result in negative publicity and deter people from using the
Internet or from using it to conduct transactions that involve transmitting
confidential information, such as registering for membership or purchasing
goods and services. This could harm our business because many of our
advertisers use our services to encourage people to purchase goods or services
on the Internet.
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Outages and other delays on the Internet could seriously harm our business
The increased use of the Internet has caused frequent interruptions and
delays in accessing and transmitting data over the Internet. If the use of the
Internet continues to grow rapidly, the Internet's infrastructure may not
continue to support the demands placed on it and its performance and
reliability may decline. Interruptions or delays in Internet transmissions will
disrupt our members' ability to access advertisers' offers on our web site and
our ability to send target e-mail, which may in turn seriously harm our
business and financial results. We also rely on web browser technology to
create and target promotional offers. If access to these web-based systems is
interrupted, our ability to disseminate new offers will be impaired, which
could cause lost revenues or disputes with our advertisers.
We may be adversely affected by problems relating to the Year 2000 issue
Problems associated with software and computer systems' use of two digits to
define the year, referred to as "Year 2000" issues, could harm our business.
Although to date we are not aware of any significant Year 2000 issues relating
to our principal internally developed programs and systems, or systems provided
to us by others, these systems could experience Year 2000 problems at any time
during 2000 and beyond. These problems could disrupt our business and require
us to incur significant, unanticipated expenses to remedy them. They could also
result in claims and litigation against us, which could subject us to
significant costs and could require substantial attention from our management.
Similarly, our business could be severely harmed if our Internet service
providers and other third parties on which our services depend encounter Year
2000 issues, or if Year 2000 problems cause malfunctions at our facilities or
at Exodus Communications' facilities. In addition, Year 2000 problems may
arise, limiting our members' ability to access the Internet, "click-through" to
our advertisers' web sites or otherwise respond to offers we deliver, which
would harm our operating results.
Risks Related To This Offering
We may be unable to meet our future capital requirements
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to satisfy our anticipated needs
for working capital, capital expenditures and business expansion for at least
the next 12 months. After that time, we may need additional capital. However,
if our growth rate exceeds our expectations, we may need to raise additional
funds sooner in order to fund expansion, to develop new or enhanced products or
services, to make strategic acquisitions or to respond to competitive
pressures.
We have a $1.0 million bank line of credit. We currently do not have any
other commitments for additional financing. Additional financing may not be
available to us on favorable terms or at all. If adequate funds are not
available on acceptable terms, we may not be able to continue or expand our
business operations. This in turn could harm our business, results of
operations and financial condition. If we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of
our existing stockholders will be diluted. Furthermore, any new securities
could have rights, preferences and privileges senior to those of our common
stock.
Existing stockholders will exercise significant control over us, and third
parties may be deterred from acquiring us
Our executive officers, directors and entities affiliated with them will, in
the aggregate, beneficially own approximately % of our outstanding common
stock immediately after this offering. As a result, these stockholders, if
acting together, will have the ability to control all matters requiring
approval by our stockholders, including the election and removal of directors
and the approval of any merger, consolidation or sale of all or substantially
all of our assets. This could discourage others from initiating potential
merger, takeover or other change of control transactions, which could cause our
stock price to decline.
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In addition, provisions of our Articles of Incorporation, our Bylaws and
Michigan law could make it difficult for a third party to acquire us or change
our management, even if doing so would be beneficial to our stockholders.
Please see "Description of Capital Stock."
Our stock price is likely to be highly volatile, and you may not be able to
sell your shares at a profit
The market price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in response to factors such as the
following, many of which are beyond our control:
. quarterly variations in our operating results;
. operating results that vary from the expectations of securities analysts
and investors;
. changes in expectations as to our future financial performance, including
financial estimates by securities analysts and investors;
. changes in market valuations of other Internet companies;
. loss of a major advertiser;
. resolution of our pending or future patent litigation or other changes in
the status of our intellectual property rights;
. announcements of significant claims or legal proceedings against us;
. announcements of technological innovations or new services by us or our
competitors;
. announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
. departures of key personnel; and
. future sales of our common stock.
Domestic and international stock markets often experience extreme price and
volume fluctuations. The market prices of the securities of Internet-related
and technology companies, particularly following an initial public offering,
are often highly volatile and subject to wide fluctuations that bear little
relation to actual operating performance of these companies. As a result,
investors may be unable to sell shares of our common stock at or above the
price they paid for the stock.
In the past, some companies that have experienced volatility in the market
price of their stock have been the object of securities class action
litigation. Securities class action litigation involving CoolSavings would
result in substantial costs and a diversion of management's attention and
resources, and would harm our stock price.
Substantial sales of our common stock could cause our stock price to fall
After this offering, we will have approximately shares of common stock
outstanding, or shares if the underwriters' over-allotment option is
exercised in full. The shares sold in this offering, or shares if the
underwriters' over-allotment option is exercised in full, will be freely
tradable without restriction or further registration under the federal
securities laws unless purchased by our affiliates. The remaining shares of
common stock outstanding after this offering will be available for sale in the
public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date of Availability for Sale
---------------- -----------------------------
<S> <C>
Immediately after the date of this prospectus
180 days after the effective date of the registration statement
containing this prospectus
At various times after 180 days following the effective date
of the registration statement containing this prospectus
</TABLE>
17
<PAGE>
The above table assumes the effectiveness of lock-up arrangements with the
underwriters under which substantially all of our stockholders have agreed not
to sell or otherwise dispose of their shares of common stock. Most of the
shares that will be available for sale after the expiration of the lock-up
period will be subject to volume limitations because they are held by our
affiliates. In addition, Hambrecht & Quist LLC may remove these lock-up
restrictions prior to the expiration of the lock-up period without prior
notice.
If our stockholders sell substantial amounts of common stock in the public
market, the market price of our common stock could fall. These sales also might
make it more difficult for us to sell equity or equity-related securities in
the future at a time and price that we deem appropriate. Please see "Shares
Eligible for Future Sale."
You may not be able to sell shares of common stock
Prior to this offering, there has been no public market for our common
stock. An active public market may not develop or be sustained after this
offering. If there is no active public market in our common stock, investors
may not be able to sell our common stock should they desire to do so. The
initial public offering price for our shares will be determined by negotiations
between CoolSavings and representatives of the underwriters and may bear no
relationship to the price at which our common stock will trade after this
offering.
Our management has broad discretion over the use of the offering proceeds and
might not use them in a manner which yields a favorable return
The net proceeds from this offering are estimated to be approximately $
million after deducting the estimated underwriting discount and estimated
offering expenses. Our management will retain broad discretion over how to use
the proceeds of this offering. Our investments of these proceeds may not yield
a favorable return.
You will experience immediate and substantial dilution
The initial public offering price is expected to be substantially higher
than the net tangible book value for each outstanding share of common stock.
Purchasers of common stock in this offering will incur immediate and
substantial dilution in net tangible book value per share. The dilution will be
$ per share in the net tangible book value of the common stock from
the assumed initial public offering price. You may also incur further dilution
upon the exercise of our outstanding stock options.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. In some cases, you can identify forward-looking statements
by terminology such as "may," "will," "should," "could," "anticipates,"
"expects," "plans," "estimates," "intends," "believes," "predicts" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to these differences include,
but are not limited to, those discussed above under "Risk Factors" and
elsewhere in this prospectus. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results, unless required by applicable securities laws.
18
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the shares of common
stock offered by us will be approximately $ million, or $ million if the
underwriters' overallotment option is exercised in full, assuming an initial
public offering price of $ per share, and after deducting estimated
underwriting discounts and commissions and other estimated offering expenses.
We intend to use the proceeds from this offering for general corporate
purposes, including working capital, capital expenditures and additional sales
and marketing efforts. We may also use a portion of the net proceeds, currently
intended for general corporate purposes, to acquire or invest in complementary
businesses, technologies, products or services. We have no present plans or
commitments and we are not currently engaged in negotiations for any such
transactions. Our management will retain broad discretion in the allocation of
the net proceeds of this offering.
Pending these uses, we intend to invest the net proceeds in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared nor paid any cash dividends on our common stock. We
currently anticipate that we will retain any future earnings for the
development and operation of our business. In addition, our credit facility
currently prohibits the payment of cash dividends on our capital stock.
Accordingly, we do not anticipate paying cash dividends on our capital stock in
the foreseeable future.
19
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization, as of September 30, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to the issuance of 2,197.650
shares of our Series A convertible preferred stock in December 1999 for
consideration of $20.0 million, the issuance of 8.000 shares of common
stock pursuant to the exercise of options since September 30, 1999, the
conversion of all outstanding convertible subordinated notes into
shares of common stock assuming an initial public offering price of $
per share, and the conversion of all outstanding Series A convertible
preferred stock into shares of common stock; and
. on the same pro forma basis as adjusted to reflect the receipt of the
estimated net proceeds from our sale of the shares of common stock in
this offering at an assumed initial public offering price of $ per
share.
You should read the following table with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt, including current portion...... $ 2,425 $ $
Stockholders' equity:
Series A convertible preferred stock, no par
value, 5,000 shares authorized; no shares
issued and oustanding actual; shares
issued and outstanding pro forma; no shares
issued and outstanding pro forma, as
adjusted.................................... --
Common stock, no par value, 60,000 shares
authorized and 27,570.651 shares issued and
outstanding actual; shares authorized
and shares outstanding pro forma;
shares authorized and shares
outstanding pro forma, as adjusted.......... 27,824
Additional paid-in capital................... 455
Notes receivable from related parties........ (2,817)
Accumulated deficit.......................... (19,148)
--------
Total stockholders' equity................. 6,314
--------
Total capitalization....................... $ 8,739
========
</TABLE>
Share information is based on our shares outstanding as of September 30,
1999, and excludes:
. 4,135.598 shares of common stock reserved for issuance under our 1997
Stock Option Plan, of which 2,734.380 shares were subject to outstanding
options as of September 30, 1999 at a weighted average exercise price of
$2,356.89 per share;
. 282.380 shares of common stock subject to options granted outside of our
1997 Stock Option Plan and outstanding as of September 30, 1999 at an
exercise price of $318.72 per share; and
. 551.413 shares of common stock reserved for issuance under our 1999 Non-
Employee Director Stock Option Plan, of which 50.000 shares were subject
to outstanding options as of September 30, 1999 at a weighted average
exercise price of $5,023.54 per share.
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $ million, or $ per share of common stock. Pro forma net
tangible book value per share is equal to our net tangible assets less total
liabilities, divided by the pro forma number of shares of common stock
outstanding as of September 30, 1999. At an assumed initial public offering
price of $ per share, after giving effect to the conversion of outstanding
convertible subordinated notes into shares of common stock, the
conversion of shares of outstanding Series A convertible preferred stock
into shares of common stock and the sale of shares of common stock in
this offering, our pro forma as adjusted net tangible book value at September
30, 1999 would have been approximately $ million, or $ per share of
common stock. This amount 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 this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $
Pro forma net tangible book value per share at September 30,
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, as of September 30, 1999 on the pro forma
basis described above, the total number of shares of common stock purchased
from us, the total consideration paid to us, and the average price per share
paid by our existing stockholders and by new investors purchasing shares from
us in the offering, at an assumed initial public offering price of $ per
share, before deducting estimated underwriting 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...........
------ --- ----------- --------
Total............... 100% 100%
====== === =========== ========
</TABLE>
If the underwriters exercise their over-allotment option in full, the number
of shares of common stock held by new investors will be increased to or
% of the total number of shares of common stock to be outstanding
immediately after this offering.
Share information is based on our shares outstanding as of September 30,
1999, and excludes:
. 4,135.598 shares of common stock reserved for issuance under our 1997
Stock Option Plan, of which 2,734.380 shares were subject to outstanding
options as of September 30, 1999 at a weighted average exercise price of
$2,356.89 per share;
. 282.380 shares of common stock subject to options granted outside of our
1997 Stock Option Plan and outstanding as of September 30, 1999 at an
exercise price of $318.72 per share; and
. 551.413 shares of common stock reserved for issuance under our 1999 Non-
Employee Director Stock Option Plan, of which 50.000 shares were subject
to outstanding options as of September 30, 1999 at a weighted average
exercise price of $5,023.54 per share.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below as of and for the years ended
December 31, 1996, 1997 and 1998 have been derived from our financial
statements, which have been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report thereon is included elsewhere in this prospectus. The
statement of operations data for the nine months ended September 30, 1998 and
1999, and the balance sheet data as of September 30, 1999, are unaudited and,
in our opinion, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the information. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of results to be expected for any future period.
You should read the selected financial data set forth below with the
financial statements and related notes and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which are included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Inception Nine Months Ended
through Year Ended December 31, September 30,
December 31, ---------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
------------ ---------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues........... $ -- $ -- $ 110 $ 1,143 $ 663 $ 6,240
Cost of revenues....... -- -- 148 428 264 1,043
--------- ---------- ---------- ---------- ---------- ----------
Gross profit (loss).... -- -- (38) 715 399 5,197
Operating expenses:
Sales and
marketing.......... -- 253 1,202 2,494 1,464 8,031
Product
development........ -- 131 719 1,217 698 3,220
General and
administrative..... 16 499 766 2,350 1,417 3,981
--------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............. 16 883 2,687 6,061 3,579 15,232
--------- ---------- ---------- ---------- ---------- ----------
Loss from operations.. (16) (883) (2,725) (5,346) (3,180) (10,035)
Interest income
(expense), net..... -- 9 (3) 40 6 249
Amortization of debt
discount........... -- -- (4) (435) (435) --
--------- ---------- ---------- ---------- ---------- ----------
Net loss.............. $ (16) $ (874) $ (2,732) $ (5,741) $ (3,609) $ (9,786)
========= ========== ========== ========== ========== ==========
Historical loss per
common share, basic
and diluted.......... $ (0.00) $ (73.40) $ (171.97) $ (306.42) $ (185.72) $ (355.21)
========= ========== ========== ========== ========== ==========
Shares used to compute
historical basic and
diluted loss per
common share......... 9,532.877 11,910.725 15,883.975 18,736.675 19,430.790 27,548.912
Pro forma loss per
common share, basic
and diluted.......... $ ( ) $( )
========== ==========
Shares used to compute
pro forma basic and
diluted loss per
common share.........
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
1996 1997 1998 1999
---- ----- ------ -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............. $449 $ 64 $4,895 $ 5,295
Working capital (deficit).............. 116 (886) 3,788 3,941
Total assets........................... 471 353 6,371 14,275
Long-term debt, including current
portion............................... 300 241 300 2,425
Total stockholders' equity (deficit)... (4) (775) 4,594 6,314
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion of our financial condition and
results of operations with the financial statements and the related notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements based on our current expectations, assumptions, estimates and
projections. These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of numerous factors, many of which are
described in the "Risk Factors" section and elsewhere in this prospectus. We
are under no duty to update any of the forward-looking statements after the
date of this prospectus to conform these statements to actual results, unless
required by applicable securities laws.
Overview
We are a leading provider of a comprehensive set of e-marketing solutions
used by online and offline advertisers to build one-to-one customer
relationships. Under our established brand, advertisers can deliver, target and
track a wide array of incentives, including printed and electronic coupons,
personalized e-mails, rebates, samples, sales notices, loyalty programs, gift
certificates, contests and banner advertisements to promote sales of products
or services in stores or online. We were incorporated in December 1994 as
Interactive Coupon Marketing Group, Inc. and changed our corporate name to
coolsavings.com inc. in November 1998. From inception through February 1997,
our primary activities consisted of initiating sales and marketing efforts,
developing our business model, building our software and hardware
infrastructure, developing and protecting our intellectual property, raising
capital and recruiting employees. We launched our web site in February 1997 and
thereafter began generating revenues.
We generate substantially all of our revenues by providing online marketing,
or e-marketing, services to our advertisers. Our advertisers pay us on a
variety of bases, the most common of which include:
. the number of offers delivered to members, commonly sold on a cost per
thousand, or CPM, basis;
. the number of click-through responses generated;
. the number of purchases made or qualified leads generated; and
. the number of registered members in our database.
Our pricing depends upon a variety of factors, including, without
limitation, the degree of targeting, the duration of the advertising contract
and the number of offers delivered. These rates often are negotiated on a case-
by-case basis. Generally, the rates we charge our advertisers increase as the
degree of targeting and customization increases. Revenues subject to time-based
contracts are recognized ratably over the duration of the contract. For
contracts based on certain performance or delivery criteria, revenues are
recognized in the month performance is delivered to the customer. Most of our
advertising contracts have stated terms of less than one year and include
earlier termination provisions. During the nine months ended September 30,
1999, our largest advertiser accounted for approximately 6.0% of our revenues
and our top five advertisers together accounted for approximately 19.0% of our
revenues.
Our revenues depend on a number of factors, including the number of
advertisers sending promotional offers to our members, the size of our
membership base and the responsiveness of our members to each promotion. We
believe that our revenues will be subject to seasonal fluctuations in
accordance with general patterns of retail advertising spending, which is
typically highest during the fourth quarter. In addition, expenditures by
advertisers tend to be cyclical, reflecting overall general economic conditions
and consumer buying patterns.
Our cost of revenues consists primarily of Internet connection charges, web
site equipment depreciation, salaries of operations personnel and other related
operations costs. Although our cost of revenues as a percentage of revenues
declined significantly for each of the three quarters ended September 30, 1999,
we have recently expanded, and expect to continue to expand significantly, our
web
23
<PAGE>
server capacity and our investment in data mining tools and personnel. This
will require us to commit relatively large fixed expenses in advance of
potential future revenues. As a result, we expect to incur substantially higher
cost of revenues during future periods. We have added, and anticipate that we
will continue to add, new advertisers, necessitating this investment in
infrastructure. Due to our planned capacity expansion, our fixed costs to
operate our business and gross profit will suffer in the near term unless and
until increased revenues are realized. The demand for our services is subject
to seasonal variations. We will likely experience declines in our gross margin
from quarter to quarter.
We have incurred significant losses since our inception. As of September 30,
1999, our accumulated deficit was approximately $19.1 million. We expect to
continue to incur significant operating losses and capital expenditures. In
particular, we expect to invest heavily in sales and marketing activities,
hiring new personnel, enhancing services and technology, expanding and
relocating facilities and defending intellectual property rights. In addition,
we presently have six lawsuits pending against companies we believe have
infringed our patent. This litigation has been, and will continue to be, costly
and is likely to continue over the course of several years. The related expense
may exceed the amount we have budgeted in any given quarter.
Results of Operations
From our inception until December 31, 1996, we were engaged in start-up
activities and incurred approximately $899,000 of operating expenses. These
operating expenses primarily consisted of investments in technology and
personnel. We earned no revenues during this period. As a result, we believe
comparisons between the period ended December 31, 1996 and the year ended
December 31, 1997 are not meaningful.
The following is a table of our results of operations in 1997 and 1998,
together with the nine months ended September 30, 1998 and 1999, expressed as a
percentage of net revenues represented by each item.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
----------------- -------------------
1997 1998 1998 1999
-------- ------ -------- --------
<S> <C> <C> <C> <C>
Net revenues.............. 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......... 134.4 37.4 39.8 16.7
-------- ------ -------- --------
Gross profit (loss)....... (34.4) 62.6 60.2 83.3
Operating expenses:
Sales and marketing..... 1,097.2 218.3 220.9 128.7
Product development..... 657.1 106.5 105.4 51.6
General and
administrative......... 699.7 205.6 213.8 63.8
-------- ------ -------- --------
Total operating
expenses............... 2,454.0 530.4 540.1 244.1
-------- ------ -------- --------
Loss from operations...... (2,488.4) (467.8) (479.9) (160.8)
Other income:
Interest income
(expense), net......... (2.1) 3.5 0.9 4.0
Amortization of debt
discount............... (3.8) (38.1) (65.7) --
-------- ------ -------- --------
Net loss.................. (2,494.3)% (502.4)% (544.7)% (156.8)%
======== ====== ======== ========
</TABLE>
Nine Months Ended September 30, 1999 and 1998
Net Revenues
Net revenues increased 842% to $6.2 million for the nine months ended
September 30, 1999, from $663,000 for the nine months ended September 30, 1998.
The increase in net revenues was primarily due to expanded service offerings,
an increase in the number of advertisers, increases in our advertising rates
and application of those rates to an expanded membership base.
24
<PAGE>
Gross Profit
Cost of revenues increased to $1.0 million for the nine months ended
September 30, 1999, from $263,000 for the nine months ended September 30, 1998.
Gross profit increased as a percentage of net revenues to 83.3% for the nine
months ended September 30, 1999, from 60.2% for the nine months ended September
30, 1998. The absolute dollar increases in cost of revenues was primarily due
to building our server and networking infrastructure in response to the growth
in activity by our members and the hiring of additional operations personnel to
service our increased advertiser base. However, our gross profit percentage
increased because cost of revenues increased at a lesser rate than net
revenues.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
advertising, salaries of sales and marketing personnel, commissions and other
marketing related expenses. Sales and marketing expenses increased to $8.0
million, or 129% of net revenues, for the nine months ended September 30, 1999,
from $1.5 million, or 221% of net revenues, for the nine months ended September
30, 1998. The $6.5 million dollar increase in sales and marketing expenses was
primarily due to increased expenses associated with promotional and marketing
efforts, increases in the number of sales personnel and increased sales
commissions. Sales and marketing expenses as a percentage of net revenues
decreased due to the growth in net revenues. We expect that sales and marketing
expenses will grow significantly in absolute dollars for the foreseeable future
as we pursue an aggressive customer acquisition strategy and hire additional
sales and marketing personnel.
Product Development. Product development expenses consist primarily of
salaries of software development personnel and expenditures related to third-
party technical consultants. Product development expenses increased to $3.2
million, or 51.6% of net revenues, for the nine months ended September 30,
1999, from $698,000, or 105% of net revenues, for the nine months ended
September 30, 1998. The absolute dollar increase in product development
expenses was primarily due to increased personnel and associated software costs
related to enhancing the features and functionality of our web site and costs
incurred in our Year 2000 readiness effort. Product development expenses
decreased as a percentage of net revenues due to the growth in net revenues. To
date, all product development expenditures have been expensed as incurred. We
believe that significant investments in product development will be necessary
to remain competitive, and as a result we expect our product development
expenses will increase in absolute dollars for the foreseeable future.
General and Administrative. General and administrative expenses consist
primarily of salaries and related expenses for executive and administrative
personnel, facilities, professional services, including legal expenses relating
to protection of our patent rights, travel and other general corporate
expenses. General and administrative expenses increased to $4.0 million, or
63.8% of net revenues, for the nine months ended September 30, 1999, from $1.4
million, or 214% of net revenues, for the nine months ended September 30, 1998.
The absolute dollar increase in general and administrative expenses was
primarily due to increases in the number of personnel to support the growth of
our business, recruiting costs related to filling key management positions and
legal fees. General and administrative expenses decreased as a percentage of
net revenues due to the growth in net revenues. We expect that general and
administrative expenses will grow significantly in absolute dollars for the
foreseeable future as a result of a higher occupancy expense associated with
our move to larger office space planned for mid-2000 and as we continue to
expand our administrative systems to support our planned growth and operations
as a public company.
25
<PAGE>
Interest Income, Net
Interest income, net, includes income from our cash and investments and
expenses related to our financing obligations. Interest income, net, increased
to $250,000 for the nine months ended September 30, 1999, from $6,000 for the
nine months ended September 30, 1998. The increase in interest income was
primarily due to a higher average cash balance as a result of the receipt of
the proceeds of the issuance of shares of our common stock and of convertible
subordinated notes during these periods.
Income Taxes
As of September 30, 1999, we had approximately $14.9 million of federal and
state net operating loss carryforwards, which may be available to offset future
taxable income. Our federal and state net operating loss carryforwards expire
beginning in 2018. From our formation through June 1, 1998, we elected, under
Section 1362(a) of the Internal Revenue Code, to be treated as an S-corporation
for income tax purposes. Accordingly, we were not liable for federal income
taxes during that period and any taxable income was included in the tax returns
of our stockholders.
Year Ended December 31, 1998 and 1997
Net Revenues
Net revenues increased 944% to $1.1 million in 1998, from $110,000 in 1997.
The increase in net revenues was primarily due to an increase in the number of
advertisers and an increase in our advertising rates and application of those
rates to our expanded membership base.
Gross Profit (Loss)
Cost of revenues increased to $428,000 in 1998, from $147,000, in 1997.
Gross profit increased as a percentage of net revenues to 62.6% in 1998. We do
not believe gross profit comparisons with 1997 are meaningful. In 1997, we
incurred fixed costs associated with the development of our technology
infrastructure and services prior to the realization of meaningful revenues. We
were able to leverage this investment in 1998 to generate revenues which
accounted for our increased gross profit.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased to $2.5 million,
or 218% of net revenues, in 1998, from $1.2 million, or 1,097% of net revenues,
in 1997. The absolute dollar increase in sales and marketing expenses was
primarily due to the addition of a direct sales force which we began building
in the second half of 1998 and increases in customer acquisition and marketing
expenses. Sales and marketing expenses as a percentage of net revenues
decreased due to the growth in net revenues.
Product Development. Product development expenses increased to $1.2 million,
or 106% of net revenues, in 1998, from $720,000, or 657% of net revenues, in
1997. The absolute dollar increase in product development expenses was
primarily due to increases in the number of personnel and related costs to
support enhancement of our web site features and functionality. Product
development expenses as a percentage of net revenues decreased due to the
growth in net revenues.
General and Administrative. General and administrative expenses increased to
$2.3 million, or 206% of net revenues, in 1998, from $766,000, or 700% of net
revenues, in 1997. The absolute dollar increase in general and administrative
expenses was primarily due to increases in the number of general and
administrative personnel, professional services and facility expenses to
support the growth of our operations. General and administrative expenses as a
percentage of net revenues decreased due to the growth in net revenues.
Interest Income (Expense), Net
Interest income, net, increased to $40,000 in 1998, from an interest
expense, net, of $2,000 in 1997. This increase was primarily due to a higher
average cash balance as a result of the receipt of the proceeds of the issuance
of shares of our common stock in the second and fourth quarters of 1998.
26
<PAGE>
Amortization of Debt Discount
Amortization of debt discount increased to $435,000, or 38.1% of net
revenues, in 1998, from $4,000, or 3.8% of net revenues, in 1997. In December
1997 and during the period between January and April 1998, we entered into loan
agreements with detachable warrants. Amortization of debt discount is a non-
cash charge representing the difference between the stated value and the fair
market value of the loan.
Quarterly Results of Operations
The following table presents unaudited quarterly statement of operations
data for each of the three quarters ended September 30, 1999, as well as the
percentage of net revenues represented by each item. This information is
unaudited and in our opinion has been prepared substantially on the same basis
as our audited financial statements, which are included elsewhere in this
prospectus. All necessary adjustments, consisting only of normal recurring
adjustments, have been included in these amounts to present fairly the
unaudited quarterly results of operations. You should read these quarterly data
together with our audited financial statements and the related notes. Our
future operating results are difficult to predict and may vary significantly.
Accordingly, you should not view our results of operations for any period as an
indication of our results of operations for any future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------
March 31, June 30, Sept. 30,
1999 1999 1999
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Net revenues......................... $ 890 $ 2,074 $ 3,276
Cost of revenue...................... 257 349 437
---------- ---------- ----------
Gross profit......................... 633 1,725 2,839
Operating expenses:
Sales and marketing................ 1,325 1,819 4,887
Product development................ 956 1,129 1,135
General and administrative......... 1,007 1,328 1,646
---------- ---------- ----------
Total operating expenses............. 3,288 4,276 7,668
---------- ---------- ----------
Loss from operations................. (2,655) (2,551) (4,829)
Interest income, net............... 70 105 74
---------- ---------- ----------
Net loss............................. $ (2,585) $ (2,446) $ (4,755)
========== ========== ==========
<CAPTION>
As a Percentage of Net Revenues
--------------------------------------
<S> <C> <C> <C>
Net revenues......................... 100.0% 100.0% 100.0%
Cost of revenue...................... 28.9 16.8 13.3
---------- ---------- ----------
Gross profit......................... 71.1 83.2 86.7
Operating expenses:
Sales and marketing................ 148.9 87.7 149.2
Product development................ 107.4 54.5 34.6
General and administrative......... 113.1 64.0 50.3
---------- ---------- ----------
Total operating expenses............. 369.4 206.2 234.1
---------- ---------- ----------
Loss from operations................. (298.3) (123.0) (147.4)
Interest income, net............... 7.9 5.1 2.3
---------- ---------- ----------
Net loss............................. (290.4)% (117.9)% (145.1)%
========== ========== ==========
</TABLE>
Our quarterly results are subject to fluctuations. For example, for the
quarter ended September 30, 1999, we initiated an offline advertising campaign
in which we spent $2.6 million. This resulted in a significant increase, in
absolute dollars as well as a percentage of net revenues, in our sales and
marketing expenses.
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Our future operating results may vary significantly due to a variety of
factors, many of which are beyond our control. In addition, we believe that
quarter-to-quarter comparisons of our operating results may not be meaningful.
Factors affecting our operating results may include:
. advertisers' demand for and use of our services;
. seasonality of our advertisers' offers and their budgeting cycles;
. performance-based contracts, under which our revenues depend on members'
responsiveness to advertisers' offers;
. loss of advertisers, many of which are under short-term contracts with
us;
. changes in our pricing policies or those of our competitors;
. the mix of advertisements and services we sell;
. our members' demand for our services and response to the offers we make
available to them;
. litigation costs;
. the timing and amount of costs related to the expansion of our
operations; and
. changes in and the timing of the costs we incur to attract members.
As a result, our revenues are difficult to forecast. In addition, we plan to
significantly increase our sales and marketing, product development and other
operating expenses. We may be unable to reduce spending quickly enough to
offset any unexpected revenue shortfall, which could cause our business and
operating results to suffer. Our limited operating history and rapid growth
also make it difficult for us to assess the impact of seasonal factors on our
business. Advertising sales in traditional media, such as television and radio,
generally are lower in the first and third calendar quarters of each year. Our
revenues may be affected by these seasonal factors and by any seasonal and
cyclical patterns in Internet advertising spending which may develop. Please
see "Risk Factors--Our quarterly financial results may fluctuate, making our
future financial results difficult to forecast."
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the
private placement of our capital stock and convertible subordinated notes. As
of September 30, 1999, we had approximately $5.3 million in cash and cash
equivalents.
Net cash used in operating activities increased to $7.5 million for the nine
months ended September 30, 1999, from $3.2 million for the nine months ended
September 30, 1998 and increased to $4.8 million in 1998 from $2.4 million in
1997. The increase in net cash used resulted primarily from increasing net
losses and increases in accounts receivable, partially offset by increases in
accounts payable and accrued expenses.
Net cash used in investing activities increased to $2.3 million for the nine
months ended September 30, 1999, from $765,000 for the nine months ended
September 30, 1998, resulting from increased purchases of property and
equipment. Net cash used in investing activities increased to $1.1 million in
1998 from $225,000 in 1997, resulting from increased purchases of property and
equipment and amounts used in developing our database.
Net cash provided by financing activities increased to $10.2 million for the
nine months ended September 30, 1999, from $5.6 million for the nine months
ended September 30, 1998, primarily as a result of $10.0 million of proceeds
from our issuance of securities. Net cash provided by financing activities
increased to $10.7 million in 1998 from $2.2 million in 1997, resulting
primarily from the cash proceeds received in 1998 from our issuance of shares
of common stock. We invested these proceeds in money market funds with
maturities not exceeding 90 days. We intend to continue investing our excess
cash in similar securities.
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As of September 30, 1999, we had a bank line of credit of $1.0 million.
Borrowings under this line of credit were $925,000. This credit facility
provides for a $1.0 million revolving facility for capital equipment purchases,
and bears interest at the bank's prime rate plus 1.0%. Borrowings under this
line of credit are collateralized by the specific equipment purchased.
Principal balances under these borrowings are repaid over 48 months.
In October 1999, Lend Lease International Pty. Limited purchased
approximately $3.5 million of our convertible subordinated notes, under its
commitment entered into in April 1999. In December 1999, we completed a private
placement of 2,197.650 shares of Series A convertible preferred stock for an
aggregate purchase price of $20.0 million.
Our capital requirements depend on numerous factors, including market
acceptance of our services, the resources we devote to marketing and selling
our services and our investment in developing and promoting our brand. We have
experienced a substantial increase in capital expenditures since our inception
consistent with the growth in our operations and staffing, and we anticipate
that this will continue for the foreseeable future. Additionally, we will
continue to evaluate possible investments in businesses, products and
technologies, and plan to expand our sales and marketing programs and conduct
more aggressive brand promotions. We currently anticipate that the net proceeds
of this offering, together with our existing line of credit and available
funds, will be sufficient to meet our anticipated needs for working capital and
capital expenditures for at least the next 12 months. After that time, we may
need additional capital. However, if our growth rate exceeds our expectations,
we may need to raise additional funds sooner in order to fund expansion, to
develop new or enhanced products or services, to make strategic acquisitions or
to respond to competitive pressures. Additional financing may not be available
to us on favorable terms, or at all. If adequate funds are not available on
acceptable terms, we may not be able to continue or expand our business
operations which could harm our business, results of operations and financial
condition.
Year 2000 Compliance
Problems associated with software and computer systems' use of two digits to
define the year and the inability of computer systems to process dates
occurring in the year 2000 or beyond are referred to as "Year 2000" issues.
Although to date we have not experienced any significant Year 2000 issues
relating to our principal internally developed programs and systems, or systems
provided to us by others, these systems could experience Year 2000 problems at
any time during 2000 and beyond. These problems could disrupt our business and
require us to incur significant, unanticipated expenses to remedy them. We
cannot guarantee that our Internet service providers and other third parties on
which our services depend will not encounter Year 2000 issues.
In 1998, we engaged an independent consultant to assess the Year 2000
readiness of our systems and software. The consultant concluded its work in
1999. The items we examined for Year 2000 issues include: our web site and its
supporting software and hardware; our telecommunications systems and networking
infrastructure; the systems supporting our office facilities; and the hardware
and software used by our employees, vendors and partners. We also sought
assurances on Year 2000 compliance from our telecommunications providers,
material hardware and software vendors, the management company for our office
facilities and other key third-party vendors.
As of September 30, 1999, we had incurred approximately $266,000 in
connection with identifying and evaluating Year 2000 compliance issues and
mitigating identified deficiencies. However, if future expenses relating to
Year 2000 compliance are higher than anticipated, it could have a material
adverse effect on our business, results of operations and financial condition.
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Recent Accounting Pronouncements
The Financial Accounting Standards Board, or FASB, issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," in June
1997. SFAS No. 131 specifies revised guidelines for determining an entity's
operating segment and the type and level of financial information to be
disclosed. This standard requires that management identify operating segments
based on the way that management desegregates the entity for making internal
operating decisions. This statement is effective for fiscal years beginning
after December 15, 1997. We currently operate under the definition of one
segment. Therefore, SFAS No. 131 is not applicable to us.
In February 1998, the FASB issued SFAS No. 132 "Employer's Disclosures about
Pensions and Other Post-Retirement Benefits." SFAS No. 132 standardizes the
disclosure requirements for pension and other post-retirement benefits. The
statement is effective for fiscal years beginning after December 15, 1997. We
do not have a pension or other post-retirement plan. Therefore, SFAS No. 132 is
not applicable to us.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities and
requires recognition of all derivatives as assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. The statement, as amended, is effective for fiscal years beginning after
June 15, 2000. As we do not have any derivative instruments or hedging
activities, SFAS No. 133 is not expected to have a material effect on our
financial results.
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BUSINESS
CoolSavings is a leading provider of a comprehensive set of e-marketing
services used by online and offline advertisers to build one-to-one customer
relationships. Under our established brand, advertisers can deliver, target and
track a wide array of incentives, including printed and electronic coupons,
personalizede-mail, rebates, samples, sales notices, loyalty programs, gift
certificates, contests and banner advertisements, to promote their products or
services in any online or offline environment. We deliver these incentives to
targeted segments of our large audience of consumers through our web site,
coolsavings.com, or direct e-mails. Our members have registered their
demographic profiles with us and have given us permission to deliver
personalized savings opportunities to them. As of December 31, 1999, we had
over 5.0 million registered members, representing nearly 3.9 million
households. We analyze our database of member registration and shopping
preference data with sophisticated data mining, targeting and tracking
technology to help our advertisers execute effective promotional campaigns. The
diversity of the incentives we offer and the variety of places where our
members can redeem them further enrich our member profiles for future data
mining. In 1999, our advertisers included leading brands such as
barnesandnoble.com, Bigstar, CDNow, First USA, JC Penney, Kids "R" Us, MCI
WorldCom, MotherNature.com, NetGrocer, petsmart.com, Service Merchandise,
SmarterKids.com and US News & World Report.
Industry Background
The Growth of the Internet as an Advertising and Direct Marketing Medium
The Internet has emerged as a unique global communications medium, enabling
millions of people to interact and conduct business electronically.
International Data Corporation, commonly referred to as IDC, estimates that the
number of Internet users worldwide will grow to approximately 502 million by
the end of 2003 from approximately 196 million in 1999. The rapid expansion of
the Internet combined with its business efficiencies have led to significant
growth in electronic commerce and attracted a broad group of buyers and
sellers. IDC estimates that the total value of commerce over the Internet will
increase to $1.3 trillion in 2003 from $111 billion in 1999. IDC further
estimates that the percentage of Internet users buying goods and services on
the Internet will increase to approximately 36% in 2003 from approximately 24%
at the end of 1999.
The growth of Internet use has prompted e-commerce companies to increase
their spending on advertising and direct marketing on the Internet. It has also
spurred traditional businesses to devote larger portions of their marketing
budgets to advertising and direct marketing online. During the early stages of
the development of online advertising, most businesses used the Internet to
build general brand awareness and for customer acquisition. Consequently, the
rapidly growing market for Internet marketing was dominated by banner
advertising and unsolicited e-mails sent to lists of consumers. While these
advertisements may be targeted to a limited extent by the content on the web
page or by demographic information, they generally have not permitted the
advertiser to re-contact the consumer unless the consumer makes a purchase or
voluntarily provides personal information. More recently, response rates on
banner advertising and mass unsolicited e-mails have proven to be similar to
those of traditional newspaper inserts, general direct mail and telemarketing.
Recognizing these developments, businesses increasingly have sought to use the
unique advantages of the Internet for direct marketing.
The Emergence of E-Marketing Services
Advertisers use direct marketing in order to generate a specific response or
action from a targeted group of consumers. Traditionally, advertisers have used
direct mail, telemarketing and direct response television, or infomercials, in
their direct marketing campaigns. These campaigns typically provide consumers
with access to coupons, rebates, sweepstakes and loyalty programs. These types
of promotions have been recognized in offline marketing as a means to develop
and foster long-term customer relationships. According to the Direct Marketing
Association, offline expenditures on direct marketing, including promotions are
expected to grow to $222 billion in 2003 from $143 billion in 1998.
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Effective and efficient means of marketing have become more important as
advertisers seek to lower the costs of customer acquisition and retention. As
pressures from competitors raise these acquisition and retention costs,
businesses seek sophisticated and cost-effective direct marketing methods to
increase the loyalty and lifetime value of a customer through repeat visits and
purchases. At the same time, advertisers are sensitive to the growing concerns
of consumers and the government regarding the privacy of personal data and the
intrusion of unwanted advertising messages. Online and offline advertisers are
increasingly using the Internet for direct marketing to exploit its unique
interactivity and cost advantages relative to traditional methods. Forrester
Research projects that online direct marketing will account for 50% to 70% of a
projected $10.4 billion in total U.S. online advertising spending in 2002.
The compelling advantages of the Internet as a direct marketing medium have
led to the development of e-marketing services that enable businesses to drive
customer acquisition, retention and loyalty. E-marketing services can leverage
Internet technology to:
. deliver personalized promotions to those consumers most likely to
respond;
. deliver multiple forms of targeted and controlled promotions at a
household or individual level (for instance, many online advertisers seek
to reach a target audience of women, who are the principal shoppers in
approximately 74% of U.S. households, according to Mediamark Research
Inc.);
. allow businesses to take advantage of consumer-specific data, such as
registration and transaction information;
. provide marketing messages with promotions that motivate immediate
consumer response;
. enable tracking of campaign performance and shopper behavior allowing an
advertiser to learn and adjust campaigns in near real time; and
. enable data mining to target consumers based on demographic data and
shopping preference information learned from past activity.
While online companies are the most frequent users of e-marketing services,
traditional offline businesses such as national retailers and consumer packaged
goods manufacturers are increasingly seeking to use e-marketing services to
drive offline sales and build consumer relationships. In addition, through e-
marketing services, offline businesses that also sell online can potentially
integrate their offline and online marketing campaigns and provide their
customers the choice of shopping in stores or online.
Market Opportunity for a Comprehensive E-Marketing Solution
To date, advertisers wishing to employ e-marketing services have had to rely
on several different service providers in order to deliver a range of specific
promotional or advertising services, in each case to relatively small or
segmented audiences. In addition, many e-marketing services have been focused
only on online promotional activities and have not provided an integrated
online and offline solution.
We believe there is a substantial market opportunity for a comprehensive e-
marketing solution that provides the following:
. a single source of both online and offline promotional services for
advertisers that extends over the different stages of a customer
relationship, from first-time purchase to repeat usage;
. access to a large audience of consumers who are actively seeking savings
and who are willing to share demographic data that can be used to better
target and personalize their shopping experiences;
. one-stop shopping for consumers with access to a wide range of both
online and offline promotional offers from high-quality advertisers;
. an established and consistent brand that consumers find credible; and
. the ability to track consumer demographics and shopping preferences on an
individual and household level and to leverage that information across a
large consumer base to make promotions increasingly targeted and cost-
effective.
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The CoolSavings Solution
CoolSavings provides a comprehensive set of e-marketing services used by
online and offline advertisers to build one-to-one customer relationships.
Under our established brand, advertisers can deliver, target and track a wide
array of incentives, including printed and electronic coupons, personalized e-
mails, rebates, samples, sales notices, loyalty programs, gift certificates,
contests and banner advertisements, to promote products or services in any
online or offline environment. We deliver these incentives to targeted segments
of our large audience of consumers, who have registered their demographic
profiles with us and have given us permission to deliver personalized savings
opportunities redeemable in stores or online. Although we keep our members'
identities private, we store detailed member demographic information, track
shopping preferences and behavior, and with advertiser cooperation can track
redemption of these incentives back to the member households. In doing so, we
have developed a valuable database of information that we use for the benefit
of our advertisers. We analyze our database information with sophisticated data
mining, targeting and tracking technology to help our advertisers execute
effective promotional campaigns. The diversity of the incentives we offer and
the variety of places where our members can redeem them further enrich our
member profiles for future data mining and targeting.
Our web site, which is designed to be a leading destination for consumer
savings, offers convenient and personalized incentives for goods and services
from a broad range of advertisers, including online retailers, national brick-
and-mortar chains, consumer packaged goods manufacturers, large consumer
service providers and neighborhood businesses. Our member base grew from
approximately 1.9 million registered members as of December 31, 1998 to over
5.0 million as of December 31, 1999, representing nearly 3.9 million
households. In a recent national survey by NPD Research, an independent market
research firm, 51% of online coupon users reported that they had used our site.
Of those who have registered their households with us, 62% are women, the
target consumers preferred by many of our advertisers. According to Media
Metrix, for November 1999, CoolSavings was the eighth most popular shopping
site for women and received 3.2 million unique visitors.
The benefits to advertisers of using CoolSavings include:
. Single source e-marketing solution. We offer advertisers a single source
for a full range of promotions that can be redeemed online or in stores
and targeted to any stage in the customer relationship. These tools
include printable coupons and gift certificates for brick-and-mortar
stores, electronic certificates for online purchases, mail-in rebates,
lead generation for trial subscriptions and samples, notices of ongoing
sales where no certificate is necessary, promotional contests and banner
advertisements. Advertisers can also use combinations of incentives for
customized promotions. In addition to reaching our member base,
advertisers can also apply our services and expertise to their own
databases using co-branded e-mails and pages on our web site.
. Access to a large audience of qualified, receptive shoppers. Advertisers
are able to access our large audience of consumers, who visit our web
site looking for shopping values and are willing to provide key
demographic data about themselves and others in their households. Of
those who have registered their households with us, 62% are women, the
target consumers for many of our advertisers. Approximately 79% of our
registered households have requested e-mail bulletins about offers
available on our web site. We sent approximately 22.0 million e-mails to
our members in December 1999.
. Cost-effective performance. We believe we provide advertisers with a
cost-effective solution for customer acquisition and retention. Unlike
most other direct marketing providers, we can immediately learn from each
campaign, regardless of the promotions used, to make future campaigns
more effective, to re-target responding members with more focused offers
and to convert new customers into loyal customers. Our tracking
capabilities allow our advertisers to target information about ongoing
sales promotions and events to the appropriate customers at the
appropriate times. For example, an advertiser can retarget our members
who have previously responded to its offers with follow-on promotions.
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. Insight into shopping behavior. Most advertisers have only limited means
of tracking their customers' preferences and behavior. We acquire
information from the initial member registration, as well as from each
time a member uses our web site or e-mail to respond to offers. As a
result, we have much richer data to analyze for insight into the
interests and preferences of an advertiser's customers. Advertisers can
leverage our consolidated database to find predictive correlations that
can lead to more effective targeting regardless of the types of
promotions used. This information can be used by our advertisers to
acquire new customers with appropriate incentives, refine follow-on
promotions and identify co-promotion opportunities.
. Ability to coordinate online and offline promotions. For advertisers that
have both an online and offline presence, we can identify prospective
customers and then track their activities whether shopping in stores or
online. We enable these businesses to provide incentives redeemable in
their offline stores. For advertisers with only an online presence, we
enable them to provide offline incentives redeemable in the stores of
promotional partners. We also help offline companies without a web
presence identify and reward customers with online incentives that their
customers can bring into a store or use on another web site.
. Lower total cost of ownership and improved time to market. Our
investments in infrastructure, technology and technical personnel allow
our advertisers to deploy their promotional campaigns without the need to
lease, buy or continually upgrade the required hardware and software
systems, providing significant cost savings over an in-house solution. In
addition, by leveraging both our infrastructure and our e-marketing
processes and expertise, we enable our advertisers to deploy their e-
marketing campaigns rapidly and reliably. As a result, our advertisers
can remain focused on their core businesses while still providing
compelling offers to consumers.
Strategy
Our objective is to be the leading provider of comprehensive e-marketing
services for advertisers. Key elements of our strategy to achieve this
objective are to:
. Extend brand awareness and expand member and advertiser base. We believe
strong brand recognition is a powerful tool to attract new advertisers
and members. We plan to increase brand recognition with offline
advertising campaigns that include television, print and outdoor media.
We also intend to continue to promote our brand online, with advertising
campaigns on high-traffic web sites and cooperative campaigns with
advertisers and affiliate networks. We believe our marketing efforts will
expand our member base while preserving its desirable demographic
characteristics, which will strengthen the services we provide to
advertisers. As we expand our membership, we expect that our service will
be attractive to additional advertisers, which will in turn make our site
more attractive to additional consumers by providing a broader array of
available incentives.
. Enhance member profiles. As we make available additional promotional
offers and services on our web site and through e-mail, we believe the
shopping activities of our members will increase. As our members use our
site and respond to advertiser promotions, we continually enrich our
database and develop deeper data for predictive modeling and targeting
purposes. We plan to continue upgrading our tracking and data mining
tools to provide additional insight into member interests and shopping
preferences.
. Broaden promotional service offerings. In order to provide a complete e-
marketing solution for advertisers, we plan to expand the promotional
services we offer, covering all phases of the customer relationship. For
example, we intend to provide loyalty programs, for single advertisers
and affinity groups, that incorporate popular promotions such as mileage
incentives and rewards points. For offline promotions, we plan to connect
coupon discounts and points to credit cards and frequent shopper cards.
. Provide business-to-business promotions. We believe that advertisers seek
a cost-effective and targeted medium to reach small businesses and
independent professionals. Through minor
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<PAGE>
modifications to our registration page and database template, we intend to
develop a business-to-business service offering in which small businesses
can register with us to receive incentives appropriate for their needs and
interests. We plan to offer our advertisers the ability to deliver
targeted business-to-business product and service promotions using
database information such as type of business, size, geography and past
purchasing behavior.
. Leverage third-party relationships. We intend to pursue strategic
relationships to further build our brand, expand our reach to consumers
and advertisers and improve our services. Our current relationships
include Super Coups, a subsidiary of ADVO, which uses its franchise sales
force to sell CoolSavings services to neighborhood merchants, and First
USA Bank, which issues co-branded CoolSavings credit cards and provides
us with cardholder demographic and purchasing data.
. Pursue international expansion. As Internet use becomes more prevalent in
other nations, we see market opportunities to extend our services to
advertisers and consumers in those countries. Our international expansion
efforts will focus initially on Canada, Australia and the United Kingdom.
These international initiatives could take the form of licensing
agreements, joint ventures or other arrangements. As a result of
international expansion, we plan to expand our database to include
consumers in other countries, which we expect will be attractive to
international advertisers and online advertisers seeking to reach an
international audience.
Services
We provide a comprehensive e-marketing solution to our advertisers. We
deliver a broad array of incentives through placement on our web site or by
targeted e-mail, to enable our advertisers to motivate consumers to purchase
products and services. Our advertisers also use our incentive programs to build
the loyalty of their existing customers. Using our tracking, targeting and data
mining capabilities, advertisers can coordinate and enhance their online and
offline promotional campaigns for customer acquisition, retention and loyalty.
Delivery of Incentives
We deliver a variety of promotional incentives to targeted segments of our
membership on behalf of our advertisers. Our advertisers generally pay for our
services based on a cost-per-thousand offers delivered. Although the cost rises
with the amount of targeting and customization we provide, these efforts
generally result in higher response rates for the advertisers. In addition,
some advertisers make payments tied directly to the performance of their
CoolSavings offers.
The coolsavings.com web site, which is branded as a leading destination site
for consumer savings, offers convenient and personalized incentives for a broad
array of products and services. To use our service, consumers register with us,
provide demographic data about their households and shopping interests and
choose whether to receive our direct e-mails. As members, consumers can obtain
relevant incentives redeemable online or in stores from a broad range of
advertisers, including online retailers, national brick-and-mortar chains,
consumer packaged goods manufacturers, large consumer service providers and
neighborhood businesses. We track our members' page views of and responses to
promotions, and in some cases redemption of incentives, in our member database
at an individual and household level.
The promotional services that we provide our advertisers include:
. CoolOffers. Online and offline businesses can deliver incentive offers,
including printed and electronic coupons, rebates, sales notices and gift
certificates, to targeted segments of our membership via our web site and
our targeted e-mail. Targeting is performed by demographic profile and
shopping preferences. CoolSavings members are presented a version of our
web site tailored to their personal interests, where they can "save, then
shop." Specialized sections of our web site are dedicated to specific
categories such as grocery items, regional mall stores and neighborhood
businesses. Our members can also use a search feature to find offers by
product or service category.
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. CustomerDirect e-mail. Because 79% of our registered households as of
December 31, 1999 had elected to receive periodic e-mails notifying them
of offers that may be of personal interest, we offer advertisers the
ability to target e-mail to these members based on their demographic
profiles and shopping preferences. E-mails can be delivered either with a
single promotion by a specific advertiser or in shared messages, and
appear either in full-graphic HTML format or as plain text with web
links, depending on members' preferences and the capabilities of their
computers. The e-mails are targeted either through pre-selected criteria
or using customized models we develop for particular campaigns.
. FreeStuff. We provide advertisers a method of generating leads by
providing free samples of their products or services to our members.
These offers, such as trial magazine subscriptions, free product samples
and free Internet services, appear in the "FreeStuff" section of our web
site and are targeted by demographic profile and shopping preferences. To
receive free samples, members voluntarily provide the advertiser with
contact information such as name, e-mail and mailing address, as well as
other data about their households. Advertisers may also request secure
credit card information from members as necessary. We can tailor the
submission form to advertisers to ask additional questions of
participating members, to further qualify the leads we generate.
. CoolGames. We provide advertisers with a highly targeted method for
generating brand awareness combined with games that are also engaging for
our members. We help advertisers create trivia contests and branded
sweepstakes specific to their marketing strategies and tailored for their
targeted profiles. We can also deliver targeted e-mails announcing a
contest to generate immediate traffic and consumer response. At the
conclusion of a member's interaction with a contest page, the
advertiser's brand is reinforced by an automatic e-mail.
. CoolBanners. We provide advertisers the opportunity to promote their
brands or offers throughout the web site with banner advertisements,
buttons, text links and prominently sponsored content areas. These can be
targeted based on the demographics and preferences of the viewing
members.
Customer Retention
We offer turnkey customer acquisition and reward programs that can be
customized for any product or service. We deliver initial sign-up incentives,
such as gift certificates, tailored to the target consumers, and then
administer ongoing benefits such as loyalty coupons. We also provide co-branded
programs that function together with advertisers' own established promotional
vehicles, such as their web sites, printed circulars, in-package flyers and in-
store signs. These vehicles direct consumers to a special CoolSavings web
address. Consumers entering our web site for the first time through a co-
branded address will experience our entire site as co-branded each time they
return. These members can also receive customer-only offers targeted
specifically to the customers of the co-branding partner, either on the co-
branded web site or in promotional e-mails. Our co-branding advertisers can use
our infrastructure to build loyalty with their own customers. We benefit by
adding those advertisers' customers to our database as CoolSavings members.
Data Mining and Research Services
By analyzing individual, demographic and correlative information in our
database, we provide advertisers several methods to gain insight into customer
preferences and profiles. We can also apply our data mining infrastructure to
analyze the separate databases of our advertisers. We use sophisticated data
mining tools to analyze member data to find associations that are not readily
apparent. We use data-mining information to create predictive models to make
future targeting even more effective. Using e-mail, we can also contact and
survey members who have responded to a specific offer. In addition, we are
working with NFO Research, a leading provider of consumer research to
manufacturers of consumer packaged goods, to create member panels that will
provide major brands with quick feedback on new products and services.
Sales and Marketing
We have built a sales organization dedicated to developing and maintaining
close relationships with advertisers and advertising agencies. Our sales force,
which included 22 full-time employees as of
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December 31, 1999, is organized regionally and by specific industry and
advertiser segments. We plan to open sales offices in New York and San
Francisco during 2000. To support our sales efforts, we advertise regularly in
trade publications, send regular mailings to key marketing executives and
exhibit at major trade shows. We intend to form strategic alliances with
companies with existing local sales forces in order to further penetrate local
advertising markets. The first of these relationships is our alliance with
Super Coups, in which Super Coups salespersons are selling our co-branded
services to local advertisers.
Our marketing department, which includes nine people, is dedicated to
promoting the CoolSavings brand, developing our member content and acquiring
members for our service. To attract members, we rely on a variety of
advertising methods, including a national offline branding campaign that makes
use of television, print, outdoor media and radio, as well as online
advertising that includes online banner advertisements on high-traffic web
sites such as portals and search engines. Our advertising features our
identifiable piggy-bank logo character as our "CEO." We also have developed
network affiliate programs, in which partners send consumers to the CoolSavings
web site and receive a fee per each resulting member registration. Many of our
advertisers provide links from their own web sites that click through to offers
on CoolSavings.
We also have leveraged our advertising relationships and strategic
partnerships to gain additional exposure for the CoolSavings name and piggy-
bank character in retail chains and shopping malls and as a link on our
strategic partners' own web sites. In some of these programs, we have the
opportunity to feature CoolSavings on store signs and materials, such as bags
and receipts. If these materials succeed in sending customers to a dedicated
portion of the CoolSavings web site, those customers will thereafter see our
web site co-branded with the logo of the retailer or partner that sent them.
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Representative Advertisers
The following is a representative list of advertisers from which we derived
revenue during 1999, by general industry category:
Specialty and Mass Health and Grocery Entertainment and Media
Retail Allherb.com Barnesandnoble.com
Art.com eNutrition.com Bigstar
Birthday Express Healthshop.com CDNow
Bolt More.com Chuck E. Cheese's
Cooking.com MotherNature.com Doubleday Interactive
Furniture.com NetGrocer EveryCD
Hewlett Packard YourPharmacy.com The Parenting Group
Internet Shopping
Network
Reel.com
Manufacturers Uproar.com
JC Penney Coty US News & World Report
Kmart DaimlerChrysler AG
Marshall's/TJ Maxx Johnson & Johnson Childrens' Products
overstock.com Kodak BabyCenter.com
Paper Studio Mattel eToys
PayLess Shoes
KBKids.com
PC Flowers & Gifts Financial and Kids "R" Us
petopia.com Communications SmarterKids.com
petsmart.com E-homeCredit Corp. Toys "R" Us
Petstore.com First USA
Radio Shack H&R Block Internet Content and
REI.com InsWeb Services
Rhodes MCI WorldCom Cybergold
Sara Lee / One Hanes Telebank eGreetings.com
Place
eNews
Service Merchandise Travel Services FamilyWonder
Shop the globe.com Cruise Lines iprint
Silkies.com International LifeMinders
Holiday Inn Netcentives
Local Advertising Northwest Airlines Vstore
Super Coups priceline.com
Strategic Alliances
We have developed the following strategic relationships with companies that
we believe will assist us in providing more comprehensive services, building
our brand and attracting more advertisers and members:
. First USA. In April 1999, we entered into an agreement with First USA
Bank, N.A., a leading national credit card issuer, to create a co-branded
CoolSavings credit card that is promoted extensively on our web site.
Under this agreement, First USA promotes CoolSavings and the co-branded
credit card on its own web site, in account statements and in other
promotional pieces. The initial term of the agreement with First USA is
five years, but First USA may terminate the agreement prior to its
expiration under some circumstances, including a substantial reduction in
our membership or a failure to meet promotional goals.
. NBC. In May 1999, we entered into an agreement with National Broadcasting
Company, Inc., under which NBC is broadcasting $3.0 million of 30-second
advertisements for CoolSavings during the 12-month period that began
October 1, 1999. In exchange for this advertising, NBC received shares of
our common stock.
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. NFO Research. In November 1999, we entered into an agreement with NFO
Research, a leading provider of custom research for the consumer packaged
goods industry. Under this agreement, we will help NFO recruit panelists
for their market research efforts. CoolSavings and NFO will provide
integrated marketing services to their advertisers, offering an
innovative opportunity to link shopper-level consumer attitude and usage
data with CoolSavings' extensive member profiles. The term of the
agreement with NFO Research is one year, but NFO may terminate the
agreement if our web site ceases to operate for a period of five
consecutive days.
. Super Coups. In March 1999, we formed a strategic alliance with Super
Coups, a subsidiary of ADVO, a leading targeted direct mail company.
Super Coups delivers targeted local merchant coupons, such as automobile
service centers, restaurants and dry cleaners, by direct mail, local
cable television and the Internet. Through this alliance, we operate a
co-branded version of the CoolSavings web site that contains a total of
more than 3,000 incentive offers, submitted by Super Coups franchisees.
Based on member demographics, distinct local offers are targeted to our
members in Super Coups markets across the United States. Super Coups
salespersons are also selling our co-branded services to local
advertisers.
Operations and Technology
We have developed a proprietary system to target and personalize promotional
offers from our advertisers to our members. There are five main components of
our system:
. our web server technology, which allows us to display offers of interest
for each member;
. our database, which processes the offers and stores the information about
our members and their activity on our site;
. our data mining and targeting modules, which we use to determine the
members to whom we will deliver offers and the most appropriate offers
for each member;
. CoolSavings Coupon Manager, our free software program that produces high-
quality coupons and rebate certificates on a member's personal computer
printer for in-store or mail-in use; and
. SavingsCenter software, which we and our advertisers use to create,
target and control new offers.
Our system has been designed around industry-standard architecture and is
designed to provide availability 24 hours-a-day, seven days-a-week.
Occasionally in the past, we have disconnected our servers to make upgrades or
maintenance checks on our system, leading to "down time" averaging
approximately two hours per month. Currently, our site architecture, including
multiple servers and co-hosting capabilities, usually allows us to introduce
upgrades and perform maintenance without taking our site offline. For our
database, we use servers running Microsoft Windows NT and Microsoft SQL Server
database server software. Our web service is balanced among several servers
running Microsoft Internet Information Server on the Windows NT operating
system. These servers provide VeriSign Inc. digital certificates for secure
transactions involving personal data, as well as VeriSign Authenticode
certificates for downloading our Coupon Manager software to our members'
computers. Our electronic certificates, such as printable coupons, are
transmitted in a format that requires our proprietary Coupon Manager software
to print a coupon. Information that members provide during registration is
protected by a password they can create themselves. Members can also select
Secure Socket Layer protection during the registration process.
Our web servers and the database behind our system are currently located at
our Chicago headquarters. In addition, our data mining servers as well as a
fully redundant version of our entire system are located at the Exodus
Communications data center in Oak Brook, Illinois. To date, we have directed
all site traffic to our Chicago system, but we believe our system at Exodus is
fully operational and we plan to direct a portion of site traffic to the Exodus
system during the first quarter of 2000, in order to balance the traffic load
on each system and to reduce the risk of system failure. Although we do not
have a formal disaster recovery plan in place, we are currently working with a
third-party consultant to develop a disaster recovery plan and we anticipate
having a formal plan in place in the first quarter of 2000. Please see "Risk
Factors--Our facilities and systems are vulnerable to natural disasters and
other unexpected problems."
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In 1997, 1998 and for the nine months ended September 30, 1999, we spent
$720,000, $1.2 million and $3.2 million, respectively, on product development.
We expect to devote significant resources to product development in the future
as we add new features and functionality to our service. Please see "Risk
Factors--We may not be able to keep up with rapid technological development and
evolving industry standards."
Intellectual Property
We currently hold one United States patent, No. 5,761,648, entitled
"Interactive Marketing Network and Process Using Electronic Certificates."
We are currently pursuing legal action against six companies that we believe
to be infringing our patent. This litigation is expensive, and the outcome of
this litigation may not be favorable to us. In addition, these companies could
file counterclaims or separate lawsuits or other proceedings against us,
possibly seeking to prevent us from using our patented system. We have also
settled three prior lawsuits we brought against companies that we believed were
infringing our patent.
Currently, we are a defendant in two pending lawsuits involving an
allegation that our systems or methods infringe on competitors' patents. While
we believe the actions are without merit and intend to defend them vigorously,
our efforts may not be successful. We expect that, like other participants in
our market, we will increasingly be subject to infringement claims as the
number of services and competitors in our industry segment grows. Any
infringement claim, regardless of its merit, could be time-consuming, result in
costly litigation, cause service modifications or delays or require us to enter
into royalty or licensing agreements. These agreements might not be available
on terms that are acceptable to us or at all. As a result, any claim of
infringement could harm our business, results of operations and financial
condition.
In addition to our patent, we have registered service marks and copyrights
in the United States and other countries. Our U.S. registered service marks
include COOLSAVINGS, COOLTRAVEL, COOLMALLS, COOLCATALOGS and COOLSAMPLES. We
also own common law rights in several other marks, and have applied for United
States service mark registration for a number of marks such as our stylized
piggy-bank logo, SAVE. THEN SHOP., SQUEALS OF THE DAY, COOLSAVINGS COUPON
MANAGER and SAVINGSCENTER. We have also obtained a trademark registration in
Australia for COOLSAVINGS and have registration applications pending in the
United Kingdom and Canada.
We regard the protection of our intellectual property, including our patent,
copyrights, service marks, trademarks, trade dress and trade secrets, as
critical to our future success. We rely on a combination of these intellectual
property rights and contracts to protect the services we have created and our
competitive position in the marketplace. We have generally entered into
confidentiality and invention assignment agreements with our employees and
contractors. Where we have considered it necessary, we have required
nondisclosure agreements with our suppliers and strategic partners in order to
protect confidential information about our business plans and technology.
Despite these precautions, these arrangements or the other steps which we have
taken may not protect our trade secrets or prevent another company from copying
important parts of our service. While we have registered our trademarks and
service marks in the U.S. and other countries, protection of these marks may
not be available in every country where we may do business in the future.
We also rely on software programs that we license from other companies for
key database technology, operating system and software, and specific hardware
components for the computers in our system. These licenses may not continue to
be available to us on commercially reasonable terms in the future. As a result,
we may be required to obtain substitute technology of lower quality or at
greater cost, and may incur significant costs in converting to new
technologies, which would materially affect our business, results of operations
and financial condition. Please see "Risk Factors--Intellectual property
litigation against us can be costly and could result in the loss of significant
rights," "Risk Factors--Protecting our patents, trademarks and proprietary
rights may be costly and may distract our management" and "Business--Legal
Proceedings."
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Competition
The market for e-marketing services is new, rapidly evolving and intensely
competitive, and we expect competition to intensify. Barriers to entry for
companies in our market are low, and current and potential competitors can
launch new web sites and services at a relatively low cost.
Our ability to compete depends on many factors, both within and beyond our
control. These factors include:
. advertiser identification and retention;
. brand recognition and credibility;
. pricing of our services;
. breadth of our service offerings for advertisers and consumers;
. reliability of service and quality of advertiser support;
. advertiser and member acquisition costs;
. membership size and demographics;
. frequency of use and consumer response rates; and
. technological expertise.
We believe we are well-positioned to compete in our market as a result of
the breadth and sophistication of our services, the size and demographics of
our member audience, our experienced management and staff, our proprietary
technology and our established brand recognition.
Currently, we compete directly with online marketing companies in several
fields:
. direct marketers, such as FreeShop, LifeMinders and YesMail;
. incentive services, such as Cybergold, MyPoints and Netcentives;
. coupon providers, such as the online division of Catalina Marketing, e-
centives and planet U; and
. sweepstakes providers, such as Webstakes.
We also face indirect competition from leading distributors of traditional
coupons by mail or newspaper inserts and from companies offering frequent flyer
points or other affinity rewards tied to responses to advertisements. We expect
that some of the leading distributors of traditional newspaper-insert coupons
will soon begin to compete against us directly by delivering their promotions
over the Internet. For example, Valassis Communications, a leading distributor
of newspaper-insert coupons, recently began to offer some online services. We
also compete with other web sites, portals and advertising networks, as well as
traditional offline media such as television, radio and print, for a share of
advertisers' total advertising budgets and for consumers' attention.
Many of our current and potential competitors have longer operating
histories, greater brand recognition, larger customer or user bases, and
significantly greater financial, marketing, technical and other resources than
we do. In addition, our competitors may be acquired by, receive investments
from or enter into other commercial relationships with larger, well-established
and well-financed companies as use of the Internet and other online services
increases. Therefore, some of our competitors may be able to devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
policies and devote substantially more resources to web site and systems
development. They may also try to attract advertisers by offering free
services. Increased competition may cause us to lose brand recognition and
market share and could otherwise harm our business.
Employees
As of December 31, 1999, we had 121 full-time employees, 43 of whom were
engaged in technology and product development, 31 in sales and marketing, 25 in
client and member services and 22 in finance, administration and operations. We
have never had a work stoppage and our employees are not covered by any
collective bargaining agreement. We consider our relations with our employees
to be good.
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Facilities
Our executive and operating offices are currently located in Chicago,
Illinois, in a 13,700 square foot facility under two separate leases, one
expiring on March 16, 2002 and the other expiring on July 31, 2002. In
addition, we lease approximately 10,000 square feet of additional office space
in the same building as our other offices on a month-to-month basis. In January
2000, we entered into a lease for an approximately 44,000 square foot facility
in which we plan to consolidate our Chicago executive and operating offices in
mid-2000. This lease expires in 2010 although we have options to expand the
leased space and to extend the term of this lease.
Legal Proceedings
On August 10, 1998, we instituted a lawsuit in the Northern District of
Illinois against e-centives, Inc. (f/k/a emaginet, Inc.) for infringement of
our United States Patent No. 5,761,648, entitled "Interactive Marketing Network
and Process Using Electronic Certificates," seeking damages and a permanent
injunction against e-centives for further infringement. We have also added
Ziff-Davis, Inc. as a defendant in our suit against e-centives, Inc. e-centives
has filed counterclaims alleging invalidity of our patent and interference with
their prospective economic advantage and is seeking damages and injunctive
relief. As noted below, e-centives also recently initiated a separate lawsuit
against us alleging infringement of a patent that has been assigned to it.
On April 27, 1999, e-centives, Inc. filed a lawsuit against us in the United
States District Court for the District of Maryland. The complaint alleges that
our systems or methods infringe on e-centives' United States Patent No.
5,710,886, and seeks to enjoin us from further infringing its patent. While the
litigation is in the early stage and its outcome cannot be predicted, we
believe that our technology does not infringe e-centives' patent and that this
litigation is therefore without merit. We intend to defend the action
vigorously.
On October 21, 1998, we instituted a lawsuit in the Northern District of
Illinois against Catalina Marketing International, Inc., and its affiliate
Supermarkets Online, Inc. for infringement of our United States Patent No.
5,761,648, seeking damages and a permanent injunction against further
infringement. The defendants have filed counterclaims alleging invalidity of
our patent and are seeking damages and injunctive relief. As noted below,
Catalina Marketing also recently initiated a separate lawsuit against us
alleging infringement of a patent assigned to it.
On November 15, 1999, Catalina Marketing filed a separate lawsuit against us
in the United States District Court for the Middle District of Florida. The
complaint alleges that our systems and methods infringe Catalina Marketing's
United States Patent No. 4,674,041, and seeks to enjoin us from further
infringing its patent. While the litigation against us is in the early stage
and its outcome cannot be predicted, we believe that our technology does not
infringe Catalina's patent and that the litigation is therefore without merit.
We intend to defend the action vigorously.
We have instituted four other patent infringement lawsuits currently pending
in the United States District Court for the Northern District of Illinois
against IQ.commerce Corporation (filed on December 3, 1998), H.O.T. Coupons,
Inc. (filed on November 18, 1998), planet U, Inc. and Brodbeck Enterprises,
Inc., d/b/a Dick's Supermarkets (filed on October 21, 1998) and Bright
Street.com, Inc. (filed on August 23, 1999). We are seeking damages and
permanent injunctive relief for each case. All of the defendants are claiming
that they are not infringing on our patent and some of the defendants are
claiming that our patent is invalid and unenforceable. Furthermore, planet U
and Brodbeck are each claiming that we have violated United States antitrust
laws by taking anti-competitive actions.
These lawsuits are at an early stage and may not be resolved favorably to
us. For example, we may not prevail and prevent others from using our
proprietary rights. We may be required to pay costs and legal fees in
connection with these cases or other damages arising from the various
counterclaims that have been asserted against us. Our patent or future patents
may be found invalid or unenforceable. Furthermore, additional counterclaims,
separate lawsuits or other proceedings may be brought against us to invalidate
our patent or force us to change our services or business methods.
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In addition, on September 21, 1999, Kathryn L. Meklir, the ex-wife of Steven
M. Golden, our Chairman, Chief Executive Officer and President, filed suit
against both Mr. Golden and CoolSavings in Oakland County, Michigan, alleging
several claims, including fraud, arising out of her March 1998 sale of 2,000
shares of our common stock to Mr. Golden, and seeking damages in excess of $6.5
million. The case was subsequently removed to, and is pending in, the United
States District Court for the Eastern District of Michigan. Although the
transaction was a private sale between the parties, the plaintiff has named us
as a defendant in the lawsuit. While the outcome of any litigation is
uncertain, we believe that this suit and the claims asserted against us have no
merit, and we intend to defend it vigorously. A negative outcome in this suit
could subject us to substantial damages and negative publicity. Our defense of
this litigation may be costly and time-consuming even if we are successful.
We may be involved in additional litigation, investigations or other
proceedings in the future. Any litigation, investigation or proceeding, with or
without merit, could be costly and time-consuming and could divert our
management's attention and resources, which in turn could harm our business and
financial results.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of CoolSavings, and their ages and
positions as of January 1, 2000, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Steven M. Golden........... 46 Chairman of the Board, Chief Executive Officer
and President
David H. Jacobson.......... 39 Executive Vice President, Finance, Chief
Financial Officer, Treasurer
and Secretary
John J. Adams.............. 28 Executive Vice President, Operations and
Technology
Matthew Moog............... 29 Executive Vice President, Sales and Marketing
Jonathan J. Smith.......... 33 Executive Vice President, Strategic Business
Development
Albert Aiello.............. 57 Director
Robert J. Kamerschen....... 63 Director
Hugh R. Lamle(1)(2)(3)..... 54 Director
Lynette H. Mayne(1)(2)(3).. 48 Director
Richard H. Rogel(1)(2)(3).. 50 Director
David E. Simon............. 38 Director
</TABLE>
- ---------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
Steven M. Golden founded CoolSavings in December 1994. He has served as a
director, our Chairman of the Board and Chief Executive Officer since June
1996. Mr. Golden also assumed the title of President in January 2000. Prior to
founding CoolSavings, Mr. Golden was a financial consultant with Smith Barney
from May 1993 to May 1996. From January 1989 to April 1993, Mr. Golden served
as President of Land Data Network, which was founded by Mr. Golden and was one
of the nation's first online property information systems, providing tax roll
and assessment information for various counties in the State of Michigan. Mr.
Golden holds a B.B.A. from Michigan State University.
David H. Jacobson has served as our Chief Financial Officer and Treasurer
since October 1998, as our Secretary since May 1999 and as our Executive Vice
President, Finance since October 1999. From January 1996 to October 1998, Mr.
Jacobson was the Chief Financial Officer and Treasurer of SMS Technology, Inc.,
a value added packager and distributor of specialty chemical products. From
August 1990 to January 1996, Mr. Jacobson served as Chief Financial Officer for
Sterling Capital Ltd., a private equity group. Mr. Jacobson also worked for six
years for Coopers & Lybrand in its audit and business assurance practice. Mr.
Jacobson is a Certified Public Accountant and holds a B.S. with high honors in
Business Administration and Accounting from Indiana University.
John J. Adams has served as our Executive Vice President, Operations and
Technology since October 1999. From January 1999 to October 1999, Mr. Adams
served as our Executive Vice President, Engineering and Chief Technology
Officer. Prior to joining CoolSavings, Mr. Adams worked in several capacities
for Arthur Andersen Business Consulting from July 1993 to January 1999,
including Manager--Architecture and Methodology, Manager of Client Server and
Internet Development and Senior Systems Consultant. Mr. Adams holds a B.S. from
Florida State University.
Matthew Moog has served as our Executive Vice President, Sales and Marketing
since August 1998. From October 1996 to July 1998, Mr. Moog served as our Vice
President, Sales. Prior to joining CoolSavings, Mr. Moog worked for Microsoft
Corporation in various capacities from June 1992 to September 1996, including
Strategic Integrator Account Executive, MSN Business Development Executive and
Internet Business Development Manager. Mr. Moog holds a B.A. from The George
Washington University.
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Jonathan J. Smith has served as our Executive Vice President, Strategic
Business Development since October 1999 and, from June 1998 to October 1999,
Mr. Smith served as our Vice President, Strategic Business Development. Prior
to joining CoolSavings, Mr. Smith worked in several capacities for Lend Lease
Corporation, which is an Australian-based global financial and property
services company. From July 1989 to June 1997, Mr. Smith was principally
involved in the acquisition, disposition, financing and asset management of
institutional grade commercial properties for ERE Yarmouth, a U.S. based
subsidiary of Lend Lease Corporation. Mr. Smith served as Vice President of ERE
Yarmouth from April 1994 to June 1997 and as Asset Manager for the IT+T
Investments division of Lend Lease Corporation from July 1997 to June 1998. Mr.
Smith holds a B.A. from Northwestern University.
Albert Aiello has served as a director of CoolSavings since June 1998. Since
January 1997, Mr. Aiello has served as Chief Information Officer and Executive
Director of Lend Lease Corporation, an Australian based global financial and
property services company. Mr. Aiello also currently serves as a director of
Lend Lease Corporation. From 1990 to January 1998, Mr. Aiello served as
President of Fidelity Systems Company, the technology division of Fidelity
Investments and also as Chief Information Officer and Managing Director of
Fidelity Investments. Mr. Aiello currently serves as a director of Advantra, an
Australian telecommunications supplier, and the Software Productivity
Corporation, a consortium of major United States defense contractors. He is
also a member of the U.S. Government Accounting Office Executive Committee with
oversight for information technology expenditures. Mr. Aiello holds a B.S.E.
from Polytechnic Institute of New York, an M.S., M.I.E. and Ph.D. from New York
University.
Robert J. Kamerschen has served as a director of CoolSavings since May 1999.
Since July 1999, Mr. Kamerschen has served as Chairman and Chief Executive
Officer of DIMAC Holdings, Inc., a direct-response marketing services firm.
From November 1988 to July 1999, he served as Chairman of ADVO, Inc., a leading
direct-mail marketing company. From November 1988 to January 1999, he also
served as Chief Executive Officer of ADVO, Inc. From 1987 to 1988, Mr.
Kamerschen served as President and Chief Executive Officer of RKO/Six Flags
Entertainment, Inc. From 1984 to 1987, Mr. Kamerschen served as President and
Chief Executive Officer of Marketing Corporation of America, a leading
marketing services corporation. Mr. Kamerschen also serves as a director of IMS
Health Incorporated, R.H. Donnelley Corporation, Micrografx, Inc, Tandy
Corporation and TravelCLICK, Inc. Mr. Kamerschen holds a B.S. and an M.B.A.
from Miami University.
Hugh R. Lamle has served as a director of CoolSavings since June 1998. Since
April 1974, Mr. Lamle has served as Executive Vice President and a principal of
M.D. Sass Investors Services Inc. a registered investment advisory firm. Since
June 1995, Mr. Lamle has also served as President and Chief Investment Officer
of Chase & M.D. Sass Partners, a joint venture between Chase Manhattan Bank and
M.D. Sass Investors Services which manages portfolios for corporate and
institutional investors. Mr. Lamle also serves as President of Resurgence Asset
Management and on the advisory board of Real Estate Capital Partners, both
affiliates of M.D. Sass, as Executive Vice President and a director of
Corporate Renaissance Group, Inc., a closed-end business development company,
and as a public director of the Finex division of the New York Cotton Exchange.
Mr. Lamle holds a B.A. from Queens College and an M.B.A. from Baruch College at
the City University of New York.
Lynette H. Mayne has served as a director of CoolSavings since June 1998.
Since October 1991, Ms. Mayne has served in different executive officer
positions for Lend Lease Corporation, an Australian-based global financial and
property services company, including serving at various times as the Chief
Executive Officer of Lend Lease IT+T Investments and of Lend Lease
Corporation's Corporate Financial Services and Corporate Services divisions.
She has served as Chair of an Australian state health industry council and is a
member of the Australian Government Trade Policy Advisory Council and APEC and
a Trustee of the ACTU--Lend Lease Foundation. Ms. Mayne holds an M.B.A. from
New York University.
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Richard H. Rogel has served as a director of CoolSavings since May 1996. In
1982, Mr. Rogel founded Preferred Provider Organization of Michigan, Inc., a
preferred provider organization, and served as its Chairman from its inception
until it was sold in 1997. Mr. Rogel is the President of the University of
Michigan Alumni Association and chairs the University of Michigan's Business
School Development Advisory Board, as well as serving on other boards of the
University. Mr. Rogel holds a B.B.A. from the University of Michigan.
David E. Simon has served as a director of CoolSavings since November 1999.
Since 1998, Mr. Simon has been the Chief Executive Officer of Simon Property
Group, Inc., a publicly traded real estate company engaged primarily in the
ownership, development, management, leasing, acquisition and expansion of
income-producing retail properties. From 1995 until 1998, Mr. Simon was the
Chief Executive Officer of Simon DeBartolo Group, Inc., a predecessor-in-
interest to Simon Property Group, Inc. In addition to serving as a director of
Simon Property Group, Inc., Mr. Simon also serves as a director of First Health
Group Corporation, a publicly-traded full service national health benefits
company. He currently serves as Second Vice Chairman of the National
Association of Real Estate Investment Trusts, Inc. and is trustee of the
International Council of Shopping Centers. Mr. Simon holds a B.S. from Indiana
University and an M.B.A. from Columbia University Graduate School of Business.
Board of Directors
Our board of directors currently consists of seven members. Each director is
elected for a one-year term at our annual meeting of stockholders and serves
until the next annual meeting of stockholders or until his or her successor is
duly elected and qualified. Richard H. Rogel and Steven M. Golden have agreed
to vote the shares of common stock held by their revocable trusts or over which
they exercise voting control in favor of election of Albert Aiello, an
affiliate of Lend Lease International Pty. Limited (Lend Lease), to our board
of directors at the annual meetings of stockholders to be held in 2000 and
2001. This is conditional upon Lend Lease properly nominating its candidate and
continuing to own at least 10% of our common stock at that time. Lend Lease may
nominate a different person as director instead of Mr. Aiello, only upon the
written consent of Mr. Rogel and Mr. Golden, which they may not unreasonably
withhold.
Board Committees
Our board of directors has a compensation committee, an audit committee and
a nominating committee.
. Compensation Committee. The compensation committee makes recommendations
to the board of directors concerning salaries and incentive compensation
for our officers and employees and administers our 1997 Omnibus Plan. The
current members of our compensation committee are Hugh R. Lamle, Lynette
H. Mayne and Richard H. Rogel.
. Audit Committee. The audit committee, among other things, reviews our
financial statements and accounting practices, makes recommendations to
the board of directors regarding the selection of independent auditors
and reviews the results and scope of the audit and other services
provided by our independent auditors. The current members of our audit
committee are Hugh R. Lamle, Lynette H. Mayne and Richard H. Rogel.
. Nominating Committee. The nominating committee screens and nominates
candidates for election to our board of directors. The current members of
our nominating committee are Hugh R. Lamle, Lynette H. Mayne and Richard
H. Rogel.
Director Compensation
Directors who are also employees of CoolSavings receive no compensation for
serving on the board of directors. Directors who are not employees of
CoolSavings do not currently receive any cash compensation from us for their
service as members of the board of directors, although they are reimbursed for
all travel
46
<PAGE>
and other expenses incurred in connection with attending board and committee
meetings. Under our 1999 Director Stock Option Plan, non-employee directors are
also eligible to receive automatic stock option grants upon their initial
appointment to the board of directors and at each of our annual stockholder
meetings.
Under the 1999 Non-Employee Director Stock Option Plan, the following
directors received options in 1999: Albert Aiello, Robert J. Kamerschen, Hugh
R. Lamle, Lynette H. Mayne, Richard H. Rogel and David E. Simon. Each of these
directors other than David E. Simon received an option in July 1999 to purchase
10 shares of common stock at an exercise price of $5,023.54 per share while
David E. Simon received an option in November 1999 to purchase 5 shares of
common stock at an exercise price of $9,100.63 per share.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is an officer or employee
of CoolSavings. No executive officer of CoolSavings serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving on our board of directors or compensation committee.
All of the members of the compensation committee have entered into loan
transactions with us. Please see "Certain Transactions." Until the formation of
the compensation committee in December 1997, matters concerning executive
compensation were addressed by the entire board of directors.
Executive Compensation
The following table sets forth compensation earned by or paid for services
rendered to CoolSavings in 1999 by our Chief Executive Officer and each of our
other executive officers whose total annual salary and bonus exceeded $100,000
(collectively, the "Named Executive Officers") during 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------------ ------------
Shares
Underlying
Name and Principal Position Salary($) Bonus($) Options(#)
- --------------------------- -------- -------- ------------
<S> <C> <C> <C>
Steven M. Golden,
Chairman of the Board, Chief
Executive Officer and President............... $245,000 $75,000 400
David H. Jacobson,
Executive Vice President, Finance
and Chief Financial Officer................... 138,000 20,000 250
John J. Adams,
Executive Vice President, Operations
and Technology................................ 125,000 20,000 270
Matthew Moog,
Executive Vice President,
Sales and Marketing........................... 137,000 130,000 225
Jonathan J. Smith,
Executive Vice President, Strategic
Business Development.......................... 119,000 30,000 250
Hillel Levin,
Former President and Chief Operating
Officer (1)................................... 198,000 20,000 125
</TABLE>
- ---------------------
(1) Mr. Levin resigned as an officer effective December 31, 1999. However, he
will continue to serve as a consultant to us through December 31, 2000.
47
<PAGE>
Stock Options
The following table sets forth summary information concerning individual
grants of stock options made during 1999 to each of the Named Executive
Officers:
Option Grants in 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of % of Total Stock Price
Shares Options Appreciation for
Underlying Granted to Exercise Option Term(2)
Options Employees Price Expiration ---------------------
Name Granted in 1999(1) Per Share Date 5% ($) 10% ($)
- ---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Golden........ 200 9.8% $2,500.00 3/3/09 $ 314,448 $ 796,872
200 9.8 9,100.63 11/22/09 1,144,668 2,900,812
David H. Jacobson....... 150 7.3 2,500.00 3/3/09 235,836 597,654
100 4.9 9,100.63 11/22/09 572,334 1,450,406
John J. Adams........... 20 1.0 2,500.00 1/18/09 31,445 79,687
150 7.3 2,500.00 3/3/09 235,836 597,654
100 4.9 9,100.63 11/22/09 572,334 1,450,406
Matthew Moog............ 125 6.1 2,500.00 3/3/09 196,530 498,045
100 4.9 9,100.63 11/22/09 572,334 1,450,406
Jonathan J. Smith....... 150 7.3 2,500.00 3/3/09 235,836 597,654
100 4.9 9,100.63 11/22/09 572,334 1,450,406
Hillel Levin............ 125 6.1 2,500.00 3/3/09 196,530 498,045
</TABLE>
- ---------------------
(1) Based on a total of 2,043 option shares granted to our employees under our
1997 Stock Option Plan during 1999.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. The gains shown are net of the option exercise price but
do not include deductions for taxes or other expenses associated with the
exercise of the options or the sale of the underlying shares of common
stock. The 5% and 10% assumed rates of appreciation are mandated by rules
of the Securities and Exchange Commission and do not represent our estimate
or projection of the future price of our common stock. There can be no
assurance that any of the values reflected in this table will be achieved.
The actual gains, if any, will depend on the future performance of the
common stock, the optionee's continued employment through applicable
vesting periods and the date on which the options are exercised.
48
<PAGE>
The following table sets forth the number of shares of common stock acquired
upon the exercise of stock options by each Named Executive Officer during 1999
and the number and value of securities underlying unexercised options held by
each Named Executive Officer as of December 31, 1999:
Aggregated Option Exercises in 1999 and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-The-Money Options at
Acquired December 31, 1999 December 31, 1999(1)
on Value ------------------------- -------------------------
Name Exercise Received Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Golden........ -- -- 280.00 620.00
David H. Jacobson....... 8.00 $20,188 0.00 262.00
John J. Adams........... -- -- 8.00 262.00
Matthew Moog............ -- -- 294.38 238.00
Jonathan J. Smith....... -- -- 8.00 262.00
Hillel Levin............ -- -- 260.00 315.00
</TABLE>
- ---------------------
(1) The dollar values have been calculated by determining the difference
between the fair market value of the securities underlying the options at
December 31, 1999 and the exercise prices of the options. Solely for
purposes of determining the value of options at December 31, 1999, we have
assumed that the fair market value of shares of common stock issuable upon
exercise of options was $ per share, the assumed initial public
offering price, because the common stock was not traded in an established
market prior to this offering.
Employee Benefit Plans
1997 Stock Option Plan
We adopted our 1997 Stock Option Plan to enable officers, key employees and
consultants of CoolSavings or any subsidiary to participate in our possible
growth and profitability, and to encourage their continuation as officers,
employees or consultants for the benefit of CoolSavings and our stockholders.
Under our 1997 Stock Option Plan, we may award incentive and non-qualified
stock options, stock appreciation rights, restricted stock, performance stock
units and other stock units which are valued by reference to our common stock.
Our officers, employees and consultants are eligible to participate in our 1997
Stock Option Plan. Our 1997 Stock Option Plan is administered by either the
board of directors or the Compensation Committee (the "Administrator") which
determines, subject to the provisions of our 1997 Stock Option Plan, who shall
receive awards, the types of awards to be made, and the terms and conditions of
each award.
The exercise price of non-qualified options may not be less than the fair
market value of the common stock at the time the option is granted, except that
non-qualified options may have an exercise price of no less than 90% of the
fair market value at the time the option is granted if that discount is
expressly granted in lieu of a reasonable amount of salary or bonus. Options
that are intended to qualify as incentive stock options under our 1997 Stock
Option Plan may not be exercisable for more than ten years after the date the
option is granted and may not be granted at an exercise price of less than the
fair market value of the common stock at the time the option is granted. In the
case of incentive stock options granted to holders of more than 10% of our
common stock, the options may not be granted at an exercise price less than
110% of the fair market value of the common stock at the time the options are
granted.
Awards granted under our 1997 Stock Option Plan generally expire three
months after the termination of the recipient's service to CoolSavings or any
subsidiary, except in the case of death, in which case awards generally may be
exercised up to 12 months following the date of death. Awards generally expire
immediately upon termination of employment for cause.
49
<PAGE>
The number of shares of common stock which may be issued under our 1997
Stock Option Plan is limited to 15% of the total number of shares of common
stock issued and outstanding from time to time and the number of shares of
common stock underlying incentive stock options issued under our 1997 Stock
Option Plan is limited to 5,000 shares of common stock. As of December 31,
1999, there were 3,635.580 shares subject to options outstanding under our 1997
Stock Option Plan.
The Administrator shall make appropriate adjustments in the number of shares
of common stock subject to each award and the exercise price per share of each
award if there is any change in the common stock as a result of a stock
dividend, stock split, recapitalization or otherwise. The Administrator also
has the authority to accelerate award exercise rights or make other adjustments
if CoolSavings is merged or consolidated, the property or stock of CoolSavings
is acquired by another corporation or CoolSavings is reorganized, liquidated or
impacted by an extraordinary transaction.
Our 1997 Stock Option Plan will terminate when no further shares of common
stock are available for issuance upon the exercise of awards and all
outstanding awards have expired or have been exercised. The board of directors
may at any time terminate our 1997 Stock Option Plan, but termination will not
affect awards previously granted. Any awards which were granted prior to
termination would remain exercisable by the holder in accordance with the terms
of the applicable award agreement. In addition, the board of directors may at
any time amend our 1997 Stock Option Plan without stockholder approval, except
where required by applicable law.
1999 Non-Employee Director Stock Option Plan
We adopted the 1999 Non-Employee Director Stock Option Plan to attract and
retain the services of experienced and knowledgeable independent directors, and
to provide an additional incentive for those directors to work for the best
interests of CoolSavings and its stockholders.
The 1999 Non-Employee Director Stock Option Plan was approved by our
stockholders on November 17, 1999 and, unless terminated earlier, it expires in
May 2009. The 1999 Non-Employee Director Stock Option Plan is designed to work
automatically without administration. To the extent administration is
necessary, however, it will be performed by the board of directors. To the
extent that conflicts of interest arise, we expect interested directors will
abstain from both deliberations and voting regarding matters in which they have
personal interests.
The 1999 Non-Employee Director Stock Option Plan provides that each person
who is a non-employee director on the date that the 1999 Non-Employee Director
Stock Option Plan became effective and each person who becomes a non-employee
director after the date of the plan will be granted, on the later of the date
on which the optionee first becomes a non-employee director or the effective
date of the plan, a non-qualified stock option to purchase a number of shares
of common stock that have a fair market value of $50,000 on the date of
issuance. In addition, on the date of each of our annual stockholder meetings,
each non-employee director will automatically be granted an additional non-
qualified option to purchase a number of shares of common stock with a fair
market value of $50,000 if, on that date, he or she has served on our board of
directors for at least six months. All options granted under the 1999 Non-
Employee Director Stock Option Plan shall have an exercise price equal to 100%
of the fair market value of the common stock on the date of grant and will vest
in full on the first anniversary of the date of grant.
Awards granted under the 1999 Non-Employee Director Stock Option Plan
generally expire three months after the non-employee director ceases to serve
as a director, except in the case of death, in which case awards generally may
be exercised up to 12 months following the date of death. Options granted under
the 1999 Plan generally have a term of ten years.
The number of shares of common stock which may be issued under the 1999 Plan
is limited to 2% of the total number of shares of common stock issued and
outstanding from time to time. As of December 31, 1999, options to purchase
55.000 shares of common stock have been issued under the 1999 Non-Employee
Director Stock Option Plan.
Appropriate adjustments will be made in the number of shares of common stock
subject to each award and the exercise price per share of each award if there
is any change in the common stock as a result of a
50
<PAGE>
stock dividend, stock split, recapitalization or otherwise. If CoolSavings is
merged or consolidated, the property or stock of CoolSavings is acquired by
another corporation or CoolSavings is reorganized, liquidated or impacted by an
extraordinary transaction, the outstanding options will become fully
exercisable.
The 1999 Non-Employee Director Stock Option Plan will terminate when no
further shares of common stock are available for issuance upon the exercise of
awards and all outstanding awards have expired or have been exercised. The
board of directors may at any time terminate the 1999 Non-Employee Director
Stock Option Plan, but termination will not affect awards previously granted.
Any awards which were granted prior to termination would remain exercisable by
the holder under the terms of the applicable award agreement. In addition, the
board of directors may at any time amend the 1999 Non-Employee Director Stock
Option Plan without stockholder approval, except as required by applicable law.
401(k) Plan
We have a tax-qualified employee savings plan which covers all of our full-
time employees who are at least 21 years of age. Eligible employees may defer
up to 25% of their pre-tax earnings, subject to the Internal Revenue Service's
annual contribution limit. Our 401(k) plan permits us to make additional
discretionary matching contributions on behalf of all participants in our
401(k) plan in an amount determined by us. Our 401(k) plan is intended to
qualify under Section 401 of the Internal Revenue Code of 1986 so that
contributions by employees or by us to our 401(k) plan, and income earned on
plan contributions, are not taxable to employees until withdrawn from the plan,
and so that contributions by us, if any, will be deductible by us when made.
Employment Agreements and Severance Arrangements
Each of our executive officers has signed our standard terms of employment
detailing, among other things, his confidentiality obligations and his at-will
employment status. Currently, none of our executive officers has a formal
employment agreement with us. All of our executive officers are employees at-
will and may be terminated at any time at the discretion of our board of
directors.
In January 2000, we entered into a termination agreement with Hillel Levin,
our former President and Chief Operating Officer. Under the terms of this
agreement, (a) Mr. Levin confirmed that he voluntarily resigned from
CoolSavings effective as of December 31, 1999, (b) we agreed to pay Mr. Levin a
$20,000 bonus on or before January 15, 2000, (c) CoolSavings and Mr. Levin
agreed to enter into a one-year consulting agreement, and (d) Mr. Levin agreed
not to compete with us for a period of two years after the termination of the
consulting agreement. Under the terms of the consulting agreement, Mr. Levin
will spend up to 25 hours per week performing consulting services for us for a
period of one year and we will pay Mr. Levin a consulting fee of $120,000.
Limitation of Liability and Indemnification
As permitted by the Michigan Business Corporation Act ("MBCA"), our articles
of incorporation include a provision that limits the liability of our directors
to the maximum extent permitted by the MBCA. The MBCA limits the liability of
directors for monetary damages for breach of fiduciary duty as a director,
except for liability for (a) a breach of the director's duty of loyalty to the
corporation or its stockholders, (b) acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (c) illegal
loans, distributions of dividends or assets, or stock purchases as described in
Section 551(1) of the MBCA, and (d) transactions from which the director
derived an improper personal benefit.
In addition, our bylaws generally provide that we will indemnify our
directors and officers to the fullest extent authorized or permitted under the
MBCA and that we will advance expenses at the request of a director or officer.
Prior to the completion of this offering, we intend to enter into indemnity
agreements with each of our current officers and directors to give them
additional contractual assurances regarding the scope of the indemnification
set forth in our articles of incorporation and bylaws.
We believe that these indemnification and limitation of liability provisions
will assist us in attracting and retaining talented directors and officers in
light of the risk of litigation directed against directors and officers of
publicly held corporations.
51
<PAGE>
CERTAIN TRANSACTIONS
Transactions with Management and Others
Lend Lease
In May 1998, we borrowed $1.0 million from Lend Lease International Pty.
Limited (Lend Lease), an Australian company, under a promissory note providing
for repayment of the indebtedness in six months or upon Lend Lease making a
contemplated $5.0 million investment in CoolSavings, whichever occurred first.
We repaid the promissory note on June 1, 1998, when Lend Lease made its first
equity investment in CoolSavings.
In June 1998, we entered into an Investment Agreement with Lend Lease
pursuant to which Lend Lease committed to invest up to $18.5 million in
CoolSavings upon the occurrence of specified events. Under the Investment
Agreement, Lend Lease purchased: 2,170.82 shares of common stock for $5.0
million on June 1, 1998; 1,973.47 shares of common stock for $5.0 million on
November 4, 1998; 2,368.16 shares of common stock for $5.0 million on March 11,
1999; and 1,860.70 shares of common stock for $3.5 million on April 27, 1999.
In connection with the Investment Agreement, on June 1, 1998, CoolSavings,
Lend Lease and certain of our stockholders entered into a shareholders
agreement under which, among other things, Lend Lease designated three persons
to serve on our board of directors. Albert Aiello, Robert J. Kamerschen and
Lynette H. Mayne are currently the directors designated by Lend Lease. The
provisions in the shareholders agreement addressing the composition of our
board of directors will terminate upon the completion of this offering. Two of
our shareholders have also agreed to vote in favor of the election of a
director nominated by Lend Lease. Please see "Management--Board of Directors."
In April 1999, Lend Lease agreed to loan us up to $3.5 million, which we
could borrow in our discretion by December 31, 1999. In October 1999, we
borrowed nearly $3.5 million under convertible subordinated notes issued to
Lend Lease. These notes bear interest at a rate of 10% per annum. The principal
and interest on these notes automatically convert into shares of our common
stock upon completion of this offering at a conversion price equal to 90% of
the initial public offering price. The notes mature on June 30, 2000 if this
offering is not completed before that date. If the notes are not paid within 15
days after their due date, they will automatically convert into 696.000 shares
of our common stock.
On December 31, 1999, Lend Lease purchased shares of our Series A
convertible preferred stock. Please see "--Series A Convertible Preferred
Stock." As of December 31, 1999, Lend Lease owned approximately 30.0% of our
capital stock and, assuming conversion of the convertible subordinated notes
into shares at an assumed initial public offering price of $ per
share, would have owned % of our capital stock on a pro forma basis as of
that date.
Loan from Director
Under a credit agreement dated December 18, 1997 between CoolSavings and the
Richard H. Rogel Revocable Living Trust u/a/d March 21, 1990, the grantor,
trustee and beneficiary of which is Richard H. Rogel, a director of CoolSavings
(the Rogel Trust), the Rogel Trust loaned us $1.05 million. In connection with
this credit agreement, we issued the Rogel Trust warrants to purchase 700
shares of our common stock at $1,500 per share and warrants to purchase 50
shares of our common stock at $2,500 per share. We have repaid the loan to the
Rogel Trust and the Rogel Trust has exercised the warrants. Please see "--Loans
to Directors."
Loans to Directors
On February 4, 1999, our board of directors authorized the payment of the
exercise prices of outstanding options and warrants held by our directors and
other warrant holders by delivery of promissory notes to CoolSavings with the
following terms: (a) all principal and accrued and unpaid interest is due on
the fourth anniversary of the issuance of the note; (b) the note bears interest
at the rate of 4.83% per annum (the then applicable federal rate); (c) accrued
interest is payable annually; (d) the note is secured by the shares of common
stock issued upon exercise of such option or warrant; and (e) the maker is
personally liable on the note to the extent of all accrued interest on the note
plus 20% of the total principal amount of the note.
52
<PAGE>
Prior to the date of this prospectus, the following directors of CoolSavings
exercised their outstanding options and warrants in exchange for the delivery
of a promissory note with the terms described above:
<TABLE>
<CAPTION>
Shares Issued
Name Upon Exercise Principal Amount of Note
- ---- ------------- ------------------------
<S> <C> <C>
Richard H. Rogel, Trustee................ 750.000 $1,181,250(a)
Albert Aiello............................ 50.000 120,922
Hugh R. Lamle............................ 50.000 120,922
Lynette Mayne............................ 50.000 120,922
</TABLE>
- ---------------------
(a) Mr. Rogel delivered 13 notes in the aggregate principal amount of
$1,050,000 upon the exercise of warrants to purchase 700 shares of common
stock and delivered an additional note in the principal amount of $131,250
upon the exercise of an option to purchase 50 shares of common stock. All
of these notes have identical terms and conditions as described above.
Prior to the date of this prospectus, the following former directors of
CoolSavings exercised their outstanding options in exchange for the delivery of
a promissory note with the terms as described above:
<TABLE>
<CAPTION>
Shares Issued
Name Upon Exercise Principal Amount of Note
- ---- ------------- ------------------------
<S> <C> <C>
Eve Bosak................................ 50.000 $131,250
Douglas J. Golden........................ 50.000 131,250
Elwyn Jenkins............................ 50.000 120,922
Peter Sugar.............................. 50.000 131,250
Arthur A. Weiss.......................... 50.000 131,250
</TABLE>
Options to Director
On July 13, 1999, we granted to Richard H. Rogel, one of our directors, an
option to purchase 100 shares of our common stock at a price of $5,023.54 per
share. This grant is in addition to the options granted to all directors
automatically upon adoption of the 1999 Non-Employee Director Stock Option
Plan. Mr. Rogel exercised this option by delivering to CoolSavings a full
recourse promissory note in the original principal amount of $502,354. This
note bears interest at the rate of 5.86% per annum (the then applicable federal
rate), provides for annual payments of accrued interest and is due in full on
the fourth anniversary of the note.
Convertible Subordinated Notes
One of our directors, Hugh R. Lamle, controls a limited partnership, HLBL
Family Partners, LP, which purchased one of our convertible subordinated notes
in the original principal amount of $65,000. This note will be converted into
shares of our common stock upon completion of this offering, based upon an
assumed initial public offering price of $ per share.
Series A Convertible Preferred Stock
The following table summarizes the shares of our Series A convertible
preferred stock purchased by our executive officers, directors and significant
stockholders in December 1999:
<TABLE>
<CAPTION>
Number of Shares of
Series A Convertible
Name Preferred Stock Purchase Price
- ---- -------------------- --------------
<S> <C> <C>
Lend Lease International Pty. Limited...... 549.41 $5,000,000
Hugh R. Lamle(a)........................... 109.88 1,000,000
David E. Simon(b).......................... 109.88 1,000,000
Robert Kamerschen.......................... 30.00 273,019
David H. Jacobson.......................... 8.00 72,805
</TABLE>
- ---------------------
(a)Owned by HLBL Family Partners, LP, an entity controlled by Hugh R. Lamle.
(b)Owned by Cool Savings Investors, LLC, an entity in which David E. Simon is a
member.
53
<PAGE>
Relationships with Legal Counsel
Our outside corporate counsel is Golden & Gorman, P.C. Douglas J. Golden, a
shareholder of Golden & Gorman, P.C., is the brother of Steven M. Golden, our
Chairman of the Board and Chief Executive Officer. Douglas J. Golden is also a
former director of CoolSavings and was our Secretary until May 1999. Please see
"--Loans to Directors."
Our outside securities counsel is Jaffe, Raitt, Heuer & Weiss, Professional
Corporation. Peter Sugar and Arthur A. Weiss, shareholders of Jaffe, Raitt,
Heuer & Weiss, Professional Corporation, are former directors of CoolSavings.
Please see "--Loans to Directors" and "Legal Matters."
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our capital stock as of December 31, 1999, which includes our
outstanding shares of Series A convertible preferred stock which will convert
into common stock immediately prior to completion of this offering, by:
. each person known by us to beneficially own more than 5% of our common
stock;
. each Named Executive Officer;
. each of our directors; and
. all executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options
that are currently exercisable or exercisable within 60 days after December 31,
1999, are deemed to be outstanding and to be beneficially owned by the person
holding the options for the purpose of computing the percentage ownership of
that person, but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person. Unless otherwise noted, each
person or group identified possesses sole voting and investment power with
respect to the shares indicated, subject to applicable community property laws.
Beneficial ownership percentage is based on 27,578.651 shares of common stock
outstanding as of December 31, 1999, 2,197.650 shares of Series A convertible
preferred stock outstanding as of December 31, 1999 and shares of common
stock outstanding after completion of this offering.
Unless indicated otherwise, the address of the beneficial owners is: c/o
coolsavings.com inc., 8755 West Higgins Road, Suite 100, Chicago, Illinois
60631.
<TABLE>
<CAPTION>
Percentage of
Shares Beneficially
Owned
Shares ----------------------
Beneficially Before After
Name and Address of Beneficial Owner Owned Offering Offering
- ------------------------------------ ------------ -------- ---------
<S> <C> <C> <C>
Lend Lease International Pty.
Limited(1)............................. 8,922.560 % %
Level 44, Australia Square
Sydney, Australia 2000
Richard H. Rogel(2)..................... 5,976.620
56 Rose Crown
Avon, Colorado 81620
Steven M. Golden(3)..................... 4,238.100
Hillel Levin(4)......................... 827.136
Matthew Moog(5)......................... 509.570
David H. Jacobson(6).................... 16.000
John J. Adams(7)........................ 8.000
Jonathan J. Smith(7).................... 8.000
Hugh R. Lamle(8)........................ 300.400
c/o M.D. Sass
1185 Avenue of the Americas
New York, New York 10036
Albert Aiello........................... 50.000
81 Carisbrooke Rd.
Wellesley, Massachusetts 02481
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares Beneficially
Owned
Shares ---------------------
Beneficially Before After
Name and Address of Beneficial Owner Owned Offering Offering
- ------------------------------------ ------------ -------- ---------
<S> <C> <C> <C>
Lynette H. Mayne.......................... 50.000
Level 44, Australia Square
Sydney, Australia 2000
David E. Simon(9)......................... 109.880
c/o Simon Property Group, Inc.
115 West Washington Street
Indianapolis, Indiana 46204
Robert J. Kamerschen(10).................. 30.000
200 Day Hill Rd.
Windsor, Connecticut 06095
All directors and executive officers as a
group
(11 persons)(11)......................... 11,296.570
</TABLE>
- ---------------------
* Less than 1%.
(1) Includes 549.410 shares of Series A convertible preferred stock which have
the same voting rights as shares of common stock and will be converted into
an equivalent number of shares of common stock upon the closing of this
offering.
(2) All of these shares of common stock are held by a revocable trust, of which
Mr. Rogel is the trustee.
(3) Includes 3,808.100 shares of common stock held by a revocable trust, of
which Mr. Golden is the trustee, 150 shares of common stock held by Steven
M. Golden LLC, which is controlled by Mr. Golden, and 280 shares of common
stock subject to options exercisable within 60 days after December 31,
1999.
(4) Includes 100 shares of common stock held by Shore Bridge, L.P., which is
controlled by Mr. Levin, and 260 shares of common stock subject to options
exercisable within 60 days after December 31, 1999.
(5) Includes 294.380 shares of common stock subject to options exercisable
within 60 days after December 31, 1999.
(6) Includes 8.000 shares of Series A convertible preferred stock which have
the same voting rights as shares of common stock and will be converted into
an equivalent number of shares of common stock upon the closing of this
offering.
(7) Represents 8.000 shares of common stock subject to options exercisable
within 60 days after December 31, 1999.
(8) Includes 140.521 shares of common stock and 109.880 shares of Series A
convertible preferred stock, which have the same voting rights as shares of
common stock and will be converted into an equivalent number of shares of
common stock upon the closing of this offering, held in the name of HLBL
Family Partners, LP, which is controlled by Mr. Lamle.
(9) Represents 109.880 shares of Series A convertible preferred stock which
have the same voting rights as shares of common stock and will be converted
into an equivalent number of shares of common stock upon the closing of
this offering. These shares are held in the name of Cool Savings Investors,
LLC. Mr. Simon, a member of Cool Savings Investors, LLC, disclaims
beneficial ownership of the shares held by that entity except to the extent
of his proportionate pecuniary interest therein.
(10) Represents 30.000 shares of Series A convertible preferred stock which
have the same voting rights as shares of common stock and will be
converted into an equivalent number of shares of common stock upon the
closing of this offering.
(11) Includes 590.380 shares of common stock subject to options exercisable
within 60 days after December 31, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, after giving effect to the filing of our
restated articles of incorporation, our authorized capital stock will consist
of 100,000,000 shares of common stock, without par value, and 10,000,000 shares
of preferred stock, without par value.
The following summary of our capital stock and restated articles of
incorporation and bylaws are qualified by reference to the restated articles of
incorporation and bylaws filed with the Securities and Exchange Commission as
exhibits to the registration statement of which this prospectus forms a part.
Common Stock
As of December 31, 1999, there were 27,578.651 shares of common stock
outstanding, held by approximately 125 stockholders of record. The holders of
outstanding shares of common stock are entitled to receive dividends out of
legally available assets at such times and in such amounts as the board of
directors may from time to time determine. Each holder is entitled to one vote
for each share of common stock held on all matters submitted to a vote of
stockholders. Cumulative voting for the election of directors is not provided
for in our articles of incorporation, which means that the holders of a
majority of the shares of common stock voted can elect all of the directors
nominated for election. Subject to preferences that may be applicable to any
then outstanding preferred stock, holders of common stock are entitled to
receive ratably the dividends, if any, that may be declared by our board of
directors out of legally available funds. Upon a liquidation, dissolution or
winding up of CoolSavings, the holders of common stock will be entitled to
share ratably in the net assets legally available for distribution to
stockholders after the payment of all debts and other liabilities of
CoolSavings, subject to the prior rights of any preferred stock then
outstanding. Holders of common stock have no preemptive or conversion rights or
other subscription rights and there are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are, and the common stock to be outstanding upon completion of this
offering will be, fully paid and nonassessable.
Preferred Stock
As of December 31, 1999, there were 2,197.650 shares of Series A convertible
preferred stock outstanding, held by approximately 70 stockholders of record.
Upon the completion of this offering, there will be no shares of preferred
stock outstanding. Our board of directors has the authority, within the
limitations and restrictions contained in the articles of incorporation, to
issue shares of preferred stock, in one or more classes or series, and to fix
the rights, preferences, privileges, and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any series or the
designation of such series. The board of directors, without stockholder
approval, could issue shares of preferred stock with voting and conversion
rights which could adversely affect the voting power or other rights of the
holders of shares of common stock. The issuance of shares of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes, could, among other things, have the effect of delaying,
deferring or preventing a change in control of CoolSavings and may negatively
affect the market price of the common stock and the voting and other rights of
the holders of common stock. We have no current plans to issue any shares of
preferred stock.
Convertible Subordinated Notes
As of December 31, 1999, approximately $5.0 million of coolsavings.com inc.
1999 unsecured, convertible subordinated notes were outstanding. These notes
will automatically convert into shares of our common stock upon the completion
of this offering at a conversion price equal to 90% of the initial public
offering price, and mature on June 30, 2000 if this offering is not completed
before that date. If the notes are not paid within 15 days after their due
date, they will automatically convert into 994.594 shares of our common stock.
Series A Convertible Preferred Stock
In December 1999, we issued 2,197.650 shares of our Series A convertible
preferred stock to investors for an aggregate purchase price of $20.0 million.
Upon completion of this offering, these shares of Series A convertible
preferred stock will be converted into shares of common stock.
57
<PAGE>
Registration Rights
Shareholders Agreement
Under an agreement between us and some of our stockholders, stockholders
holding an aggregate of 25,510.341 shares of common stock, referred to as
registrable securities, have registration rights with respect to the
registrable securities.
When we become eligible to use a registration statement on Form S-3 to
register an offering of our securities, holders of the registrable securities
may request that we file a registration statement on Form S-3 covering all or a
portion of the registrable securities held by them, provided that the proceeds
from that offering are at least $1.0 million. We are only obligated to effect
two of these demand registrations and we have the right to delay the filing of
a registration statement on Form S-3 for up to 90 days.
In addition, the holders of registrable securities have piggyback
registration rights. If we propose to register any common stock under the
Securities Act, other than under the Form S-3 registration rights noted above
or an employee benefit plan, the holders of the registrable securities may
require us to include all or a portion of their securities in such
registration. However, the underwriters, if any, of that offering have the
right to limit the number of registrable securities proposed to be included in
that registration.
We will bear all of the costs and expenses incurred in connection with these
registrations, except that the holders of registrable securities participating
in any registration would pay their own underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of their
securities.
These registration rights terminate five years after the completion of this
offering.
Agreement with Holders of Unsecured, Convertible Subordinated Notes
Under an agreement with us, the holders of our 1999 unsecured, convertible
subordinated notes have registration rights with respect to the shares of
common stock issuable upon conversion of the notes.
The holders of the notes have piggyback registration rights. If, after the
completion of this offering, we propose to register any common stock under the
Securities Act, other than on Form S-4 (or any successor form) or under an
employee benefit plan, the holders of the notes may require us to include all
or a portion of their securities in such registration. However, the
underwriters, if any, of that offering have the right to limit the number of
registrable securities proposed to be included in that registration.
We will bear all of the costs and expenses incurred in connection with these
registrations, except that the holders of the notes participating in any
registration would pay their own underwriting discounts, selling commissions
and stock transfer taxes applicable to the sale of their securities.
These registration rights terminate two years after the completion of this
offering.
NBC Agreement
Under our stock purchase and advertising agreement with National
Broadcasting Company, Inc., NBC has registration rights with respect to its
shares of our common stock.
At any time beginning six months after this offering, NBC may request that
we register at least 50% of its shares of our common stock or any lesser
percentage of its shares if the aggregate public offering price is greater than
$5,000,000. We are only obligated to effect one of these demand registrations
and we have the right to delay the filing of a registration statement for up to
90 days.
In addition, NBC has piggyback registration rights with respect to its
shares of our common stock. If, after the completion of this offering, we
propose to register any common stock under the Securities Act,
58
<PAGE>
other than in a Rule 145 transaction or under an employee benefit plan, NBC may
require us to include all or a portion of its shares of our common stock in
such registration. However, the underwriters, if any, of that offering have the
right to limit the number of NBC shares proposed to be included in that
registration.
We will bear all of the costs and expenses incurred in connection with these
registrations except that NBC would pay its own underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of its securities.
These registration rights terminate three years after the completion of this
offering.
Agreement with Holders of Series A Convertible Preferred Stock
Under an agreement with us, the holders of our Series A convertible
preferred stock have piggyback registration rights with respect to the shares
of common stock issuable upon conversion of the Series A convertible preferred
stock. If, after the completion of this offering, we propose to register any
common stock under the Securities Act, other than on Form S-4 (or any successor
form) or under an employee benefit plan, the holders of the Series A
convertible preferred stock may require us to include all or a portion of their
securities in such registration. However, the underwriters, if any, of that
offering have the right to limit the number of registrable securities proposed
to be included in that registration.
We will bear all of the costs and expenses incurred in connection with these
registrations, except that the holders of the Series A convertible preferred
stock participating in any registration would pay their own underwriting
discounts, selling commissions and stock transfer taxes applicable to the sale
of their securities.
These registration rights terminate two years after the completion of this
offering.
Anti-Takeover Effects of Certain Provisions of Michigan Law and Our Articles of
Incorporation and Bylaws
Michigan Anti-Takeover Statutes
Chapters 7A and 7B of the MBCA may affect attempts to acquire control of
CoolSavings. In general, unless the corporation's charter specifies otherwise,
under Chapter 7A, "business combinations" between a covered Michigan
corporation or its subsidiaries and an "interested shareholder" can be
consummated only if approved by at least 90% of the votes of each class of
shares entitled to vote and by at least two-thirds of the voting shares held by
disinterested shareholders. The MBCA defines a "business combination" to
include, among other transactions, certain mergers, dispositions of assets or
shares and recapitalizations. An "interested shareholder" is defined as the
direct or indirect beneficial owner of at least 10% of the voting power of a
covered corporation's outstanding shares. The MBCA provides an exemption to
this supermajority voting requirement if five years have elapsed after the
person involved became an "interested shareholder" and if certain price and
other conditions are satisfied. Our articles of incorporation include a
provision expressly "opting out" of Chapter 7A. Our board of directors may "opt
in" to Chapter 7A at any time by action of a majority of the directors then in
office.
In general, under Chapter 7B of the MBCA, an entity that acquires "control
shares" of a covered corporation may vote the control shares in favor of or
against any matter only if a majority of all shares, and of all non-"interested
shares," of each class of shares entitled to vote as a class approve the voting
rights of that acquirer of "control shares." The MBCA defines "interested
shares" as shares owned by officers or employee-directors of the corporation,
or of the entity making the control share acquisition. "Control shares" are
defined as shares that, when added to shares already owned by an entity, would
give the entity voting power in the election of directors over any of three
thresholds: one-fifth, one-third and a majority. The effect of this statute is
to condition the acquisition of voting control of a corporation on the approval
of a majority of the pre-existing disinterested shareholders. Our board of
directors may amend the bylaws before a control share acquisition occurs to
provide that Chapter 7B does not apply to CoolSavings.
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<PAGE>
In addition, some provisions of our restated articles of incorporation and
restated bylaws which will take effect upon the consummation of this offering
may have an anti-takeover effect. They may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in its best
interests, including those attempts that might result in a premium over the
market price for the shares held by our stockholders. The following summarizes
these provisions.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our restated bylaws will provide that stockholders must provide timely
written notice before bringing business before an annual meeting of
stockholders or nominating candidates for election as directors. Our restated
bylaws also specify requirements as to the form and content of a stockholder's
notice. These provisions may prevent stockholders from bringing matters before
an annual meeting of stockholders or from making nominations for directors at
an annual meeting of stockholders.
Filling Vacancies
Our restated bylaws will authorize the board of directors to fill vacant
directorships or increase the size of the board of directors, which may deter a
stockholder from removing incumbent directors and simultaneously gaining
control of the board of directors.
Supermajority Voting Provisions
Our restated articles of incorporation will require the affirmative vote of
the holders of at least two-thirds of our outstanding voting stock for the
alteration, amendment or repeal of, or the adoption of any provision
inconsistent with, our restated articles of incorporation or bylaws, unless the
alteration, amendment or repeal is recommended by the board of directors. In
that case, the affirmative vote of the holders of a majority of the voting
stock of CoolSavings is required.
Stockholder Action; Special Meeting of Stockholders
Our restated articles of incorporation will provide that stockholders may
not take action by written consent. Our restated bylaws will further provide
that special meetings of stockholders may be called only by the Chairman of the
board of directors, the Chief Executive Officer, a majority of the board of
directors or the holders of at least a majority of the shares entitled to vote
in the election of directors.
Authorized but Unissued Shares
The authorized but unissued shares of common stock and preferred stock are
available for future issuance without stockholder approval. We may use these
shares for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
This could make it more difficult or discourage an attempt to obtain control of
CoolSavings by means of a proxy contest, tender offer, merger or otherwise.
Limitation of Liability and Indemnification Matters
Our restated articles of incorporation and our restated bylaws will provide
that we will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their services to
us, which may include services in connection with takeover defense measures.
These provisions may have the effect of preventing changes in our management.
Nasdsaq Symbol
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol CSAV.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is .
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock and a
significant public market for our common stock may not develop or be sustained
after this offering.
If our stockholders sell substantial amounts of common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. These
sales also might make it more difficult for us to sell equity or equity-related
securities in the future and at a time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock. All of the shares of common stock sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless these shares are purchased by "affiliates" as
that term is defined in Rule 144 under the Securities Act. This leaves
shares eligible for sale into the public market as follows:
<TABLE>
<CAPTION>
Number
of Shares Date
--------- ----
<C> <S>
Immediately after the date of this prospectus
180 days after the effective date of the registration
statement containing this prospectus (subject in some cases
to volume limitations)
At various times after 180 days after the effective date of
the registration statement containing this prospectus
</TABLE>
Lock-Up Agreements
All of our executive officers and directors and the holders of substantially
all of our common stock have agreed, for a period of 180 days from the
effective date of the registration statement containing this prospectus without
the prior written consent of Hambrecht & Quist LLC, not to sell, offer,
contract to sell, transfer the economic risk of ownership in, make any short
sale, pledge or otherwise dispose of any shares of our common stock or any
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire our common stock, with the exception of specific
family and estate planning transfers. In addition, Hambrecht & Quist LLC may
remove these lock-up restrictions prior to the expiration of the lock-up
period.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year, including the holding period of any prior
owner other than an affiliate, would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
. 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this offering;
or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to that sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
CoolSavings.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares
61
<PAGE>
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, Rule 144(k) shares may be sold immediately upon the completion of
this offering.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchase shares of our common
stock in connection with a compensatory stock or option plan or other written
agreement is eligible to resell those shares 90 days after the effective date
of this offering in reliance on Rule 144, but without compliance with some of
the restrictions, including the holding period, contained in Rule 144.
Registration Rights
After this offering, the holders of shares of our common stock, or
their transferees, will be entitled to registration rights under the Securities
Act. Please see "Description of Capital Stock--Registration Rights." After
registration, these shares will generally be freely tradable without
restriction under the Securities Act. These sales could cause the trading price
of our common stock to decline, perhaps substantially.
Stock Options
As of December 31, 1999, options to purchase 3,690.580 shares of our common
stock were issued and outstanding. Within 12 months after this offering, we
intend to file a registration statement under the Securities Act covering
shares of our common stock subject to outstanding options or reserved for
issuance under our 1997 Stock Option Plan and 1999 Non-Employee Director Stock
Option Plan. Shares of our common stock registered under that registration
statement will, subject to vesting provisions and Rule 144 volume limitations
applicable to our affiliates, be available for sale in the open market
immediately after any applicable 180-day lock-up agreements expire or are
terminated.
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<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. Hambrecht & Quist LLC, Lehman Brothers Inc. and Thomas Weisel Partners
LLC are acting as representatives of the underwriters. Subject to the terms and
conditions of the underwriting agreement, each underwriter has severally agreed
to purchase the number of shares of common stock set forth opposite its name
below.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ -----------
<S> <C>
Hambrecht & Quist LLC..........................................
Lehman Brothers Inc. ..........................................
Thomas Weisel Partners LLC.....................................
-----------
Total..........................................................
===========
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to specified conditions, including the absence of any material
adverse change in our business and the receipt of certificates, opinions and
letters from us, our counsel and our independent auditors. The underwriters are
committed to purchase all the shares of common stock offered by us, other than
those shares covered by the over-allotment option described below, if they
purchase any of the shares.
The underwriters propose to offer the shares directly to the public at the
initial public offering price shown on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $ per share. The
underwriters may allow, and those dealers may re-allow, a concession not in
excess of $ per share to other dealers. After the initial offering of
shares, the underwriters may change the public offering price and other selling
terms. The representatives have advised us that the underwriters do not intend
to confirm discretionary sales in excess of 5% of the shares of common stock
offered hereby.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to additional
shares of common stock at the initial public offering price, less the
underwriting discounts shown on the cover page of this prospectus. To the
extent that the underwriters exercise this option, each of the underwriters
will have a firm commitment to purchase approximately the same percentage of
those additional shares which the number of shares of common stock to be
purchased by it shown in the above table bears to the total number of shares of
common stock offered by us. We will be obligated pursuant to this option to
sell shares to the underwriters to the extent the option is exercised. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of shares of common stock offered by us.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
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<PAGE>
The following table provides information regarding the amount of the
discount to be paid to the underwriters by us in connection with this offering.
These amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of our common stock.
<TABLE>
<CAPTION>
Paid to the
Underwriters
-----------------
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per share................................................
Total....................................................
</TABLE>
We will pay the offering expenses, estimated to be $ , excluding the
underwriting discount.
We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the underwriters may be required to make in respect of any of
those liabilities.
We, our executive officers and directors and the holders of substantially
all of our common stock have agreed for a period of 180 days from the effective
date of the registration statement containing this prospectus, without the
prior written consent of Hambrecht & Quist LLC, not to sell, offer, contract to
sell, transfer the economic risk of ownership in, make any short sale, pledge
or otherwise dispose of any shares of our common stock or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire our common stock, with the exception of specific family and
estate planning transfers. In addition, during this period, we have agreed not
to file any registration statement with respect to, and each of our executive
officers and directors and the holders of substantially all of our common stock
have agreed not to make any demand for, or exercise any right with respect to,
the registration of any shares of common stock or other securities issued by
us, without the prior written consent of Hambrecht & Quist LLC, other than this
offering.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to five percent (5%) of the shares of common stock to
be sold in this offering for sale to our employees and other persons designated
by us. These reserved shares will be sold at the public offering price that
appears on the cover page of this prospectus. The number of shares available
for sale to the general public will be reduced to the extent that any reserved
shares are purchased by these persons. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same basis as
the other shares offered by this prospectus.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the common stock in this offering
will be determined by negotiation between us and the representatives of the
underwriters. The factors to be considered in determining the initial public
offering price include prevailing market conditions, the history of and the
prospects for the industry in which we compete, an assessment of our
management, our prospects, our capital structure, our results of operations in
recent periods and other factors deemed relevant.
Some of the persons participating in this offering may over-allot or effect
transactions that stabilize, maintain or otherwise affect the market price of
the common stock at levels above those that might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase for the purpose of pegging, fixing or
maintaining the price of the common stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the offering. Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member in connection with the offering when shares
of common stock sold by the syndicate member are purchased in a syndicate
covering transaction. Stabilizing transactions may be effected on the Nasdaq
National Market, in the over-the-counter market, or otherwise. Stabilizing
transactions, if commenced, may be discontinued at any time.
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<PAGE>
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners LLC has been named as a lead or co-
manager on 106 filed public offerings of equity securities, of which 79 have
been completed, and has acted as a syndicate member in an additional 54 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us under the underwriting agreement entered into in connection with this
offering.
In December 1999, Hambrecht & Quist California purchased 15 shares of our
Series A convertible preferred stock and the H&Q Employee Venture Fund 2000,
L.P. purchased 6 shares of our Series A convertible preferred stock for an
aggregate purchase price of $191,113.23, or $9,100.63 per share.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for CoolSavings by Jaffe, Raitt, Heuer & Weiss,
Professional Corporation, Detroit, Michigan. Pillsbury Madison & Sutro LLP, San
Francisco, California, is acting as counsel for the underwriters in connection
with selected legal matters relating to the shares of common stock offered by
this prospectus. Shareholders of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation beneficially own 816.432 shares of our common stock and 20.000
shares of our Series A convertible preferred stock in the aggregate.
The statements in this prospectus relating to patents, patent licenses,
trademarks and service marks and related litigation under "Table of Contents"
and under the captions "Risk Factors--Intellectual property litigation against
us can be costly and could result in the loss of significant rights," "Risk
Factors--Protecting our patents, trademarks and proprietary rights may be
costly and may distract our management," "Business--Intellectual Property" and
the statements in this prospectus relating to intellectual property under the
caption "Business--Legal Proceedings" have been reviewed and approved by Niro,
Scavone, Haller & Niro, Chicago, Illinois, our intellectual property counsel,
and are included in this prospectus in reliance upon that review and approval.
Shareholders of Niro, Scavone, Haller & Niro beneficially own 204.000 shares of
our common stock in the aggregate.
EXPERTS
The financial statements included in this prospectus as of December 31, 1997
and 1998 and for each of the three years in the period ended December 31, 1998
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock being sold in this
offering. This prospectus, which constitutes a part of that registration
statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules to the registration
statement. For further information with respect to CoolSavings and the common
stock offered hereby, please refer to the registration statement and the
exhibits and schedules filed as a part of the registration statement.
Statements contained in this prospectus as to the contents of any contract,
agreement or any other document referred to are not necessarily complete;
reference is made in each case to the copy of the contract or document filed as
an exhibit to the registration statement. Each statement is qualified in all
respects by reference to the exhibit. You may read and copy any document we
file at the Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for
further information on the public reference room. Our Commission filings are
also available at the Commission's web site at http://www.sec.gov.
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<PAGE>
After this offering, we will become subject to the information and periodic
reporting requirements of the Securities Exchange Act and, accordingly, we will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the Commission's public reference
room and the web site of the Commission referred to above.
66
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Financial Statements:
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Stockholders' (Deficit) Equity............................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of coolsavings.com inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' (deficit) equity and of cash flows present
fairly, in all material respects, the financial position of coolsavings.com
inc. at December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998,
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
June 7, 1999
F-2
<PAGE>
COOLSAVINGS.COM INC.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
----------- ----------- -------------
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 64,389 $ 4,895,139 $ 5,294,944
Restricted cash....................... -- 67,352 67,352
Accounts receivable, net of allowance
of $0, $13,500, and $54,099 at
December 31, 1997 and 1998, and
September 30, 1999, respectively..... 71,997 281,800 2,242,817
Prepaid advertising................... -- -- 3,071,451
Other assets.......................... 25,595 85,251 396,000
----------- ----------- ------------
Total current assets................ 161,981 5,329,542 11,072,564
----------- ----------- ------------
Property and equipment:
Office furniture and equipment........ 52,071 298,280 402,121
Computer equipment.................... 187,124 698,684 1,918,713
Leasehold improvements................ -- 282,805 300,990
Capitalized software.................. -- 45,901 989,913
----------- ----------- ------------
239,195 1,325,670 3,611,737
Less accumulated depreciation and
amortization......................... (48,011) (284,568) (673,476)
----------- ----------- ------------
191,184 1,041,102 2,938,261
Other assets.......................... -- -- 264,554
----------- ----------- ------------
Total assets.......................... $ 353,165 $ 6,370,644 $ 14,275,379
=========== =========== ============
<CAPTION>
LIABILITIES
Current liabilities:
<S> <C> <C> <C>
Accounts payable:
Trade............................... $ 624,698 $ 729,573 $ 2,027,609
Related parties..................... 63,403 4,051 197,028
Accrued liabilities................... 199,028 522,366 2,970,110
Deferred revenue...................... -- 221,312 341,233
Related party notes payable........... 91,475 -- --
Current maturities of long-term debt.. 69,132 64,098 1,595,991
----------- ----------- ------------
Total current liabilities............. 1,047,736 1,541,400 7,131,971
----------- ----------- ------------
Long-term debt, less current
maturities........................... 80,680 235,574 828,926
----------- ----------- ------------
Commitments and contingencies (Note
5)...................................
<CAPTION>
STOCKHOLDERS' (DEFICIT) EQUITY
<S> <C> <C> <C>
Common stock, no par value, 60,000
shares authorized, 16,972.970,
21,404.260 and 27,570.651 shares
issued and outstanding at December
31, 1997 and 1998, and September 30,
1999, respectively................... 2,783,365 13,500,865 27,824,658
Additional paid-in capital............ 62,730 455,411 455,411
Accumulated deficit................... (3,621,346) (9,362,606) (19,148,295)
Notes receivable from related
parties.............................. -- -- (2,817,292)
----------- ----------- ------------
Total stockholders' (deficit) equity.. (775,251) 4,593,670 6,314,482
----------- ----------- ------------
Total liabilities and stockholders'
(deficit) equity..................... $ 353,165 $ 6,370,644 $ 14,275,379
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
COOLSAVINGS.COM INC.
Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------ ------------------------
1996 1997 1998 1998 1999
---------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues............ $ -- $ 109,510 $ 1,142,819 $ 662,518 $ 6,240,401
Cost of revenues........ -- 147,144 427,769 263,463 1,043,860
---------- ----------- ----------- ----------- -----------
Gross profit (loss)..... -- (37,634) 715,050 399,055 5,196,541
Operating expenses:
Sales and marketing... 252,819 1,201,564 2,494,395 1,463,499 8,030,732
Product development... 131,285 719,547 1,217,101 698,314 3,220,158
General and
administrative....... 498,447 766,313 2,349,725 1,416,924 3,980,901
---------- ----------- ----------- ----------- -----------
Total operating
expenses............... 882,551 2,687,424 6,061,221 3,578,737 15,231,791
Loss from operations.... (882,551) (2,725,058) (5,346,171) (3,179,682) (10,035,250)
Other income (expense):
Interest and other
income, net.......... 9,188 8,911 88,322 50,115 328,859
Interest expense...... (873) (11,170) (48,517) (44,190) (79,298)
Amortization of debt
discount............. -- (4,204) (434,894) (434,894) --
---------- ----------- ----------- ----------- -----------
Net loss................ $ (874,236) $(2,731,521) $(5,741,260) $(3,608,651) $(9,785,689)
========== =========== =========== =========== ===========
Basic and diluted net
loss per share......... $ (73.40) $ (171.97) $ (306.42) $ (185.72) $ (355.21)
Weighted average shares
used in calculation of
basic and diluted net
loss per share......... 11,910.725 15,883.975 18,736.675 19,430.790 27,548.912
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
COOLSAVINGS.COM INC.
Statements of Stockholders' (Deficit) Equity
Year Ended December 31, 1996, 1997 and 1998 and
Nine Months Ended September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Notes Total
Common Stock Additional Receivable Stockholders'
---------------------- Paid-In Accumulated From Related Equity
Shares Amount Capital Losses Parties (Deficit)
---------- ----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1996................... 10,000.000 $ 51,000 $ -- $ (15,589) $ -- $ 35,411
Issuance of common
stock.................. 3,978.080 834,999 834,999
Net loss................ (874,236) (874,236)
---------- ----------- -------- ------------ ----------- ----------
Balances, December 31,
1996................... 13,978.080 885,999 -- (889,825) -- (3,826)
Issuance of common
stock.................. 2,994.890 1,897,366 1,897,366
Issuance of warrants.... 62,730 62,730
Net loss................ (2,731,521) (2,731,521)
---------- ----------- -------- ------------ ----------- ----------
Balances, December 31,
1997................... 16,972.970 2,783,365 62,730 (3,621,346) -- (775,251)
Issue of common stock... 4,431.290 10,717,500 10,717,500
Issuance of warrants.... 376,369 376,369
Stock option
compensation........... 16,312 16,312
Net loss................ (5,741,260) (5,741,260)
---------- ----------- -------- ------------ ----------- ----------
Balances, December 31,
1998................... 21,404.260 13,500,865 455,411 (9,362,606) -- 4,593,670
Issuance of common
stock.................. 4,266.603 8,500,000 8,500,000
Exercise of options and
warrants............... 1,302.600 2,823,793 (2,817,292) 6,501
Issuance of common stock
for advertising........ 597.188 3,000,000 3,000,000
Net loss................ (9,785,689) (9,785,689)
---------- ----------- -------- ------------ ----------- ----------
Balances, September 30,
1999................... 27,570.651 $27,824,658 $455,411 $(19,148,295) $(2,817,292) $6,314,482
========== =========== ======== ============ =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
COOLSAVINGS.COM INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
----------------------------------- ------------------------
1996 1997 1998 1998 1999
--------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows used in
operating activities:
Net loss................ $(874,236) $(2,731,521) $(5,741,260) $(3,608,651) $(9,785,689)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation.......... 3,017 44,995 236,557 134,204 388,908
Amortization of debt
discount............. -- 4,204 434,894 434,894 --
Stock option
compensation......... -- -- 16,312 16,312 --
Transaction costs..... -- -- -- -- 186,110
Changes in assets and
liabilities:
Increase in restricted
cash................. -- -- (67,352) -- --
Increase in accounts
receivable........... -- (71,997) (209,803) (202,628) (1,961,017)
Increase (decrease) in
prepaid and other
current assets....... 3,005 (21,877) (59,656) 6,913 (382,200)
Increase in accounts
payable.............. 167,409 520,693 45,523 (64,097) 1,491,013
Increase (decrease) in
deferred revenue..... -- -- 221,312 89,900 119,921
Increase (decrease) in
accrued and other
liabilities.......... 300,000 (100,972) 323,338 (25,224) 2,447,744
--------- ----------- ----------- ----------- -----------
Net cash used in
operating activities... (400,805) (2,356,475) (4,800,135) (3,218,377) (7,495,210)
--------- ----------- ----------- ----------- -----------
Cash flows used in
investing activities:
Purchases of property
and equipment.......... (11,682) (224,835) (1,040,575) (764,987) (1,342,055)
Capitalized software
costs.................. -- -- (45,901) -- (944,012)
--------- ----------- ----------- ----------- -----------
Net cash used in
investing activities... (11,682) (224,835) (1,086,476) (764,987) (2,286,067)
--------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Proceeds from short-term
debt................... -- 150,000 900,000 900,000 1,500,000
Repayment of short-term
debt................... -- -- (1,050,000) (1,050,000) --
Advances on notes
payable................ -- 149,812 149,861 43,147 625,245
Proceeds from issuance
of common stock........ 834,999 1,897,366 10,717,500 5,717,500 8,506,500
Cash paid for
transaction costs...... -- -- -- -- (450,663)
--------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... 834,999 2,197,178 10,717,361 5,610,647 10,181,082
--------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash................ 422,512 (384,132) 4,830,750 1,627,283 399,805
Cash and cash
equivalents, beginning
of period.............. 26,009 448,521 64,389 64,389 4,895,139
--------- ----------- ----------- ----------- -----------
Cash and cash
equivalents, end of
period................. $ 448,521 $ 64,389 $ 4,895,139 $ 1,691,672 $ 5,294,944
========= =========== =========== =========== ===========
Supplemental schedule of
cash flow information,
interest paid.......... $ 873 $ 11,170 $ 48,517 $ 42,566 $ 28,493
Noncash financing
activity:
Issuance of common
stock in exchange for
stockholder notes
upon exercise of
stock options and
warrants............. -- -- -- -- $ 2,817,292
Issuance of common
stock for
advertising.......... -- -- -- -- $ 3,000,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS
(Information presented for the nine months ended September 30, 1999 and 1998 is
unaudited)
1. Summary of Significant Accounting Policies:
a. The Company: coolsavings.com inc. (the "Company") provides a
comprehensive set of e-marketing services used by online and offline
advertisers to build one-to-one customer relationships. Under its
established brand, advertisers can deliver, target and track a wide
array of incentives, including printed and electronic coupons,
personalized e-mails, rebates, samples, sales notices, loyalty programs,
gift certificates, contests, and banner advertisements to promote
products or services in any online or offline environment.
In November 1998, the Company changed its corporate name from
Interactive Coupon Marketing Group, Inc. to coolsavings.com inc.
The Company has sustained significant net losses and negative cash
flows from operations since its inception. The Company's ability to
meet its obligations in the ordinary course of business is dependent
upon its ability to establish profitable operations or raise additional
financing through public or private equity financing, bank financing,
or other sources of capital. During October 1999, the Company borrowed
$3.5 million in exchange for convertible subordinated notes.
Additionally, in December 1999, the Company sold $20.0 million of
preferred stock to fund planned expenditures for fiscal year 1999.
b. Unaudited Interim Results: The accompanying interim financial statements
as of September 30, 1999 and for the nine months ended September 30,
1999 and 1998 and the related notes have not been audited. However, they
have been prepared in conformity with the accounting principles stated
in the audited financial statements for the three years in the period
ended December 31, 1998 and include all adjustments, which were of a
normal and recurring nature, which in the opinion of management are
necessary to present fairly the financial position of the Company and
results of operations and cash flows for the periods presented. The
operating results for the interim periods are not necessarily indicative
of results expected for the full years.
c. Cash and Cash Equivalents: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash equivalents consist primarily of deposits in money
market funds.
d. Concentration of Credit Risk: Financial instruments that potentially
subject the Company to a concentration of credit risk consists of cash
and cash equivalents and accounts receivable. Cash and cash equivalents
are deposited with high credit quality financial institutions. The
Company's accounts receivable are derived from revenue earned from
customers located primarily in the U.S. and are denominated in the U.S.
dollars. During each of the periods presented, no one customer accounted
for more than 10% of net accounts receivable. During 1997, the Company
had three customers that each accounted for approximately 22% of total
net revenues. For the nine months ended September 30, 1998, one of these
customers accounted for approximately 10% of net revenues. No other
customer accounted for 10% or more of net revenues for any other period
presented.
e. Fair Value of Financial Instruments: The Company's financial
instruments, including cash and cash equivalents, accounts receivable
and accounts payable are carried at cost, which approximates their fair
value because of the short-term maturity of these instruments. The
carrying value for all long-term debt outstanding at the end of all
periods presented approximates fair value.
f. Property and Equipment: Property and equipment are recorded at cost.
Depreciation and amortization are computed using straight-line and
accelerated methods over the estimated useful
F-7
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information presented for the nine months ended September 30, 1999 and 1998 is
unaudited)
1. Summary of Significant Accounting Policies, continued:
lives of the assets. Useful lives are 3 to 5 years for computer
equipment and 5 to 7 years for furniture and fixtures. Leasehold
improvements are amortized over the term or the estimated useful life,
whichever is shorter. Upon sale or retirement of property and equipment,
the cost and related accumulated depreciation or amortization are
eliminated from the respective accounts, and the resulting gain or loss
is included in the determination of net income. Maintenance and repair
costs are expensed as incurred.
g. Long-Lived Assets: The Company assesses the recoverability of long-lived
assets at the entity level, whenever adverse events or changes in
circumstances or business climate indicate that an impairment may have
occurred. If the future cash flows (undiscounted and without interest)
expected to result from the use of the related assets are less than the
carrying value of such assets, an impairment has been incurred and a
loss is recognized to reduce the carrying value of the long-lived assets
to fair value, which is determined by discounting estimated future cash
flows. The Company has not recognized an impairment loss in any of the
periods presented.
h. Revenue Recognition: Revenue subject to time-based contracts is
recognized ratably over the duration of the contract. For contracts
based on certain performance or delivery criteria, revenue is recognized
in the month performance is delivered to the customer.
i. Advertising: Advertising costs are expensed as incurred. Advertising
expense was $67,040, $815,950 and $1,426,452 during 1996, 1997 and 1998,
respectively, and $878,599 and $5,725,082 for the nine months ended
September 30, 1998 and 1999, respectively.
j. Income Taxes: Until June 1, 1998, the Company had elected, under Section
1362(a) of the Internal Revenue Code, to be treated as an S-corporation
for income tax purposes. As such, the Company was not liable for federal
income taxes and any taxable income of the Company was included in the
tax returns of the Company's stockholders. Income taxes are accounted
for using an asset and liability approach, which requires the
recognition of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of
events that have been recognized in the Company's financial statements
or tax returns. The measurement of current and deferred tax liabilities
and assets are based on provisions of the enacted tax law; the effects
of future changes in tax laws or rates are not anticipated. The
measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that, based on available evidence, are not
expected to be realized.
k. Use of Estimates: The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
l. Capitalized Software Costs: The Company accounts for software
development costs in accordance with the American Institute of Certified
Public Accountants Statement of Position 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use," which
requires capitalization of certain costs including the cost of outside
consultants. These costs will be amortized using the straight-line
method over three years, beginning when individual modules are placed
into service. The Company typically does not capitalize internal costs
as it is not reasonably cost-effective for the Company to separate these
internal costs between maintenance and relatively minor upgrades and
enhancements.
F-8
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information presented for the nine months ended September 30, 1999 and 1998 is
unaudited)
1.Summary of Significant Accounting Policies, continued:
m. Stock-Based Compensation: Financial Accounting Standards Board ("FASB")
Statement of Accounting Standards (SFAS) No. 123, "Accounting for Stock-
Based Compensation" encourages, but does not require, companies to
record compensation cost for stock-based compensation at fair value. The
Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and its
related Interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the fair market value of a
share of the Company's stock at the date of the grant over the amount
that must be paid to acquire the stock. Total compensation expense
recognized in connection with nonemployee stock option grants was
$16,312 during the year ended December 31, 1998. Due to the vesting
terms of non-employee options, no future compensation expense will be
recognized in connection with these grants. No compensation expense has
been recognized in connection with stock option grants during any other
period presented. See Note 6 for the required pro forma net income and
earnings per share disclosures required by SFAS Statement No. 123.
n. Basic and Diluted Net Loss Per Share: The Company computes net loss per
share in accordance with the provisions of SFAS 128 "Earnings per Share"
and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
provisions of SFAS 128 and SAB 98, basic and diluted net loss per share
applicable to common stockholders is computed by dividing the net loss
applicable to common stockholders for the period by the weighted average
number of common shares outstanding for the period. The calculation of
diluted net loss per share excludes shares of common stock issuable upon
the conversion of unsecured convertible subordinated notes (see Note 4),
exercise of employee stock options and warrants (see Note 7), and the
conversion of preferred stock (see Note 8) as the effect of such
exercises would be antidilutive.
o. Comprehensive Earnings: The Company reports comprehensive earnings in
accordance with SFAS Statement No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive earnings and its components in general-purpose financial
statements. There were no components of other comprehensive income
during any of the periods presented.
p. Recent Pronouncements: The FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," in June 1997. SFAS
No. 131 specifies revised guidelines for determining an entity's
operating segment and the type and level of financial information to be
disclosed. This standard requires that management identify operating
segments based on the way that management desegregates the entity for
making internal operating decisions. This statement is effective for
fiscal years beginning after December 15, 1997. The Company currently
operates under the definition of one segment. Therefore, SFAS No. 131 is
not applicable to the Company.
In February 1998 the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Post-Retirement Benefits." SFAS No. 132
standardizes the disclosure requirements for pension and other post-
retirement benefits. The statement is effective for fiscal years
beginning after December 15, 1997. The Company does not have a pension
or other post-retirement plan. Therefore, SFAS No. 132 is not
applicable to the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and
hedging activities and requires recognition of all derivatives as
assets or liabilities in the statement of financial position and
measurement of those instruments at fair value. The statement as
amended is effective for fiscal years beginning after June 15, 2000. As
the Company does not have any derivative instruments or hedging
activities, SFAS No. 133 is not expected to have a material effect on
its financial results.
F-9
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information presented for the nine months ended September 30, 1999 and 1998 is
unaudited)
2.Related Party Transactions:
a. Legal Services: The Company engages the services of certain attorneys
who were members of the Company's Board of Directors during 1997 and
1998, and are holders of the Company's stock. Total fees for services
were $66,181, $71,572 and $388,243 during 1996, 1997 and 1998,
respectively, and $315,202 and $729,929 during the nine month periods
ended September 30, 1998 and 1999, respectively. These fees are included
in general and administrative expenses in the Company's statements of
operations. Total fees payable were $63,403 and $4,051 at December 31,
1997 and 1998, respectively, and $30,308 and $197,028 at September 30,
1998 and 1999.
b. Notes Receivable: In March, April, and July 1999, shareholders provided
a total of $2,817,292 notes receivable upon exercise of stock options
and warrants. These notes are due in 2003, with interest at the rates
ranging from 4.83% to 5.86% due annually. These notes are collateralized
by the shares of common stock issued upon exercise of the related
options and warrants and the makers of each note are personally liable
for up to 20% of the face value of the note, plus accrued interest.
c. Short-Term Borrowings: In December 1997, the Company entered into an
unsecured Line of Credit Loan (the "Loan") with a major shareholder.
Under the Loan, the Company could borrow funds as needed at a rate of
prime plus 2% (10.5% at December 31, 1997). The Loan became due and was
repaid during 1998. The total amount outstanding at December 31, 1997
was $150,000. Total amounts borrowed and repaid during 1998 were
$900,000.
In connection with the Loan, the lender received 100 and 650 common
stock warrants during 1997 and 1998, respectively. The warrants became
immediately exercisable and have a term of five years. Of the warrants,
700 are exercisable at $1,500 and 50 are exercisable at $2,500 as of
December 31, 1998. During the nine months ended September 30, 1999, all
of warrants were exercised in exchange for notes receivable (see Notes
Receivable above). The aggregate fair value of warrants issued during
1997 and 1998 was $107,820 and $653,436, respectively. Such value
represents a discount from the fair value of the Loan and the relative
fair value of the warrants has been recorded in the financial
statements as stipulated by APB 14 and has been amortized over the
period that the Loan was outstanding.
3.Accrued Liabilities:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Accrued payroll............................ $ 28,223 $139,952 $ 363,293
Accrued marketing expense.................. 65,000 68,476 2,093,991
Other...................................... 105,805 313,938 512,826
-------- -------- ----------
$199,028 $522,366 $2,970,110
======== ======== ==========
</TABLE>
F-10
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information presented for the nine months ended September 30, 1999 and 1998 is
unaudited)
4.Long-Term Debt:
The Company has a revolving line of credit arrangement with a bank in the
amount of $500,000 for the purchase of new equipment. Borrowings under this
line are collateralized by the specific equipment purchased and are
repayable in 48 equal installments with interest at a rate of prime plus 1%
per annum. Amounts outstanding under this line were $149,812 and $299,672
at December 31, 1997 and 1998, respectively. The weighted average interest
rate of these borrowings was 9.9% at December 31, 1997 and 9.3% at December
31, 1998.
Under this line of credit the Company is required to comply with certain
financial covenants, including maintenance of a minimum tangible net worth.
Additionally, the Company may not purchase or retire any outstanding shares
or alter or amend its capital structure without the prior consent of the
bank. The Company was in compliance with all financial covenants during all
periods presented.
On May 21, 1999, the maximum amount of borrowings allowed under this line
was increased to $1.0 million.
On April 9, 1999, the Company received a commitment from a major
stockholder to advance the Company up to $3.5 million by December 31, 1999
at the Company's discretion. Borrowings under this agreement will bear
interest at an annual rate of 10% and the principal amount of the
convertible subordinated note will be due on June 30, 2000. Upon the
closing of an initial public offering of equity securities prior to the due
date, the notes and accrued interest will automatically convert into shares
of common stock based on the principal (plus any accrued but unpaid
interest) divided by 90% of the public offering price. In the event that an
initial public offering does not occur and the notes are not repaid by the
Company within 15 days of the due date, the notes and accrued interest will
automatically convert to 696 shares of the Company's common stock.
On May 28, 1999, the Company entered into $1.5 million of unsecured
convertible subordinated notes. These notes are repayable by the Company on
June 30, 2000 with interest at a rate of 10% per annum. Upon the closing of
an initial public offering of equity securities prior to the due date, the
notes and accrued interest will automatically convert to common stock
shares based on the principal (plus any accrued but unpaid interest)
divided by 90% of the public offering price. In the event that an initial
public offering does not occur and the notes are not repaid by the Company
within 15 days of the due date, the notes will automatically convert to
298.594 shares of the Company's common stock.
The aggregate principal payments over the next five years are:
<TABLE>
<S> <C>
1999............................................................ $ 87,106
2000............................................................ 87,106
2001............................................................ 84,960
2002............................................................ 41,475
2003............................................................ --
--------
$300,647
========
</TABLE>
5.Commitments and Contingencies:
a. Letters of Credit: At December 31, 1998 and September 30, 1999, the
Company maintained a $67,352 letter of credit to collateralize a lease
deposit on its office facility. The letter of credit expires after the
termination of the lease. A certificate of deposit for this amount has
been established by the Company in the event that the letter of credit
is executed.
b. Leases: The Company leases equipment and its office premises under
operating lease agreements. Rental expense under these agreements was
$45,656, $78,395 and $196,894 during 1996, 1997 and 1998, respectively,
and $134,282 and $296,274 for the nine month periods ended September 30,
1998 and 1999.
F-11
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information presented for the nine months ended September 30, 1999 and 1998 is
unaudited)
5.Commitments and Contingencies, continued:
At December 31, 1998, future minimum payments under noncancelable
operating leases were as follows:
For the years ended December 31:
<TABLE>
<S> <C>
1999.......................................................... $ 363,939
2000.......................................................... 376,498
2001.......................................................... 382,229
2002.......................................................... 107,720
2003 and thereafter........................................... --
----------
$1,230,386
==========
</TABLE>
c. Litigation: The Company is a defendant in business-related litigation.
Management does not believe the outcome of such litigation will have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
6.Income Taxes:
Under Statement of Financial Accounting Standards ("SFAS") No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences of differences between the carrying amounts of assets and
liabilities and their respective tax bases and for tax carryforward items
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets consist of the following:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforward............................... $1,345,000
Effect of change in accounting method for tax purposes........ 385,000
Property and equipment........................................ 41,000
Other......................................................... 6,000
Valuation allowances.......................................... (1,777,000)
----------
$ --
==========
</TABLE>
There is no current provision or benefit for income taxes recorded, as the
Company has generated net operating losses for income taxes purposes for
which there is no carryback potential. There is no deferred provision or
benefit for income taxes recorded as the Company is in a net asset position
for which a full valuation allowance has been recorded due to uncertainty
of realization.
The valuation allowances relate principally to deferred tax assets that the
Company believes are unlikely to be realized, including net operating loss
carryforwards of approximately $3,956,000 at December 31, 1998, that expire
beginning in 2018 for federal purposes.
7.Stockholders' Equity:
a. Advertising Agreement: On May 28, 1999, the Company entered into an
agreement with a major television network under which the Company
purchased television advertising valued at $3.0 million in exchange for
597.188 shares of its common stock. The advertisements stipulated in the
agreement are required to be aired during the twelve-month period
beginning on October 1, 1999.
F-12
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information presented for the nine months ended September 30, 1999 and 1998 is
unaudited)
7.Stockholders' Equity, continued:
In accordance with Emerging Issue Task Force Abstract No. 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services," the Company has recorded the value of spots to be received
based on the fair value of the spots, as it was more reliably measured
than the fair value of the stock issued at the time that the
performance commitment by the network was reached. Amounts recorded
prior to the running of the advertising spots are classified on the
balance sheet as deferred advertising. As the advertising spots are
run, the Company recognizes advertising expense.
b. Share Warrants: During 1998 and 1997, the Company issued 650 and 100
warrants, respectively, to a stockholder in connection with providing
short-term loans to the Company. See Note 2-Related Parties, for a
description of the loans and warrants.
c. Common Stock Options: The Company has two stock-based compensation
plans, the 1997 Stock Option Plan (the "Employee Plan") and the 1999
Non-Employee Director Stock Option Plan (the "Non-Employee Plan"). The
Employee Plan and the Company's former 1997 Non-Employee Director Stock
Option Plan were established by action of the Company's Board of
Directors on December 4, 1997. In April 1999, the Company's 1997 Non-
Employee Director Stock Option Plan was terminated by the Board of
Directors. In July 1999, the Board of Directors approved the
establishment of the Non-Employee Plan. Vesting under the Employee Plan
is determined by the Board of Directors on an individual grant basis and
is typically incremental vesting over a period of approximately four
years. Options granted under the Non-Employee Plan become fully vested
one year from the date of the grant. The term of the grants made under
each plan is established by the Board of Directors and may not exceed
ten years. The Company is authorized to issue options under the Employee
and Non-Employee Plans for up to 15% for the Employee Plan and 2% for
the Non-Employee Plan of the total number of common shares outstanding,
including those reserved for issuance upon exercise of stock options and
warrants.
In addition to the above plans, the Company has granted options to a
certain employee in conjunction with the execution of a Board-approved
employment contract. These options are included in the disclosures that
follow.
The following information relates to stock options whose exercise price
equals the fair value of the underlying stock on the date of grant:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1997 1998
---------------- ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 282.380 $ 318.72 1,327.380 $2,035.97
Granted................. 282.380 318.72 1,045.000 2,500.00 288.600 2,500.00
Exercised............... -- -- -- -- -- --
Forfeited/expired....... -- -- -- -- (15.400) 2,500.00
------- --------- ---------
Outstanding at end of
period................. 282.380 $318.72 1,327.380 $2,035.97 1,600.580 $2,115.17
======= ========= =========
Exercisable at end of
period................. 70.595 $318.72 350.190 $1,620.55 687.505 $1,828.06
======= ========= =========
Weighted average fair
value of options
granted during the
period................. $ 99.62 $ 781.41 $ 781.41
</TABLE>
F-13
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information presented for the nine months ended September 30, 1999 and 1998 is
unaudited)
7.Stockholders' Equity, continued:
The following information relates to stock options whose exercise price
exceeds the fair value of the underlying stock on the date of grant:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1996 1997 1998
--------------- --------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- -- $ -- -- $ --
Granted................. -- -- -- -- 250.000 2,625.00
Exercised............... -- -- -- -- -- --
Forfeited/expired....... -- -- -- -- -- --
---- ---- -------
Outstanding, at end of
period................. -- $ -- -- $ -- 250.000 $2,625.00
==== ==== =======
Weighted average fair
value of options
granted during the
period................. $ -- $ -- $ 141.56
</TABLE>
The following information relates to stock options whose exercise price is
less than the fair value of the underlying stock on the date of grant:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1996 1997 1998
--------------- --------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- -- $ -- -- $ --
Granted................. -- -- -- -- 200.000 2,418.44
Exercised............... -- -- -- -- -- --
Forfeited/expired....... -- -- -- -- -- --
---- ---- -------
Outstanding, at end of
period................. -- $ -- -- $ -- 200.000 $2,418.44
==== ==== =======
Weighted average fair
value of options
granted during the
period................. $ -- $ -- $ 327.15
</TABLE>
F-14
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information presented for the nine months ended September 30, 1999 and 1998 is
unaudited)
7.Stockholders' Equity, continued:
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
December 31, 1998
------------------------------------
Weighted
Average
Remaining
Exercise Options Options Contractual
Price Outstanding Exercisable Life (Years)
-------- ----------- ----------- ------------
<S> <C> <C> <C>
$ 318.72........ 282.380 211.785 7.80
2,418.44........ 200.000 200.000 9.42
2,500.00........ 1,318.200 475.720 9.14
2,625.00........ 250.000 200.000 9.26
--------- ---------
Totals........... 2,050.580 1,087.505 9.00
========= =========
</TABLE>
The Company adopted the disclosure requirements of Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation," upon establishing the Employee Plan and the Non-Employee
Plan. As permitted by SFAS 123, the Company continues to apply the
accounting provisions of APB Opinion Number 25, "Accounting for Stock
Issued to Employees" with regard to the measurement of compensation cost
for options granted. The Company recognized $16,312 of compensation expense
during 1998 in conjunction with grants made under its fixed stock option
plans. Had expense been recognized using the fair value method described in
SFAS 123, the Company would have reported the following results of
operations using the Black-Scholes option pricing model:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1997 1998
--------- ----------- -----------
<S> <C> <C> <C>
Pro forma net
loss............ $(882,746) $(2,913,300) $(5,894,960)
Pro forma net
loss per diluted
share........... $ (74.11) $ (183.41) $ (314.62)
</TABLE>
These costs may not be representative of the total effects on pro forma
reported income for future years. Factors that may also impact disclosures
in future years include the attribution of the awards to the service
period, the vesting period of stock options, timing of additional grants of
stock option awards and number of shares granted for future awards.
The assumptions used for valuations of option grants calculated in
accordance with SFAS 123 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Annualized dividend yield.............. 0% 0% 0%
Risk free rate of return............... 5.5% 5.5% 5.5%
Expected option term (in years)........ 7.00 7.00 3.95
Expected volatility.................... 0% 0% 0%
</TABLE>
F-15
<PAGE>
COOLSAVINGS.COM INC.
NOTES TO FINANCIAL STATEMENTS--(Concluded)
(Information presented for the nine months ended September 30, 1999 and 1998 is
unaudited)
8.Subsequent Events:
a. Preferred Stock Issuance: In December 1999, the Company issued 2,197.650
shares of no par value Series A convertible preferred stock
("Convertible Preferred") at a price of $9,100.63 per share and received
proceeds of $20,000,000. The holders of Convertible Preferred have
various rights and preferences as follows:
Voting. Each share of Convertible Preferred has the same voting rights
as a share of common stock and votes together as one class with the
common stock.
Conversion. Each share of Convertible Preferred is convertible at the
earlier of December 31, 2000 or the occurrence of any of the following
Liquidity Events: an initial public offering; a change in control of
the Company as a result of a merger; consolidation or reorganization;
or a sale of substantially all of the assets of the Company.
If the conversion is the result of a Liquidity Event, then each share
will be converted into shares of common stock using a conversion ratio
based upon projected market capitalization thresholds and structured so
that the amount of the aggregate shares of common stock issued upon
conversion would constitute between 7.407% and 10% of the currently
issued and outstanding shares of common stock as measured on a pro
forma, as-converted basis.
Based on the conversion ratios, shares of Convertible Preferred will
convert at a value equal to approximately 90% or greater of the
offering price of the Company's common stock in an initial public
offering. Management has determined that such discount does not
constitute a beneficial conversion feature under the Emerging Issues
Task Force ("EITF") Issue 98-5 and does not anticipate a deemed
dividend in the fourth quarter of 1999.
Such shares are not required to be registered as part of the proposed
initial public offering.
In the absence of a Liquidity Event each share will be converted into a
number of shares of common stock using the respective conversion ratio
that yields the fewest shares of common stock based on either: (a) the
number of registered households on the coolsavings.com web site or (b)
the total revenue of coolsavings.com for the year 2000 with the
potential aggregate number of shares of common stock issued upon
conversion ranging between 7.407% and 10.0% of the currently issued and
outstanding shares of common stock as measured on a pro forma, as
converted basis.
b. Financing Transaction: In October 1999, the Company borrowed
approximately $3.5 million under convertible subordinated notes issued
to a major stockholder under a commitment agreement entered into in
April 1999 (see Note 4). These notes bear interest at 10% per annum, and
principal and accrued interest convert into unregistered shares of
common stock upon completion of an initial public offering at a
conversion price equal to 90% of the initial public offering price. In
the event that an initial public offering does not occur and the notes
are not repaid by the Company within 15 days of the due date, the notes
and accrued interest will automatically convert into 696 shares of the
Company's common stock. Management has determined that such discount
does not constitute a beneficial conversion feature under the EITF Issue
98-5 and does not anticipate a noncash interest charge in the fourth
quarter of 1999. The debt matures on June 30, 2000.
F-16
<PAGE>
Inside Back Cover
Co-branded Programs
screenshot of screenshot of reward page
co-branded home page
[logo]
powered by coolsavings.com
. turnkey customer acquisition and rewards
. sign-up incentives and loyalty programs
. builds our member database
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
[LOGO OF COOLSAVINGS.COM APPEARS HERE]
Common Stock
--------------
PROSPECTUS
--------------
CHASE H&Q
LEHMAN BROTHERS
THOMAS WEISEL PARTNERS LLC
------------
, 2000
------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
Until , 2000, all dealers that buy, sell or trade in our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the common stock being registered hereby. All the amounts
shown are estimated, except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee............. $15,180
NASD filing fee.................. 6,250
Nasdaq National Market listing
fee............................. *
Printing and engraving expenses.. *
Legal fees and expenses.......... *
Accounting fees and expenses..... *
Blue Sky fees and expenses....... *
Transfer Agent and Registrar
Fees............................ *
Miscellaneous Expenses........... *
-------
Total.......................... $ *
=======
</TABLE>
- ---------------------
*To be supplied by amendment.
Item 14. Indemnification of Directors and Officers
Section 561 of the Michigan Business Corporation Act (the "MBCA") provides
that a Michigan corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his conduct was unlawful.
Section 562 of the MBCA provides that a Michigan corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that despite adjudication of
liability, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Article V of CoolSavings' bylaws provides for the indemnification of its
officers and directors in the manner, and to the fullest extent, authorized by
the MBCA. Reference is made to Exhibit 3.3 of this Registration Statement for
the complete text of the amended and restated bylaws.
As permitted by the MBCA, CoolSavings' articles of incorporation include a
provision that limits the personal liability of its directors to the maximum
extent permitted by the MBCA. Reference is made to Exhibit 3.2 of this
Registration Statement for the complete text of the restated articles of
incorporation to be filed prior to the closing of this offering.
II-1
<PAGE>
CoolSavings intends to enter into indemnification agreements with its
current directors and executive officers. CoolSavings intends to insure its
directors and officers against losses arising from any claim against them as
such for wrongful acts or omissions, subject to certain limitations.
Under Section 7 of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of CoolSavings against certain liabilities, including
liabilities under the Securities Act of 1933. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.
Item 15. Recent Sales of Unregistered Securities
Within the past three years, the registrant has issued and sold unregistered
securities in the amounts, at the times and for the aggregate amounts of
consideration listed as follows:
1. On February 11, 1997, we issued 735.7 shares of common stock to two
investors for an aggregate purchase price of $300,000.00.
2. On April 1, 1997, we issued 1,029 shares of common stock to eight
investors for an aggregate purchase price of $420,000.00.
3. On August 5, 1997, we issued 688 shares of common stock to 16
investors for an aggregate purchase price of $530,865.63.
4. On October 10, 1997, we issued 401 shares of common stock to 21
investors for an aggregate purchase price of $601,500.00.
5. From December 18, 1997 through April 24, 1998, we issued warrants to
purchase an aggregate of 750 shares of common stock to the Richard H. Rogel
Revocable Living Trust in connection with a financing arrangement.
6. On May 5, 1998, we issued 287 shares of common stock to ten investors
for an aggregate purchase price of $717,500.00.
7. On June 1, 1998, we issued 2,170.82 shares of common stock to Lend
Lease International Pty. Limited for a purchase price of $5 million.
8. On November 4, 1998, we issued 1,973.47 shares of common stock to
Lend Lease International Pty. Limited for a purchase price of $5 million.
9. On March 11, 1999, we issued 2,368.16 shares of common stock to Lend
Lease International Pty. Limited for a purchase price of $5 million.
10. On April 27, 1999, we issued 1,860.70 shares of common stock to Lend
Lease International Pty. Limited for a purchase price of $3.5 million.
11. On April 27, 1999, we issued an additional 37.74 shares of common
stock to the ten investors who purchased shares on May 5, 1998, pursuant to
an agreement to render the per-share price of their investment equal to
that of Lend Lease International Pty. Limited.
12. On May 28, 1999, we issued promissory notes in the aggregate
principal amount of $1.5 million to 18 investors. Upon completion of this
offering, these promissory notes will automatically convert into shares of
common stock.
13. On May 28, 1999, we issued 597.188 shares of common stock to
National Broadcasting Company, Inc. in exchange for $3,000,000 of broadcast
advertising.
14. On October 18, 1999, we issued a promissory note in the principal
amount of approximately $3.5 million to Lend Lease International Pty.
Limited. Upon completion of this offering, this promissory note will
automatically convert into shares of common stock.
15. On December 31, 1999, we issued 2,197.650 shares of Series A
convertible preferred stock for an aggregate purchase price of $20.0
million to approximately 70 investors. Upon completion of this offering,
the Series A convertible preferred stock will automatically convert into
shares of common stock.
II-2
<PAGE>
16. Since inception, we have issued options to purchase an aggregate of
3,671.380 shares of common stock to our employees, consultants and
directors.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales of common stock, preferred stock, warrants and
promissory notes were made in reliance upon the exemption from registration set
forth in Section 4(2) of the Securities Act of 1933 and, in most cases, also in
Rule 506 of Regulation D promulgated thereunder for transactions not involving
a public offering. Issuances of options to the Registrant's employees,
directors and consultants were made under Rule 701 promulgated under the
Securities Act of 1933. The recipients of the above securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
access, through their relationship with the Registrant, to information about
the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibit Index
See exhibits listed on the Exhibit Index following the signature pages
of the Form S-1, which is incorporated herein by reference.
(b) Financial Statement Schedules:
Report of Independent Accountants
Schedule II--Valuation and Qualifying Accounts
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, State of
Illinois, on January 14, 2000.
coolsavings.com inc.
/s/ Steven M. Golden
By: _________________________________
Steven M. Golden
Chairman of the Board, Chief
Executive Officer and President
II-4
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints, jointly and severally, Steven M. Golden
and David H. Jacobson, or either of them acting alone, as his or her attorneys-
in-fact and agents, with full power of substitution and resubstitution for him
or her in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this Registration Statement and any registration
statement relating to the offering covered by this Registration Statement and
filed pursuant to Rule 462(b), and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission or any regulatory authority, granting unto each of such attorneys-
in-fact and agents full power and authority to do and perform each and every
act and thing requisite and necessary in connection with such matters as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that each of such attorneys-in-fact and agents or
his substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Steven M. Golden Chairman of the Board, Chief January 14, 2000
____________________________________ Executive Officer and
Steven M. Golden President (Principal
Executive Officer)
/s/ David H. Jacobson Chief Financial Officer, January 14, 2000
____________________________________ Treasurer Secretary
David H. Jacobson (Principal Financial and
Accounting Officer)
/s/ Richard H. Rogel Director January 14, 2000
____________________________________
Richard H. Rogel
/s/ Hugh R. Lamle Director January 14, 2000
____________________________________
Hugh R. Lamle
/s/ Albert Aiello Director January 14, 2000
____________________________________
Albert Aiello
/s/ Lynette H. Mayne Director January 14, 2000
____________________________________
Lynette H. Mayne
/s/ David E. Simon Director January 14, 2000
____________________________________
David E. Simon
/s/ Robert J. Kamerschen Director January 14, 2000
____________________________________
Robert J. Kamerschen
</TABLE>
II-5
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors
of coolsavings.com
Our audits of the financial statements referred to in our report dated June
7, 1999 appearing in this Registration Statement on Form S-1 also included an
audit of the financial statement schedule. In our opinion, such financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
June 7, 1999
<PAGE>
coolsavings.com inc.
Schedule II--Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions (Reductions)
---------------------------
Balance Charged Balance
at to Costs Charged at End
Beginning and to Other Deductions of
Classification of Period Expenses Accounts (1) Period
- -------------- --------- -------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful
receivables................... $ 0 $13,500 $0 $ 0 $13,500
Year ended December 31, 1997:
Allowance for doubtful
receivables................... $ 0 $ 0 $0 $ 0 $ 0
Year ended December 31, 1996:
Allowance for doubtful
receivables................... $ 0 $ 0 $0 $ 0 $ 0
Nine months ended September 30,
1999:
Allowance for doubtful
receivables................... $13,500 $56,616 $0 $16,017 $54,099
Nine months ended September 30,
1998:
Allowance for doubtful
receivables................... $ 0 $ 0 $0 $ 0 $ 0
</TABLE>
- ---------------------
(1) Uncollectible accounts written off.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation
3.2 Form of Restated Articles of Incorporation to be filed prior
to the closing of this offering*
3.3 Amended and Restated Bylaws*
4.1 Form of Common Stock Certificate*
4.2 Shareholders Agreement, dated as of June 1, 1998, among
CoolSavings and certain of its Stockholders
4.3 Form of 1999 Unsecured, Convertible Subordinated Promissory
Note of CoolSavings
4.4 Registration Rights Agreement among CoolSavings and the
holders of the 1999 Unsecured, Convertible Subordinated
Promissory Notes
4.5 Registration Rights Agreement among CoolSavings and the
holders of the Series A Convertible Preferred Stock.
5.1 Opinion letter of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation, regarding the validity of securities being
registered
10.1 Investment Agreement, dated June 1, 1998, by and between
CoolSavings and Lend Lease International Pty. Limited
10.2 Form of Indemnification Agreement*
10.3 1997 Stock Option Plan
10.4 1999 Director Option Plan
10.5 Credit Agreement, dated December 18, 1997, between CoolSavings
and the Richard H. Rogel Revocable Living Trust u/a/d March
21, 1990
10.6 Form of Promissory Note from current and former directors of
CoolSavings payable to CoolSavings in consideration for
exercise of stock options and/or warrants
10.7 Termination Agreement, dated December 30, 1999, between
CoolSavings and Hillel Levin
10.8 Consulting Agreement, dated as of January 1, 2000, between
CoolSavings and Hillel Levin
10.9 Lease Agreement, dated February 24, 1997, between Prentiss
Properties Acquisition Partners, L.P. and CoolSavings*
10.10 Agreement of Sublease, dated June 30, 1998, between Insurance
Company of North America and CoolSavings*
10.11 Lease Agreement, dated January 3, 2000, between 360 North
Michigan Trust and CoolSavings
10.12 Market Survey Panelist Agreement, dated as of October 25,
1999, between CoolSavings and NFO Research, Inc.*
10.13 Bankcard Marketing Agreement, dated April 2, 1999, between
CoolSavings and First USA Bank*
10.14 Stock Purchase and Advertising Agreement, dated May 28, 1999,
between CoolSavings and National Broadcasting Company, Inc.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S> <C>
23.1 Consent of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation (included as part of Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Niro, Scavone, Haller & Niro
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
*To be filed by amendment.
2
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
coolsavings.com inc.
Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned
corporation executes the following Articles:
- --------------------------------------------------------------------------------
1. The present name of the corporation is: coolsavings.com inc.
2. The corporation identification number (CID) assigned by the Bureau is:
196-828
3. All former names of the corporation are: Interactive Coupon Marketing
Group, Inc.
4. The date of filing the original Articles of Incorporation was: December 21,
1994
- --------------------------------------------------------------------------------
The following Restated Articles of Incorporation supersede the Articles of
Incorporation as amended and shall be the Articles of Incorporation for the
corporation:
Article I
The name of the corporation is: coolsavings.com inc.
Article II
The purpose or purposes for which the corporation is formed is to engage in
any activity within the purposes for which corporations may be formed under the
Michigan Business Corporation Act (the "Act").
Article III
The total authorized shares of the corporation shall be 60,000 Common
Shares and 20,000 Preferred Shares.
A statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follows:
The holder of each outstanding common share shall have one vote per share
with respect to all matters submitted to a vote of shareholders.
The Board of Directors may cause the Corporation to issue Preferred Shares
in one each series to bear a distinctive designation and to have such
relative rights and preferences as shall be prescribed by resolution of the
Board. Each resolution, when filed in accordance with the Act, shall constitute
an amendment to the Articles of Incorporation.
Article IV
The address of the current registered office is: 255 E. Brown St., Ste. 110
Birmingham, MI 48009
<PAGE>
The mailing address of the current registered office if different from the
registered office address:
_________________________________________________________________________
(Address) (City) (Zip Code)
The name of the current resident agent at the registered office is:
Robert D. Gorman.
Article V
To the full extent permitted by the Act or any other applicable laws
presently or hereinafter in effect, no director of this corporation shall be
personally liable to the Corporation or its shareholders for monetary damages
for or with respect to any acts or omissions in the performance of his or her
duties as a director of the Corporation. If the Act is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Act, as so
amended. Any repeal, modification or adoption of any provision in these Articles
of Incorporation inconsistent with this Article V shall not adversely affect any
right or protection of a director of the Corporation existing immediately prior
to, or for, or with respect to, any acts or omissions occurring before such
repeal or modification.
Article VI
Any action required or permitted by the Act to be taken at an annual or
special meeting of shareholders may be taken without a meeting, without prior
notice, and without a vote, if consents in writing, setting forth the action so
taken, are signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take the action
at a meeting at which all shares entitled to vote on the action were present and
voted. The written consents shall bear the date of signature of each shareholder
who signs the consent. No written consents shall be effective to take the
corporate action referred to unless, within 60 days after the record date for
determining shareholders entitled to express consent to or to dissent from a
proposal without a meeting, written consents dated not more than 10 days before
the record date and signed by a sufficient number of shareholders to take the
action are delivered to the corporation. Delivery shall be to the corporation's
registered office, its principal place of business, or an officer or agent of
the corporation having custody of the minutes of the proceedings of its
shareholders. Delivery made to a corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to shareholders who would
have been entitled to notice of the shareholder meeting if the action had been
taken at a meeting and who have not consented in writing.
Article VII
Pursuant to Section 784(1)(b) of the Act, the Corporation expressly elects
not to be governed by Chapter 7A of the Act, being sections 775 through 784 of
the Act; provided that the Corporation's Board of Directors may terminate this
election in whole or in part by action of the majority of directors then in
office.
-2-
<PAGE>
These Restated Articles of Incorporation were duly adopted on the 20/th/
day of October, 1999, in accordance with the provisions of Section 642 of the
Act and were duly adopted by the written consent of the shareholders having not
less than the minimum number of votes required by statute in accordance with
Section 407(1) of the Act. Written notice to shareholders who have not consented
in writing has been given. (Note: Written consent by less than all of the
shareholders is permitted only if such provision appears in the Articles of
Incorporation.)
Signed this 2 day of Nov., 1999
coolsavings.com inc.
By: /s/ Hillel Levin
-----------------------------------
Hillel Levin, President
- --------------------------------------------------------------------------------
Name of person or organization Preparer's name and business telephone
remitting fees: number:
coolsavings.com inc. Jill H. Collins, Esq.
- -------------------------------- --------------------------------------
313-961-8380
- -------------------------------- --------------------------------------
-3-
<PAGE>
Michigan Department of Consumer and Industry Services
Corporation, Securities and Land Development Bureau
CERTIFICATE OF DESIGNATION
coolsavings.com inc.
State ID No. 196-828
December 27, 1999
Pursuant to Section 302 of the Michigan Business Corporation Act, MCLA
450.1302, the Board of Directors of coolsavings.com inc., a Michigan
corporation, have duly adopted the following Resolution designating the Series A
Convertible Preferred Shares of the corporation. These shares of capital stock
are authorized by the Articles of Incorporation of the corporation.
WHEREAS, coolsavings.com inc., a Michigan corporation (the "Corporation"),
has authority, pursuant to its Amended and Restated Articles of
Incorporation, as now in effect (the "Articles"), to issue a total of
80,000 shares of capital stock, which is divided into 60,000 common shares
and 20,000 preferred shares, without par value; and
WHEREAS, the Board of Directors of the Corporation is authorized, pursuant
to the Articles and the Michigan Business Corporation Act, to designate one
or more series of preferred stock out of the shares of preferred stock
authorized in the Articles; and
WHEREAS, it has been proposed that the Board of Directors designate, by
resolution, that 5,000 shares of authorized preferred stock of the
Corporation shall be Series A Convertible Preferred Shares, with the rights
and preferences as set forth below, and whereas the Board of Directors
believes such designation to be in the best interest of the Corporation and
its shareholders.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the
Corporation, for and on behalf of the Corporation, hereby designates 5,000
shares of the authorized preferred stock of the Corporation as Series A
Convertible Preferred Shares, with the following rights and preferences:
<PAGE>
(1) Designation. The class of Series A Convertible Preferred Shares
shall be designated the "Convertible Preferred Shares."
(2) Dividends. No dividends shall be declared and set aside for any
Convertible Preferred Shares except in the event that the Board of
Directors of the Corporation shall declare a dividend payable in cash upon
the then outstanding Common Shares, in which event the holders of the
Convertible Preferred Shares shall be entitled to the amount of cash
dividend per Convertible Preferred Share as are declared payable upon each
Common Share, as determined as of the record date for the determination of
holders of Common Shares entitled to receive such cash dividend.
(3) Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, any sums which shall be
paid or any assets distributed among any of the shareholders of the
Corporation (collectively, the "Distribution") shall be paid in the
following order:
(i) first, to the holders of the Convertible Preferred Shares,
an amount equal to the lesser of (A) $9,100.63 per Convertible
Preferred Share plus all unpaid dividends to which such share is
entitled under Section 2 hereof, or (B) the aggregate amount of
the Distribution, divided pro rata among the holders of the
Convertible Preferred Shares on the basis of the number of
Convertible Preferred Shares held by each holder; and
(ii) second, if there shall remain any excess Distribution
after satisfaction of Section 3(a)(i) above, to the holders of all
classes of capital stock of the Corporation, taken as a whole, pro
rata in accordance with the total number of shares of capital
stock, of any class, of the Corporation held by such holder.
(b) Whenever the Distribution provided for herein shall be paid in
property other than cash, the value of such Distribution shall be the
fair market value of such property as determined in good faith by the
Board of Directors of the Corporation.
(4) Voting Power. Each holder of Convertible Preferred Shares shall be
entitled to vote on all matters and shall be entitled to one vote per
Convertible Preferred Share. Except as otherwise expressly provided herein
or as required by law, the holders of Convertible Preferred Shares and
Common Shares shall vote together as a single class on all matters.
(5) Conversion Rights. The holders of the Convertible Preferred Shares
shall have the following conversion rights:
2
<PAGE>
(a) The Convertible Preferred Shares automatically shall be
converted (the "Conversion") into fully paid and non-assessable Common
Shares, upon the earlier of (i) December 31, 2000, or (ii) immediately
prior to the occurrence of any of the following (each a "Liquidity
Event"): (A) the closing of an underwritten, public offering of equity
securities of the Corporation pursuant to an effective registration
statement under the Securities Act of 1933 (an "IPO"); (B) a merger,
consolidation or reorganization of the Corporation that results in a
Change in Control (as defined below) of the Corporation; or (C) a sale
of all or substantially all of the assets of the Corporation. For
purposes of the foregoing section, "Change in Control" means a
transaction in which beneficial ownership of more than fifty percent
(50%) of the capital stock of the Corporation is held by persons that
were not stockholders of the Corporation immediately prior to the
transaction.
(b) If the Conversion occurs as the result of a Liquidity Event,
then each Convertible Preferred Share automatically shall be converted
into the right to receive that number (the "Conversion Ratio") of
Common Shares set forth opposite the highest applicable Market
Capitalization (as defined below), as follows:
<TABLE>
<CAPTION>
Market Capitalization Common Shares per
of at least Convertible Preferred Share
---------------------------------------------------------
<S> <C>
$300 million 1.00000
$290 million 1.03888
$280 million 1.07777
$270 million 1.11666
$260 million 1.15555
$250 million 1.19444
$240 million 1.23333
$230 million 1.27222
$220 million 1.31111
$210 million 1.35000
less than $210 million 1.38889
</TABLE>
For purposes hereof, "Market Capitalization" means: (i) in the case of
an IPO, the product derived by multiplying the per share gross price
to the public in the IPO by the total number of Common Shares issued
and outstanding immediately prior to the IPO (calculated on a fully-
diluted basis, as if all securities convertible into Common Shares
(including, without limitation, the Convertible Preferred Shares and
the Corporation's 1999 Unsecured, Convertible Subordinated Promissory
Notes) had been fully converted into Common Shares immediately prior
to the IPO (and assuming that the Conversion Ratio is one Common Share
for each Convertible Preferred Share) and all outstanding options,
warrants and other securities exercisable for Common Shares had been
fully exercised immediately
3
<PAGE>
prior to the IPO), (ii) in the case of the sale of all or
substantially all of the Corporation's assets or the sale of all of
the Corporation's issued and outstanding capital stock (by merger or
otherwise), the aggregate consideration to be received by the
Corporation and/or its stockholders, as applicable, in such Liquidity
Event, and (iii) in the case of any other Liquidity Event, the product
derived by multiplying the per share consideration to be received by
the Corporation and/or its stockholders, as applicable, in such
Liquidity Event by the total number of Common Shares issued and
outstanding immediately prior to such Liquidity Event (calculated on a
fully-diluted basis, as if all securities convertible into Common
Shares (including, without limitation, the Convertible Preferred
Shares and the Corporation's 1999 Unsecured, Convertible Subordinated
Promissory Notes) had been fully converted into Common Shares
immediately prior to such Liquidity Event (and assuming that the
Conversion Ratio is one Common Share for each Convertible Preferred
Share) and all outstanding options, warrants and other securities
exercisable for Common Shares had been fully exercised immediately
prior to such Liquidity Event).
(c) In the absence of a Liquidity Event on or before December 31,
2000, then as of January 1, 2001, each Convertible Preferred Share
shall automatically be converted into a number of Common Shares equal
to the lesser of the Conversion Ratios shown below (i.e., the
------
Conversion Ratio yielding the fewer number of Common Shares),
corresponding to: (i) the then-current total number of households
registered on the Corporation's "CoolSavings" Web site; or (ii) the
Corporation's total revenues for the year ended December 31, 2000 (as
determined by the Corporation's regularly retained independent
accountants in accordance with Generally Accepted Accounting
Principles); as follows:
<TABLE>
<CAPTION>
Registered
Households Common Shares per
(at least) Convertible Preferred Share
-----------------------------------------------------
<S> <C>
4.0 million 1.00000
3.9 million 1.03888
3.8 million 1.07777
3.7 million 1.11666
3.6 million 1.15555
3.5 million 1.19444
3.4 million 1.23333
3.3 million 1.27222
3.2 million 1.31111
3.1 million 1.35000
less than 3.1 million 1.38889
</TABLE>
or
4
<PAGE>
<TABLE>
<CAPTION>
Year 2000 revenue Common Shares per
(at least) Convertible Preferred Share
-----------------------------------------------------
<S> <C>
$25.0 million 1.00000
$24.0 million 1.03888
$23.0 million 1.07777
$22.0 million 1.11666
$21.0 million 1.15555
$20.0 million 1.19444
$19.0 million 1.23333
$18.0 million 1.27222
$17.0 million 1.31111
$16.0 million 1.35000
less than $16.0 million 1.38889
</TABLE>
(d) Upon receipt of notice of the Conversion, each holder of
Convertible Preferred Shares shall promptly surrender the certificates
representing such shares at the office of the Corporation or of its
designee. Thereupon, there shall be issued and delivered to such
holder a certificate or certificates for the number of Common Shares
into which the Convertible Preferred Shares surrendered were converted
as of the date and time immediately prior to the event causing the
Conversion. The Corporation shall not be obligated to issue
certificates evidencing the Common Shares issuable upon such
Conversion unless certificates evidencing such Convertible Preferred
Shares being converted are either delivered to the Corporation or its
designee or the holder notifies the Corporation or its designee that
such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation
from any loss incurred by it in connection therewith. Notwithstanding
anything to the contrary herein, effective immediately prior to the
event causing the Conversion, the rights of the holders of the
converted Convertible Preferred Shares shall cease and the person or
persons in whose name or names any certificate or certificates for
Common Shares shall be issuable upon Conversion thereof shall be
deemed to have become the holder or holders of record of the Common
Shares represented thereby as of such date.
(e) Adjustments to Conversion Ratios.
(i) If at any time while there are any Convertible Preferred
Shares outstanding, the Corporation issues or sells Common Shares
without consideration therefor or for consideration equal to less
than $9,100.63 per Common Share, or undertakes any stock split,
stock dividend, reclassification, or recapitalization (each of the
foregoing being a "Dilution Transaction"), then in each such case
all of the Conversion Ratios, as listed in Sections 5(b) and 5(c)
above, shall be adjusted to an amount determined by multiplying
the Conversion Ratio (the number of Common Shares per Convertible
Preferred Share) by a fraction, the numerator of
5
<PAGE>
which shall be the number of Common Shares outstanding
immediately following the Dilution Transaction, and the
denominator of which shall be the number of Common Shares
outstanding immediately prior to the Dilution Transaction.
(ii) Notwithstanding the foregoing Section 5(e)(i), Common
Shares issued in any of the following transactions shall not be
---
deemed an issuance of additional Common Shares under this Section
5 and the Conversion Ratios shall not be adjusted as a result of
---
the issuance of such Common Shares: (A) upon conversion of the
Convertible Preferred Shares; (B) to the Corporation's employees,
directors, officers or consultants pursuant to any stock purchase
or stock option plan or other employee incentive program approved
by the Board of Directors; (C) to banks, lenders and equipment
lessors in connection with debt financings or equipment leases;
(D) to real estate lessors in connection with real estate leases;
(E) as a dividend or distribution on the Convertible Preferred
Shares; (F) to a strategic partner as an equity incentive in a
transaction approved by the Board of Directors of the Corporation
and the primary purpose of which is not a financing; or (G) by
way of dividend or other distribution on Common Shares in
connection with any of the transactions specified in clauses (A)
through (F) above.
(iii) For the purposes of this Section 5(e), the making of any
obligation, agreement or undertaking by the Corporation to issue
warrants, options, subscriptions or purchase rights at any time
in the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises; provided,
however, that no adjustment of the Conversion Ratios shall be
made under this Section 5(e) upon the issuance of any Common
Shares that are issued pursuant to the exercise of any warrants,
options, subscriptions or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible
securities: (A) which warrants, options, subscriptions or
purchase rights were granted or undertaken prior to the date of
this resolution; or (B) if any adjustment shall previously have
been made upon the issuance of any such warrants, options or
subscriptions or purchase rights or upon the issuance of any
convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided.
(iv) Upon the occurrence of each adjustment of the Conversion
Ratios pursuant to this Section 5, the Corporation at its expense
shall promptly compute such adjustment in accordance with the
terms hereof and furnish to each holder of the Convertible
Preferred Shares a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based.
The Corporation shall, upon the written request of any holder of
Convertible Preferred Shares, furnish to such holder a like
6
<PAGE>
certificate setting forth (A) all such adjustments; (B) the
Conversion Ratios then in effect; and (C) the number of Common
Shares and the amount, if any, of other property which would at
that time be received upon conversion of the Convertible
Preferred Shares.
(f) Dividends. In the event the Corporation shall make or issue,
or fix a record date for the determination of holders of Common Shares
entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than Common Shares ("Other
Securities"), then and in each such event provision shall be made so
that the holders of Convertible Preferred Shares shall receive upon
Conversion thereof in addition to the number of Common Shares
receivable thereupon, the number of such Other Securities that they
would have received had their Convertible Preferred Shares been
converted into Common Shares at the time the Corporation made, issued
or fixed a record date for the determination of shareholders entitled
to receive such Other Securities.
(g) Issuance of Common Share Certificates. Upon or promptly
following a Conversion, a holder of Convertible Preferred Shares shall
surrender the certificate or certificates representing the shares
being converted, as described above, and shall provide the Corporation
or its designee with the name or names (with address or addresses) in
which to issue the certificate or certificates for Common Shares into
which the Convertible Preferred Shares were converted. The certificate
or certificates for Convertible Preferred Shares surrendered for
conversion shall be accompanied by proper assignment thereof to the
Corporation or in blank. As promptly as practicable after its receipt
of certificates for Convertible Preferred Shares which have been
converted pursuant to this Section 5, the Corporation shall issue and
deliver such certificate or certificates as the holder thereof may
request for the number of Common Shares issuable in respect of the
Conversion of such Convertible Preferred Shares in accordance with the
provisions of this Section 5, together with cash payment in the amount
of all cash dividends to which such shares are entitled under Section
2 hereof up to and including the effective date of the Conversion. The
Conversion of all Convertible Preferred Shares will be deemed
effective as provided in this Section 5, notwithstanding any delay in
the Corporation's receipt of certificates evidencing such Convertible
Preferred Shares or issuance of Common Shares in exchange therefor.
(h) Reservation of Common Shares. The Corporation shall at all
times reserve and keep available out of its authorized but unissued
Common Shares, solely for the purpose of effecting the Conversion of
the Convertible Preferred Shares, such number of its Common Shares as
shall from time to time be sufficient to effect the Conversion of all
of the then outstanding Convertible Preferred Shares, and if at any
time the number of authorized but unissued Common Shares shall not be
sufficient to effect the Conversion of all then outstanding
Convertible Preferred Shares, the Corporation shall take such
corporate action as may be necessary to
7
<PAGE>
increase its authorized but unissued Common Shares to such number
of shares as shall be sufficient for such purpose.
(6) Restrictions and Limitations.
(a) Except as expressly provided herein or as required by
law, so long as any Convertible Preferred Shares remain
outstanding, the Corporation shall not, without the vote or
written consent by the holders of a majority of the then
outstanding Convertible Preferred Shares (each Convertible
Preferred Share to be entitled to one vote in each such
instance), authorize or issue, or obligate itself to authorize or
issue, any other equity security having a preference over, or
being on parity with, the Convertible Preferred Shares with
respect to liquidation.
(b) The Corporation shall not amend its Articles of
Incorporation without the approval by vote or written consent by
the holders of a majority of the then outstanding Convertible
Preferred Shares (each Convertible Preferred Share to be entitled
to one vote in each such instance) if such amendment would alter
or change the powers, preferences or special rights of the
Convertible Preferred Shares.
RESOLVED FURTHER, that the officers of the Corporation, or any of them
acting alone, are hereby empowered and directed to file a copy of
these Resolutions with the Michigan Department of Consumer and
Industry Services, Corporation, Securities and Land Development
Bureau, in accordance with Section 302 of the Michigan Business
Corporation Act, MCLA 450.1302.
I certify that the foregoing Resolutions were duly adopted by the
Board of Directors of the Corporation on the 27/th/ day of December, 1999.
/s/ David H. Jacobson
----------------------------------
David H. Jacobson, Secretary
- --------------------------------------------------------------------------------
Prepared by: Person submitting fees:
Eric S. Bronstein
Jaffe, Raitt, Heuer & Weiss, P.C. Jaffe, Raitt, Heuer & Weiss, P.C.
One Woodward Ave., Suite 2400 (313) 961-8380
Detroit, Michigan 48226
(313) 961-8380
8
<PAGE>
EXHIBIT 4.2
SHAREHOLDERS AGREEMENT
----------------------
THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made and entered into as
of June 1, 1998, by and among Interactive Coupon Marketing Group, Inc., a
Michigan corporation (the "Corporation"), and the shareholders of the
Corporation that execute this Agreement on or prior to July 15, 1998 (each of
whom is referred to herein individually as a "Shareholder" and collectively as
the "Shareholders"). An Index of defined terms and list of exhibits is attached
hereto as Exhibit A.
---------
RECITALS
This Agreement is entered into on the basis of the following facts,
understandings and intentions of the parties:
A. The Corporation and Lend Lease International Pty. Limited, a company
organized under the laws of Australia ("LLI"), have entered into that certain
Investment Agreement, dated of even date herewith (the "Investment Agreement"),
providing, among other things, for the purchase by LLI of shares of the
Corporation's Common Stock.
B. As of the date of this Agreement, the Corporation's authorized capital
stock consists of 60,000 shares of common stock, without par value, (the "Common
Stock") of which there are 19,430.79 shares issued and outstanding (including
the shares issued to LLI as of the date of this Agreement, pursuant to Section
1.2 of the Investment Agreement). In addition, 2277.38 shares of Common Stock
(the "Option Shares") are issuable upon exercise of, or pursuant to, all
outstanding rights, options, warrants, preemptive rights, conversion rights or
agreements for the purchase, acquisition or receipt from the Corporation of any
shares of its Common Stock. Except as set forth in the Articles of
Incorporation, the shares of Common Stock have all of the rights, preferences
and limitations of shares of common stock stated in the Michigan Business
Corporation Act, as amended (the "Michigan Act").
C. Richard H. Rogel, Douglas J. Golden, Steven Golden, Hillel Levin,
Peter Sugar, and Arthur A. Weiss are all of the current directors of the
Corporation (collectively, the "Directors"). Each of the Directors is also a
Shareholder and joins this Agreement in both the capacity of a Director and a
Shareholder. All Shareholders other than LLI and LLI's Permitted Transferees (as
defined below), are referred to herein as the "ICMG Shareholders".
D. In connection with the transactions contemplated by the Investment
Agreement, the Shareholders, the Directors and the Corporation have agreed to
certain provisions regarding the election of directors and rights and
restrictions of shareholders with respect to the Common Stock, as set forth in
this Agreement.
NOW THEREFORE, for and in consideration of the foregoing Recitals, the
mutual covenants and agreements contained in this Agreement and other good and
valuable consideration, the receipt and adequacy of which is hereby acknowledged
by the parties to this Agreement, the Corporation, the Directors and each of the
Shareholders agree as follows:
<PAGE>
Section 1. Directors, Officers and Voting.
1.1 Appointment and Nomination of Directors. The Bylaws of the
---------------------------------------
Corporation provide that the Board of Directors shall be comprised of not fewer
than five (5) but no more than seven (7) directors. Currently, the Board is
comprised of six (6) directors. Each of the Shareholders agrees that at all
times until this Agreement is terminated or expires, he will in his capacity as
a shareholder vote to maintain the size of the Board of Directors at seven (7),
except as provided in Section 1.3 below. Each of the Directors agrees that,
-----------
concurrently with the execution of this Agreement, he shall resign from the
Board. Each Shareholder agrees that, concurrently with the execution of this
Agreement, and at all times until this Agreement is terminated or expires,
except as provided in Section 1.3 below, he will in his capacity as a
-----------
shareholder:
(a) initially vote to nominate and elect three (3) directors when
and as nominated by LLI (the "LLI Directors"), and thereafter, upon any
vacancy from among the three (3) LLI Directors, vote to nominate and elect
a replacement when and as nominated by the LLI Directors (except when the
Corporation exercises its rights under Sections 1.3.1(a), 1.3.2(a),
----------------------------
1.3.3(a), 1.3.4(a) or 1.3.5(a), in which event, he will vote to nominate
------------------------------
and elect a replacement as set forth in such Sections);
(b) initially vote to nominate and elect Richard H. Rogel, Douglas
J. Golden and Steven Golden to serve as the first three (3) directors for
the ICMG Shareholders (the "ICMG Directors"), and thereafter, upon any
vacancy from among the three (3) ICMG Directors, vote to nominate and elect
a replacement when and as nominated by the ICMG Directors and vote to elect
one of the ICMG Directors as Chairman of the Board (except when the
Corporation exercises its rights under Sections 1.3.1(a), 1.3.2(a),
-------------------
1.3.3(a), 1.3.4(a) or 1.3.5(a), in which event, he will vote to nominate
------------------------------
and elect a replacement as set forth in such Sections);
(c) vote to nominate and elect one (1) director who shall be an
independent third party (the "Independent Director") (as defined below)
when and as nominated in accordance with Section 1.2 below; and
-----------
(d) take all action necessary from time to time (including, without
limitation, the execution of written consents, the calling of special
meetings, the filling of vacancies, and the waiving of notice and
attendance at meetings) to accomplish the appointments and nominations
described in this Section 1.1.
-----------
1.2 Independent Director. The LLI Directors and the ICMG Directors shall
--------------------
mutually nominate the Independent Director contemporaneous with the execution of
this Agreement. Thereafter, except as provided below, upon the occurrence of any
vacancy in the position of the Independent Director (a "Vacancy"), the LLI
Directors and the ICMG Directors shall in good faith mutually nominate the
Independent Director within thirty (30) business days after the
2
<PAGE>
occurrence of a Vacancy (the "Vacancy Period"). If the LLI Directors and the
ICMG Directors cannot mutually agree within the Vacancy Period on the person to
nominate to become the Independent Director, or if at any time during the
Vacancy Period a meeting of the Board of Directors is held where the Board is
unable to act without the Independent Director due to a deadlock (a "Deadlock"),
the Independent Director shall be nominated as follows:
(a) Within five (5) business days after the earlier of a Deadlock
or the expiration of the Vacancy Period, the ICMG Directors shall provide
the LLI Directors with a list of five (5) persons, accompanied by resumes
and at least two references each (the "Slate"), each of whom qualify as an
Independent Director as defined in this Section 1.2, and the LLI Directors
-----------
shall select the Independent Director from among the Slate within five (5)
business days after receipt of the Slate. The person selected by the LLI
Directors from the Slate shall be nominated and appointed to serve as the
Independent Director. If the LLI Directors fail to provide written notice
to the Corporation of the selection from the Slate within five (5) business
days after receipt of the Slate, the ICMG Directors shall be entitled to
nominate the Independent Director from the Slate.
(b) Independent Director means a director who meets all of the
following requirements:
(i) Has at least ten (10) years of business or financial
experience, or other equivalent experience. For purposes of this Section
-------
1.2(b), "experience" shall mean experience as a senior executive, director,
------
or other equivalent experience;
(ii) Is not and during the five (5) years prior to being
designated as an Independent Director has not been any of the following:
(A) An officer or employee of the Corporation or LLI or
any Affiliate, as defined, of the Corporation or LLI.
(B) Engaged in any business transaction for profit or
series of transactions for profit, including without limitation
banking, legal or consulting services, involving more than
$25,000.00, with the Corporation or any Affiliate of the Corporation.
(C) An Affiliate, executive officer, general partner,
or member of the immediate family of any person that had the status
or engaged in a transaction described in subparagraphs (B) or (C).
(D) An officer or employee of an Affiliate of a past or
present ICMG Director or LLI Director, or of a Shareholder owning
ten percent (10%) or more of the issued and outstanding Common
Stock.
(iii) Does not propose or intend to enter into a relationship
or transaction described in subsections (ii)(A) through (ii)(C); and
3
<PAGE>
(iv) Has not previously served as a director of the
Corporation, other than as the Independent Director.
1.3 Reduction in Number of Directors.
--------------------------------
1.3.1 Notwithstanding anything to the contrary in Section 1.1(a),
--------------
if the Corporation fails to achieve the Milestone for Phase Two, and LLI
elects in its sole discretion not to invest in Phase Two, in accordance
with Section 1.3(c) of the Investment Agreement (as such terms are defined
therein), upon completion of the issuance of any debt or equity in
accordance with Section 1.3(c)(i) of the Investment Agreement:
-----------------
(a) The Corporation shall be entitled to reduce the number of LLI
Directors to one (1), and the Board of Directors (with the
LLI Directors prohibited from voting) shall be entitled to
terminate two (2) of the LLI Directors if the resignations of
two (2) of the LLI Directors have not been received by the
Corporation within fifteen (15) days after written demand
therefor to LLI. The vacancies created by such terminations
or resignations shall be filled by directors nominated by the
ICMG Directors; and
(b) The ICMG Directors may, in their sole discretion, take any
and all actions permitted to be taken by directors under the
Corporation's Bylaws to effectuate the foregoing.
1.3.2 Notwithstanding anything to the contrary in Section 1.1(a),
--------------
if the Corporation achieves the Milestone for Phase Two and LLI elects in its
sole discretion not to exercise its option for Phase Two, or elects to invest in
Phase Two but it fails to pay the purchase price on or before the Phase Two Due
Date, in accordance with Section 1.3(d) of the Investment Agreement (as such
--------------
terms are defined therein):
(a) The Corporation shall be entitled to reduce the number of LLI
Directors to one (1), and the Board of Directors of the
Corporation (with the LLI Directors prohibited from voting)
shall be entitled to terminate two (2) of the LLI Directors
if the resignations of two (2) of the LLI Directors have not
been received by the Corporation within fifteen (15) days
after written demand therefor to the LLI Directors. The
vacancies created by such terminations or resignations shall
be filled by directors nominated by the ICMG Directors;
(b) The Corporation shall be entitled to terminate the
Shareholders Agreement; and
4
<PAGE>
(c) The ICMG Directors may, in their sole discretion, take any
and all actions permitted to be taken by directors under the
Corporation's Bylaws to effectuate the foregoing.
(d) If the Corporation elects the 80% Call Notice (as defined in
the Investment Agreement), but fails to deliver the purchase
price to LLI within the applicable time period, in accordance
with Section 1.3(d)(v) of the Investment Agreement (as such
terms are defined therein), any action taken by the
Corporation under Section 1.3.2(a), (b) or (c) of this
----------------------------
Agreement shall be deemed void and of no effect.
1.3.3 Notwithstanding anything to the contrary in Section 1.1(a),
--------------
in the event the Corporation fails to achieve the Milestone for Phase Three
or Phase Four and LLI elects in its sole discretion not to invest in the
applicable Phase, in accordance with Section 1.3(e) of the Investment
--------------
Agreement (as such terms are defined therein), upon completion of the
issuance of equity in accordance with Section 1.3(e)(i) of the Investment
Agreement and in the event that the provider of equity requires
representation on the Board of Directors in connection with its investment:
(a) The Corporation, the Directors and the Shareholders shall be
entitled to take whatever action is necessary to reconfigure
the composition of the Board to accommodate the addition of
the new investor, including but not limited to, increasing
the size of the Board, filling vacancies and reducing the
number of LLI Directors, provided that at all times the
number of LLI Directors shall not be less than one (1), and
provided that, excluding the Independent Director, the ICMG
Directors at all times shall comprise not less than fifty
percent (50%) of the Board. In the event the Corporation
determines to reduce the number of the LLI Directors, the
Board (with the LLI Directors prohibited from voting) shall
be entitled to terminate the desired number of LLI Directors
if the resignations of such number of LLI Directors have not
been received by the Corporation within fifteen (15) days of
written demand therefor to LLI. The vacancies created by such
terminations or resignations shall be filled by directors
nominated by the ICMG Directors; and
(b) The ICMG Directors may, in their sole discretion, take any
and all actions permitted to be taken by directors under the
Corporation's Bylaws to effectuate the foregoing.
1.3.4 Notwithstanding anything to the contrary in Section 1.1(a),
--------------
in the event the Corporation achieves the Milestone for Phase Three or
Four, and LLI elects not to invest in the applicable Phase, in accordance
with Section 1.3(f) of the Investment Agreement (as such terms are defined
-------------
therein):
5
<PAGE>
(a) The Corporation shall be entitled to reduce the number of LLI
Directors to one (1), and the Board of Directors (with the LLI
Directors prohibited from voting) shall be entitled to
terminate two (2) of the LLI Directors if the resignations of
two (2) of the LLI Directors have not been received by the
Corporation within fifteen (15) days of written demand therefor
to LLI. The vacancies created by such terminations or
resignations shall be filled by directors nominated by the ICMG
Directors; and
(b) The ICMG Directors may, in their sole discretion, take any and
all actions permitted to be taken by directors under the
Corporation's Bylaws to effectuate the foregoing.
1.3.5 Notwithstanding anything to the contrary in Section 1.1(a), in
--------------
the event LLI elects to invest in Phase Three or Four but it fails to pay
the purchase price for that Phase within the Phase Three or Phase Four
Grace Period, in accordance with Section 1.3(g) of the Investment Agreement
--------------
(as such terms are defined therein):
(a) The Corporation shall be entitled to reduce the number of LLI
Directors to one (1), and the Board of Directors (with the LLI
Directors prohibited from voting) shall be entitled to
terminate two (2) of the LLI Directors if the resignations of
two (2) of the LLI Directors have not been received by the
Corporation within fifteen (15) days of written demand therefor
to LLI. The vacancies created by such terminations or
resignations shall be filled by directors nominated by the ICMG
Directors;
(b) The Corporation shall be entitled to terminate this Agreement;
and
(c) The ICMG Directors may, in their sole discretion, take any and
all actions permitted to be taken by directors under the
Corporation's Bylaws to effectuate the foregoing.
1.4 Voting Agreement. Each of the Shareholders agrees that, until this
-----------------
Agreement is terminated or expires, he, she or it shall take all action
necessary from time to time (including, without limitation, the voting of
securities of the Corporation, the execution of written consents, the calling
of, and voting at in person or by proxy, special meetings, the removal of
directors, the filling of vacant directorships, voting to increase or decrease
the size of the Board, the waiving of notice and attendance at meetings) to
elect or re-elect those directors nominated or appointed in accordance with
Sections 1.1, 1.2 and 1.3.
- -------------------------
1.5 LLI Directors.Notwithstanding anything to the contrary in this
-------------
Section 1, at no time shall there be more than one (1) director appointed to the
- ---------
Board of Directors of ICMG who is also a manager of one or more Affiliate
investment funds created by LLI or an Affiliate (the "Investment Funds").
6
<PAGE>
1.6 Additional Voting Restrictions. Notwithstanding anything to the
------------------------------
contrary in this Agreement, or in the Bylaws, or as might be customary or
permitted by the laws of the State of Michigan, the Shareholders covenant and
agree that they will not vote to approve, and their shares cannot be voted to
approve, any of the following items, unless the exact item has been previously
approved by a majority of the Board of Directors:
(a) Any change in the number of directors;
(b) Any amendment, modification, termination or supplement to the
Articles of Incorporation or Bylaws of the Corporation;
(c) Any increase in the authorized number of shares of the
Corporation or the creation of any other classes of stock or shares in the
Corporation;
(d) Sale of all or substantially all of the assets of the
Corporation;
(e) Merger with any other business entity or sale of the Corporation
by merger or any other means.
Section 2.First Offer and Tag-Along Rights.
2.1 Transfer. Except for an Exempt Transfer (as defined in Section 2.2),
-------- -----------
a Shareholder shall not Transfer (as such term is defined herein) any shares of
Common Stock owned by such Shareholder, whether owned on the date of this
Agreement or acquired subsequently: (i) without first satisfying the applicable
terms of this Section 2; (ii) where such Transfer would result in a Person and
---------
its Affiliates owning on a cumulative basis in the aggregate 10 percent or more
of the then issued and outstanding Common Stock; and (iii) where such Transfer
to one or more Investment Funds would result in the Investment Funds owning more
than twenty five percent (25%) in the aggregate, of the total ownership interest
in the Common Stock of LLI, the Investment Funds and LLI's Permitted Transferees
combined . A "Transfer" under this Section 2 shall mean a sale assignment,
---------
contribution, pledge or hypothecation of Common Stock to be consummated in a
single transfer or a series of transfers, to a single purchaser or a group of
purchasers, as part of a single transaction or group of transactions. For
purposes of this Section 2, the following shall be deemed to be a single
---------
purchaser: (a) relatives of a Person or the Person's spouse living in the same
household, (b) trusts or estates in which any one Person has a 10 percent or
greater interest or of which he or she is trustee, executor or administrator,
and (c) any corporation, partnership, limited liability company or other entity
in which any one Person holds a 10 percent or greater beneficial interest. A
Person shall mean an individual, a corporation, a partnership, an association, a
joint stock company, a trust, any unincorporated organization, or a government
or political subdivision thereof.
2.2 Exempt Transfer. The following transactions shall constitute "Exempt
---------------
Transfers" as that term is used in this Section 2: (i) a Transfer to the
---------
Corporation; (ii) a Transfer entirely
7
<PAGE>
between or among any of the ICMG Shareholders and their Permitted Transferees
(as defined below) (the "ICMG Group"); (iii) a Transfer entirely between or
among LLI and its Permitted Transferees (the "LLI Group"); (iv) a Transfer by
will or intestate succession to a Shareholder's executors, administrators,
testamentary trustees, legatees or beneficiaries; (v) a Transfer to a
Shareholder's immediate family members or to a revocable inter-vivos trust, of
which a Shareholder is the grantor, or another entity controlled by such
Shareholder formed primarily for estate planning purposes; (vi) a Transfer to an
Affiliate, as defined, other than the Investment Funds; or (vii) a Transfer in a
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Act"), or pursuant to Rule 144
promulgated thereunder; provided that for any Transfer under subsections (ii)
through (vi) of this Section 2.2, such Transfer shall be an Exempt Transfer only
------------
if the Common Stock transferred therein remains subject to this Agreement and if
the transferee agrees in writing to be bound by this Agreement to the extent of
such transferred shares. An Affiliate is a Person that directly or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the Person specified (the parties identified in (iv), (v)
and (vi), or any one of them are hereinafter collectively referred to as
"Permitted Transferees").
2.3 Proposed Transfer by Shareholders in ICMG Group
-----------------------------------------------
2.3.1 Proposed Transfer and ICMG First Offer Right. If one or more
--------------------------------------------
of the ICMG Group (for purposes of this Section 2.3, the person(s) making
-----------
such proposal being the "Selling Group" and the remaining ICMG Shareholders
being the "First Offer Group") proposes a Transfer comprising ten percent
(10%) or more of the then issued and outstanding Common Stock, and provided
that the Transfer is not an Exempt Transfer, then the First Offer Group
shall have the right (for purposes of this Section 2.3, the "First Offer
-----------
Right") to acquire from the Selling Group all, but not less than all, of
the Common Stock proposed to be transferred at the same price and upon the
same terms and conditions as the proposed Transfer (for purposes of this
Section 2.3, the "Transfer Terms").
-----------
2.3.2 First Offer Notice. The Shareholders in the Selling Group
------------------
proposing the Transfer giving rise to the First Offer Right shall deliver
written notice to the Corporation, and for information purposes, to LLI,
setting forth the Transfer Terms, the identity of the proposed transferee
and a copy of any related written offer or agreement. The Corporation shall
within ten (10) business days of receipt of such notice, notify each
Shareholder in the First Offer Group of the proposed Transfer and of his
First Offer Rights and obligations under this Agreement, including the
Transfer Terms, the identity of the proposed transferee and the number of
shares of Common Stock such Shareholder is entitled to purchase as his pro
rata share of the proposed Transfer. Each Shareholder in the First Offer
Group who wishes to exercise his First Offer Right shall notify the
Corporation, in writing, within thirty (30) days after the date of the
notice of such First Offer Right from the Corporation, of his desire to
exercise the First Offer Right and indicate the number of shares the
Shareholder wishes to purchase. If the Corporation has not received notices
exercising First Offer Rights for all of the shares in the proposed
Transfer within the thirty (30) day period, the Corporation shall have
twenty-one (21)
8
<PAGE>
days to communicate with those Shareholders who timely exercised their
First Offer Right to advise them of the number of additional shares they
are entitled to purchase pursuant to Section 2.3.3. The Corporation may
-------------
continue to communicate with the Shareholders who exercised their First
Offer Right until the First Offer Rights for all of the shares in the
proposed Transfer have been exercised or rejected by the Shareholders of
the First Offer Group, or the twenty-one (21) day period has expired,
whichever occurs first. The exercise of the First Offer Rights shall not be
valid and binding upon the Selling Group unless the Selling Group is
notified in writing of the exercise of the First Offer Rights for all of
the shares in the proposed Transfer (the "First Offer Notice") within sixty
(60) days from the date the Corporation received notice of the proposed
Transfer from the Selling Group (the "First Offer Period"). Unless First
Offer Rights for shares in the proposed Transfer are duly exercised within
the time periods prescribed for such exercise, the First Offer Rights of
the First Offer Group shall expire with respect to the proposed Transfer
and the proposed Transfer shall become subject to Section 2.3.4 below. The
-------------
First Offer Notice shall identify each Shareholder wishing to purchase
shares pursuant to the First Offer Right and the number of shares each
Shareholder wishes to purchase, the total of which shall equal the number
of shares proposed to be transferred.
2.3.3 Number of Shares to be Purchased under ICMG First Offer Right.
-------------------------------------------------------------
Each Shareholder in the First Offer Group which has elected to purchase
shares pursuant to the First Offer Right shall be entitled and obligated to
purchase from the Selling Group, in accordance with this Section 2.3, the
-----------
number of shares proposed to be transferred by the Selling Group,
multiplied by a fraction, the numerator of which is the number of shares of
Common Stock held by such Shareholder and the denominator of which is the
aggregate number of shares of issued and outstanding Common Stock on the
date of the First Offer Notice held by all of the Shareholders in the First
Offer Group who exercised their First Offer Right, provided that the
--------
Shareholders in the First Offer Group may assign to one another any rights
under this Section 2.3.3. If any Shareholders in the First Offer Group do
-------------
not elect to purchase all of the shares which they are entitled to purchase
as set forth herein, the balance of such shares may be purchased by each
other Shareholder in the First Offer Group who has elected to purchase all
of the shares available to him pursuant to his First Offer Right (each a
"Secondary Purchaser"), on a pro rata basis, determined by multiplying the
total remaining available shares by a fraction, the numerator of which is
the number of shares of Common Stock held by such Secondary Purchaser and
the denominator of which is the aggregate number of shares of issued and
outstanding Common Stock on the date of the First Offer Notice held by the
Shareholders in the First Offer Group who elected to purchase all of the
shares available to them under their First Offer Right.
2.3.4 Triggering of LLI First Offer and Tag Along Rights. If the
--------------------------------------------------
Selling Group does not receive the First Offer Notice before the expiration
of the First Offer Period, then LLI shall have the right (the "LLI First
Offer Right") to (i) purchase and, upon valid exercise by the LLI First
Offer Right, the Selling Group shall be obligated to sell to LLI, all, but
not less than all, of the shares proposed to be transferred on the same
Transfer
9
<PAGE>
Terms; or (ii) require the proposed purchaser(s) to purchase from the LLI
Group, on the same Transfer Terms, a portion of the shares of Common Stock
owned by the LLI Group, up to but in no event more than that number of
shares derived by multiplying the total number of shares of Common Stock to
be purchased by the proposed purchaser(s) by a fraction, the numerator of
which is the total number of shares of Common Stock owned by the LLI Group,
and the denominator of which is the total number of shares of issued and
outstanding Common Stock on the date of the First Offer Notice (the "LLI
Tag-Along Right"). The Corporation shall notify LLI within ten (10)
business days (the "LLI Rights Notice") of the proposed Transfer, the LLI
First Offer Right and LLI Tag-Along Right and the respective rights and
obligations of each, including the Transfer Terms, the number of shares of
Common Stock LLI is entitled to purchase if it elects to exercise the LLI
First Offer Right, and the number of shares of Common Stock the LLI Group
is entitled to sell if LLI elects to exercise the LLI Tag-Along Right.
2.3.5 Exercise of LLI First Offer Right or LLI Tag-Along Right. LLI
--------------------------------------------------------
may exercise either the LLI First Offer Right or the LLI Tag-Along Right,
but not both, by delivering written notice to the Corporation, with a copy
to each Shareholder in the Selling Group, of its election and the number of
shares of Common Stock to be purchased or sold (in accordance with Section
-------
2.3.4 above) within thirty (30) days after LLI's receipt of the LLI Rights
-----
Notice. If LLI elects to exercise the LLI First Offer Right, LLI shall
purchase the shares at a time mutually agreed by the LLI and the Selling
Group, but not later than forty-five (45) days after LLI's receipt of the
LLI Rights Notice, unless a later date is mutually agreed upon between LLI
and the Selling Group. Unless the LLI Tag-Along Right or the LLI First
Offer Right are duly exercised within the time periods prescribed for the
exercise of such rights, the LLI Tag-Along Right and the LLI First Offer
Right shall expire with respect to the proposed Transfer.
2.4 Proposed Transfer by Shareholders in LLI Group
----------------------------------------------
2.4.1 Proposed Transfer. If one or more of the LLI Group (for
-----------------
purposes of this Section 2.4, the person(s) making such proposal being the
-----------
"LLI Selling Group") proposes a Transfer comprising ten percent (10%) or
more of the then issued and outstanding Common Stock, and provided that the
Transfer is not an Exempt Transfer, then the Shareholders in the ICMG Group
shall have the right (for purposes of this Section 2.4, the "ICMG First
-----------
Offer Right") to acquire from the LLI Selling Group all, but not less than
all, of the Common Stock proposed to be transferred at the same price and
upon the same terms and conditions as the proposed Transfer (for purposes
of this Section 2.4, the "Transfer Terms").
-----------
2.4.2 First Offer Notice. The Shareholders in the LLI Selling Group
------------------
proposing the Transfer giving rise to an ICMG First Offer Right under this
Section 2.4 shall deliver written notice to the Corporation setting forth
-----------
the Transfer Terms, the identity of the proposed transferee and a copy of
any related written offer or agreement. The Corporation shall within ten
(10) business days of such notice, notify each Shareholder in the ICMG
Group of the proposed Transfer and his ICMG First Offer Rights and
10
<PAGE>
obligations under this Agreement, including the Transfer Terms and the
number of shares of Common Stock such Shareholder is entitled to purchase
as his pro rata share of the proposed Transfer. Each Shareholder in the
ICMG Group who wishes to exercise his ICMG First Offer Right shall notify
the Corporation, in writing, within thirty (30) days after the date of the
notice of such ICMG First Offer Right from the Corporation, of his desire
to exercise the ICMG First Offer Right and indicate the number of shares
the Shareholder wishes to purchase. If the Corporation has not received
notices exercising ICMG First Offer Rights for all of the shares in the
proposed Transfer within the thirty (30) day period, the Corporation shall
have twenty-one (21) days to communicate with those Shareholders who timely
exercised their ICMG First Offer Right to advise them of the number of
additional shares they are entitled to purchase pursuant to Section 2.4.3.
-------------
The Corporation may continue to communicate with the Shareholders who
exercised their ICMG First Offer Right until the ICMG First Offer Rights
for all of the shares in the proposed Transfer have been exercised or
rejected by the Shareholders in the ICMG Group, or the twenty-one (21) day
period has expired, whichever occurs first. The exercise of the ICMG First
Offer Rights shall not be valid and binding upon the LLI Selling Group
unless the LLI Selling Group is notified in writing of the exercise of the
ICMG First Offer Rights for all of the shares in the proposed Transfer (for
purposes of this Section 2.4, the "ICMG First Offer Notice") within sixty
-----------
(60) days from the date the Corporation received notice of the proposed
Transfer from the Selling Group (for purposes of this Section 2.4, the
-----------
"ICMG First Offer Period"). Unless ICMG First Offer Rights for shares in
the proposed Transfer are duly exercised within the time periods prescribed
for such exercise, the ICMG First Offer Rights shall expire with respect
to the proposed Transfer and the proposed Transfer shall become subject to
Section 2.4.5 below. The ICMG First Offer Notice shall identify each
-------------
Shareholder in the ICMG Group wishing to purchase shares pursuant to the
ICMG First Offer Right and the number of shares which each such Shareholder
wishes to purchase, the total of which shall equal the number of shares
proposed to be transferred.
2.4.3 Number of Shares to be Purchased. Each member of the ICMG
--------------------------------
Group which has elected to purchase shares pursuant to the ICMG First Offer
Right shall be entitled and obligated to purchase from the LLI Selling
Group, in accordance with this Section 2.4, the number of shares proposed
-----------
to be transferred by the LLI Selling Group, multiplied by a fraction, the
numerator of which is the number of shares of Common Stock held by such
Shareholder in the ICMG Group and the denominator of which is the aggregate
number of shares of issued and outstanding Common Stock on the date of the
ICMG First Offer Notice held by all of the members of the ICMG Group who
exercised their ICMG First Offer Right, provided that the members of the
--------
ICMG Group may assign to one another any rights under this Section 2.4.3.
-------------
If any members of the ICMG Group do not elect to purchase all of the shares
which they are entitled to purchase as set forth herein, the balance of
such shares may be purchased by each other member of the ICMG Group who has
elected to purchase all of the shares available to him pursuant to his ICMG
First Offer Right (each a "Secondary Purchaser" for purposes of this
Section 2.4), on a pro rata basis, determined by multiplying the total
----------
remaining available shares by a fraction, the numerator of which is the
number of shares of Common Stock held by
11
<PAGE>
such Secondary Purchaser and the denominator of which is the aggregate
number of shares of issued and outstanding Common Stock on the date of the
ICMG First Offer Notice held by the members of the ICMG Group who elected
to purchase all of the shares available to them under their ICMG First
Offer Right.
2.4.4 Closing of Purchase under ICMG First Offer Right. The sale of
-------------------------------------------
shares pursuant to the ICMG First Offer Right under this Section 2.4 shall
-----------
occur at a time mutually agreed by the Corporation and the LLI Selling
Group, but not later than ninety (90) days after the date of the first
notice to the Corporation of the proposed Transfer from the LLI Selling
Group under this Section 2.4, unless a later date is mutually agreed upon
------------
between the Corporation and the LLI Selling Group.
2.4.5 Triggering of ICMG Tag-Along Rights. If the Selling Group does
-----------------------------------
not receive the ICMG First Offer Notice before the expiration of the ICMG
First Offer Period in accordance with this Section 2.4, then each of the
-----------
Shareholders in the ICMG Group (each a "Tag-Along Shareholder") shall have
the right (the "Tag-Along Right") to require the proposed purchaser(s) to
purchase from such Tag-Along Shareholder a portion of the shares of Common
Stock owned by such Shareholder, up to but in no event more than, that
number of shares derived by multiplying the total number of shares of
Common Stock to be purchased by the proposed purchaser(s) by a fraction,
the numerator of which is the total number of shares of Common Stock owned
by such Tag-Along Shareholder, and the denominator of which is the total
number of shares of issued and outstanding Common Stock on the date of the
ICMG First Offer Notice. Any shares purchased from Tag-Along Shareholders
pursuant to this Section shall be transferred under the same Transfer Terms
as in the proposed Transfer.
2.4.6 Tag-Along Notice. Following the receipt by the LLI Selling
----------------
Group of a notice from the Corporation notifying the LLI Selling Group of
the ICMG Group's rejection or deemed rejection of the ICMG First Offer
Right under this Section 2.4, or on the next business day following the
-----------
expiration of the First Offer Period under this Section 2.4, whichever
-----------
occurs first, the LLI Selling Group shall deliver a written notice to the
Corporation, with a copy to each Tag-Along Shareholder, stating that the
ICMG First Offer Right has been rejected, or deemed rejected, or has lapsed
and that the Tag-Along Right is available to such Tag-Along Shareholder.
The Tag-Along Right may be exercised by any Tag-Along Shareholder by
delivery of a written notice to the LLI Selling Group (the "Tag-Along
Notice"), with a copy to the Corporation, within thirty (30) days following
such Tag-Along Shareholder's receipt of such notice from the LLI Selling
Group. The Tag-Along Notice shall state the number of shares of Common
Stock that such Tag-Along Shareholder proposes to include in the Transfer
to the proposed purchaser (not to exceed the number determined in
accordance with Section 2.4.5 above). Unless the Tag-Along Rights for
-------------
shares in the proposed Transfer are duly exercised within the time periods
prescribed for such exercise, the Tag-Along Rights of the Tag-Along
Shareholders shall expire with respect to the proposed Transfer.
12
<PAGE>
2.5 Closing. At the closing of any Transfer or sale pursuant to this
--------
Section 2, the purchaser(s) shall remit to each selling Shareholder the
- ---------
consideration for the total sales price of the Common Stock of such Shareholder
sold pursuant hereto, upon delivery by such Shareholder of certificate(s) for
such shares duly endorsed in blank for transfer or accompanied by stock power(s)
duly executed in blank and such other transfer documentation, including but not
limited to representations and warranties of title, as shall be reasonably
required by the purchaser(s) or counsel thereto.
2.6 Renewal of Rights under Section 2. Notwithstanding anything to the
---------------------------------
contrary in this Section 2, if any proposed Transfer (except an Exempt Transfer)
---------
which triggers any of the rights set forth in this Section 2 is not fully
---------
consummated within 180 days after the Corporation receives notice of such
proposed Transfer, the proposed Transfer may not thereafter be consummated
unless all of the rights and obligations of this Section 2 are undertaken again
---------
as if all prior elections and notices were void and the proposed Transfer were a
newly proposed Transfer.
Section 3. Registration Rights.
--------------------
The Corporation covenants and agrees as follows:
3.l Definitions. For purposes of this Section 3:
------------ ---------
(a) The terms "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended
(the "Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means Common Stock of the
Corporation, including Common Stock issued and outstanding at any time
while this Agreement is in effect and Common Stock issued as a dividend or
other distribution with respect to, or in exchange for or in replacement of
any preferred stock or Common Stock; provided, however, that Common Stock
or other securities shall only be treated as Registrable Securities if and
so long as (1) they have not been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction,
and (2) they have not been sold in a transaction exempt from the
registration and prospectus delivery requirements of the Act under Section
4(1) thereof so that all transfer restrictions and restrictive legends with
respect thereto are removed upon the consummation of such sale;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding
which are Registrable Securities;
13
<PAGE>
(d) The term "Holder" means any Shareholder who is a party to this
Agreement and who is the record owner of Registrable Securities, or any
assignee thereof in accordance with Section 3.11 hereof;
------------
(e) The term "SEC" means the Securities and Exchange Commission or
any other federal agency at the time administering the Act;
(f) The Corporation's "I.P.O." means the initial public offering and
sale of the Corporation's Common Stock, pursuant to an effective
registration statement under the Securities Act of 1933, as amended.
3.2 Corporation Registration. If (but without any obligation to do so)
-------------------------
the Corporation proposes to register any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Corporation stock plan, or a registration on any form which
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable
Securities or a SEC Rule 145 transaction), the Corporation shall, at such time,
promptly give each Holder written notice of such registration. Upon the written
request of each Holder given within fifteen (15) days after mailing of such
notice by the Corporation in accordance with Section 5.6, the Corporation shall,
-----------
subject to the provisions of Sections 3.4, 3.5, 3.6 and 3.7, cause to be
------------------------------
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered. Notwithstanding the foregoing, after the
Corporation's I.P.O., the Corporation will not be required to give notice to the
Holders of Registrable Securities if the underwriters managing the proposed
offering have advised the Corporation in writing that in their judgment market
conditions will not allow the inclusion of any secondary shares in such
offering. In the event the managing underwriters and the Corporation
subsequently determine to add any secondary shares in the offering, such notice
shall be provided, and each Holder shall have the registration rights provided
in this Section 3.
---------
3.3 Form S-3 Registration. In case the Corporation shall receive from any
----------------------
Holder or Holders of the Registrable Securities then outstanding a written
request or requests that the Corporation effect a registration on Form S-3 for a
public offering the aggregate offering price of which would exceed $1,000,000,
the Corporation will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such
written notice from the Corporation; provided, however, that the
Corporation shall not
14
<PAGE>
be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 3.3: (i) if Form S-3 is not available for such
-----------
offering by the Holders; (ii) if the Corporation shall furnish to the
Holders a certificate signed by the President of the Corporation stating
that in the good faith judgment of the board of directors of the
Corporation it would be detrimental to the Corporation and its stockholders
for such Form S-3 Registration to be effected at such time, in which event
the Corporation shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than ninety (90) days after
receipt of the request of the Holder or Holders under this Section 3.3;
-----------
(iii) if the Corporation has, within the six (6) month period preceding the
date of such request, already effected a registration for the Holders
pursuant to this Section 3.3; (iv) if the Corporation has, at any time,
-----------
already effected two (2) registrations for the Holders pursuant to this
Section 3.3; or (v) in any particular jurisdiction in which the Corporation
-----------
would be required to qualify to do business or to execute a general consent
to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Corporation shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders.
3.4 Obligations of the Corporation. Whenever required under Section 3.2
------------------------------- -----------
or 3.3 to effect the registration of any Registrable Securities, the Corporation
- ------
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts and take
all steps necessary to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration
statement effective for up to 90 days or until all of the securities
registered thereunder are sold, whichever occurs sooner.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of
the Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Furnish to the counsel of any Holder, a copy of the registration
statement five (5) days prior to the filing of such registration statement.
15
<PAGE>
(e) Use its best efforts to register and qualify the securities
covered by such registration statement for listing on the National
Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") or
another similar exchange.
(f) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or state
securities laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Corporation shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions.
(g) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(h) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing.
3.5 Furnish Information. It shall be a condition precedent to the
--------------------
obligations of the Corporation to take any action pursuant to this Section 3
---------
with respect to the Registrable Securities of any selling Holder, that such
Holder furnish to the Corporation such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of such
securities as shall be required to effect the registration of such Holder's
Registrable Securities.
3.6 Underwriting Requirements. In connection with any offering involving
--------------------------
an underwriting of shares of the Corporation's capital stock, the Corporation
shall not be required under Section 3.2 or 3.3 to include any of the Holders'
------------------
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Corporation and the underwriters selected by the
persons entitled to select the underwriters, and then only in such quantity as
the underwriters determine in their sole discretion will not jeopardize the
success of the offering by the Corporation. If the total amount of securities,
including Registrable Securities, requested by Holders to be included in such
offering exceeds the amount of securities sold other than by the Corporation
that the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Corporation shall be required to include in
the offering only that number of such securities, including Registrable
Securities, which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among all selling stockholders according to the total
amount of securities owned by each selling stockholder or
16
<PAGE>
in such other proportions as shall mutually be agreed to by such selling
stockholder). For purposes of the preceding parenthetical concerning
apportionment, for any selling stockholder which is a Holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and stockholders of such Holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling stockholder" and
any pro rata reduction with respect to such "selling stockholder" shall be based
upon the aggregate amount of shares owned by all entities and individuals
included in such "selling stockholder," as defined in this sentence.
3.7 Delay of Registration. No Holder shall have any right to obtain or
----------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 3.
---------
3.8 Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under this Section 3:
---------
(a) To the extent permitted by law, the Corporation will indemnify,
defend, protect and hold harmless each Holder, any underwriter (as defined
in the Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, or the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained
in such registration statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Corporation of the Act, the 1934 Act, any state securities law or any rule
or regulation promulgated under the Act, or the 1934 Act or any state
securities law; and the Corporation will pay to each such Holder,
underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by one law firm retained by them (or such additional
law firms retained by a Holder or Holders if such Holder or Holders
reasonably believe there exists a conflict of interest among them) in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement
contained in this Section 3.8(a) shall not apply to amounts paid in
--------------
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Corporation (which
consent shall not be unreasonably withheld), nor shall the Corporation be
liable in any such case for any loss, claim, damage, liability or action to
the extent that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information furnished
expressly for use
17
<PAGE>
in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify, defend, protect and hold harmless the Corporation, each of its
directors, each of its officers who has signed the registration statement,
each person, if any, who controls the Corporation within the meaning of the
Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter
or other Holder, against any losses, claims, damages or liabilities (joint
or several) to which any of the foregoing persons may become subject, under
the Act, or the 1934 Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this Section 3.8(b), in connection
--------------
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 3.8(b) shall not apply to amounts paid in settlement of any such
--------------
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, the obligation to indemnify will be several, not
joint and several, among such sellers of Registrable Securities, and in no
event shall any indemnity under this Section 3.8(b) exceed the net proceeds
--------------
from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
-------
3.8 of notice of the commencement of any action (including any governmental
---
action), such indemnified party will, if a claim in respect thereof is to
be made against any indemnifying patty under this Section 3.8, deliver to
-----------
the indemnifying party a written notice of the commencement thereof (and a
copy of the claim or action) and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party (together with all
other indemnified parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential conflicting interests
between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under
this Section 3.8, but the failure to
-----------
18
<PAGE>
deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under
this Section 3.8.
-----------
(d) If the indemnification provided for this Section 3.8 is held by a
-----------
court of competent jurisdiction, by a final non-appealable judgment, to be
unavailable to an indemnified party with respect to any loss, liability,
claim, damage or expense referred to herein, then the indemnifying party,
in lieu of indemnifying such indemnified party hereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations.
The relative fault of the indemnifying party and of the indemnified party
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or
by the indemnified party and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such
statements or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in any underwriting agreement
entered into in connection with any underwritten public offering are in
conflict with the foregoing provisions of this Section 3.8, the provisions
-----------
in the underwriting agreement shall control with respect to the Registrable
Securities covered thereby.
(e) The obligations of the Corporation and Holders under this Section
-------
3.8 shall survive (i) the expiration or termination of this Agreement and
--
(ii) completion of any offering of Registrable Securities in a registration
statement under this Section 3, and otherwise.
---------
3.9 Reports Under Securities Exchange Act of 1934. With a view to making
----------------------------------------------
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Corporation to the public without registration, the
Corporation agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Corporation for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Corporation under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the
Corporation that it has
19
<PAGE>
complied with the reporting requirements of SEC Rule 144 (at any time after
ninety (90) days after the effective date of the first registration
statement filed by the Corporation), the Act and the 1934 Act (at any time
after it has become subject to such reporting requirements), (ii) a copy of
the most recent annual or quarterly report of the Corporation and such
other reports and documents so filed by the Corporation, and (iii) such
other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration or pursuant to such form.
3.10 Expenses of Registration. The Corporation shall bear and pay all
-------------------------
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities, whether pursuant to Section 3.2, 3.3 or a combination
----------------
thereof, including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them (which the Corporation may request be the Corporation's counsel
if such counsel is reasonably acceptable to such selling Holders), but excluding
underwriting discounts and commissions and stock transfer taxes relating to
Registrable Securities.
3.11 Assignment of Registration Rights. The rights to cause the
----------------------------------
Corporation to register Registrable Securities pursuant to this Section 3 may
---------
only be assigned to a purchaser, assignee or transferee of the underlying
Registrable Securities.
3.12 "Market Stand-Off" Agreement. Each Holder hereby agrees that for a
---------------------------
period of 180 days following the effective date of the first registration
statement of the Corporation covering Common Stock filed on Form S-l under the
Act and for any registration effected pursuant to Sections 3.2 or 3.3, provided
-------------------
the Holders are given written notice of the offering at least fifteen (15) days
prior to the Corporation's filing with the SEC of a registration statement
relating thereto, it shall not, unless otherwise agreed by the Corporation and
the managing underwriters, directly or indirectly sell, offer to sell, contract
to sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees who agree to
be similarly bound) any securities of the Corporation held by it at any time
during such period except Common Stock included in such registration; provided,
however, that all officers and directors of the Corporation and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements. In order to enforce the foregoing covenant, the
Corporation may impose stop-transfer instructions with respect to the
Registrable Securities of each Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such period.
3.13 Limitations on Subsequent Registration Rights. From and after the
----------------------------------------------
date of this Agreement, the Corporation shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Corporation which would allow such holder or prospective holder to
include such securities in any registration filed under Section 3.2 or 3.3
------------------
hereof, unless under the terms of such agreement, such holder or prospective
holder may
20
<PAGE>
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included.
3.14 Termination. The rights provided in this Section 3 shall terminate
----------- ---------
on the fifth anniversary of the closing of the Corporation's I.P.O.
Section 4. Stock Certificate Legend.
------------------------
4.1 Required Legend. Simultaneously with the execution of this Agreement,
---------------
each Shareholder shall surrender all certificates of stock, except those
certificates representing shares which are or were acquired through ordinary
brokerage transactions and not pursuant to this Agreement, to the Corporation
for endorsement with the following legend, which shall be conspicuously placed
on such certificates (in addition to any legends then appearing on such
certificates):
The sale, transfer, assignment, pledge, hypothecation or other
disposition of the shares represented by this certificate is
restricted by the provisions of the Shareholders Agreement, dated
as of June 1, 1998 (as it may be amended from time to time), to
which the Corporation and the holder of this certificate, among
others, are parties, a copy of which may be inspected at the
principal office of the Corporation. The provisions of such
agreement are incorporated herein by reference.
All certificates of stock issued to or acquired by any such Shareholder
after the date of this Agreement, except certificates representing shares which
are or were acquired through ordinary brokerage transactions and not pursuant to
this Agreement, shall also bear the foregoing legend; provided, however, that
the Corporation shall remove the required legend from any shares transferred to
a third party (i.e., a party other than a Shareholder or Permitted Transferee)
as permitted in this Agreement, so that such transferee shall not be subject to
the requirements contained in this Agreement.
4.2 Effect of Missing Legend. Section 4.1 above notwithstanding, the fact
------------------------ -----------
that such legend has not been placed on a given certificate of Stock held by any
Shareholder shall not affect the rights of the parties to this Agreement in any
way, and all certificates of stock on which such legend has not been placed,
except those certificates representing shares which are or were acquired through
ordinary brokerage transactions and not pursuant to this Agreement or as part of
a public offering registered under the Securities Act of 1933 or Rule 144
promulgated thereunder, shall be deemed to have had that legend placed on them
for the purposes of this Agreement.
4.3 Availability of Agreement. The Corporation shall maintain a copy of
-------------------------
this Agreement at its principal place of business and shall make such copies
available for review to any person who shall inquire about the Agreement.
21
<PAGE>
Section 5. Miscellaneous.
5.1 Waivers and Amendments. With the written consent of the holders of
-----------------------
the shares of Common Stock held by the LLI Group and the holders of more than 66
2/3% of the shares of Common Stock held by the ICMG Shareholders, each voting as
a separate class, the obligations of the Corporation and the rights of the
holders of the Common Stock under this Agreement may be waived (either generally
or in a particular instance, either retroactively or prospectively and either
for a specified period of time or indefinitely), and with the same consent, the
Corporation, when authorized by resolution of its board of directors, may enter
into a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such waiver or supplemental agreement shall reduce
the aforesaid percentage of ICMG Shareholders and of the LLI Group which is
required to consent to any waiver or supplemental agreement, without the
unanimous consent of the Shareholders. Upon the effectuation of each such
waiver, consent, agreement of amendment or modification, the Corporation
promptly shall give written notice thereof to the record holders of the Common
Stock. This Agreement or any provision hereof may not be changed, waived,
discharged or terminated orally, but only by a statement in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought, except to the extent provided in this Section 5.1.
-----------
5.2 Termination. Except with respect to the rights provided in Section 3
----------- ---------
(which terminate in accordance with Section 3.14), the rights and obligations in
------------
this Agreement shall terminate upon the earliest of: (i) the consummation of the
Corporation's I.P.O., as defined in Section 3.1; (ii) the consummation of a sale
-----------
which has been subject to, and has complied with, the First Offer Rights or the
Tag-Along Rights as set forth in Section 2 above (but only to the extent of the
---------
shares of Common Stock included in such sale); (iii) at the election of the
Corporation, in accordance with Sections 1.3.2 or 1.3.5; or (iv) the dissolution
-----------------------
or liquidation of the Corporation. If not sooner terminated, all First Offer
Rights and Tag-Along Rights (under Section 2) shall be permanently terminated
---------
when the Shareholders, as a group, hold less than ten percent (10%) of the
issued and outstanding Common Stock of the Corporation.
5.3 Governing Law, Jurisdiction and Venue. This Agreement shall be
--------------------------------------
governed in all respects by the laws of the State of Michigan and the United
States of America, without giving effect to principles of conflicts-of-laws.
Each undersigned party hereby consents to the personal and subject-matter
jurisdiction of the courts of the State of Michigan and the United States of
America over all matters arising from or in connection with the making and
operation of this Agreement and the entire relationship of the parties. Each
undersigned party further agrees that any dispute or action among any of the
parties hereto with respect to the making or operation of this Agreement or any
matter concerning the Corporation shall be brought exclusively in the Federal
court for the Eastern District of Michigan, except that in the event that the
Federal court for the Eastern District of Michigan does not have jurisdiction
over any dispute or action among any of the parties hereto, such dispute or
action shall be tried in the Michigan Circuit Court for the County of Oakland.
This Section 5.3 shall survive the termination or expiration of this Agreement.
-----------
22
<PAGE>
5.4 Performance. The Corporation and LLI acknowledge that in the event of
------------
a breach of Section 1 of this Agreement, monetary damages may not be an adequate
---------
remedy. Notwithstanding anything to the contrary in this Agreement, in the
event of a breach of Section 1, such provision shall be enforceable by the
---------
Corporation or the Investor as the case may be, in a court of equity by a decree
of specific performance, including but not limited to a temporary restraining
order or injunctive relief.
5.5 Successors and Assigns. Except as otherwise expressly provided herein,
-----------------------
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
5.6 Entire Agreement. This Agreement and the other documents delivered
-----------------
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof, sets forth
the sole and complete standards pursuant to which their obligations are to be
judged and their performance measured, and supersedes any previous agreements
between the parties pertaining to such matters.
5.7 Standard of Performance. Whenever a party has been specifically
------------------------
granted a right to exercise its business judgment, or act, in a subjective
manner, with respect to any matter, or the right to act in its sole and absolute
discretion or sole judgment, or the right to make a subjective judgment under
any provision of this Agreement, whether or not "objectively" reasonable under
the circumstances, any such exercise shall not be deemed inconsistent with any
covenant of good faith and fair dealing otherwise implied by law to be part of
this Agreement.
5.8 Notices, Etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon actual delivery following mailing by overnight
courier or certified mail, postage prepaid, or facsimile addressed (a) if to the
Shareholders, as indicated on Exhibit 5.8 attached hereto, or at such other
-----------
address as it shall have furnished to the Corporation, (b) if to the
Corporation, to Interactive Coupon Marketing Group, Inc., 8755 West Higgins
Road, Suite 100, Chicago, Illinois 60631 or via facsimile at (773) 693-1311 and
addressed to the attention of the corporate secretary, or at such other address
or facsimile number as the Corporation shall have furnished to the Shareholders,
or (c) if to any other holder of Common Stock at such address as such holder
shall have furnished to the Corporation in writing, or, until such holder so
furnishes an address to the Corporation, then to and at the address of the last
holder of such Common Stock, who so furnished an address to the Corporation.
For purposes of giving notice under this Agreement, "business day" shall mean a
business day where the recipient of the notice is located.
5.9 Delays or Omissions. No delay or omission to exercise any right, power
-------------------
or remedy accruing to any holder of any securities issued or sold or to be
issued or sold hereunder, upon any breach or default of the Corporation under
this Agreement shall impair any such right, power or remedy of such holder nor
shall it be construed to be a waiver of any
23
<PAGE>
such breach or default, or an acquiescence therein, or in any similar breach or
default thereafter occurring, nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any holder of any breach or default under this
Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
5.10 Severability. In case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, it shall be modified in such manner as to be
valid, legal, and enforceable but so as to most nearly retain the intent of the
parties, and the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
5.11 Headings and Construction. The titles and subtitles of this Agreement
--------------------------
are intended for reference and shall not by themselves determine the
construction or interpretation of this Agreement. Use in this Agreement of the
words "including", "such as", or words of similar import, when following any
general term, statement or matter, shall not be construed to limit such
statement, term or matter to the specific items or matter, whether or not the
language of non-limitation such as "without limitation" or "but not limited to",
or words of similar import, are used with reference thereto, but rather shall
refer to all other terms or matters that could reasonably fall within the
broadest possible scope of such statement, term or matter. Unless otherwise
stated, all references to "Sections" and "Exhibits" are references to Sections
and Exhibits of this Agreement.
5.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Photostatic or facsimile
reproductions of this Agreement may be made and relied upon to the same extent
as the originals.
5.13 Expenses. The Corporation and each Shareholder shall pay its own
--------
costs and expenses in connection with the negotiation, execution, delivery and
performance of this Agreement.
5.14 Attorneys Fees. If any arbitration, litigation or similar
--------------
proceedings are brought by any party to enforce any obligation or to pursue any
remedy under this Agreement, the party prevailing in any such arbitration,
litigation or similar proceedings will be entitled to costs of collection, if
any, and reasonable attorneys fees incurred in connection with such proceedings
and in collecting or enforcing any award granted therein.
5.15 Exhibits. The Exhibits, to which reference is made in this
--------
Agreement, are deemed incorporated in this Agreement in their entirety.
24
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Shareholders Agreement to
be executed by themselves or by their respective representatives thereunto duly
authorized as of the day and year first above written. The undersigned
Shareholders execute this Agreement with respect to all shares of capital stock
of the Corporation currently owned and hereafter acquired, to the extent
provided herein.
The "Corporation"
Interactive Coupon Marketing Group, Inc.
By: /s/ Steven M. Golden
--------------------------------
Its: Chairman/CEO
--------------------------------
[Shareholder signatures appear on following page]
25
<PAGE>
EXHIBIT 5.8
-----------
INVESTOR ADDRESS
Investor: Lend Lease International Pty. Limited
Level 43 Australia Square
Sydney
NSW 2000
Australia
Attn: Lynette Mayne
Fax: (612) 9236-6852
with copies to: Stephen K. Cassidy, Esp.
Cassidy, Cheatham, Shimko & Dawson
20 California Street, Suite 500
San Francisco, California 94111
Fax: (415) 788-2039
and
Alson & Bird, LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attn: Wayt King
Fax: (404) 881-7000
<PAGE>
Exhibit A
---------
Index of Defined Terms and List of Schedules
--------------------------------------------
<TABLE>
<CAPTION>
Term Section Defined in
- ---- ------------------
<S> <C>
1934 Act Section 3.8(a)
Act Section 2.2
Affiliate Section 2.2
Agreement Cover; Introduction
Common Stock Cover; Recital B
Corporation Cover; Introduction
Directors Cover; Recital C
First Offer Group Section 2.3.1
First Offer Notice Section 2.3.2
First Offer Period Section 2.3.2
First Offer Right Section 2.3.1
Holder Section 3.1(d)
I.P.O. Section 3.1(f)
ICMG Directors Section 1.1(b)
ICMG First Offer Notice Section 2.4.2
ICMG First Offer Period Section 2.4.2
ICMG First Offer Right Section 2.4.1
ICMG Group Section 2.2
ICMG Shareholders Cover; Recital C
Independent Director Section 1.2
Investment Agreement Cover; Recital A
Investment Funds Section 1.5
LLI Cover; Recital A
LLI Directors Section 1.1(a)
LLI First Offer Right Section 2.3.4
LLI Group Section 2.2
LLI Rights Notice Section 2.3.4
LLI Selling Group Section 2.4.1
LLI Tag-Along Right Section 2.3.4
Michigan Act Cover; Recital B
NASDAQ Section 3.4(e)
Option Shares Cover; Recital B
Permitted Transferees Section 2.2
Person Section 2.1
Register, registered, and registration Section 3.1(a)
Registrable Securities Section 3.1(b)
Registrable Securities then outstanding Section 3.1(c)
Schedule I Section 5.7
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Term Section Defined in
- ---- ------------------
<S> <C>
SEC Section 3.1(e)
Secondary Purchaser Section 2.3.3
Selling Group Section 2.3.1
Selling Stockholder Section 3.6
Shareholder(s) Cover; Introduction
Slate Section 1.2
Tag-Along Notice Section 2.4.6
Tag-Along Right Section 2.4.5
Tag-Along Shareholder Section 2.4.5
Transfer Section 2.1
Transfer Terms for Section 2.3 Section 2.3.1
Transfer Terms for Section 2.4 Section 2.4.1
Vacancy Section 1.2
Violation Section 3.8(a)
</TABLE>
Exhibits
- --------
Exhibit A Introduction
Exhibit 5.8 Section 5.8
29
<PAGE>
EXHIBIT 4.3
NEITHER THIS UNSECURED, CONVERTIBLE, SUBORDINATED PROMISSORY NOTE NOR THE
SHARES OF COMMON STOCK REFERENCED HEREIN HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, NOR REGISTERED OR QUALIFIED UNDER ANY STATE
SECURITIES LAWS, AND NEITHER THIS UNSECURED, CONVERTIBLE, SUBORDINATED
PROMISSORY NOTE NOR THE SHARES OF COMMON STOCK REFERENCED HEREIN MAY BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS SO REGISTERED OR
AN EXEMPTION THEREFROM IS AVAILABLE
coolsavings.com inc. 1999 Unsecured, Convertible Subordinated Promissory Note
-----------------------------------------------------------------------------
$_____________________ Chicago, Illinois
Due Date June 30, 2000 Dated: As of May 28, 1999
FOR VALUE RECEIVED, coolsavings.com inc., a Michigan corporation
("Borrower"), promises to pay to the order of _____________________ ("Holder"),
at __________________________________, or at such other place as Holder may
designate in writing, the principal sum of __________________________ DOLLARS
($______________), plus interest as hereinafter provided, all in lawful money of
the United States of America, in accordance with the terms hereof.
The unpaid principal balance of this unsecured, convertible subordinated
promissory note ("Note") shall bear interest, computed upon the basis of a year
of 360 days for the actual number of days elapsed in a month, at a rate of ten
percent (10%) per annum (the "Effective Rate").
Accrued and unpaid interest on the principal balance of this Note shall be
due and payable on December 30, 1999. On June 30, 2000 (the "Due Date"), the
entire unpaid principal balance of this Note, together with all accrued and
unpaid interest, shall be due and payable in full.
This Note may not be prepaid, in whole or in part, without the consent of
Holder, which may be granted or withheld in Holder's sole discretion. All
payments received hereunder shall, at the option of Holder, first be applied
against accrued and unpaid interest and the balance against principal. Borrower
expressly assumes all risks of loss or delay in the delivery of any payments
made by mail, and no course of conduct or dealing shall affect Borrower's
assumption of these risks.
This Note is one of a series of Unsecured, Convertible Subordinated
Promissory Notes made by Borrower in the aggregate original principal amount of
One Million Five Hundred Thousand Dollars ($1,500,000.00) and designated
coolsavings.com inc. Unsecured, Convertible Subordinated Promissory Notes (the
"Notes"). All of the Notes, including this Note, shall have equal priority with
respect to payment. All partial payments shall be made pari passu to the holders
of all of the Notes, including Holder.
Upon the closing of an underwritten, initial public offering of Borrower's
equity securities (an "IPO") at any time prior to the Due Date, the outstanding
indebtedness of this Note (including all accrued and unpaid interest) shall be
automatically converted into the IPO Shares (as defined below) and this Note
shall be cancelled and surrendered to Borrower. As used in this Note, "IPO
Shares" means a number of shares of common stock, no par value, of Borrower
(rounded down to the nearest whole number) equal to the quotient derived by
dividing the original principal amount of this Note by 90% of the per share
public offering price in the IPO.
In the event that an IPO does not occur prior to the Due Date and this Note
---
is not repaid in full within fifteen (15) days after the Due Date, the
outstanding indebtedness of this Note all accrued and unpaid interest) shall be
automatically converted into the Maturity Shares (as defined below) and this
Note shall be cancelled and surrendered to Borrower. As used in this Note,
"Maturity Shares" means a number of shares of common stock, no par value, of
Borrower equal to the product of "x" and "y" (rounded down to the nearest whole
number) where "x" is 298.594 and "y" is the quotient derived by dividing the
original principal amount of this Note by $1,500,000.00.
In case of any consolidation, merger, recapitalization, reorganization or
reclassification of securities of Borrower with or into another entity (other
than a merger in which Borrower is the continuing company), the Maturity Shares
shall be appropriately adjusted to reflect the kind and amount of shares of
stock and/or
<PAGE>
other securities properly receivable upon such consolidation, merger,
recapitalization, reorganization or reclassification of securities by a holder
of shares of common stock in Borrower into which this Note might have been
converted immediately prior to such consolidation, merger, recapitalization,
reorganization or reclassification of securities.
Upon the occurrence and during the continuance of any of the following
events (each an "Event of Default"), Holder, at its option, and without notice
to Borrower, may declare the entire unpaid principal balance of this Note and
all accrued interest to be immediately due and payable: (a) any failure by
Borrower to pay any installment of principal or interest when due hereunder and
such failure shall continue and shall not be cured for a period of fifteen (15)
days after the due date of such payment; (b) any cessation of Borrower's
business or the termination of Borrower's existence by sale, dissolution, merger
or otherwise; (c) Borrower's failure generally to pay debts as they mature, or
the appointment of a receiver or custodian over a material portion of Borrower's
assets, which receiver or custodian is not discharged within sixty (60) days of
such appointment; (d) any voluntary or involuntary bankruptcy or insolvency
proceedings are commenced by or against Borrower, which proceedings are not set
aside within sixty (60) days from the date of institution thereof; or (e) any
writ of attachment, garnishment, execution, tax lien, or similar writ is issued
against any property of Borrower.
Upon the occurrence and during the continuance of an Event of Default, the
outstanding principal amount hereof shall bear interest at a rate which is two
percent (2.0%) per annum greater than the Effective Rate otherwise applicable.
Acceptance by Holder of any payment in an amount less than the amount then
due shall be deemed an acceptance on account only, and Borrower's failure to pay
the entire amount then due shall be and continue to be a default. Upon the
occurrence of any default, neither the failure of Holder promptly to exercise
his, her or its right to declare the outstanding principal and accrued unpaid
interest hereunder to be immediately due and payable, nor the failure of Holder
to demand strict performance of any other obligation of Borrower or any other
person who may be liable hereunder, shall constitute a waiver of any such
rights, nor a waiver of such rights in connection with any future default on the
part of Borrower or any other person who may be liable hereunder.
Borrower and all endorsees, sureties and guarantors hereof hereby jointly
and severally waive presentment for payment, demand, notice of non-payment,
notice of protest or protest of this Note, and Holder diligence in collection or
bringing suit, and do hereby consent to any and all extensions of time,
renewals, waivers or modifications as may be granted by Holder with respect to
payment or any other provisions of this Note. The liability of Borrower under
this Note shall be absolute and unconditional, without regard to the liability
of any other party.
Notwithstanding anything herein to the contrary, in no event shall Borrower
be required to pay a rate of interest in excess of the Maximum Rate. The term
"Maximum Rate" shall mean the maximum non-usurious rate of interest that Holder
is allowed to contract for, charge, take, reserve or receive under the
applicable laws of any applicable state or of the United States of America
(whichever from time to time permits the highest rate for the use, forbearance
or detention of money) after taking into account, to the extent required by
applicable law, any and all relevant payments or charges hereunder, or under any
other document or instrument executed and delivered in connection therewith and
the indebtedness evidenced hereby.
In the event Holder ever receives, as interest, any amount in excess of the
Maximum Rate, such amount as would be excessive interest shall be deemed a
partial prepayment of principal, and, if the principal hereof is paid in full,
any remaining excess shall be returned to Borrower. In determining whether or
not the interest paid or payable, under any specified contingency, exceeds the
Maximum Rate, Borrower and Holder shall, to the maximum extent permitted by law,
(a) characterize any non-principal payment as an expense, fee, or premium rather
than as interest; (b) exclude voluntary prepayments and the effects thereof; and
(c) amortize, prorate, allocate and spread the total amount of interest through
the entire contemplated term of such indebtedness until payment in full of the
principal (including the period of any extension or renewal thereof) so that the
interest on account of such indebtedness shall not exceed the Maximum Rate.
-2-
<PAGE>
Borrower's obligations under this Note shall be subordinate, in all
respects, to its obligations under its past, present and future Institutional
Indebtedness (as defined below). By accepting this Note, Holder agrees that
Holder will execute such documentation as Borrower requests in order to further
evidence such subordination. If Holder fails to execute any such documentation
when requested by Borrower, Holder, by acceptance of this Note, hereby
constitutes any person designated by Borrower as Holder's true and lawful
attorney in fact to execute any such documentation in Holder's name, place and
stead, with the same effect as if Holder had done so personally. Such power of
attorney shall be coupled with an interest and shall be irrevocable. As used in
this Note, the term "Institutional Indebtedness" means the indebtedness of
Borrower to any bank as defined in Section 3(a)(2) of the Securities Act of
1933, as amended (the "Securities Act"), savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act, insurance
company as defined in Section 2(13) of the Securities Act, venture capitalist or
investment banking firm.
This Note shall be binding on Borrower and its successors and assigns.
Holder may not, without Borrower's consent, which may be granted or withheld in
Borrower's sole discretion, and which may be subject to such conditions as
Borrower deems appropriate in its sole discretion, assign this Note or Holder's
benefits of this Note to anyone. This Note has been executed in the State of
Illinois, and all rights and obligations hereunder shall be governed by the laws
of the State of Illinois.
BORROWER:
coolsavings.com inc., a Michigan corporation
By:_________________________________________
Steven M. Golden, Chief Executive Officer
-3-
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is entered into as of
May 28, 1999 by and among coolsavings.com inc., a Michigan corporation (the
"Company"), and the persons who sign this Agreement as Holders (the "Holders").
RECITALS:
A. As of the date hereof, the Holders loaned the Company $1,500,000.00 in
the aggregate, which loan is evidenced by the Company's 1999 Unsecured,
Convertible Subordinated Promissory Notes (the "Notes").
B. Pursuant to the terms of the Notes, the indebtedness represented by
the Notes is convertible into shares of the Company's common stock, no par value
(the "Shares"), upon certain events.
C. The Company and the Holders are entering into this Agreement to set
forth certain registration rights with respect to the Shares.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Definitions. The following capitalized terms shall have the following
-----------
definitions:
(a) "Common Stock" means the Company's common stock, no par value.
------------
(b) "IPO" means an underwritten initial public offering and sale of
---
the Common Stock pursuant to an effective registration statement under the
Securities Act.
(c) "Person" means an individual, a partnership, a limited liability
------
company, a joint venture, a corporation, a trust, an unincorporated
organization, a government or any department or agency thereof, or any
other entity.
(d) "Registrable Securities" means (i) the Shares issued or issuable
------------------------
upon the conversion of the Notes, and (ii) any shares of Common Stock
issued or issuable with respect to the Shares referred to in clause (i)
above by way of stock dividend, stock split or in connection with a
combination of stock, recapitalization, merger, consolidation or other
reorganization. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities on the earliest of the
following dates: (i) the date such securities have been sold to the public
pursuant to an offering registered under the Securities Act, or (ii) the
date such securities are eligible to be sold pursuant to Rule 144 (or any
similar provisions then in force) under the Securities Act.
(e) "Registration Period" means the period commencing immediately
-------------------
after the consummation of the IPO and ending on the second anniversary of
the consummation of the IPO.
(f) "Registration Statement" means any registration statement of the
----------------------
Company which covers any Registrable Securities pursuant to the provisions
of this Agreement.
(g) "SEC" means the Securities and Exchange Commission.
---
<PAGE>
(h) "Securities Act" means the Securities Act of 1933, as amended, or
----------------
any similar federal law then in force.
2. Piggyback Registration.
----------------------
(a) If the Company proposes to register any of its securities under
the Securities Act (other than pursuant to (i) a registration on Form S-4
or any successor form, or (ii) an offering of securities in connection with
an employee benefit plan, a stock option plan, a stock dividend plan, a
stock ownership plan or a dividend reinvestment plan) at any time during
the Registration Period and the registration form to be used may be used
for the registration of Registrable Securities (a "Piggyback
Registration"), the Company shall give prompt written notice to all holders
of Registrable Securities of its intention to effect such a registration
(each a "Piggyback Notice") and, subject to Sections 2(b) and 2(c) below,
the Company shall include in such registration all Registrable Securities
with respect to which the Company has received written requests for
inclusion therein within fifteen (15) days after the date of sending of the
Company's notice (the "Included Registrable Securities"); provided,
--------
however, that, at the Company's option, the Company may file a separate
-------
Registration Statement for, and with respect to, Included Registrable
Securities in satisfaction of the Company's obligation hereunder.
(b) If a Piggyback Registration is an underwritten registration that
includes primary shares to be sold on behalf of the Company, and the
managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner within a price
range acceptable to the Company, the Company shall include in such
registration (i) first, the securities the Company proposes to sell, and
(ii) second, the Registrable Securities requested to be included in such
registration and any other securities requested to be included in such
registration, pro rata among the holders of Registrable Securities
requesting such registration and the holders of such other securities on
the basis of the number of shares owned by each such holder.
(c) If a Piggyback Registration is an underwritten secondary
registration initiated by and on behalf of holders of the Company's
securities other than the holders of Registrable Securities pursuant to the
exercise of demand registration rights, and the managing underwriters
advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in an orderly manner in such offering within a price
range acceptable to the holders initially requesting such registration, the
Company shall include in such registration (i) first, all of the securities
requested to be included therein by the holders initially requesting such
registration, and (ii) second, the Registrable Securities requested to be
included in such registration and any other securities requested to be
included in such registration, pro rata among the holders of Registrable
Securities requesting such registration and the holders of such other
securities on the basis of the number of shares owned by each such holder.
(d) In the case of an underwritten Piggyback Registration, the Company
shall have the sole and exclusive right to select the investment banker(s)
and manager(s) to administer the offering.
3. Registration Procedures. Whenever the holders of Registrable
-----------------------
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its reasonable best efforts to effect
the registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof and pursuant thereto the Company
shall as expeditiously as possible:
-2-
<PAGE>
(a) prepare and file with the SEC a Registration Statement with
respect to such Registrable Securities and use its reasonable best efforts
to cause such Registration Statement to become effective;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective for the
period required by the intended method of disposition, and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the sellers thereof
set forth in such Registration Statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such Registration Statement, each amendment and supplement
thereto, the prospectus included in such Registration Statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company
shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (ii) subject itself to taxation in any such
jurisdiction, (iii) consent to general service of process in any such
jurisdiction, or (iv) qualify such Registrable Securities in a given
jurisdiction where expressions of investment interest are not sufficient in
such jurisdiction to reasonably justify the expense of qualification in the
jurisdiction or where such qualification would require the Company to
register as a broker or dealer in such jurisdiction).
(e) notify each seller of such Registrable Securities, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Registration Statement contains an untrue
statement of a material fact or omits any material fact necessary to make
the statements therein not misleading, and, at the request of any such
seller, the Company shall prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading;
(f) use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed and to be qualified for
trading on each system on which similar securities issued by the Company
are from time to time qualified;
(g) in the event of an underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering; and
(h) in the event of the issuance of any stop order suspending the
effectiveness of a Registration Statement, or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any Common Stock included in such
-3-
<PAGE>
Registration Statement for sale in any jurisdiction, the Company shall use
its reasonable best efforts to promptly obtain the withdrawal of such
order.
Each Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(e) or (h) hereof, such
Holder shall forthwith discontinue disposition of shares of Common Stock
pursuant to a Piggyback Registration until receipt of the copies of an
appropriate supplement or amendment to the prospectus under Section 3(e) or
until the withdrawal of such order under Section 3(h).
4. Registration Expenses. The Company shall bear all costs and expenses
---------------------
incident to the Company's performance of, or compliance with, this Agreement,
including, without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Company, all independent certified public accountants of the Company and fees
and expenses of other Persons retained by the Company in connection with the
distribution of the Registrable Securities. The participating Holders shall pay
all discounts and commissions attributable to the Registrable Securities, all
transfer taxes relating to the sale or disposition of the Registrable Securities
and all fees and expenses of any attorney or accountant retained by the Holders
in connection with the registration of Registrable Securities.
5. Indemnification.
---------------
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers, directors and trustees
and each Person who controls (within the meaning of the Securities Act)
such holder against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of material fact contained
in any Registration Statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished to the Company in writing by such
holder expressly for use therein or by such holder's failure to deliver a
copy of the Registration Statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an
underwritten offering, the Company shall indemnify such underwriters, their
officers and directors and each Person who controls (within the meaning of
the Securities Act) such underwriters to the same extent as provided above
with respect to the indemnification of the holders of Registrable
Securities.
(b) In connection with any Registration Statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to
the Company in writing such information as the Company reasonably requests
for use in connection with any such Registration Statement or prospectus
and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls (within the meaning of
the Securities Act) the Company against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the Registration Statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to
be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission
is contained in any information so furnished in writing by such holder;
provided, however, that the obligation to indemnify under this Section 5(b)
shall be several, not joint and several, among such holders of Registrable
Securities.
-4-
<PAGE>
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party shall not be subject to any liability for
any settlement made by the indemnified party without its consent (but such
consent shall not be unreasonably withheld). An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim shall not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other such
indemnified parties with respect to such claim.
(d) If for any reason the indemnification provided for in the
preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold such party harmless as contemplated by the preceding
clauses (a) and (b), then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of the loss,
claim, damage, liability or expense in the proportion as is appropriate to
reflect (i) the relative fault of the indemnified party and the
indemnifying party, and (ii) any other relevant equitable considerations.
(e) The indemnities provided in this Section 5 shall survive the
Holders' transfer of any Registrable Securities.
6. Participation in Underwritten Registrations. No Person may participate
-------------------------------------------
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
7. Disclosure. With a view to making available to the Holders the
----------
benefits of Rule 144 promulgated under the Securities Act, the Company agrees,
for a period of two years following the date of this Agreement, to:
(a) make and keep public information available within the meaning of
Rule 144(c) of the Securities Act at all times after ninety (90) days after
the closing of the IPO;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company
that it has complied with the reporting requirements of Rule 144 (at all
times after ninety (90) days after the closing of the IPO) and the Exchange
Act, (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports, documents and other information in
the possession of or reasonably obtainable by the Company as the Holders
may reasonably request in availing themselves of Rule 144.
-5-
<PAGE>
8. Miscellaneous.
(a) The Company shall not hereafter enter into any agreement with
respect to its securities which is inconsistent with or violates the rights
granted to the holders of Registrable Securities in this Agreement.
(b) Any Person having rights under any provision of this Agreement
shall be entitled to enforce such rights specifically to recover damages
caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties agree and
acknowledge that money damages may not be an adequate remedy for any breach
of the provisions of this Agreement and that any party may in its sole
discretion apply to any court of law or equity of competent jurisdiction
(without posting any bond or other security) for specific performance and
for other injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
(c) Except as otherwise provided herein, the provisions of this
Agreement may be amended or waived only upon the prior written consent of
the Company and holders of a majority of the then outstanding shares of
Registrable Securities.
(d) All covenants and agreements in this Agreement by or on behalf of
any of the parties shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not.
In addition, whether or not any express assignment has been made, the
provisions of this Agreement which are for the benefit of purchasers or
holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(e) Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
(f) This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original and all of which together shall
constitute one and the same agreement. Photographic or facsimile
reproductions of this Agreement may be made and relied upon to the same
extent as the originals.
(g) The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
(h) This Agreement has been executed in, and shall be construed in
accordance with the laws of, the State of Michigan.
(i) All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be
in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable express courier
service (charges prepaid) or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such
notices, demands and other communications shall be sent to the Holders at
the addresses indicated on the records of the Company and to the Company at
the address indicated below:
8755 West Higgins Road
Suite 100
-6-
<PAGE>
Chicago, Illinois 60631
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
set forth above.
COMPANY:
coolsavings.com inc., a Michigan
corporation
By: /s/ Steven M. Golden
------------------------------
Steven M. Golden, Chief
Executive Officer
HOLDERS:
[Insert Names]
-7-
<PAGE>
Exhibit 4.5
REGISTRATION RIGHTS AGREEMENT
----------------------------
This Registration Rights Agreement (the "Agreement") is entered into as of
December 21, 1999 by and among coolsavings.com inc., a Michigan corporation (the
"Company"), and the persons who sign this Agreement as Holders (the "Holders").
RECITALS:
A. As of the date hereof, the Holders purchased shares of the Company's
Series A Convertible Preferred Stock (the "Preferred Shares").
B. Pursuant to their terms, the Preferred Shares will be converted into
shares of the Company's common stock, no par value (the "Common Shares"), upon
certain events.
C. The Company and the Holders are entering into this Agreement to set
forth certain registration rights with respect to the Common Shares.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS. The following capitalized terms shall have the following
definitions:
(a) "Common Stock" means the Company's common stock, no par value.
(b) "IPO" means an underwritten initial public offering and sale of the
Common Stock pursuant to an effective registration statement under the
Securities Act.
(c) "Person" means an individual, a partnership, a limited liability
company, a joint venture, a corporation, a trust, an unincorporated
organization, a government or any department or agency thereof, or any
other entity.
(d) "Registrable Securities" means (i) the Common Shares issued or
issuable upon the conversion of the Preferred Shares, and (ii) any shares
of Common Stock issued or issuable with respect to the Common Shares
referred to in clause (i) above by way of stock dividend, stock split or in
connection with a combination of stock, recapitalization, merger,
consolidation or other reorganization. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities on the
earliest of the following dates: (i) the date such securities have been
sold to the public pursuant to an offering registered under the Securities
Act, or (ii) the date such securities are eligible to be sold pursuant to
Rule 144 (or any similar provisions then in force) under the Securities
Act.
(e) "Registration Period" means the period commencing immediately after
the consummation of the IPO and ending on the second anniversary of the
consummation of the IPO.
(f) "Registration Statement" means any registration statement of the
Company which covers any Registrable Securities pursuant to the provisions
of this Agreement.
(g) "SEC" means the Securities and Exchange Commission.
(h) "Securities Act" means the Securities Act of 1933, as amended, or
any similar federal law then in force.
<PAGE>
2. PIGGYBACK REGISTRATION.
(a) If the Company proposes to register any of its securities under the
Securities Act (other than pursuant to (i) a registration on Form S-4 or
any successor form, or (ii) an offering of securities in connection with an
employee benefit plan, a stock option plan, a stock dividend plan, a stock
ownership plan or a dividend reinvestment plan) at any time during the
Registration Period and the registration form to be used may be used for
the registration of Registrable Securities (a "Piggyback Registration"),
the Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration (each a
"Piggyback Notice") and, subject to Sections 2(b) and 2(c) below, the
Company shall include in such registration all Registrable Securities with
respect to which the Company has received written requests for inclusion
therein within fifteen (15) days after the date of sending of the Company's
notice (the "Included Registrable Securities"); provided, however, that, at
the Company's option, the Company may file a separate Registration
Statement for, and with respect to, Included Registrable Securities in
satisfaction of the Company's obligation hereunder.
(b) If a Piggyback Registration is an underwritten registration that
includes primary shares to be sold on behalf of the Company, and the
managing underwriters advise the Company in writing that in their opinion
the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner within a price
range acceptable to the Company, the Company shall include in such
registration (i) first, the securities the Company proposes to sell, and
(ii) second, the Registrable Securities requested to be included in such
registration and any other securities requested to be included in such
registration, pro rata among the holders of Registrable Securities
requesting such registration and the holders of such other securities on
the basis of the number of shares owned by each such holder.
(c) If a Piggyback Registration is an underwritten secondary registration
initiated by and on behalf of holders of the Company's securities other
than the holders of Registrable Securities pursuant to the exercise of
demand registration rights, and the managing underwriters advise the
Company in writing that in their opinion the number of securities requested
to be included in such registration exceeds the number which can be sold in
an orderly manner in such offering within a price range acceptable to the
holders initially requesting such registration, the Company shall include
in such registration (i) first, all of the securities requested to be
included therein by the holders initially requesting such registration, and
(ii) second, the Registrable Securities requested to be included in such
registration and any other securities requested to be included in such
registration, pro rata among the holders of Registrable Securities
requesting such registration and the holders of such other securities on
the basis of the number of shares owned by each such holder.
(d) In the case of an underwritten Piggyback Registration, the Company
shall have the sole and exclusive right to select the investment banker(s)
and manager(s) to administer the offering.
3. REGISTRATION PROCEDURES. Whenever the holders of Registrable Securities
have requested that any Registrable Securities be registered pursuant to this
Agreement, the Company shall use its reasonable best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof and pursuant thereto the Company shall as
expeditiously as possible:
-2-
<PAGE>
(a) prepare and file with the SEC a Registration Statement with respect
to such Registrable Securities and use its reasonable best efforts to cause
such Registration Statement to become effective;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective for the
period required by the intended method of disposition, and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the sellers thereof
set forth in such Registration Statement;
(c) furnish to each seller of Registrable Securities such number of
copies of such Registration Statement, each amendment and supplement
thereto, the prospectus included in such Registration Statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(d) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company
shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (ii) subject itself to taxation in any such
jurisdiction, (iii) consent to general service of process in any such
jurisdiction, or (iv) qualify such Registrable Securities in a given
jurisdiction where expressions of investment interest are not sufficient in
such jurisdiction to reasonably justify the expense of qualification in the
jurisdiction or where such qualification would require the Company to
register as a broker or dealer in such jurisdiction).
(e) notify each seller of such Registrable Securities, at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Registration Statement contains an untrue
statement of a material fact or omits any material fact necessary to make
the statements therein not misleading, and, at the request of any such
seller, the Company shall prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading;
(f) use its reasonable best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed and to be qualified for
trading on each system on which similar securities issued by the Company
are from time to time qualified;
(g) in the event of an underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering; and
(h) in the event of the issuance of any stop order suspending the
effectiveness of a Registration Statement, or of any order suspending or
preventing the use of any related prospectus or suspending the
qualification of any Common Stock included in such
-3-
<PAGE>
Registration Statement for sale in any jurisdiction, the Company shall use
its reasonable best efforts to promptly obtain the withdrawal of such
order.
Each Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(e) or (h) hereof, such
Holder shall forthwith discontinue disposition of shares of Common Stock
pursuant to a Piggyback Registration until receipt of the copies of an
appropriate supplement or amendment to the prospectus under Section 3(e) or
until the withdrawal of such order under Section 3(h).
4. Registration Expenses. The Company shall bear all costs and expenses
incident to the Company's performance of, or compliance with, this Agreement,
including, without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for the
Company, all independent certified public accountants of the Company and fees
and expenses of other Persons retained by the Company in connection with the
distribution of the Registrable Securities. The participating Holders shall pay
all discounts and commissions attributable to the Registrable Securities, all
transfer taxes relating to the sale or disposition of the Registrable Securities
and all fees and expenses of any attorney or accountant retained by the Holders
in connection with the registration of Registrable Securities.
5. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by law,
each holder of Registrable Securities, its officers, directors and trustees
and each Person who controls (within the meaning of the Securities Act)
such holder against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue statement of material fact contained
in any Registration Statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished to the Company in writing by such
holder expressly for use therein or by such holder's failure to deliver a
copy of the Registration Statement or prospectus or any amendments or
supplements thereto after the Company has furnished such holder with a
sufficient number of copies of the same. In connection with an underwritten
offering, the Company shall indemnify such underwriters, their officers and
directors and each Person who controls (within the meaning of the
Securities Act) such underwriters to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities.
(b) In connection with any Registration Statement in which a holder of
Registrable Securities is participating, each such holder shall furnish to
the Company in writing such information as the Company reasonably requests
for use in connection with any such Registration Statement or prospectus
and, to the extent permitted by law, shall indemnify the Company, its
directors and officers and each Person who controls (within the meaning of
the Securities Act) the Company against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue
statement of material fact contained in the Registration Statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to
be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission
is contained in any information so furnished in writing by such holder;
provided, however, that the obligation to indemnify under this Section 5(b)
shall be several, not joint and several, among such holders of Registrable
Securities.
-4-
<PAGE>
(c) Any Person entitled to indemnification hereunder shall (i) give
prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is
assumed, the indemnifying party shall not be subject to any liability for
any settlement made by the indemnified party without its consent (but such
consent shall not be unreasonably withheld). An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim shall not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other such
indemnified parties with respect to such claim.
(d) If for any reason the indemnification provided for in the preceding
clauses (a) and (b) is unavailable to an indemnified party or insufficient
to hold such party harmless as contemplated by the preceding clauses (a)
and (b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of the loss, claim, damage,
liability or expense in the proportion as is appropriate to reflect (i) the
relative fault of the indemnified party and the indemnifying party, and
(ii) any other relevant equitable considerations.
(e) The indemnities provided in this Section 5 shall survive the
Holders' transfer of any Registrable Securities.
6. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
7. Disclosure. With a view to making available to the Holders the benefits
of Rule 144 promulgated under the Securities Act, the Company agrees, for a
period of two years following the date of this Agreement, to:
(a) make and keep public information available within the meaning of
Rule 144(c) of the Securities Act at all times after ninety (90) days after
the closing of the IPO;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company
that it has complied with the reporting requirements of Rule 144 (at all
times after ninety (90) days after the closing of the IPO) and the Exchange
Act, (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports, documents and other information in
the possession of or reasonably obtainable by the Company as the Holders
may reasonably request in availing themselves of Rule 144.
8. Market Stand-Off Agreement. Each Holder agrees that, for a period of 180
days after the date of the final prospectus relating to an IPO, it shall not,
either directly or indirectly:
-5-
<PAGE>
(a) (x) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock
(including, without limitation, shares of Common Stock or securities
convertible into or exercisable or exchangeable for Common Stock which may
be deemed to be beneficially owned by such Holder in accordance with the
rules and regulations of the Securities and Exchange Commission) or (y)
enter into any swap or other arrangement that transfers all or a portion of
the economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (x) or
(y) is to be settled by the delivery of Common Stock, or such other
securities, in cash or otherwise), without the prior written consent of the
Company and the managing underwriter(s) of the IPO; and
(b) make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, without the prior
written consent of the Company and the managing underwriter(s) of the IPO.
9. Miscellaneous.
(a) The Company shall not hereafter enter into any agreement with
respect to its securities which is inconsistent with or violates the rights
granted to the holders of Registrable Securities in this Agreement.
(b) Any Person having rights under any provision of this Agreement
shall be entitled to enforce such rights specifically to recover damages
caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties agree and acknowledge
that money damages may not be an adequate remedy for any breach of the
provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without
posting any bond or other security) for specific performance and for other
injunctive relief in order to enforce or prevent violation of the
provisions of this Agreement.
(c) Except as otherwise provided herein, the provisions of this
Agreement may be amended or waived only upon the prior written consent of
the Company and holders of a majority of the then outstanding shares of
Registrable Securities.
(d) All covenants and agreements in this Agreement by or on behalf of
any of the parties shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not.
In addition, whether or not any express assignment has been made, the
provisions of this Agreement which are for the benefit of purchasers or
holders of Registrable Securities are also for the benefit of, and
enforceable by, any subsequent holder of Registrable Securities.
(e) Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.
(f) This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original and all of which together shall
constitute one and the
-6-
<PAGE>
same agreement. Photographic or facsimile reproductions of this Agreement
may be made and relied upon to the same extent as the originals.
(g) The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
(h) This Agreement has been executed in, and shall be construed in
accordance with the laws of, the State of Michigan.
(i) All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be
in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable express courier
service (charges prepaid) or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such
notices, demands and other communications shall be sent to the Holders at
the addresses indicated on the records of the Company and to the Company at
the address indicated below:
8755 West Higgins Road
Suite 100
Chicago, Illinois 60631
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
set forth above.
COMPANY:
coolsavings.com inc., a Michigan corporation
By: /s/ Steven M. Golden
---------------------------------------------
Steven M. Golden, Chief Executive Officer
HOLDERS:
SEE THE ATTACHED JOINDER AGREEMENTS
-7-
<PAGE>
[Jaffe, Raitt, Heuer & Weiss Letterhead] Exhibit 5.1
January 14, 2000
coolsavings.com inc.
8755 West Higgins Road
Suite 100
Chicago, Illinois 60631
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as counsel to coolsavinigs.com inc., a Michigan corporation
(the "Company"), in connection with the proposed offering of shares of Common
Stock ("Common Stock") by the Company, as described in the Registration
Statement on Form S-1 filed with the Securities and Exchange Commission on
January 14, 2000 (together with all amendments thereto, the "Registration
Statement").
We are attorneys admitted to practice in the State of Michigan.
Accordingly, we express no opinion concerning the laws of any jurisdiction other
than the laws of the United States of America and the State of Michigan. In
rendering the opinion contained in this letter, we have assumed without
investigation that the information supplied to us by the Company is accurate and
complete.
Based upon and subject to the foregoing, it is our opinion that the shares
of Common Stock to be offered under the Registration Statement have been duly
authorized and, upon the sale thereof in the manner referred to in the
Registration Statement, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name wherever it
appears in the Registration Statement.
Very truly yours,
JAFFE, RAITT, HEUER & WEISS
Professional Corporation
/s/ Jaffe, Raitt, Heuer & Weiss
---------------------------------------
<PAGE>
EXHIBIT 10.1
INVESTMENT AGREEMENT
--------------------
by and among
INTERACTIVE COUPON MARKETING GROUP, INC.,
a Michigan corporation
and
LEND LEASE INTERNATIONAL PTY. LIMITED,
an Australian company
June 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INDEX OF DEFINED TERMS................................................................................. iv
LIST OF EXHIBITS....................................................................................... vii
RECITALS............................................................................................... 1
ARTICLE I. ISSUANCE AND SALE OF THE COMMON STOCK....................................................... 2
1.1 Investment Amount; Authorization of Issuance and Reservation of Common Stock................... 2
1.2 Phase One...................................................................................... 2
1.3 Phases Two, Three and Four..................................................................... 3
1.4 Closings....................................................................................... 8
1.5 Issuance of Additional Shares.................................................................. 8
1.6 Grant of Technology License on Occurrence of Certain Events.................................... 8
ARTICLE II. RIGHT OF FIRST REFUSAL..................................................................... 9
2.1 Right of First Refusal in the Private Offering................................................. 9
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE
CORPORATION................................................................... 11
3.1 Organization and Standing; Articles and Bylaws................................................ 11
3.2 Capitalization................................................................................ 11
3.3 Voting Agreements............................................................................. 12
3.4 Corporate Power: Authorization................................................................ 12
3.5 Validity of Investment Shares................................................................. 13
3.6 Consents and Waivers.......................................................................... 13
3.7 Litigation.................................................................................... 13
3.8 Shareholder Lists and Agreements.............................................................. 13
3.9 Subsidiaries.................................................................................. 13
3.10 Financial Statements.......................................................................... 14
3.11 Absence of Undisclosed Liabilities............................................................ 14
3.12 Absence of Certain Developments............................................................... 15
3.13 Title to Assets............................................................................... 15
3.14 Real Property................................................................................. 16
3.15 Tax Matters................................................................................... 16
3.16 Contracts and Commitments..................................................................... 16
3.17 Proprietary Rights; Employee Restriction...................................................... 17
3.18 Effect of Transactions........................................................................ 17
3.19 Insurance..................................................................................... 18
3.20 Securities Act Registration................................................................... 18
3.21 Business; Compliance with Laws................................................................ 18
</TABLE>
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<TABLE>
<S> <C>
3.22 Books and Records.............................................................................. 18
3.23 Employee Benefit Plans......................................................................... 19
3.24 Brokerage...................................................................................... 19
3.25 Employees...................................................................................... 19
3.26 Related Party Transactions..................................................................... 19
3.27 Disclosure..................................................................................... 20
3.28 Proprietary Information and Inventions Agreement............................................... 20
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR............................................. 20
4.1 Representations and Warranties................................................................. 20
4.2 Investment..................................................................................... 21
4.3 Federal and State Securities Laws.............................................................. 21
ARTICLE V. PRIOR OR SIMULTANEOUS ACTIONS............................................................... 22
ARTICLE VI. COVENANTS.................................................................................. 23
6.1 Business Plan.................................................................................. 23
6.2 Affiliated Transaction......................................................................... 23
6.3 Inspection..................................................................................... 23
6.4 Material Changes and Litigation................................................................ 24
6.5 Use of Proceeds................................................................................ 24
6.6 Shareholders Agreement......................................................................... 24
6.7 Termination.................................................................................... 24
ARTICLE VII. SURVIVAL OF REPRESENTATIONS AND WARRANTIES: INDEMNIFICATION............................... 24
7.1 Survival of Representations and Warranties..................................................... 24
7.2 Indemnification................................................................................ 25
ARTICLE VIII. RESTRICTIONS ON TRANSFER................................................................. 25
8.1 Parties to the Shareholder Agreement; Limitation on Transfer................................... 25
8.2 Restrictive Legend............................................................................. 26
ARTICLE IX. MISCELLANEOUS.............................................................................. 27
9.1 Staff and Advisers............................................................................. 27
9.2 Standard of Performance........................................................................ 28
9.3 Notices Etc.................................................................................... 28
9.4 Delays or Omissions............................................................................ 29
9.5 Assignments; Successors and Assigns............................................................ 29
</TABLE>
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<TABLE>
<S> <C>
9.6 Amendments..................................................................................... 29
9.7 Counterparts................................................................................... 29
9.8 Headings and Construction...................................................................... 30
9.9 Entire Agreement............................................................................... 30
9.10 Governing Law, Venue and Jurisdiction.......................................................... 30
9.11 Joint Drafting................................................................................. 30
9.12 Attorneys Fees................................................................................. 31
9.13 Disclosure on Completion of First Phase........................................................ 31
9.14 Exhibits....................................................................................... 31
9.15 No Joint Venture............................................................................... 31
</TABLE>
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<PAGE>
INDEX OF DEFINED TERMS
----------------------
"80% Call Notice" shall have the meaning ascribed to it in Section 1.3(d)(ii).
"90% Call Notice" shall have the meaning ascribed to it in Section 1.3(f)(i).
"Act" shall have the meaning ascribed to it in Section 4.2.
"Affiliate" shall have the meaning ascribed to it in Section 9.5.
"Agreement" shall have the meaning ascribed to it in the first paragraph of the
Investment Agreement.
"Alliance Agreements" shall have the meaning ascribed to it in Section 3.4.
"Annual Financial Statements" shall have the meaning ascribed to it in Section
3.10(a)(i).
"Benefit Plans" shall have the meaning ascribed to it in Section 3.23.
"Board of Directors" shall have the meaning ascribed to it in Section 3.22.
"Business" shall have the meaning ascribed to it in Recital A.
"Business Plan" shall have the meaning ascribed to it in Section 6.1.
"Core Business" shall have the meaning ascribed to it in Section 1.6.
"Corporation" shall have the meaning ascribed to it in the first paragraph of
the Investment Agreement.
"Corporation Group" shall have the meaning ascribed to it in Section 7.2(b).
"Disclosure Letter" shall have the meaning ascribed to it in the first paragraph
of Article III.
"Employee Plan" shall have the meaning ascribed to it in Section 3.2.
"Financial Statements" shall have the meaning ascribed to it in Section
3.10(a)(ii).
"Fully Diluted Shares" shall have the meaning ascribed to it in Section 1.1(b).
"GAAP" shall have the meaning ascribed to it in Section 3.10(b).
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<PAGE>
"Initial Public Offering" shall have the meaning ascribed to it in Section 2.1.
"Integrated Business Activities" shall have the meaning ascribed to it in
Section 1.6.
"Intellectual Property Rights" shall have the meaning ascribed to it in Section
3.17.
"Interim Balance Sheet" shall have the meaning ascribed to it in Section
3.10(a)(ii).
"Interim Balance Sheet Date" shall have the meaning ascribed to it in Section
3.10(a)(ii).
"Interim Financial Statements" shall have the meaning ascribed to it in Section
3.10(a)(ii).
"Investment" shall have the meaning ascribed to it in Recital B.
"Investor Directors" shall have the meaning ascribed to it -in Section
1.3(c)(iii).
"Investor Group" shall have the meaning ascribed to it in Section 7.2(a).
"Investment Notice" shall have the meaning ascribed to it in Section 1.3(a)(i).
"Investment Shares" shall have the meaning ascribed to it in Recital C.
"Investor" shall have the meaning ascribed to it in the first paragraph of the
Investment Agreement.
"License" shall have the meaning ascribed to it in Section 1.6
"Milestone" shall have the meaning ascribed to it in Section 1.3(a).
"Non-Employee Plan" "Investor Directors" shall have the meaning ascribed to it
in Section 3.2.
"Option Notice" shall have the meaning ascribed to it in Section 1.3(a)(i).
"Other Shareholders" shall have the meaning ascribed to it in Section 6.6.
"Permits" shall have the meaning ascribed to it in Section 3.21.
"Permitted Liens" shall have the meaning ascribed to it in Section 3.13.
"Phase" shall have the meaning ascribed to it in Section 1.l(a).
"Phase One Closing" shall have the meaning ascribed to it in Section 1.2(b).
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<PAGE>
"Phase One Shares" shall have the meaning ascribed to it in Section 1.2(a).
"Phase Three or Phase Four Exercise Period" shall have the meaning ascribed to
it in Section 1.3(a)(iii).
"Phase Three or Phase Four Grace Period" shall have the meaning ascribed to it
in Section 1.3(a)(iii).
"Phase Two Election Period" shall have the meaning ascribed to it in Section
1.3(a)(ii).
"Phase Two Due Date" shall have the meaning ascribed to it in Section
1.3(a)(ii).
"Phases" shall have the meaning ascribed to it in Section 1.1(a).
"Private Offering" shall have the meaning ascribed to it in Section 2.1.
"Private Offering Notice" shall have the meaning ascribed to it in Section
2.1(a).
"Put Notice" shall have the meaning ascribed to it in Section 1.3(c)(ii).
"Shareholders Agreement" shall have the meaning ascribed to it in Sections 3.5
and 6.6.
"Threshold Amount" shall have the meaning ascribed to it in Section 7.2(c).
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<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A Articles of Incorporation
Exhibit 1.4A Opinion of the Corporation's Counsel
Exhibit 1.4B Corporation Certificate
Exhibit 1.4C Investor Certificate
Exhibit 3.0 Disclosure Letter
Exhibit 4.3A Accredited Investor Definition
Exhibit 4.3B Confidential Statement of Investor Suitability
Exhibit 4.3C Investor Address
Exhibit 5.5A Corporation Certificate
Exhibit 5.5B Investor Certificate
Exhibit 5.6 Opinion of Counsel
Exhibit 6.1 Business Plan
Exhibit 6.6 Shareholders Agreement
vii
<PAGE>
INVESTMENT AGREEMENT
--------------------
THIS INVESTMENT AGREEMENT (this "Agreement") is entered into as of June 1,
1998, by and among INTERACTIVE COUPON MARKETING GROUP, INC., a Michigan
corporation (the "Corporation"), and LEND LEASE INTERNATIONAL PTY. LIMITED, an
Australian company (the "Investor").
RECITALS
This Agreement is entered into on the basis of the following facts,
understandings and intentions of the parties:
A. The Corporation has developed a proprietary system for offering
coupons and other direct promotions over the Internet (the "Business"). The
Investor has developed a concept that provides a service to retailers and
consumers that has some common features to the Business and in connection
therewith has developed contacts, technologies, ideas, tools and supporting
materials which could provide enhancement of and support to the Business.
B. The Investor desires to acquire common stock of the Corporation for the
monetary consideration set forth in this Agreement (the "Investment"), to
contribute contacts, technologies, ideas, tools and supporting materials to the
Corporation in accordance with the Initial Business Plan attached hereto as
Exhibit 6.1, as the same may from time to time be hereafter amended by action of
- -----------
the Board of Directors (the "Business Plan"), and to participate in directing
and operating the Business, all in consideration of the commitments made by the
Corporation in this Agreement.
C. In connection with the Investment, the Corporation shall issue to the
Investor on a fully diluted basis an amount of shares (the "Investment Shares")
of the Corporation's common stock (the "Common Stock"), with the voting powers,
designations, preferences, limitations, and relative participating, optional or
other rights set forth in this Agreement, the Articles of Incorporation of the
Corporation, as amended (the "Articles of Incorporation") attached as Exhibit A,
---------
and the Shareholders Agreement attached hereto as Exhibit 6.6, on the terms and
-----------
conditions set forth in this Agreement and the Shareholders Agreement.
D. The proceeds of the Investment will be used in accordance with the
Business Plan.
NOW, THEREFORE, the parties agree as follows:
1
<PAGE>
ARTICLE I
ISSUANCE AND SALE OF THE COMMON STOCK
1.1 Investment Amount; Authorization of Issuance and Reservation of Common
----------------------------------------------------------------------
Stock.
-----
(a) The Investment shall be made in four phases (each a "Phase", and
collectively the "Phases") as set forth in Sections 1.2 and 1.3 herein, for
------------ ---
an aggregate purchase price of U.S. $18,500,000.
(b) Subject to the terms and conditions hereof, the Corporation has
authorized the issuance of up to Thirty percent (30%) of its Common Stock,
without par value, on a fully diluted basis (the "Fully Diluted Shares") in
four Phases at the purchase price for each Phase set forth below. The Fully
Diluted Shares means, immediately following any issuance of Common Stock to
the Investor hereunder, all of the Corporation's issued and outstanding
Common Stock and all shares of Common Stock issuable upon exercise of, or
pursuant to, all outstanding rights, options, warrants, preemptive rights,
conversion rights or agreements for the purchase, acquisition or receipt
from the Corporation of any shares of its Common Stock.
(c) The Corporation shall reserve that number of shares of Common
Stock to ensure the availability at all times of Thirty percent (30%) of
the Fully Diluted Shares for issuance to the Investor and shall reserve
additional shares of Common Stock for issuance to the Investor, all as is
required pursuant to the terms of this Agreement in order to comply with
the provisions of this Agreement for issuance of Common Stock to the
Investor.
1.2 Phase One.
---------
(a) Subject to the terms and conditions herein, and in reliance on
the representations, warranties and agreements contained herein, the
Corporation shall issue and sell to the Investor that number of shares of
Common Stock equal to Ten percent (10%) of the Fully Diluted Shares for a
purchase price of U.S $5,000,000 (the "Phase One Shares").
(b) The purchase and sale of the Phase One Shares shall occur at a
closing (the "Phase One Closing") to be held as soon as is practicable, but
in any event, not later than June 1, 1998, or such other time and place as
shall be mutually agreed upon by the Corporation and the Investor.
2
<PAGE>
1.3 Phases Two, Three and Four.
--------------------------
Following the Phase One Closing, the remainder of the Investment, totaling
U.S. $13,500,000, shall be staged in three Phases pursuant to the terms and
subject to the conditions of this Section 1.3, for the following purchase prices
-----------
such that after issuance, the Investor shall own the following percentages of
the Fully Diluted Shares in addition to any percentages of Fully Diluted Shares
owned prior to any such issuance:
% of Fully Diluted Shares
-------------------------
Phase Purchase Price after issuance to the Investor
- ----- -------------- ------------------------------
Phase Two US $5,000,000 7.5%
Phase Three US $5,000,000 7.5%
Phase Four US $3,500,000 5.0%
(a) Upon the Corporation achieving the milestones for each Phase set forth
in the Business Plan (a "Milestone"), the Investor shall have the option to
invest the full amounts and for the percentages of Fully Diluted Shares as
set forth above. The decision as to whether or not to invest in any Phase
under this Section 1.3 shall be determined by the Investor in its sole
-----------
discretion, provided however, if the Investor fails to exercise the option
to invest in any Phase, the Investor shall be deemed to have waived the
right to purchase that percentage of Fully Diluted Shares available to it
in the Phase in which it did not invest, but such waiver shall not affect
any further unexercised options as to a Phase following the Phase not
exercised. The option for each Phase shall be exercised as follows:
(i) Within thirty (30) days after the date the Corporation must
achieve the Milestone for a Phase, the Corporation shall notify the
Investor, in writing, whether or not the Milestone has been achieved
(the "Investment Notice") and that the Investor must give notice to
exercise the option or not exercise the option as to that Phase (the
"Option Notice").
(ii) Within fifteen (15) days after the date the Investor
receives the Investment Notice for Phase Two (the "Phase Two Election
Period"), if the Investor elects to exercise its option to invest, the
Investor shall notify the Corporation of its decision to invest and
shall deliver the Option Notice to the Corporation. The Corporation's
failure to receive the Option Notice for Phase Two within the Phase
Two Election Period shall be deemed receipt of notice from the
Investor of its election not to invest in Phase Two. If the Investor
delivers the Option Notice which states an election to invest within
the Phase Two Exercise Period, the Investor shall have forty-five (45)
days after the Phase Two Election Period to deliver the purchase price
to the Corporation (the "Phase Two Due Date").
3
<PAGE>
(iii) Within thirty (30) days after the date of the Investment
Notice for Phase Three or Phase Four (the "Phase Three or Phase Four
Exercise Period"), if the Investor elects to exercise its option to
invest, the Investor shall notify the Corporation of its decision to
invest and shall deliver the Option Notice and, prior to the end of
the Phase Three or Phase Four Exercise Period, deliver the purchase
price for Phase Three or Phase Four to the Corporation. The
Corporation's failure to receive the Option Notice for Phase Three or
Phase Four within the respective Phase Three or Phase Four Exercise
Period shall be deemed receipt of notice from the Investor of its
election not to invest. If the Option Notice states an election to
invest within the Phase Three or Phase Four Exercise Period, but the
Investor fails to deliver the applicable purchase price to the
Corporation prior to the end of the Phase Three or Phase Four Exercise
Period, the Corporation shall notify the Investor of the failure to
deliver the purchase price and the Investor shall have a grace period
of seven (7) days after such notice to deliver the purchase price to
the Corporation (the "Phase Three or Phase Four Grace Period").
(b) The Corporation's failure to achieve a Milestone for any Phase will
not in any way affect the Investor's right to invest in that or any other
Phase whether or not the Corporation achieves or fails to achieve the
Milestone for such other Phase, except if the Corporation or the Investor
exercises their respective rights, if applicable, under Sections
--------
1.3(c)(ii), 1.3(d)(ii), 1.3(e)(ii) or 1.3(g)(i), in which event the
-----------------------------------------------
Investor shall have no further rights to exercise any option for any Phase
after such right is exercised.
(c) In the event the Corporation fails to achieve the Milestone for Phase
Two, and the Investor elects in its sole discretion not to invest in Phase
Two, all of the following shall apply:
(i) The Corporation shall be entitled to raise capital through
the issuance of debt or equity. If it raises capital through the
issuance of equity, Investor shall be pro-rata diluted with all other
shareholders of the Corporation; provided, however, the Investor shall
have the right to purchase equity in such offering, at the per share
price in such offering, less discounts and commissions, in an amount
necessary to maintain its then percentage equity interest of the Fully
Diluted Shares; and
(ii) The Investor shall have the right, within thirty (30) days
from the date of the Option Notice, or if the Option Notice is not
given, thirty (30) days from the date the Option Notice was due, to
notify the Corporation of its desire to have the Corporation redeem
the Investor's entire equity interest in the Corporation (the "Phase
Two Put Notice") at a price equal to Ninety percent (90%) of the
aggregate purchase price paid by the Investor for the Investment. Upon
receipt of the Phase Two Put
4
<PAGE>
Notice, the Corporation shall be obligated to redeem the Investor's
entire equity interest for said price, on a date selected by the
Corporation (but in no event later than six (6) months from the date
of the Phase Two Put Notice); and
(iii) In the event the Corporation raises capital through the
issuance of debt or equity as provided in Section 1.3(c)(i), upon the
-----------------
closing of the issuance of such debt or equity, the Corporation shall
be entitled to reduce the number of directors selected by the Investor
and elected pursuant to the terms of the Shareholder Agreement (as
described in Section 6.6) (the "Investor Directors") all in accordance
-----------
with Section 1.3 of the Shareholders Agreement.
(d) In the event the Corporation achieves the Milestone for Phase Two, and
the Investor elects in its sole discretion not to exercise its option for
Phase Two, or elects to invest in Phase Two but fails to pay the Phase Two
purchase price on or before the Phase Two Due Date, then the Corporation
shall have all of the following rights and remedies, as determined by the
Corporation in its sole discretion:
(i) The Corporation shall be entitled to raise capital through
the issuance of debt or equity. If it raises capital through the
issuance of equity, Investor shall be pro-rata diluted with all other
shareholders of the Corporation, and the Investor shall not have the
right to purchase equity in such offering; and
(ii) The Corporation shall have the right (i) within sixty (60)
days after the date the Corporation receives (or is deemed to have
received) notice from the Investor that it has elected not to invest,
or (ii) if the Investor has provided timely notice of its decision to
invest, and has failed to invest by the Phase Two Due Date, within
sixty (60) days after the Phase Two Due Date, to notify the Investor
of its desire to redeem the Investor's entire equity interest in the
Corporation (the "80% Call Notice") at a price equal to eighty percent
(80%) of the aggregate purchase price paid by the Investor for its
Investment. Upon receipt of the 80% Call Notice, the Investor shall be
obligated to sell the Investor's entire equity interest to the
Corporation for said price, on a date selected by the Corporation (but
in no event later than six (6) months from the date of the 80% Call
Notice); and
(iii) The Corporation shall be entitled to reduce the number of
Investor Directors in accordance with Section 1.3 of the Shareholders
Agreement; and
5
<PAGE>
(iv) The Corporation shall be entitled to terminate the
Shareholder Agreement; and
(v) Only in the event the Investor elects to invest in Phase
Two but it fails to pay the purchase price by the Phase Two Due Date,
and the Corporation does not elect the 80% Call Notice, in addition to
all rights and remedies provided in this Section 1.3(d), the
--------------
Corporation shall have all other rights and remedies available at law
and equity; and
(vi) If the Corporation issues its 80% Call Notice but fails to
deliver the purchase price to the Investor within the period provided
by Section 1.3(d)(ii) above, any action taken by the Corporation under
Section 1.3(d)(ii)-(iv) above, shall be deemed void and of no effect.
(e) In the event the Corporation fails to achieve a Milestone for either
Phase Three or Four and the Investor in its sole discretion elects not to
invest in the applicable Phase, all of the following shall apply:
(i) The Corporation shall be entitled to raise capital through
the issuance of debt or equity as determined by the Board. If it
raises capital through the issuance of equity, the Investor shall be
pro-rata diluted with all other shareholders of the Corporation;
provided, however, the Investor shall have the right to purchase
equity in such offering, at the per share price in such offering, less
discounts and commissions, in an amount necessary to maintain its then
percentage equity interest of Fully Diluted Shares; and
(ii) The Investor shall have the right, within thirty (30) days
from the due date of the Option Notice, or if the Option Notice is not
given, thirty (30) days from the date the Option Notice was due, to
notify the Corporation of its desire to have the Corporation redeem
the Investor's entire equity interest in the Corporation (the "Phase
Three or Phase Four Put Notice") at a price equal to ninety percent
(90%) of the aggregate purchase price paid by the Investor for the
Investment. Upon receipt of the Phase Three or Phase Four Put Notice,
the Corporation shall be obligated to redeem the Investor's entire
equity interest for said price, on a date selected by the Corporation
(but in no event later than six (6) months from the date of the Phase
Three or Phase Four Put Notice); and
(iii) In the event the Corporation raises capital through the
issuance of equity, but not debt, as provided in Section 1.3(e)(i),
-----------------
upon the closing of the issuance of equity, the Corporation shall be
entitled to alter the number of directors pursuant to Section 1.3.3 of
the Shareholders Agreement.
6
<PAGE>
(f) In the event the Corporation achieves the Milestone for Phase Three or
Four, and the Investor elects not to invest in the applicable Phase, the
Corporation shall have all of the following rights, as determined by the
Corporation in its sole discretion:
(i) The Corporation shall be entitled to raise capital through the
issuance of debt or equity. If it raises capital through the issuance
of equity, Investor shall be pro-rata diluted with all other
shareholders of the Corporation, and the Investor shall not have the
right to purchase equity in such offering; and
(ii) The Corporation shall be entitled to reduce the number of
Investor Directors in accordance with Section 1.3 of the Shareholders
Agreement.
(g) In the event the Investor elects to invest in Phase Three or Phase
Four but it fails to pay the purchase price for that Phase within the Phase
Three or Phase Four Grace Period, the Corporation shall have all of the
following rights and remedies, as determined by the Corporation in its sole
discretion:
(i) The Corporation shall have the right, within sixty (60)
days after the Phase Three or Phase Four Grace Period as the case may
be, to notify the Investor of its desire to redeem the Investor's
entire equity interest in the Corporation (the "90% Call Notice") at a
price equal to ninety percent (90%) of the aggregate purchase price
paid by the Investor for its Investment. Upon receipt of the 90% Call
Notice, the Investor shall be obligated to sell the Investor's entire
equity interest to the Corporation for said price, on a date selected
by the Corporation (but in no event later than six (6) months from the
date of the 90% Call Notice); and
(ii) The Corporation shall be entitled to reduce the number of
Investor Directors in accordance with Section 1.3 of the Shareholders
Agreement; and
(iii) The Corporation shall be entitled to terminate the
Shareholder Agreement; and
(iv) The Corporation shall have all other rights and remedies
available at law and equity.
(h) In the event the Corporation elects to proceed with an Initial Public
Offering, as defined in Section 2.1, prior to the date the specified
-----------
Milestones for all Phases were to have been achieved (such that the
Investor did not have the opportunity to purchase the percentage of Fully
Diluted Shares for the entire US $13,500,000 set forth above for Phases
Two, Three and Four), then, subject to completion of the Initial Public
Offering, the Investor shall be entitled to purchase
7
<PAGE>
the percentage of Fully Diluted Shares after completion of the Initial
Public Offering it would have been able to purchase had all of the
Milestones been achieved prior to the Initial Public Offering, at the
offering price to the public less underwriters' discounts and commissions,
provided that the Investor agrees to abide by the managing underwriter's
restrictions on resale of its shares.
1.4 Closings.
--------
Closings for Phases Two, Three and Four shall be held at such time and
place (but in no event later than any applicable deadlines set forth above) as
shall be mutually agreed upon by the Corporation and the Investor. At each of
the Phase Two, Three and Four Closings hereunder: (i) the Corporation shall
deliver to the Investor a certificate representing the Phase Two, Three or Four
Shares registered in the Investor's name and the Investor shall pay the purchase
price for the Phase Two, Three or Four Shares by (at the option of the
Corporation) either cashier's check payable in immediately available funds
payable to the order of the Corporation or by wire transfer of funds payable to
the order of the Corporation; (ii) the Corporation shall deliver to the Investor
an opinion of the Corporation's counsel in the form attached hereto as Exhibit
-------
1.4A; and (iii) the Corporation and the Investor shall exchange reconfirmation
- ----
certificates in the forms attached as Exhibit 1.4B and Exhibit 1.4C,
------------ ------------
respectively.
1.5 Issuance of Additional Shares
-----------------------------
The Corporation shall issue to Investor additional shares of Common Stock
as and when required by sections 3.2 and 3.11 of the Disclosure Letter.
1.6 Grant of Technology License on Occurrence of Certain Events.
-----------------------------------------------------------
In the event that (i) the Corporation reduces the number of Investor
Directors pursuant to Section 1.3 (d)(iii), 1.3(e)(iii), 1.3(f)(ii) or
------------------------------------------------
1.3(g)(ii) above, or (ii) the Corporation fails to pay the purchase price when
- ----------
due after the giving of a Phase Two, a Phase Three or a Phase Four Put Notice,
then the Corporation shall grant to the Investor, or any Affiliate of the
Investor (as defined in Section 9.5 below), one or more non-exclusive technology
-----------
licenses for the Corporation's technology (including technology documentation
and related patents) necessary for the uses and purposes set forth in the
following sentence (each a "License"), on the general terms and conditions
specified in this Section 1.6. The License shall be granted to the Investor, or
-----------
an Affiliate of the Investor (as designated by the Investor), for the limited
purposes and uses of maintaining the core business activities of the Investor or
such Affiliate (the "Core Business") which have integrated (without infringing
upon the Intellectual Property Rights of the Corporation) some or all aspects of
the Corporation's technology services into its active business operations (the
"Integrated Business Activities"). The License shall only be effective upon the
Corporation ceasing to offer such technology services to businesses similar to
the Core Business of the Investor or its Affiliates, and shall only apply to
those technology services previously offered to the Core Business of the
Investor or its
8
<PAGE>
Affiliates which the Corporation is no longer offering. If the Corporation is
offering such technology services to businesses similar to the Core Business of
the Investor or its Affiliates, then the Corporation shall offer such technology
services to the Investor and its Affiliates upon the same standard terms and
conditions as it offers such technology services to similarly situated third
parties in such businesses as long as the Investor and its Affiliates abide by
such standard terms and conditions. The License shall only entitle the Investor
or its Affiliates to offer such technology services (a) in conjunction with
providing the services of its Core Business, and (b) to third parties not owned
or operated by Investor or its Affiliates as part of the Integrated Business
Activities. The License shall contain industry standard terms and conditions
(including the term of the License and the amount of the annual fee for the
License) for similar technology licenses. Promptly after the Investor delivers
the Option Notice for Phase Two, the parties shall diligently negotiate in good
faith the specific terms and conditions of the License and conclude such
negotiations within sixty (60) days after delivery of such Option Notice. The
failure of the parties to agree in good faith upon the terms and conditions of
the License within such sixty (60) day period shall not excuse either party from
performing any other obligations, or limit either party's remedies, under this
Agreement (including those set forth in Sections 1.3(e), 1.3(f), and 1.3(g)). A
-----------------------------------
breach of this Section 1.6 shall only entitle a party to pursue specific
-----------
performance under this Section 1.6, or damages arising from a breach of this
-----------
Section 1.6, as an independent action.
- -----------
ARTICLE II
RIGHT OF FIRST REFUSAL
2.1 Right of First Refusal in the Private Offering.
----------------------------------------------
The "Initial Public Offering" shall mean the Corporation's initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of shares of the
Corporation's Common Stock. If, prior to the Initial Public Offering, the
Corporation proposes to seek financing in addition to the Investment by offering
any shares of, or securities convertible into or exercisable for any shares of,
any class of its stock (each, a "Private Offering"), and the Investor has then
invested US $18,500,000 pursuant to this Agreement, the Corporation shall first
offer a portion of each Private Offering to the Investor in accordance with the
following provisions:
(a) The Corporation shall deliver a written notice (a "Private
Offering Notice") to the Investor stating (i) its bona fide intention
to make the Private Offering, (ii) the number of shares of, or
securities convertible into or exercisable for any shares of, any
class of its stock, to be offered, and (iii) the price and terms, if
any, upon which it proposes to make the Offering.
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(b) Within forty-five (45) days after the date of the Private
Offering Notice, the Investor may elect by written notice to the
Corporation to purchase or obtain, a portion of the Private Offering,
at a discount of ten percent (10%) off the price specified in the
Private Offering Notice; provided however, that: (i) the Investor's
right of first refusal provided for in this Section 2.1 shall be
-----------
limited to that portion of the Private Offering which when combined
with the Investment will not exceed forty percent (40%) of the
Corporation's Fully Diluted Shares; and (ii) the Investor must close
the purchase within fifteen (15) days of the date of said written
notice.
(c) Following the expiration of the forty-five (45) day period
set forth in subsection (b) above, the Corporation may make the
Private Offering to third parties for the portion of the Private
Offering that the Investor was not entitled to purchase and for the
remaining portion of the Private Offering that the Investor did not
properly elect to purchase in accordance with this Section 2.1;
-----------
provided however, that all such offers to third persons shall be at a
price not less than, and upon terms no more favorable to the offeree
than, those specified in the Private Offering Notice. If the
Corporation does not close the sale of the interests offered in the
Private Offering within any time limit set forth in the Private
Offering, the right provided hereunder shall be deemed to be revived,
and that portion of the Private Offering which was subject to the
Investor's rights under this Section 2.1 shall not be offered or
-----------
transferred to any third parties unless first re-offered to the
Investor in accordance herewith.
(d) The right of first refusal in this Section 2.1 shall
-----------
not be applicable (i) to the issuance or sale of shares of Common
Stock (as adjusted to reflect any stock splits, combinations or other
events involving the Common Stock) to employees, consultants or
members of the Board of Directors pursuant to employee or director
stock plans which are approved in writing by the Corporation's Board
of Directors, (ii) to the Initial Public Offering (as defined) or to
any offering after consummation of the Initial Public Offering, (iii)
to the issuance of securities pursuant to the conversion or exercise
of convertible or exercisable securities of the Corporation, (iv) to
securities issued in connection with any acquisition or business
combination transaction approved by the Board of Directors of the
Corporation, or (v) to securities issued in connection with equipment
lease financings or other financings with commercial lenders, or in
strategic transactions involving the Corporation and other entities,
including joint ventures or marketing, distribution or development
arrangements, in each case provided that any issuance pursuant to this
clause (v) has been approved by the Board of Directors of the
Corporation.
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(e) Investor's exercise of any right of first refusal in this
Section 2.1, or its failure to elect any right of first refusal in
-----------
this Section 2.1, shall not affect Investor's right to invest in a
-----------
future Private Offering, provided that in any event, the Investor's
aggregate ownership shall not exceed forty percent (40%) of the
Corporation's Fully Diluted Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
A disclosure letter is attached hereto as Exhibit 3.0 (the "Disclosure
-----------
Letter"). The Corporation warrants and represents that all information in the
Disclosure Letter is true, complete and correct. To the extent that any
information in the Disclosure Letter conflicts with any of the representations
and warranties of this Article III, that information will be deemed an exception
to such representation or warranty. The Corporation hereby represents and
warrants to the Investor as follows:
3.1 Organization and Standing; Articles and Bylaws.
----------------------------------------------
The Corporation is a corporation duly organized, validly existing and in
good standing under the laws of the State of Michigan, and the Corporation is
authorized to exercise all of its corporate powers, rights, and privileges. The
Corporation has all required corporate power and authority to own its property,
to carry on its business as presently conducted or contemplated. True and
accurate copies of the Articles of Incorporation and the Bylaws of the
Corporation, each as in effect on the date hereof, have been delivered to the
Investor. The Corporation is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify, would have a
material adverse effect on its business.
3.2 Capitalization.
--------------
The authorized capital stock of the Corporation on the date hereof consists
solely of 60,000 shares of Common Stock. On the date hereof, 17,259.97 shares
of Common Stock are issued and outstanding. The Common Stock has the rights,
preferences and privileges as set forth in the Articles of Incorporation. On
December 4, 1997, the Corporation's Board of Directors adopted the Interactive
Coupon Marketing Group, Inc. 1997 Non-Employee Director Stock Option Plan (the
"Non-Employee Plan") and the Interactive Coupon Marketing Group, Inc. 1997 Stock
Option Plan (the "Employee Plan"). On the date of this Agreement, options to
acquire 1,045 shares of Common Stock are outstanding pursuant to the Employee
Plan, options to acquire 200 shares of Common Stock are outstanding pursuant to
the Non-Employee Plan, and options to acquire 282.38 shares of Common Stock are
outstanding to a key employee pursuant to his Employment Agreement. The
Corporation has reserved 1,527.38 shares of Common Stock for issuance upon
exercise of these options. On the date of this Agreement, warrants to
11
<PAGE>
acquire 750 shares of Common Stock are outstanding. The Corporation has reserved
750 shares of Common Stock for issuance upon exercise of these warrants. Except
as set forth above, there are no outstanding rights, options, warrants,
preemptive rights, conversion rights or agreements for the purchase, acquisition
or receipt from the Corporation of any shares of capital stock or any other
securities of the Corporation. The Corporation is not a party to any existing
agreement with any person or entity which requires the Corporation to purchase
from such person or entity any of its capital stock, any securities convertible
into or exchangeable or exercisable for any of its capital stock, or any right,
options or warrants for its capital stock. All outstanding securities of the
Corporation have been issued in accordance with all applicable state and Federal
securities laws.
3.3 Voting Agreements.
-----------------
Other than the Shareholders Agreement, the Corporation is not a party to
any agreement or understanding, and the Corporation is not aware of any
agreement or understanding between any persons that affects or relates to the
voting or giving of written consents with respect to any security or the voting
by a director of the Corporation.
3.4 Corporate Power: Authorization.
-------------------------------
The Corporation has all requisite legal and corporate power to enter into
this Agreement, to issue and sell the Investment Shares as provided hereunder,
and to carry out and perform its obligations (i) under the terms of this
Agreement and (ii) any other agreements to which the Corporation is a party or
the execution and delivery of which is contemplated hereby (the "Alliance
Agreements"). All corporate action on the part of the Corporation and its
officers, directors and shareholders that is necessary for the authorization,
execution and delivery of this Agreement by the Corporation, for the performance
of the Corporation's obligations hereunder and for the issuance and delivery of
the Investment Shares has been taken, except for future transactions as
specified in this Agreement, and this Agreement constitutes a legal and binding
obligation of the Corporation, enforceable against the Corporation in accordance
with its terms subject to the terms and conditions of this Agreement and: (i)
judicial principles respecting or limiting the availability of specific
performance, injunctive relief and other equitable remedies; and (ii)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights. The
Corporation is not in violation of any term of its Articles of Incorporation or
Bylaws, or in violation of any term of any judgment, decree, order, statute,
rule or government regulation applicable to the Corporation or to which the
Corporation is a party. The Corporation is not in violation of any term of any
agreement or instrument applicable to the Corporation or to which the
Corporation is a party where such violation could be materially adverse to the
Corporation's financial condition, business or operations.
12
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3.5 Validity of Investment Shares.
-----------------------------
The Investment Shares, when issued, sold and delivered in accordance with
the terms of this Agreement, will be duly and validly issued, fully paid and
non-assessable and will be free and clear of any liens, encumbrances or
restrictions of any kind; provided, however, that the Investment Shares may be
subject to restrictions on transfer under state and federal securities laws and
the Shareholders Agreement, among the Corporation and the Shareholders (as
defined therein).
3.6 Consents and Waivers.
--------------------
The Corporation has obtained any and all consents, permits, and waivers and
made all filings necessary or appropriate for consummation of the transactions
contemplated by this Agreement and no consent, approval, qualification, order or
authorization of, or filing with, any local, state, or federal governmental
authority is required on the part of the Corporation in connection with the
Corporation's valid execution, delivery or performance of this Agreement or the
offer, sale or issuance of the Investment Shares.
3.7 Litigation.
----------
To the knowledge of the Corporation, there is no action, suit,
investigation or proceeding pending or, threatened against the Corporation or
related to the business conducted by the Corporation or that questions the
validity of any Alliance Agreement or the right of the Corporation to enter into
such agreements, or to consummate the transactions contemplated hereby or
thereby, or that might result, either individually or in the aggregate, in any
material adverse change in the assets, business, properties or financial
condition of the Corporation, or any material change in the current equity
ownership of the Corporation. The Corporation is not a party or subject to the
provisions of any order, writ, injunction, judgment, or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Corporation currently pending or which the Corporation
intends to initiate.
3.8 Shareholder Lists and Agreements.
--------------------------------
Set forth in the Disclosure Letter is a true and complete list of all
shareholders of the Corporation and persons holding options or warrants to
acquire shares of the Corporation from the Corporation, showing the number of
shares of capital stock held, or acquirable upon exercise of the option or
warrant, by each such person in each case as of the date of this Agreement.
3.9 Subsidiaries.
------------
The Corporation has no subsidiaries and does not own, directly or
indirectly, any interest in any corporation, association, or business entity.
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<PAGE>
3.10 Financial Statements.
--------------------
(a) The Disclosure Letter contains true, correct and complete copies
of:
(i) The audited balance sheet of the Corporation, as at December
31, 1997, and the related statements of operations, shareholders'
deficit and cash flows of the Corporation for the period covered
thereby, including the footnotes thereto (all of foregoing being
hereinafter collectively called the "Annual Financial Statements");
and
(ii) The interim balance sheet of the Corporation (the "Interim
Balance Sheet") as at April 30, 1998 (the "Interim Balance Sheet
Date"), and the interim statements of operations and cash flows of the
Corporation for the three (3) month period then ended, including any
footnotes thereto (all of the foregoing, including the Interim Balance
Sheet, being hereinafter collectively referred to as the "Interim
Financial Statements" and together with the Annual Financial
Statements collectively, the "Financial Statements").
(b) The Financial Statements taken as a whole (i) fairly present in
all material respects (subject, in the case of the Interim Financial
Statements, to normal, recurring year-end adjustments which are not
material individually or in the aggregate) the financial position of the
Corporation as of the dates indicated and the results of operations of the
Corporation for the periods indicated, (ii) have been prepared in
accordance with Generally Accepted Accounting Principles ("GAAP")
throughout the periods covered thereby (subject, in the case of the Interim
Financial Statements, to normal, recurring year-end adjustments which are
not material individually or in the aggregate and the absence of footnote
disclosure which may otherwise be required by GAAP) and (iii) are in
accordance with the books and records of the Corporation which have been
maintained in a manner consistent with historical practice. All reserves
established and set forth in the Interim Balance Sheet are reasonable and
adequate. By September 30, 1998, the Corporation will have established and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP.
3.11 Absence of Undisclosed Liabilities.
----------------------------------
The Corporation has no liabilities or obligations of any nature, whether
matured or unmatured, known or unknown, or fixed or contingent, except (a) to
the extent expressly reflected or reserved against on the Interim Balance Sheet
or expressly disclosed in the notes thereto; and (b) liabilities and obligations
arising since the Interim Balance Sheet Date in the ordinary course of business
consistent with past practice (other
14
<PAGE>
than any such liability or obligation arising from breach of contract, breach of
warranty, tort, infringement, or violation of any legal requirement). The
Corporation is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
3.12 Absence of Certain Developments.
-------------------------------
Except as reflected in the Financial Statements, since the Interim Balance
Sheet Date, there has been (i) no material adverse change in the condition
(financial or otherwise) of the Corporation or in the assets, liabilities, or
properties of the Corporation; (ii) no declaration, setting aside or payment of
any dividend or other distribution with respect to, or any direct or indirect
redemption or acquisition by the Corporation of, any of the capital stock of the
Corporation; (iii) no waiver of any valuable right of the Corporation or
cancellation of any debt or claim held by the Corporation; (iv) no loan or
guarantee by the Corporation to any officer, director, employee or shareholder
of the Corporation, or any agreement or commitment therefor; (v) no increase,
direct or indirect, in the compensation paid or payable to or for the benefit of
any officer, director, employee or agent of the Corporation; (vi) no material
loss, destruction or damage to any property of the Corporation, whether or not
insured; (vii) no labor disputes involving the Corporation and no material
change in the personnel of the Corporation or the terms and conditions of their
employment; (viii) no acquisition or disposition of any assets (or any contract
or arrangement therefor), nor any other transaction by the Corporation otherwise
than for fair value in the ordinary course of business; (ix) no occurrence of
any other event or condition of any character that might materially and
adversely affect the business, properties, or financial condition of the
Corporation; or (x) no agreement or commitment by the Corporation to do any of
the things described in this Section 3.11.
------------
3.13 Title to Assets.
---------------
The Corporation has good and marketable title to all of the assets
reflected as being owned by the Corporation on the Interim Balance Sheet or
acquired subsequent thereto (except for inventory sold or otherwise disposed of
in the ordinary course of business for fair value and accounts and notes
receivable paid in full since the date of the Interim Balance Sheet), free and
clear of all encumbrances, except for those encumbrances set forth in the
Disclosure Letter and Permitted Liens. Such assets are in good operating
condition and repair (normal wear and tear excepted), are adequate and suitable
for the uses for which they are used in the Corporation's business, are not
subject to any condition which interferes with the economic value or use
thereof, and constitute all assets necessary to permit the Corporation to carry
on its business after the consummation of the transactions contemplated by this
Agreement as generally conducted by the Corporation prior thereto. The term
"Permitted Liens" means (i) liens arising by operation of law in the ordinary
course of business that, individually and in the aggregate, do not in any
material respect interfere with the use of any of the assets subject thereto;
(ii) minor imperfections of title which do not materially detract from the value
of the property affected or materially impair the operations of the Corporation;
(iii) liens for taxes not yet due and payable; and (iv) landlords liens, if any,
relating to leases.
15
<PAGE>
3.14 Real Property.
-------------
The Corporation does not own directly or indirectly any real property.
3.15 Tax Matters.
-----------
The Corporation has filed all federal, state and local income, excise or
franchise tax returns, real estate and personal property tax returns, sales and
use tax returns and other tax returns required to be filed by it and has paid
all taxes owed by it, except taxes which have not yet accrued or otherwise
become due or for which adequate provision has been made in the pertinent
Financial Statements. The provision for taxes on the Interim Balance Sheet is
sufficient as of its date for the payment of all accrued and unpaid federal,
state, county and local taxes of any nature of the Corporation whether or not
assessed or disputed. All taxes and other assessments and levies which the
Corporation is required to withhold or collect have been withheld and collected
and have been paid over when due to the proper governmental authorities. With
regard to the income tax returns of the Corporation, the Corporation has never
received notice of any audit or of any proposed deficiencies from any taxing
authority and no controversy with respect to taxes of any type is pending or, to
the knowledge of the Corporation, threatened. There are in effect no waivers of
applicable statutes of limitations with respect to any taxes owed by the
Corporation for any year. The Corporation does not conduct any foreign or
international operations that would ordinarily subject it to taxation in any
jurisdiction outside of the United States.
3.16 Contracts and Commitments.
-------------------------
The Corporation (i) is not a party to any contract, lease, obligation or
commitment, written or oral, absolute or contingent which involves a potential
commitment in excess of U.S. $25,000 or which is otherwise material and not
entered into in the ordinary course of business; and (ii) does not have any
employment contracts; stock redemption or purchase agreements; financing
agreements; licenses; distributor or sales representative agreements; agreements
with officers, directors, employees or shareholders of the Corporation or
persons or organizations related to or affiliated with any such persons; leases;
agreements relating to product development; or pension, profit-sharing,
retirement or stock option plans. As to each agreement or understanding set
forth in the Disclosure Letter: (a) it is in full force and effect and
constitutes a valid and binding obligation of the Corporation and to the best
knowledge of the Corporation, the other party thereto; (b) the Corporation has
performed in all material respects the obligations required to be performed by
it except for obligations not yet due to be performed; (c) the Corporation is
not, and has not been, in default or received notices that it is in default in
any material respect; (d) there exists no known event or condition that, after
notice or lapse of time, or both, would constitute a default; and (e) there are
no material defaults by any other party to any such agreement or understanding
as to which any notice of default has been given. The Corporation has made
available to the Investor
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<PAGE>
correct and complete copies of all documents set forth in the Disclosure Letter.
For purposes of this paragraph, contracts with labor unions, license agreements
and any other agreements relating to the acquisition or disposition of the
Corporation's Intellectual Property Rights technology, shall not be considered
to be contracts entered into in the ordinary course of business.
3.17 Proprietary Rights; Employee Restriction.
----------------------------------------
The Corporation has disclosed in the Disclosure Letter all copyright
registrations, trademark registrations and applications for registration,
patents and patent applications, trademarks, trade secrets or other proprietary
rights (collectively, "Intellectual Property Rights") registered, used or, to
the best of the Corporation's knowledge, to be used in the Corporation's
business as presently conducted and all licenses, assignments and leases
relating to Intellectual Property Rights of others embodied in products of the
Corporation. The Corporation has exclusive ownership of or license to use, all
Intellectual Property Rights identified in the Disclosure Letter and, to the
best knowledge of the Corporation, it has obtained any licenses, releases or
assignments to use all third parties' Intellectual Property Rights embodied in
products of the Corporation. To the best knowledge of the Corporation, neither
the present business activities nor products of the Corporation infringe any
Intellectual Property Rights of others. The Corporation has not received any
notice or other claim from any person asserting that any of the Corporation's
present activities infringe or may infringe on any Intellectual Property Rights
of such person. The Corporation has the right to use, free and clear of claims
or rights of others, all trade secrets, customer lists, manufacturing processes,
hardware designs, programming processes, software and other information required
for or incident to its products or its business as presently conducted. The
Corporation has taken all commercially reasonable steps to establish and
preserve its ownership of all copyright, trade secret and other proprietary
rights with respect to its products and technology, except such rights as the
Corporation has reasonably determined are not material to the Corporation's
continuing business operations. The Corporation is not aware of any
infringement by others of its copyrights or other Intellectual Property Rights
to which it has exclusive use in any of its products, technology or services, or
any violation of the confidentiality of any of its proprietary information. The
Corporation is not making unlawful use of any confidential information or trade
secrets of any past or present employees of the Corporation. Neither the
Corporation nor, to the Corporation's knowledge, any of the key employees of the
Corporation have any agreements or arrangements with former employers of such
employees relating to confidential information or trade secrets of such
employers.
3.18 Effect of Transactions.
----------------------
The execution, delivery and performance by the Corporation of this
Agreement and the documents executed and delivered in connection therewith will
not conflict with or result in any default under any material contract,
obligation or commitment of the Corporation, or any charter provision, bylaw or
corporate restriction of the Corporation, or the suspension, revocation,
impairment, forfeiture or nonrenewal of any material
17
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permit, license, authorization or approval applicable to the Corporation, its
business or operations, or any of its assets or properties, or the creation of
any lien, charge or encumbrance of any nature upon any of the properties or
assets of the Corporation, except pursuant to this Agreement. The Corporation's
execution and delivery of this Agreement and the documents executed and
delivered in connection therewith and its performance of the transactions
contemplated thereby will not violate any instrument, agreement, judgment,
decree, order, statute, rule or regulation of any federal, state or local
government or agency applicable to the Corporation.
3.19 Insurance.
---------
The Corporation maintains valid and effective insurance policies, issued by
financially sound and reputable insurers, as identified in the Disclosure
Letter. The Corporation has paid all premiums due with respect to all said
policies of insurance.
3.20 Securities Act Registration.
---------------------------
Assuming that the representations and warranties of the Investor contained
herein are true, the offer, sale and delivery of the Investment Shares in the
manner contemplated by this Agreement are each exempt from registration under
the Securities Act and are exempt or will be exempt under applicable state
securities laws regulating the issuance or sale of securities upon the timely
filing of notices with the appropriate states. Neither the Corporation nor any
authorized agent acting on its behalf will take any action hereafter that would
cause the loss of such exemption.
3.21 Business; Compliance with Laws.
------------------------------
The Corporation (i) is in compliance with, in all respects all legal
requirements applicable to it and its business and (ii) has all material
federal, state, local and foreign governmental licenses, permits and approvals
(collectively, "Permits") used or necessary in the conduct of its business.
Such Permits are in full force and effect, no violations with respect to any
thereof are recorded, and no legal proceeding is pending or, to the best
knowledge of the Corporation, threatened to revoke or limit any thereof.
3.22 Books and Records.
-----------------
The copy of minute books of the Corporation provided to the Investor
contain complete and accurate records of all meetings and other corporate
actions of its shareholders and its board of directors (the "Board of
Directors") and committees thereof. The stock ledger of the Corporation is
complete and accurately reflects all issuances, transfers, repurchases, and
cancellations of shares of capital stock of the Corporation.
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3.23 Employee Benefit Plans.
----------------------
Each employee benefit plan, program, arrangement, practice or contract,
whether formal or informal, maintained or contributed to by the Corporation
providing current or retirement benefits or compensation to or on behalf of
employees or former employees of the Corporation (the "Benefits Plans"), are in
compliance in all material respects with the presently applicable laws.
3.24 Brokerage.
---------
No person or entity acting on behalf or under the authority of the
Corporation is or will be entitled to any broker's, finder's, or similar fee or
commission in connection with the sale of the Investment Shares.
3.25 Employees.
---------
The Corporation has no collective bargaining agreement with any of its
employees. There is no labor union organizing activity neither pending nor, to
the best knowledge of the Corporation, threatened with respect to the
Corporation. The Corporation is not aware that any officer or key employee
intends to terminate his or her relationship with the Corporation, nor does the
Corporation have any present intention of terminating the employment of any
officer or key employee. To the best of its knowledge, the Corporation has
complied in all material respects with all applicable state and federal equal
employment opportunity and other laws related to employment. To the best of the
Corporation's knowledge, no employee of the Corporation is in violation of any
judgment, decree or order, or any term of any employment contract, patent
disclosure agreement or other contract or agreement relating to the relationship
of any such employee with the Corporation or any other party because of the
nature of the business conducted or to be conducted by the Corporation or to the
utilization by the employee of his best efforts with respect to such business,
which violation would have a material adverse affect on the business. Subject to
general principles related to wrongful termination of employees, the employment
of each officer and employee of the Corporation is terminable at the will of the
Corporation, except as set forth in the Disclosure Letter.
3.26 Related Party Transactions.
--------------------------
No employee, officer, or director of the Corporation or member of his or
her immediate family thereof is indebted to the Corporation, nor is the
Corporation indebted (or committed to make loans or extend or guarantee credit)
to any of them. To the best of the Corporation's knowledge, none of such persons
has any direct or indirect ownership interest in any firm or corporation with
which the Corporation is affiliated or with which the Corporation has a business
relationship, or any firm or corporation that competes with the Corporation,
except that employees, officers or directors of the Corporation and members of
their immediate families may own stock in publicly traded companies that
19
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may compete with the Corporation. To the best of the Corporation's knowledge, no
officer or director or any member of their immediate families is, directly or
indirectly, interested in any material contract with the Corporation.
3.27 Disclosure.
----------
The Corporation has provided the Investor with all the information
reasonably available to it without undue expense that the Investor has requested
for deciding whether to purchase the Investment Shares and all information which
the Corporation believes is reasonably necessary to enable the Investor to make
such decision.
3.28 Proprietary Information and Inventions Agreement.
------------------------------------------------
Each employee and officer of the Corporation has executed a General Rules
of Conduct substantially in the form or forms that have been delivered to
special counsel for the Investor.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
4.1 Representations and Warranties.
------------------------------
The Investor hereby represents and warrants to the Corporation as follows:
(a) All action on the part of the Investor necessary for the
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby has been taken, except for future
transactions as specified in this Agreement, and, assuming due execution
and delivery by the Corporation, this Agreement constitutes a legal, valid,
binding and enforceable obligation of the Investor, subject to the terms
and conditions of this Agreement and: (i) judicial principles respecting
or limiting the availability of specific performance, injunctive relief and
other equitable remedies; and (ii) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect generally
relating to or affecting creditors' rights.
(b) The Investor is an entity and represents and warrants that: (i)
the Investor is an existing entity, and has not been organized or
reorganized for the purpose of making the Investment (or if not true, such
fact shall be disclosed to the Corporation in writing along with
information concerning the beneficial owners of the Investor), (ii) the
undersigned has the authority to execute this Agreement and the
"Confidential Statement of Investor Suitability" attached as Exhibit 4.3B
------------
hereto and any other documents in connection with an investment in the
Investment Shares on the Investor 's behalf, and (iii) the Investor has
the
20
<PAGE>
power, right and authority to invest in the Investment Shares and enter
into the transactions contemplated hereby, and the Investment is suitable
and appropriate for the Investor and its beneficiaries (given the risks and
illiquid nature of the Investment).
4.2 Investment.
----------
(a) The Investor has been advised that the Investment Shares have not
been registered under the Securities Act of 1933, as amended (the "Act"),
or registered or qualified under any applicable state securities laws on
the ground that no distribution or public offering of the Investment Shares
is to be effected, and that in this connection the Corporation is relying
in part on the representations of the Investor set forth in this Article
IV;
(b) The Investor has been further advised that no public market now
exists for any of the securities issued by the Corporation and that a
public market may never exist for the Investment Shares;
(c) The Investor is purchasing the Investment Shares for its own
account and not for any other person, subject to the Investor's right to
transfer the Investment Shares and rights hereunder to any of its
Affiliates;
(d) By reason of its business or financial experience, the Investor
has the capacity to protect its own interest in connection with the
transactions contemplated hereunder, is able to bear the risks of an
investment in the Corporation, and can afford a complete loss of such
investment;
(e) The Investor is aware of the Corporation's business affairs and
financial condition and has acquired sufficient information about the
Corporation to reach an informed and knowledgeable decision to acquire the
Investment Shares; and
(f) The Investor has had the opportunity to ask questions regarding
the Corporation and the Corporation has provided information in response to
the questions.
4.3 Federal and State Securities Laws.
---------------------------------
In order to enable the Corporation to determine whether the sale of the
Investment Shares is exempt from registration under the Act and applicable state
securities laws, the Investor represents that it is an "Accredited Investor" (as
defined in Exhibit 4.3A hereof), has completed truthfully the appropriate items
------------
in the Confidential Statement of Investor Suitability attached as Exhibit 4.3B
------------
hereto, and is acquiring the Investment Shares for its own account, for
investment, and not with a view to, or for sale in connection with, any
distribution thereof. The Investor is not a resident of the United States and
the address of
21
<PAGE>
the Investor set forth on Exhibit 4.3C attached hereto is the Investor's true
------------
and correct residence or place of business.
ARTICLE V
PRIOR OR SIMULTANEOUS ACTIONS
Before or at the Phase One Closing, the following actions have been or will
be taken:
5.1 The Investor and the holders of not less than forty-five percent (45%)
of the Fully Diluted Shares, have executed and delivered the Shareholders
Agreement to the Corporation.
5.2 The Investor has received certified copies of all requisite corporate
actions taken by the Corporation to authorize its execution and delivery of
this Agreement and the documents contemplated herein, its performance of
its obligations thereunder, and its consummation of the transactions
contemplated thereby.
5.3 The Investor shall have received the requisite approval of its Board
of Directors (or such lesser internal authority with the requisite
authority) to effect the transactions contemplated by this Agreement.
5.4 The Corporation and Investor shall have performed and complied with
all of their obligations under this Agreement which are to be performed or
complied with on or prior to the Phase One Closing.
5.5 The Corporation and the Investor shall exchange certificates in the
form attached as Exhibit 5.5A and Exhibit 5.5B executed by their respective
------------ ------------
officers to the effect that all representations and warranties made by the
Corporation and the Investor in this Agreement shall have been true and
correct in all material respects on the date of this Agreement and shall be
true and correct on the closing date with the same force and effect as if
they had been made on and as of said date.
5.6 The Corporation shall deliver to Investor an opinion of its counsel in
the form attached as Exhibit 5.6.
-----------
5.7 The Corporation shall deliver to the Investor a certificate
representing the Phase One Shares registered in the Investor's name and the
Investor shall pay the purchase price for the Phase One Shares by (at the
option of the Corporation), either cashier's check payable in immediately
available funds to the order of the Corporation or by wire transfer of
funds payable to the order of the Corporation.
22
<PAGE>
ARTICLE VI
COVENANTS
6.1 Business Plan.
-------------
Attached to this Agreement as Exhibit 6.1 is the initial Business Plan
-----------
which has been jointly formulated and completed by the Corporation and the
Investor to provide the Corporation with a guide to developments leading to the
Initial Public Offering (the "Initial Business Plan). The Corporation and the
Investor hereby adopt the Initial Business Plan for all purposes under this
Agreement. The Corporation shall comply with the Business Plan and perform the
requirements and obligations of the Business Plan. The Board of Directors may
amend the Business Plan from time to time as it deems necessary or appropriate
to correlate the Business Plan to the realities of the business affairs and
progress of the Corporation, except that the Milestones set forth in the Initial
Business Plan (or amended Business Plan) may not be amended without the approval
of two (2) of the Investor Directors and two (2) of the directors elected by the
ICMG Shareholders (as defined in the Shareholders Agreement). In the event of
any inconsistencies in the terms of the Business Plan and this Agreement, the
terms of this Agreement shall govern.
6.2 Affiliated Transaction.
----------------------
All transactions by and between the Corporation and any officer, employee
or shareholder of the Corporation or persons controlled by or affiliated with
such officer, employee or shareholder, shall be conducted on an arms-length
basis, shall be on terms and conditions no less favorable to the Corporation
than could be obtained from unrelated persons and shall be approved by the Board
after full disclosure of the terms thereof.
6.3 Inspection.
----------
The Corporation shall, upon reasonable prior notice, permit authorized
representatives of the Investor to visit and inspect any of the properties of
the Corporation including its tangible and intangible personal property, and
books of account (and to make copies thereof and take extracts therefrom), and
to discuss the affairs, finances and accounts of the Corporation with its
officers, administrative employees and independent auditors, all at the expense
of the Investor and at such reasonable times and as often as may be reasonably
requested.
23
<PAGE>
6.4 Material Changes and Litigation.
-------------------------------
The Corporation shall promptly notify the Investor or its transferees of
any material adverse change in the business, properties, assets, or condition
(financial or otherwise) of the Corporation and of any litigation or
governmental proceeding or investigation pending (or, to the best knowledge of
the Corporation, threatened) against the Corporation or against any officer,
director, key employee, or principal shareholder of the Corporation, that
materially and adversely affects (or if adversely determined, could materially
and adversely affect) its present or proposed business, properties, assets, or
condition (financial or otherwise) taken as a whole.
6.5 Use of Proceeds.
---------------
The Corporation shall use the proceeds from the Investment solely for
working capital and other general corporate purposes in the ordinary course of
business, and/or consistent with the Business Plan.
6.6 Shareholders Agreement.
----------------------
In connection with this Agreement, the Investor and the Corporation have
negotiated the terms of a shareholders agreement (the "Shareholders Agreement"),
a copy of which is attached hereto as Exhibit 6.6. The Corporation shall use
-----------
its best efforts to cause the shareholders of the Corporation (other than the
Investor and the shareholders executing the Shareholders Agreement pursuant to
Section 5.1 above) and any holders of options to acquire shares of capital stock
- -----------
of the Corporation, to execute the Shareholders Agreement, or to execute and
deliver a joinder agreement pursuant to which such shareholder agrees to be
bound by the terms of the Shareholders Agreement, by July 15, 1998.
6.7 Termination.
-----------
The covenants set forth in Article VI hereof shall terminate upon the
----------
consummation of the Initial Public Offering.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
7.1 Survival of Representations and Warranties.
------------------------------------------
The representations and warranties contained in this Agreement, as made and
given as to each Closing, shall survive such Closing and shall remain in full
force and effect until one (1) year from the date of such Closing.
24
<PAGE>
7.2 Indemnification.
---------------
(a) In addition to all other rights and remedies available to the
Investor, the Corporation shall indemnify, defend, protect and hold harmless the
Investor and its Affiliates and their respective partners, officers, directors,
employees, agents and representatives (the "Investor Group")against any loss,
liability, demand, claim, action, cause of action, cost, damage, deficiency,
tax, penalty, fine or expense (including legal and accounting fees and expenses
related thereto or incurred in enforcing this Article VII) (collectively,
------------
"Claims") arising from the untruth, inaccuracy or breach of any of the
representations, warranties, covenants or agreements of the Corporation
contained in this Agreement (including all Exhibits to this Agreement) or in the
Disclosure Letter.
(b) In addition to all other rights and remedies available to the
Corporation, the Investor shall indemnify, defend, protect and hold harmless the
Corporation and its affiliates and their respective partners, officers,
directors, employees, agents and representatives (the "Corporation Group")
against any loss, liability, demand, claim, action, cause of action, cost,
damage, deficiency, tax, penalty, fine or expense (including legal and
accounting fees and expenses related thereto or incurred in enforcing this
Article VII) (collectively, "Claims") arising from the untruth, inaccuracy or
- -----------
breach of any of the representations, warranties, covenants or agreements of the
Investor contained in this Agreement.
(c) Any provision of this Agreement to the contrary notwithstanding,
neither the Investor Group nor the Corporation Group, as the case may be, will
be entitled to indemnification under this Article VII unless the aggregate of
-----------
all Claims to be indemnified against is more than One Hundred Thousand Dollars
($100,000) (the "Threshold Amount"). When the aggregate amount of all such
Claims hereunder equals or exceeds the Threshold Amount, the Investor Group or
the Corporation Group, as the case may be, shall be entitled to full
indemnification of all Claims exceeding the Threshold Amount.
ARTICLE VIII
RESTRICTIONS ON TRANSFER
8.1 Parties to the Shareholder Agreement; Limitation on Transfer.
------------------------------------------------------------
The Common Stock subject to the terms of the Shareholders Agreement shall
not be transferable by any shareholder that is a party to the Shareholders
Agreement except in accordance with the conditions set forth in the Shareholders
Agreement.
25
<PAGE>
8.2 Restrictive Legend.
------------------
(a) Each certificate representing the Investment Shares issued
hereunder shall (unless otherwise permitted by the provisions of Section
-------
8.2 (b) and (c) below) be stamped or otherwise imprinted with a legend in
---------------
substantially the following form:
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
OR OTHERWISE TRANSFERRED TO ANY RESIDENT OF THE
UNITED STATES FOR A PERIOD OF TWELVE MONTHS IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS
TO THE SECURITIES UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN OPINION OF
COUNSEL ACCEPTABLE TO THE CORPORATION HAS BEEN
OBTAINED TO THE EFFECT THAT THE PROPOSED TRANSFER
COMPLIES WITH REGULATION S UNDER THE ACT OR OTHER
EXEMPTION FROM REGISTRATION UNDER THE ACT AND WITH
APPLICABLE STATE SECURITIES LAWS.
(b) The holder of any of the Investment Shares by acceptance thereof
agrees, prior to any transfer of any of the Investment Shares, to give
written notice to the Corporation of such holder's intention to effect such
transfer and to comply in all other respects with the provisions of this
Section. Each such notice shall describe the manner and circumstances of
the proposed transfer. Upon request by the Corporation, the holder
delivering such notice shall deliver a written opinion, addressed to the
Corporation, of counsel for the holder of the Investment Shares, stating
that in the opinion of such counsel (which opinion and counsel shall be
reasonably satisfactory to the Corporation) such proposed transfer does not
involve a transaction requiring registration or
26
<PAGE>
qualification of such Securities under the Securities Act or the securities
or "blue sky" laws of any state of the United States. Such holder of the
Investment Shares shall be entitled to transfer such Securities in
accordance with the terms of the notice delivered to the Corporation, if
the Corporation does not reasonably object to such transfer on the basis
that such proposed transfer involves a transaction requiring registration
or qualification of such securities under the Securities Act or the
securities or "blue sky" laws of any state of the United States and
requests an opinion with respect to such issue within five days after
delivery of such notice, or, if it requests such opinion, does not
reasonably object to such transfer within five days after delivery of such
opinion. Each certificate or other instrument evidencing the securities
issued upon the transfer of any of the Investment Shares (and each
certificate or other instrument evidencing any untransferred balance of
such Securities) shall bear the legend set forth in Section 8.2(a) above
--------------
unless (i) in such opinion of counsel registration of any future transfer
is not required by the applicable provisions of the Securities Act; or (ii)
the Corporation shall have waived the requirement of such legends or any
other legends deemed necessary by the Corporation.
(c) Notwithstanding the foregoing provisions of this Section 8.2, the
-----------
restrictions imposed by this Section upon the transferability of any
Securities shall cease and terminate when (i) any of the Investment Shares
are sold or otherwise disposed of (A) pursuant to an effective registration
statement under the Securities Act or (B) in a transaction contemplated by
Section 8.2 (b) above which does not require that the Securities so
-----------
transferred bear the legend set forth in Section 8.2 (a) hereof; or (ii)
-----------
the holder of such Securities has met the requirements for transfer of such
Securities under Rule 144 or any successor Rule. Whenever the restrictions
imposed by this Section 8.2 shall terminate, the holder of any of the
-----------
Investment Shares as to which such restrictions have terminated shall be
entitled to receive from the Corporation, without expense, a new
certificate not bearing the restrictive legend set forth in Section 8.2(a)
--------------
above and not containing any other reference to the restrictions imposed by
this Section 8.2.
-----------
ARTICLE IX
MISCELLANEOUS
9.1 Staff and Advisers.
------------------
(a) In connection with Investor's Investment and participation in the
operation of the Corporation, the Investor, in consultation with the
Corporation, and subject to the approval of the Board of Directors, may
appoint the Chief Financial Officer of the Corporation. All members of the
staff of the Corporation appointed by the Investor shall be employees of
the Corporation and shall be paid by the Corporation commensurate with
their positions.
(b) The Investor shall to supply at any one time three (3) advisers
to the Corporation for a period of four months from and after the date of
this Agreement. The Investor will be reimbursed for the services of the
three advisers on a reasonable basis to be agreed upon by the Corporation
and the Investor. The
27
<PAGE>
advisers will be selected from the following people or people with
equivalent qualifications:
(i) Jonathan Smith: Business Development;
(ii) Bernadette DiMauro: Focus on building relationships with
retailers and shopping centers for period of time to be determined;
(iii) Michael Nicklin: Consumer and shopping center specialist
with fifteen (15) years experience and considerable connections with
media on an ongoing part time basis; and
(iv) Elwyn Jenkins: Focus on the overall development of the
business and its strategic growth, while also providing key contacts
with technology manufacturers, technology partners and key Internet
figures on an ongoing part time basis.
9.2 Standard of Performance.
-----------------------
Whenever a party has been specifically granted a right to exercise its
business judgment, or act, in a subjective manner, with respect to any matter,
or the right to act in its sole and absolute discretion or sole judgment, or the
right to make a subjective judgment under any provision of this Agreement,
whether or not "objectively" reasonable under the circumstances, any such
exercise shall not be deemed inconsistent with any covenant of good faith and
fair dealing otherwise implied by law to be part of this Agreement.
9.3 Notices Etc.
-----------
All notices and other communications required or permitted hereunder shall
be in writing and shall be deemed effectively given upon the first to occur of
personal delivery or the day of actual delivery if sent by registered air mail,
postage prepaid, or Federal Express or other internationally recognized
overnight courier service or facsimile addressed (i) if to the Investor, as
indicated on Exhibit 9.3 attached hereto, or at such other address as it shall
-----------
have furnished to the Corporation, (ii) if to the Corporation, to Interactive
Coupon Marketing Group, Inc., 8755 West Higgins Road, Suite 100, Chicago,
Illinois 60631 or via facsimile at (773) 693-1311 and addressed to the attention
of the corporate secretary, or at such other address or facsimile number as the
Corporation shall have furnished to the Investor, or (iii) if to any other
holder of the Investment Shares at such address as such holder shall have
furnished to the Corporation in writing, or, until such holder so furnishes an
address to the Corporation, then to and at the address of the last holder of
such Securities issued pursuant to this Agreement or shares of Common Stock
issued upon conversion of the Securities issued pursuant to this Agreement, who
so furnished an address to the Corporation. In addition, any notice delivered
to an address outside the United States shall be duplicated by counterpart
telex, Internet e-mail, or facsimile notice (if available). For purposes of
giving notice under this Agreement, "business day" shall mean a business day
where the recipient of the notice is located.
28
<PAGE>
9.4 Delays or Omissions.
-------------------
No delay or omission to exercise any right, power or remedy accruing to any
holder of any Securities issued or sold or to be issued or sold hereunder, upon
any breach or default of the Corporation under this Agreement shall impair any
such right, power or remedy of such holder nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or in any
similar breach or default thereafter occurring, nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any breach or default under
this Agreement, or any waiver on the part of any holder of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
9.5 Assignments; Successors and Assigns.
-----------------------------------
Except in connection with any transfer of the Investment Shares in
accordance with this Agreement, and except as specifically provided by this
Section 9.5 as to the Investor and its Affiliates, the rights of each party
- -----------
under this Agreement may not be assigned. The provisions of this Agreement
shall bind and inure to the benefit of the respective successors, assigns,
heirs, executors, and administrators of the parties hereto. Investor shall have
the right to cause any of its Affiliates to pay all or a portion of the purchase
price for Investment Shares hereunder; and subject to the restrictions on
transfer provided in the Shareholders Agreement, the Investor shall have the
right to cause the Corporation to issue any shares hereunder to any of its
Affiliates. As used herein and elsewhere in this Agreement, "Affiliate" means
Lend Lease Corporation, Ltd., an Australian corporation, and any of its
affiliates as defined in the Securities and Exchange Act of 1934.
9.6 Amendments.
----------
The terms and provisions of this Agreement may not be modified or amended,
except pursuant to a written instrument signed by the Corporation and the
Investor.
9.7 Counterparts.
------------
This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement. Photostatic or
facsimile reproductions of this Agreement may be made and relied upon to the
same extent as originals.
29
<PAGE>
9.8 Headings and Construction.
-------------------------
The Section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Use in this Agreement of the words
"including", "such as", or words of similar import, when following any general
term, statement or matter, shall not be construed to limit such statement, term
or matter to the specific items or matter, whether or not language of non-
limitation such as "without limitation" or "but not limited to", or words of
similar import, are used with reference thereto, but rather shall refer to all
other terms or matters that could reasonably fall within the broadest possible
scope of such statement, term or matter. Unless otherwise stated, all
references to "Sections" and "Exhibits" are references to the Sections and
Exhibits of this Agreement.
9.9 Entire Agreement.
----------------
This Agreement, including all Exhibits attached or to be attached hereto,
is and shall be deemed to be the complete and final expression of the agreement
between the parties as to the matters herein contained and relative thereof,
sets forth the sole and complete standards pursuant to which their obligations
are to be judged and their performance measured, and supersedes any previous
agreements between the parties pertaining to such matters.
9.10 Governing Law, Venue and Jurisdiction.
-------------------------------------
This Agreement shall be governed in all respects by the laws of the State
of Michigan and the United States of America, without giving effect to
principles of conflicts of laws. Each undersigned party hereby consents to the
personal and subject-matter jurisdiction of the courts of the State of Michigan
and the United States of America over all matters arising from or in connection
with the making and operation of this Agreement and the entire relationship of
the parties. Any dispute or action among any of the parties hereto with respect
to the making or operation of this Agreement, or any matter concerning the
Corporation, shall be brought exclusively in the Federal District Court for the
Eastern District of Michigan. In the event that the Federal Court for the
Eastern District of Michigan does not have jurisdiction over any dispute or
action among any of the parties hereto, such dispute or action shall be tried in
the Michigan Circuit Court for the County of Oakland. This Section 9.10 shall
------------
survive the termination or expiration of this Agreement.
9.11 Joint Drafting.
--------------
Each of the parties hereto has joined in and contributed to drafting this
Agreement; there shall be no presumption favoring or burdening any one or more
parties hereto based upon draftsmanship.
30
<PAGE>
9.12 Attorneys Fees.
--------------
If any arbitration, litigation or similar proceedings are brought by either
party to enforce any obligation or to pursue any remedy under this Agreement,
the party prevailing in any such arbitration, litigation or similar proceedings
will be entitled to costs of the proceeding and of collection, if any, and
reasonable attorneys fees incurred in connection with such proceedings and in
collecting or enforcing any award granted therein.
9.13 Disclosure on Completion of First Phase.
---------------------------------------
The Investor and Corporation may upon completion of Phase One, if they so
agree, make a joint public announcement describing the transactions contemplated
by this Agreement. Each party agrees to keep in confidence the transactions
contemplated by this Agreement until a joint public announcement is made, except
as may be required by applicable law, in connection with the filing of any tax
returns, in litigation between the parties, or disclosure to third party
consultants with a need to know (subject to the foregoing confidentiality
requirements) and the Corporation's shareholders.
9.14 Exhibits.
--------
The Exhibits, to which reference is made in this Agreement, are deemed
incorporated into this Agreement in their entirety.
9.15 No Joint Venture.
----------------
This Agreement does not create any partnership or joint venture or similar
relationship between the Corporation and the Investor.
[The remainder of this page intentionally left blank.]
31
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
themselves or by their respective representatives thereunto duly authorized as
of the date first above written.
INTERACTIVE COUPON MARKETING
GROUP, INC., a Michigan corporation
By: /s/ Steven M. Golden
---------------------------------
Name:
-------------------------------
Title: CEO
------------------------------
LEND LEASE INTERNATIONAL PTY LIMITED,
an Australian company
By: /s/ J.W. Pomett
---------------------------------
Name:
-------------------------------
Title: Director
------------------------------
32
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED 1997 STOCK OPTION PLAN
Article I.
Purpose and Adoption of the Plan
--------------------------------
1.01 Purpose. The purpose of the coolsavings.com inc. Stock Option Plan
-------
(the "Plan") is to provide certain employees and consultants of coolsavings.com
inc. (f/k/a Interactive Coupon Marketing Group, Inc.), a Michigan corporation
(the "Company"), with an additional incentive to promote the Company's financial
success and to provide an incentive which the Company may use to induce able
persons to enter into or remain in the service of the Company or a Subsidiary.
1.02 Adoption and Term. The initial 1997 Stock Option Plan was approved
-----------------
by the Board on December 4, 1997 and by the Company's stockholders on August 17,
1998. This Amended and Restated 1997 Stock Option Plan was approved by the
Board as of December 1, 1998, subject to the approval of the Company's
stockholders on or before December 1, 1999, and will remain in effect until all
shares authorized under the terms of the Plan have been issued, unless earlier
terminated or abandoned by action of the Board; provided, however, that no
Incentive Stock Option may be granted after December 4, 2007.
Article II.
Definitions
-----------
2.01 Administrator means the group of persons having authority to
administer the Plan pursuant to Section 3.01.
2.02 Award means any one or combination of Non-Qualified Stock Options,
Performance Based Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Share Rights or any other award made under the terms of the Plan.
2.03 Award Agreement means a written agreement between the Company and
Participant or a written acknowledgment from the Company specifically setting
forth the terms and conditions of an Award granted under the Plan.
2.04 Award Period means, with respect to an Award, the period of time set
forth in the Award Agreement during which specified conditions set forth in the
Award Agreement must be satisfied.
2.05 Beneficiary means (a) an individual, trust or estate who or which, by
will or by operation of the laws of descent and distribution, succeeds to the
rights and obligations of the Participant under the Plan and Award Agreement
upon the Participant's death; or (b) an individual, who by designation of the
Participant, succeeds to the rights and obligations of the Participant under the
Plan and Award Agreement upon the Participant's death.
2.06 Board means the Board of Directors of the Company.
2.07 Change of Control Event means (a) an event or series of events by
which any Person or other entity or group (as such term is used in Section 13(d)
and 14(d) of the Exchange Act) of Persons or other entities acting in concert as
a partnership or other group (a "Group of Persons") (other than Persons who are,
or Groups of Persons entirely made up of, (i) management personnel of the
Company or (ii) any affiliates of any such management personnel) shall, as a
result of a tender or exchange offer or offers, an open market purchase or
purchases, a privately negotiated purchase or purchases or otherwise, become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act,
except that a Person shall be deemed to have
<PAGE>
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of 20% or more of the combined voting power of
the then outstanding voting stock of the Company; (b) the Company consolidates
with, or merges with or into, another Person (other than a Subsidiary in a
transaction which is not otherwise a Change of Control Event), or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into the Company, in any such event pursuant to a transaction
in which the outstanding voting stock of the Company is converted into or
exchanged for cash, securities or other property; (c) during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board (together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company, was approved by a
vote of 66-2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board then in office; or (d) any liquidation or dissolution of the Company
(other than a liquidation into a Subsidiary that is not otherwise a Change of
Control Event).
2.08 Code means the Internal Revenue Code of 1986, as amended. References
to a section of the Code shall include that section and any comparable section
or sections of any future legislation that amends, supplements or supersedes
that section.
2.09 Common Stock means the Common Stock of the Company, no par value.
2.10 Company means coolsavings.com inc. (f/k/a Interactive Coupon
Marketing Group, Inc.), a Michigan corporation.
2.11 Date of Grant means the date designated by the Administrator as the
date as of which it grants an Award, which shall not be earlier than the date on
which the Administrator approves the granting of such Award.
2.12 Director means a member of the Board of Directors of the Company.
2.13 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.14 Exercise Price means, with respect to a Stock Appreciation Right, the
amount established by the Administrator, in accordance with Section 7.03
hereunder, and set forth in the Award Agreement, which is to be subtracted from
the Fair Market Value on the date of exercise in order to determine the amount
of the Incremental Value to be paid to the Participant.
2.15 Expiration Date means the date specified in an Award Agreement as the
expiration date of such Award.
2.16 Fair Market Value means, on any given date, the fair market value of
the Common Stock as determined in good faith by the Board; provided, however,
that: (a) if the Common Stock is admitted to quotation on the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") Small-
Cap Market on the date the Option is granted, the Fair Market Value means the
average of the highest bid and lowest asked prices of the Common Stock on Nasdaq
reported for such date; (b) if the Common Stock is admitted to trading on a
national securities exchange or the Nasdaq National Market on the date the
Option is granted, the Fair Market Value means the closing price reported for
the Common Stock on such exchange or system for such date or, if no sales were
reported for such date, for the last date preceding such date for which a sale
was reported; and (c) the Fair Market Value of the Common Stock on the effective
date of the registration statement for the Company's initial public offering
shall be the initial offering price.
-2-
<PAGE>
2.17 Incentive Stock Option means a stock option described in Section 422
of the Code.
2.18 Incremental Value has the meaning given such term in Section 7.01 of
the Plan.
2.19 Non-Qualified Stock Option means a stock option which is not an
Incentive Stock Option.
2.20 Officer means a president, vice president, treasurer, secretary,
controller, and any other person who performs functions corresponding to the
foregoing officers for the Company, and any other participant who is deemed to
be an officer of the Company for purposes of Section 16 of the Exchange Act and
the rules thereunder, as currently in effect or as amended from time to time.
2.21 Options means all Non-Qualified Stock Options, Incentive Stock
Options and Performance Based Options granted at any time under the Plan.
2.22 Participant shall have the meaning set forth in Article V.
2.23 Performance Based Option means a stock option which, upon exercise or
at any other time, would not result in or give rise to "applicable employee
remuneration" within the meaning of Section 162(m) of the Code.
2.24 Plan means the coolsavings.com inc. Amended and Restated 1997 Stock
Option Plan, as described herein and as it may be amended from time to time.
2.25 Purchase Price, with respect to options, shall have the meaning set
forth in Section 6.02.
2.26 Restricted Share Right means a right to receive Common Stock subject
to restrictions imposed under the terms of an Award granted pursuant to Article
IX.
2.27 Rule 16b-3 means Rule 16b-3 promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act, as currently in effect
and as it may be amended from time to time, and any successor rule.
2.28 Stock Appreciation Right means an Award granted in accordance with
Article VII.
2.29 Subsidiary shall have the meaning set forth in Section 424(f) of the
Code.
2.30 Termination of Employment means the voluntary or involuntary
termination of a Participant's employment with the Company for any reason,
including death, disability, retirement or as the result of the divestiture of
the Participant's employer or any other similar transaction in which the
Participant's employer ceases to be the Company or a Subsidiary of the Company.
Whether an authorized leave of absence or absence on military or government
service, absence due to disability, or absence for any other reason shall
constitute Termination of Employment shall be determined in each case by the
Administrator in its sole discretion.
2.31 Trading Day means a day on which public trading of securities occurs
and is reported in the principal consolidated reporting system referred to in
Section 2.16 above, or if
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the Common Stock is not listed or admitted to trading on a national securities
exchange or included for quotation on the Nasdaq National Market, any business
day.
Article III.
Administration
--------------
3.01 Administration. The Plan shall be administered by the Board or, to
--------------
the extent determined by the Board, a committee (the "Compensation Committee")
consisting of not less than two non-employee directors of the Company (within
the meaning of Rule 16b-3) to be appointed by, and to serve at the pleasure of,
the Board (in either case, the "Administrator"). It is the intention of the
Company that, with respect to Awards designated as Performance Based Options,
each of the members of the Compensation Committee shall also be "outside
directors" within the meaning of Section 162(m) of the Code. The Administrator
shall administer the Plan in accordance with this provision and shall have the
sole discretionary authority to interpret the Plan, to establish and modify
administrative rules for the Plan, to impose such conditions and restrictions on
Awards as it determines appropriate, to cancel Awards (including those made
pursuant to other plans of the Company) and to substitute new options (including
options granted under other plans of the Company) with the consent of the
recipient, and to take such steps in connection with the Plan and Awards granted
thereunder as it may deem necessary or advisable. The Administrator may, with
respect to Participants who are not Officers, delegate such of its powers and
authority under the Plan as it deems appropriate to designated officers or
employees of the Company.
3.02 Indemnification. Members of the Administrator shall be entitled to
---------------
indemnification and reimbursement from the Company for any action or any failure
to act in connection with service as Administrator to the full extent provided
for or permitted by the Company's articles of incorporation or bylaws or by any
insurance policy or other agreement intended for the benefit of the Company's
officers, directors or employees or by any applicable law.
Article IV.
Common Stock Issuable Pursuant to the Plan
------------------------------------------
4.01 Shares Issuable. Shares to be issued under the Plan may be
---------------
authorized and unissued shares or issued shares which have been reacquired by
the Company. Except as provided in Section 4.03, the Awards granted to any
Participant and to all Participants in the aggregate under the Plan shall be
limited so that the sum of the following shall never exceed fifteen percent
(15%) of the total number of outstanding shares of Common Stock from time to
time: (i) all shares which shall be issued upon the exercise of outstanding
Options or other Awards granted under the Plan, (ii) all shares for which
payment of Incremental Value shall be made by reason of the exercise of Stock
Appreciation Rights at any time granted under the Plan, (iii) the number of
shares otherwise issuable under an Award which are applied by the Company to
payment of the withholding or tax liability discussed in Section 11.04, and (iv)
all shares of Common Stock which shall be issued upon the exercise of the
options granted under that certain Stock Option Agreement, dated as of October
15, 1996, by and between the Company and Matthew Moog; provided, however, that
in no event shall the number of shares of Common Stock which may be issued upon
the exercise of Incentive Stock Options exceed 5,000 shares, subject to
adjustment in accordance with Section 4.03.
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<PAGE>
4.02 Shares Subject to Terminated Awards. In the event that any Award at
-----------------------------------
any time granted under the Plan shall be surrendered to the Company, be
terminated or expire before it shall have been fully exercised, or an award of
Stock Appreciation Rights is exercised for cash, then all shares formerly
subject to such Award as to which such Award shall not have been exercised shall
be available for any Award subsequently granted in accordance with the Plan.
Shares of Common Stock subject to Options, or portions thereof, which have been
surrendered in connection with the exercise of tandem Stock Appreciation Rights
shall not be available for subsequent Awards under the Plan, and shares of
Common Stock issued in payment of such Stock Appreciation Rights shall be
charged against the number of shares of Common Stock available for the grant of
Awards. Shares which are reacquired by the Company or shares issuable subject
to Restricted Share Rights which are forfeited pursuant to forfeiture provisions
in the Award Agreement shall be available for subsequently granted Awards only
if the forfeiting Participant received no benefits of ownership (such as
dividends actually paid to the Participant) other than voting rights of the
forfeited shares. Any shares of Common Stock issued by the Company pursuant to
its assumption or substitution of outstanding grants from acquired companies
shall not reduce the number of shares available for Awards under this Plan
unless issued under this Plan.
4.03 Adjustments to Reflect Capital Changes.
--------------------------------------
(a) Recapitalization. The number and kind of shares subject to
----------------
outstanding Awards, the Purchase Price or Exercise Price for such shares,
and the number and kind of shares available for Awards subsequently granted
under the Plan shall be appropriately adjusted to reflect any stock
dividend, stock split, combination or exchange of shares, merger,
consolidation or other change in capitalization with a similar substantive
effect upon the Plan or the Awards granted under the Plan. The
Administrator shall have the power to determine the amount of the
adjustment to be made in each case.
(b) Sale or Reorganization. After any reorganization, merger or
----------------------
consolidation in which the Company is a surviving corporation, each
Participant shall, at no additional cost, be entitled upon exercise of an
Award to receive (subject to any required action by stockholders), in lieu
of the number of shares of Common Stock receivable or exercisable pursuant
to such Award, a number and class of shares of stock or other securities to
which such Participant would have been entitled pursuant to the terms of
the reorganization, merger or consolidation if, at the time of such
reorganization, merger or consolidation, such Participant had been the
holder of record of a number of shares of Common Stock equal to the number
of shares receivable or exercisable pursuant to such Award. Comparable
rights shall accrue to each Participant in the event of successive
reorganizations, mergers or consolidations of the character described
above.
(c) Options to Purchase Stock of Acquired Companies. After any
-----------------------------------------------
reorganization, merger or consolidation in which the Company or a
Subsidiary of the Company shall be a surviving corporation, the
Administrator may grant substituted Options under the provisions of the
Plan, pursuant to Section 424 of the Code, replacing old options granted
under a plan of another party to the reorganization, merger or
consolidation, where such party's stock may no longer be issued following
such merger or consolidation. The foregoing adjustments and manner of
application of the foregoing provisions shall be determined by the
Administrator in its sole discretion. Any adjustments may provide for the
elimination of any fractional shares which might otherwise have become
subject to any Awards.
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<PAGE>
Article V.
Participation
-------------
5.01 Eligible Participants. Participants in the Plan shall be the
---------------------
employees and consultants of the Company or any Subsidiary, as determined and
selected from time to time by the Administrator, in its sole and absolute
discretion. The Administrator's designation of a Participant in any year shall
not require the Administrator to designate such person to receive Awards in any
other year. The Administrator shall consider such factors as it deems pertinent
in selecting Participants and in determining the type and amount of their
respective Awards.
Article VI.
Option Awards
-------------
6.01 Power to Grant Options. The Administrator may grant, to such
----------------------
Participants as the Administrator may select, Options entitling the Participant
to purchase Common Stock from the Company at such price, in such quantity and on
such terms and subject to such conditions, not inconsistent with the terms of
this Plan, as may be established by the Administrator. The terms of any Option
granted under this Plan shall be set forth in an Award Agreement.
Notwithstanding the foregoing, Options granted to Officers shall not be
exercisable for a period of at least six months from the Date of Grant.
6.02 Purchase Price of Options. The Purchase Price of each share of
-------------------------
Common Stock which may be purchased upon exercise of any Option granted under
the Plan shall be equal to or greater than the Fair Market Value on the Date of
Grant; provided, however, that the Purchase Price of each share of Common Stock
which may be purchased upon exercise of a Non-Qualified Stock Option shall be no
less than ninety percent (90%) of the Fair Market Value on the Date of Grant if
such discount is expressly granted in lieu of a reasonable amount of salary or
bonus; provided, further, that the Purchase Price for shares of Common Stock
purchased pursuant to Stock Options designated by the Administrator as Incentive
Stock Options shall be equal to or greater than the Fair Market Value on the
Date of Grant as required under Section 422 of the Code and provided further
that the Purchase Price for shares of Common Stock purchased pursuant to Stock
Options designated by the Administrator as Performance Based Options shall be
equal to or greater than the Fair Market Value on the Date of Grant.
6.03 Designation of Incentive Stock Options. Except as otherwise
--------------------------------------
expressly provided in the Plan, the Administrator may designate, at the Date of
Grant of each Option to a Participant that is an employee of the Company or a
Subsidiary, that the Option is an Incentive Stock Option under Section 422 of
the Code.
(a) Incentive Stock Option Share Limitation. No Participant may be
---------------------------------------
granted Incentive Stock Options under the Plan (or any other plans of the
Company) which would result in stock with an aggregate Fair Market Value
(measured on the Date of Grant) of more than $100,000 first becoming
exercisable in any one calendar year, or which would entitle such
Participant to purchase a number of shares greater than the maximum number
permitted by Section 422 of the Code as in effect on the Date of Grant.
(b) Other Incentive Stock Option Terms. Whenever possible, each
----------------------------------
provision in the Plan and in every Option granted under this Plan which is
designated by the Administrator as an Incentive Stock Option shall be
interpreted in such a manner as to entitle the Option to the tax treatment
afforded by Section 422 of the Code. If any provision of this Plan or any
Option designated by the Administrator as an Incentive Stock Option shall
be held not to comply with requirements necessary to entitle such Option to
such tax treatment, then (i) such provision shall be deemed to have
contained from the outset such language as shall be necessary to entitle
the Option to the tax
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<PAGE>
treatment afforded under Section 422 of the Code, and (ii) all other
provisions of this Plan and the Award Agreement shall remain in full force
and effect. If any agreement covering an Option designated by the
Administrator to be an Incentive Stock Option under this Plan shall not
explicitly include any terms required to entitle such Incentive Stock
Option to the tax treatment afforded by Section 422 of the Code, all such
terms shall be deemed implicit in the designation of such Option and the
Option shall be deemed to have been granted subject to all such terms.
6.04 Designation of Performance Based Options. Except as otherwise
----------------------------------------
expressly provided in the Plan, the Administrator may designate, at the Date of
Grant of each Option to a Participant that is an employee of the Company or a
Subsidiary, that the Option is a Performance Based Option. A Performance Based
Option shall have a Purchase Price not less than the Fair Market Value on the
Date of Grant and shall contain such other terms and conditions as the
Administrator may deem necessary so that, upon exercise or at any other time,
the Performance Based Option does not result in or give rise to "applicable
employee remuneration" within the meaning of Section 162(m) of the Code.
6.05 Rights as a Stockholder. The Participant or any transferee of an
-----------------------
Option pursuant to Section 8.02 or Section 11.05 shall have no rights as a
stockholder with respect to any shares of Common Stock covered by an Option
until the Participant or transferee shall have become the holder of record of
any such shares, and no adjustment shall be made for dividends and cash or other
property or distributions or other rights with respect to any such shares of
Common Stock for which the record date is prior to the date on which the
Participant or a transferee of the Option shall have become the holder of record
of any such shares covered by the Option.
Article VII.
Stock Appreciation Rights
-------------------------
7.01 Power to Grant Stock Appreciation Rights. The Administrator is
----------------------------------------
authorized to grant to any Participant, on such terms established by the
Administrator on or prior to the Date of Grant and subject to and not
inconsistent with the provisions of this Plan, the right to receive the payment
from the Company, payable as provided in Section 7.04, of an amount equal to the
Incremental Value of the Stock Appreciation Rights, which shall be an amount
equal to the remainder derived from subtracting (i) the Exercise Price for the
right established in the Award Agreement from (ii) the Fair Market Value of a
share of Common Stock on the date of exercise. The terms of any Stock
Appreciation Right granted under the Plan shall be set forth in an Award
Agreement.
7.02 Tandem Stock Appreciation Rights. The Administrator may grant to any
--------------------------------
Participant a Stock Appreciation Right consistent with the provisions of this
Plan covering any share of Common Stock which is, at the Date of Grant of the
Stock Appreciation Right, also covered by an Option granted to the same
Participant, either prior to or simultaneously with the grant to such
Participant of the Stock Appreciation Right, provided: (i) any Option covering
any share of Common Stock shall expire and not be exercisable upon the exercise
of any Stock Appreciation Right with respect to the same share; (ii) any Stock
Appreciation Right covering any share of Common Stock shall not be exercisable
upon the exercise of any related Option with respect to the same share; and
(iii) an Option and Stock Appreciation Right covering the same share of Common
Stock may not be exercised simultaneously.
7.03 Exercise Price. The Exercise Price established under any Stock
--------------
Appreciation Right granted under this Plan shall be determined by the
Administrator and, in the case of a tandem Stock Appreciation Right, shall not
be less than the Purchase Price of the related Option. Upon exercise of the
Stock Appreciation Rights, the number of shares subject to exercise under a
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<PAGE>
related Option. Upon exercise of the Stock Appreciation Rights, the number of
shares subject to exercise under a related Option shall automatically be reduced
by the number of shares of Common Stock represented by the Option or portion
thereof which is surrendered as a result of the exercise of such Stock
Appreciation Rights.
7.04 Payment of Incremental Value. Any payment which may become due from
----------------------------
the Company by reason of Participant's exercise of a Stock Appreciation Right
may be paid to the Participant as determined by the Administrator (i) all in
cash, (ii) all in Common Stock, or (iii) in any combination of cash and Common
Stock. In the event that all or a portion of the payment is made in Common
Stock, the number of shares of the Common Stock delivered in satisfaction of
such payment shall be determined by dividing the amount of the payment by the
Fair Market Value on the date of exercise. The Administrator may determine
whether payment upon exercise of a Stock Appreciation Right will be made in cash
or in stock, or a combination thereof, upon or at any time prior to the exercise
of such Stock Appreciation Right. No fractional share of Common Stock shall be
issued to make any payment; if any fractional shares would be issuable, the mix
of cash and Common Stock payable to the Participant shall be adjusted as
directed by the Administrator to avoid the issuance of any fractional share.
Payment may be made in cash to Officers only if the Stock Appreciation Right is
exercised during the "window period" required under Rule 16b-3(e)(3) and
otherwise in accordance with Rule 16b-3.
Article VIII.
Terms of Options and Stock Appreciation Rights
----------------------------------------------
8.01 Duration of Options and Stock Appreciation Rights. Options and Stock
-------------------------------------------------
Appreciation Rights shall terminate after the first to occur of the following
events:
(a) Expiration Date of the Award as provided in the Award Agreement;
or
(b) Termination of the Award as provided in Section 8.02; or
(c) In the case of an Incentive Stock Option, ten years from the Date
of Grant; or
(d) Solely in the case of tandem Stock Appreciation Rights, upon the
Expiration Date of the related Option.
8.02 Exercise on Death or Termination of Employment.
----------------------------------------------
(a) Unless otherwise provided in the Award Agreement, in the event of
the death of a Participant while an employee of the Company or a Subsidiary
of the Company, the right to exercise all unexpired Awards shall be
accelerated and shall accrue as of the date of death, and the Participant's
Awards may be exercised by his Beneficiary at any time within one year
after the date of the Participant's death.
(b) Unless otherwise provided in the Award Agreement, in the event of
a Participant's Termination of Employment at any time for any reason
(including disability or retirement) other than death or for "cause" (as
defined in paragraph (d) below), an Award may be exercised, but only to the
extent it was otherwise exercisable, on the date of Termination of
Employment, within ninety days after the date of Termination of Employment.
In the event of the death of the Participant within the ninety-day period
following Termination of Employment, his Award may be exercised by his
Beneficiary within the one year period provided in subparagraph (a) above.
(c) With respect to an Award which is intended to constitute an
Incentive Stock Option, upon Termination of Employment, such Award shall be
exercisable as
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<PAGE>
provided in Section 422 of the Code.
(d) In the event that a Participant's Termination of Employment is
for "cause", all Awards shall terminate immediately upon Termination of
Employment. A Participant's employment shall be deemed to have been
terminated for "cause" if such termination is determined, in the sole
discretion of the Administrator, to have resulted from an act or omission
by the Participant constituting active and deliberate dishonesty, as
established by a final judgment or actual receipt of an improper benefit or
profit in money, property or services, or from the Participant's continuous
failure to perform his or her duties under any employment agreement in
effect between the Participant and the Company in any material manner (or,
in the absence of such an agreement, the consistent failure or refusal of
the Participant to perform according to reasonable expectations and
standards set by the Board and/or management consistent with Participant's
title and position) after receipt of notice of such failure from the
Company specifying how the Participant has so failed to perform.
8.03 Acceleration of Exercise Time. The Administrator, in its sole
-----------------------------
discretion, shall have the right (but shall not in any case be obligated) to
permit purchase of shares under any Award prior to the time such Award would
otherwise become exercisable under the terms of the Award Agreement.
8.04 Extension of Exercise Time. The Administrator, in its sole
--------------------------
discretion, shall have the right (but shall not in any case be obligated) to
permit any Award granted under this Plan to be exercised after its Expiration
Date or after the ninety day period following Termination of Employment or
service on the Board, subject, however, to the limitations described in Section
8.01 (c) and (d).
8.05 Conditions for Exercise. An Award Agreement may contain such waiting
-----------------------
periods, exercise dates and restrictions on exercise (including, but not limited
to, periodic installments which may be cumulative) as may be determined by the
Administrator at the Date of Grant. No Stock Appreciation Right may be
exercised prior to six months from the Date of Grant.
8.06 Change of Control Event. Unless otherwise provided in the Award
-----------------------
Agreement, and subject to such other terms and conditions as the Administrator
may establish in the Award Agreement, upon the occurrence of a Change of Control
Event, irrespective of whether or not an Award is then exercisable, the
Participant shall have the right to exercise in full any unexpired Award to the
extent not theretofore exercised or terminated; provided, however, that any
Stock Appreciation Right so exercised must have a Date of Grant at least six
months prior to the date of exercise.
8.07 Exercise Procedures. Each Option and Stock Appreciation Right
-------------------
granted under the Plan shall be exercised by written notice to the Company which
must be received by the officer of the Company designated in the Award Agreement
on or before the Expiration Date of the Award. The Purchase Price of shares
purchased upon exercise of an Option granted under the Plan shall be paid in
full in cash by the Participant pursuant to the Award Agreement; provided,
however, that the Administrator may (but need not) permit payment to be made by
delivery to the Company of either (a) shares of Common Stock (including shares
issuable to the Participant pursuant to the exercise of the Option), or (b) any
combination of cash and shares of Common Stock, or (c) such other consideration
as the Administrator deems appropriate and in compliance with applicable law
(including payment in accordance with a cashless exercise program under which,
if so instructed by the Participant, shares of Common Stock may be issued
directly to the Participant's broker or dealer upon receipt of the Purchase
Price in cash from the broker or dealer.) In the event that any Common Stock
shall be transferred to the Company to
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<PAGE>
satisfy all or any part of the Purchase Price, the part of the Purchase Price
deemed to have been satisfied by such transfer of Common Stock shall be equal to
the product derived by multiplying the Fair Market Value as of the date of
exercise times the number of shares transferred. The Participant may not
transfer to the Company in satisfaction of the Purchase Price (y) a number of
shares which when multiplied times the Fair Market Value as of the date of
exercise would result in a product greater than the Purchase Price or (z) any
fractional share of Common Stock. Any part of the Purchase Price paid in cash
upon the exercise of any Option shall be added to the general funds of the
Company and used for any proper corporate purpose. Unless the Administrator
shall otherwise determine, any Common Stock transferred to the Company as
payment of all or part of the Purchase Price upon the exercise of any Option
shall be held as treasury shares.
Article IX.
Restricted Stock Awards
-----------------------
9.01 Restricted Share Awards. The Administrator may grant to any
-----------------------
Participant an Award of Restricted Share Rights entitling such person to receive
shares of Common Stock in such quantity, and on such terms, conditions and
restrictions (whether based on performance standards, periods of service or
otherwise) as the Administrator shall determine on or prior to the Date of
Grant. The terms of any Award of Restricted Share Rights granted under the Plan
shall be set forth in an Award Agreement.
9.02 Duration of Restricted Share Rights. In no event shall any
-----------------------------------
Restricted Share Rights granted entitle the holder to receive shares of Common
Stock free of all restrictions on transfer at any time prior to the expiration
of three years from the Date of Grant, and each Award Agreement shall provide
that the Participant shall remain employed by the Company or a Subsidiary for
that three year period (subject to the Company's or Subsidiary's right to
terminate such employment).
9.03 Forfeiture of Restricted Share Rights. Subject to Section 9.05, all
-------------------------------------
Restricted Share Rights shall be forfeited and all Restricted Share Awards shall
terminate unless the Participant continues in the service of the Company or a
Subsidiary until the expiration of the forfeiture and satisfies any other
conditions set forth in the Award Agreement. If the Award Agreement shall so
provide, in the case of death, disability or retirement (as defined in the Award
Agreement) of the Participant, all of the shares covered by the Restricted Share
Rights shall immediately vest and any restrictions shall lapse as of the date of
such death, disability or retirement.
9.04 Delivery of Shares Upon Vesting. Upon the lapse of the restrictions
-------------------------------
established in the Award Agreement, the Participant shall be entitled to
receive, without payment of any cash or other consideration, certificates for
the number of shares covered by the Award.
9.05 Waiver or Modification of Forfeiture Provisions. The Administrator
-----------------------------------------------
has full power and authority to modify or waive any or all terms, conditions or
restrictions (other than the minimum restriction period set forth in Section
9.02) applicable to any Restricted Share Rights granted to a Participant under
the Plan; provided that no modification shall, without consent of the
Participant, adversely affect the Participant's rights thereunder and no
modification shall reduce the employment requirement to less than three years,
except in the case of death, disability or retirement.
9.06 Rights as a Stockholder. No person shall have any rights as a
-----------------------
stockholder with respect to any shares subject to Restricted Share Rights until
such time as the person shall have been issued a certificate for such shares.
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<PAGE>
Article X.
Other Stock Based Awards
------------------------
10.01 Grant of Other Awards. Other Awards of Common Stock or other
---------------------
securities of the Company and other Awards that are valued in whole or in part
by reference to, or are otherwise based on, Common Stock ("Other Awards") may be
granted either alone or in addition to or in conjunction with Options or Stock
Appreciation Rights under the Plan. Subject to the provisions of the Plan, the
Administrator shall have the sole and complete authority to determine the
persons to whom and the time or times at which Other Awards shall be made, the
number of shares of Common Stock or other securities, if any, to be granted
pursuant to such Other Awards, and all other conditions of such Other Awards.
Any Other Award shall be confirmed by an Award Agreement executed by the
Administrator and the Participant, which agreement shall contain such provisions
as the Administrator determines to be necessary or appropriate to carry out the
intent of this Plan with respect to the Other Award.
10.02 Terms of Other Awards. In addition to the terms and conditions
---------------------
specified in the Award Agreement, Other Awards made pursuant to this Article X
shall be subject to the following:
(a) Any shares of Common Stock subject to such Other Awards may not
be sold, assigned, transferred or otherwise encumbered prior to the date on
which the shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses; and
(b) If specified by the Administrator and the Award Agreement, the
recipient of an Other Award shall be entitled to receive, currently or on a
deferred basis, interest or dividends or dividend equivalents with respect
to the Common Stock or other securities covered by the Other Award; and
(c) The Award Agreement with respect to any Other Award shall
contain provisions providing for the disposition of such Other Award in the
event of Termination of Employment prior to the exercise, realization or
payment of such Other Award, with such provisions to take account of the
specific nature and purpose of the Other Award.
Article XI.
Terms Applicable to All Awards
------------------------------
11.01 Award Agreement. The grant and the terms and conditions of the Award
---------------
shall be set forth in an Award Agreement between the Company and the
Participant. No person shall have any rights under any Award granted under the
Plan unless and until the Administrator and the Participant to whom the Award is
granted shall have executed and delivered an Award Agreement expressly granting
the Award to such person and setting forth the terms of the Award.
11.02 Plan Provisions Control Award Terms. The terms of the Plan shall
-----------------------------------
govern all Awards granted under the Plan, and in no event shall the
Administrator have the power to grant any Award under the Plan which is contrary
to any of the provisions of the Plan. In the event any provision of any Award
granted under the Plan shall conflict with any term in the Plan as constituted
on the Date of Grant of such Award, the term in the Plan as constituted on the
Date of Grant of such Award shall control. Except as provided in Section 4.03,
(i) the terms of any Award granted under the Plan may not be changed after the
granting of such Award without the express approval of the Participant and (ii)
no modification may be made to an Award granted to an Officer except in
compliance with Rule 16b-3.
11.03 Modification of Award After Grant. Each Award granted under the Plan
---------------------------------
to a
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<PAGE>
Participant other than an Officer may be modified after the date of its grant by
express written agreement between the Company and the Participant, provided that
such change (i) shall not be inconsistent with the terms of the Plan and (ii)
shall be approved by the Administrator. No modifications may be made to any
Awards granted to an Officer except in compliance with Rule 16b-3.
11.04 Taxes. The Company shall be entitled, if the Administrator deems it
-----
necessary or desirable, to withhold (or secure payment from the Participant in
lieu of withholding) the amount of any withholding or other tax required by law
to be withheld or paid by the Company with respect to any amount payable and/or
shares issuable under such Participant's Award, or with respect to any income
recognized upon a disqualifying disposition of shares received pursuant to the
exercise of an Incentive Stock Option, and the Company may defer payment or
issuance of the cash or stock upon exercise or vesting of an Award unless
indemnified to its satisfaction against any liability for such tax. The amount
of such withholding or tax payment shall be determined by the Administrator and,
unless otherwise provided by the Administrator, shall be payable by the
Participant at the time of issuance or payment in accordance with the following
rules:
(a) A Participant, other than an Officer, shall have the right to
elect to meet his or her withholding requirement by: (1) having the
Company withhold from such Award the appropriate number of shares of Common
Stock, rounded out to the next whole number, the Fair Market Value of which
is equal to such amount, or, in the case of the cash payment, the amount of
cash, as is determined by the Company to be sufficient to satisfy
applicable tax withholding requirements; or (2) direct payment to the
Company in cash of the amount of any taxes required to be withheld with
respect to such Award.
(b) Unless otherwise provided by the Administrator, with respect to
Officers, the Company shall withhold from such Award the appropriate number
of shares of Common Stock, rounded up to the next whole number, the Fair
Market Value of which is equal to the amount, as determined by the
Administrator, (or, in the case of a cash payment, the amount of cash)
required to satisfy applicable tax withholding requirements.
(c) In the event that an Award or property received upon exercise of
an Award has already been transferred to the Participant on the date upon
which withholding requirements apply, the Participant shall pay directly to
the Company the cash amount determined by the Company to be sufficient to
satisfy applicable federal, state or local withholding requirements. The
Participant shall provide to the Company such information as the Company
shall require to determine the amounts to be withheld and the time such
withholding requirements become applicable.
(d) If permitted under applicable federal income tax laws, a
Participant may elect to be taxed in the year in which an Award is
exercised or received, even if it would not otherwise have become taxable
to the Participant. If the Participant makes such an election, the
Participant shall promptly notify the Company in writing and shall provide
the Company with a copy of the executed election form as filed with the
Internal Revenue Service no later than thirty days from the date of
exercise or receipt. Promptly following such notification, the Participant
shall pay directly to the Company the cash amount determined by the Company
to be sufficient to satisfy applicable federal, state or local withholding
tax requirements.
11.05 Limitations on Transfer. A Participant's rights and interest under
-----------------------
the Plan may not be assigned or transferred other than by will or the laws of
descent and distribution. Notwithstanding the foregoing, or any other provision
of this Plan, a Participant who holds Non-Qualified Stock Options may transfer
such Options to his or her spouse, lineal ascendants, lineal
-12-
<PAGE>
descendants, or to a duly established trust for the benefit of one or more of
these individuals. Options so transferred may thereafter be transferred only to
the Participant who originally received the Options or to an individual or trust
to whom the Participant could have initially transferred the Option pursuant to
this Section 11.05. Options which are transferred pursuant to this Section 11.05
shall be exercisable by the transferee according to the same terms and
conditions as applied to the Participant.
11.06 General Restriction. Notwithstanding anything to the contrary
-------------------
herein, the Company shall have no obligation or liability to deliver any shares
of Common Stock under the Plan or to make any other distribution of benefits
under the Plan unless such delivery or distribution would comply with all
applicable laws, rules and regulations, including, without limitation, the
Securities Act of 1933, as amended, and the Exchange Act.
11.07 Surrender of Awards. Any Award granted under the Plan may be
-------------------
surrendered to the Company for cancellation on such terms as the Administrator
and Participant approve, including, but not limited to, terms which provide that
upon such surrender the Company will pay to the Participant cash or Common
Stock, or a combination of cash and Common Stock.
Article XII.
General Provisions
------------------
12.01 Amendment and Termination of Plan.
---------------------------------
(a) Amendment. The Board shall have complete power and authority to
---------
amend the Plan at any time and to add any other stock based Award or other
incentive compensation programs to the Plan as it deems necessary or
appropriate and no approval by the stockholders of the Company or by any
other person, committee or entity of any kind shall be required to make any
amendment; provided, however, that the Board shall not, without the
requisite affirmative approval of the stockholders of the Company, (i) make
any amendment which requires stockholder approval under any applicable law,
including Rule 16b-3 or the Code; or (ii) which, unless approved by the
requisite affirmative approval of stockholders of the Company, would cause,
result in or give rise to "applicable employee remuneration" within the
meaning of Section 162(m) of the Code with respect to any Performance Based
Option. No termination or amendment of the Plan may, without the consent
of the Participant to whom any Award shall theretofore have been granted
under the Plan, adversely affect the right of such individual under such
Award. For the purposes of this section, an amendment to the Plan shall be
deemed to have the affirmative approval of the stockholders of the Company
if such amendment shall have been submitted for a vote by the stockholders
at a duly called meeting of such stockholders at which a quorum was present
and the majority of votes cast with respect to such amendment at such
meeting shall have been cast in favor of such amendment, or if the holders
of outstanding stock having not less than a majority of the outstanding
shares consent to such amendment in writing in the manner provided under
the Company's bylaws.
(b) Termination. The Board shall have the right and the power to
-----------
terminate the Plan at any time. If the Plan is not earlier terminated, the
Plan shall terminate when all shares authorized under the Plan have been
issued. No Award shall be granted under the Plan after the termination of
the Plan, but the termination of the Plan shall not have any other effect
and any Award outstanding at the time of the termination of the Plan may be
exercised after termination of the Plan at any time prior to the expiration
date of such Award to the same extent such award would have been
exercisable if the Plan had not been terminated.
-13-
<PAGE>
12.02 No Right To Employment. No employee or other person shall have any
----------------------
claim or right to be granted an Award under this Plan. Neither the Plan nor any
action taken hereunder shall be construed as giving any employee any right to be
retained in the employ of the Company or a Subsidiary of the Company.
12.03 Compliance with Rule 16b-3. It is intended that the Plan be applied
--------------------------
and administered in compliance with Rule 16b-3. If any provision of the Plan
would be in violation of Rule 16b-3 if applied as written, such provision shall
not have effect as written and shall be given effect so as to comply with Rule
16b-3, as determined by the Administrator. The Board is authorized to amend the
Plan and to make any such modifications to Award Agreements to comply with Rule
16b-3, as it may be amended from time to time, and to make any other such
amendments or modifications as it deems necessary or appropriate to better
accomplish the purposes of the Plan in light of any amendments made to Rule 16b-
3.
12.04 Securities Law Restrictions. The shares of Common Stock issuable
---------------------------
pursuant to the terms of any Awards granted under the Plan may not be issued by
the Company without registration or qualification of such shares under the
Securities Act of 1933, as amended, or under various state securities laws or
without an exemption from such registration requirements. Unless the shares to
be issued under the Plan have been registered and/or qualified as appropriate,
the Company shall be under no obligation to issue shares of Common Stock upon
exercise of an Award unless and until such time as there is an appropriate
exemption available from the registration or qualification requirements of
federal or state law as determined by the Administrator in its sole discretion.
The Administrator may require any person who is granted an award hereunder to
agree with the Company to represent and agree in writing that if such shares are
issuable under an exemption from registration requirements, the shares will be
"restricted" securities which may be resold only in compliance with applicable
securities laws, and that such person is acquiring the shares issued upon
exercise of the Award for investment, and not with the view toward distribution.
12.05 Nonexclusivity of the Plan. Neither the adoption of the Plan by the
--------------------------
Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock or stock options otherwise
than under the Plan.
12.06 Captions. The captions (i.e., all section headings) used in the Plan
--------
are for convenience only, do not constitute a part of the Plan, and shall not be
deemed to limit, characterize or affect in any way any provisions of the Plan,
and all provisions of the Plan shall be construed as if no captions have been
used in the Plan.
12.07 Severability. Whenever possible, each provision in the Plan and
------------
every Award at any time granted under the Plan shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Award at any time granted under the Plan shall be held to be
prohibited or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
the Plan and every other Award at any time granted under the Plan shall remain
in full force and effect.
12.08 No Strict Construction. No rule of strict construction shall be
----------------------
implied against the Company, the Administrator, or any other person in the
interpretation of any of the terms of the Plan, any Award granted under the Plan
or any rule or procedure established by the Administrator.
12.09 Choice of Law. The Plan shall be governed by and construed in
-------------
accordance with the laws of the State of Michigan.
-14-
<PAGE>
Exhibit 10.4
coolsavings.com inc.
1999 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Article I.
Purpose and Adoption of the Plan
--------------------------------
1.01 Purpose. The purpose of the coolsavings.com inc. Non-Employee
-------
Director Stock Option Plan is to attract and retain the services of experienced
and knowledgeable independent directors of coolsavings.com inc. (the "Company")
and to provide an additional incentive for such directors to continue to work
for the best interests of the Company and its stockholders.
1.02 Adoption and Term. The Plan was approved by the Board on July 13,
-----------------
1999, subject to approval of the Company's stockholders on or before July 13,
2000, and will remain in effect until all shares authorized under the terms of
the Plan have been issued, unless earlier terminated or abandoned by action of
the Board.
Article II.
Definitions
-----------
2.01 Annual Option has the meaning described in Section 5.01(b).
2.02 Beneficiary means (a) an individual, trust or estate who or which, by
will or by operation of the laws of descent and distribution, succeeds to the
rights and obligations of the Non-Employee Director under the Plan and Option
Agreement upon the Non-Employee Director's death; or (b) an individual, who by
designation of the Non-Employee Director, succeeds to the rights and obligations
of the Non-Employee Director under the Plan and Option Agreement upon the Non-
Employee Director's death.
2.03 Board means the Board of Directors of the Company.
2.04 Code means the Internal Revenue Code of 1986, as amended. References
to a section of the Code shall include that section and any comparable section
or sections of any future legislation that amends, supplements or supersedes
that section.
2.05 Company means coolsavings.com inc., a Michigan corporation.
2.06 Company Common Stock means the Common Stock of the Company, no par
value.
2.07 Corporate Transaction means a dissolution or liquidation of the
Company, a sale of all or substantially all of the Company's assets, or a
merger, consolidation or other capital reorganization of the Company with or
into another entity.
2.08 Date of Grant means (a) for purposes of the Initial Option, the later
of (i) the date this Plan becomes effective under Section 1.02 or (ii) the date
such Optionee first becomes a Non-Employee Director, and (b) for purposes of the
Annual Option, the date of the annual meeting of the Company's stockholders.
2.09 Director means a member of the Board of Directors of the Company.
2.10 Employee means any person, including any officer or Director,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
<PAGE>
2.11 Exchange Act means the Securities Exchange Act of 1934, as amended.
2.12 Expiration Date means the date specified in an Option Agreement as
the expiration date of such Award.
2.13 Fair Market Value means, on any given date, the fair market value of
the Company Common Stock as determined in good faith by the Board; provided,
however, that: (a) if the Company Common Stock is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System ("Nasdaq")
Small-Cap Market on the date the Option is granted, the Fair Market Value means
the average of the highest bid and lowest asked prices of the Company Common
Stock on Nasdaq reported for such date; (b) if the Company Common Stock is
admitted to trading on a national securities exchange or the Nasdaq National
Market on the date the Option is granted, the Fair Market Value means the
closing price reported for the Company Common Stock on such exchange or system
for such date or, if no sales were reported for such date, for the last date
preceding such date for which a sale was reported; and (c) the Fair Market Value
of the Company Common Stock on the effective date of the registration statement
for the Company's initial public offering shall be the initial offering price.
2.14 Initial Option has the meaning described in Section 5.01(a).
2.15 Non-Employee Director means a Director who is not an Employee.
2.16 Non-Qualified Stock Option means a stock option which is not an
Incentive Stock Option as described in Section 422 of the Code.
2.17 Option means a Non-Qualified Stock Option granted at any time under
the Plan.
2.18 Option Agreement means a written agreement between the Company and
the optionholder evidencing the grant of an Option and setting forth the terms
and conditions of the Option.
2.19 Optionee means a Non-Employee Director who receives an Option.
2.20 Option Shares means a number of shares of Company Common Stock
(rounded down to the nearest whole number) equal to the quotient derived by
dividing $50,000 by the Fair Market Value on the Date of Grant.
2.21 Parent means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
2.22 Plan means the coolsavings.com inc. 1999 Non-Employee Director Stock
Option Plan, as described herein and as it may be amended from time to time.
2.23 Purchase Price, with respect to Options, has the meaning set forth in
Section 5.02.
2.24 Rule 16b-3 means Rule 16b-3 promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act, as currently in effect
and as it may be amended from time to time, and any successor rule.
2.25 Subsidiary means a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Code.
-2-
<PAGE>
Article III.
Company Common Stock Issuable Pursuant to the Plan
--------------------------------------------------
3.01 Shares Issuable. Shares to be issued under the Plan may be
---------------
authorized and unissued shares or issued shares which have been reacquired by
the Company. Except as provided in Section 3.03, the Options granted under the
Plan shall be limited so that all shares which shall be issued upon the exercise
of outstanding Options granted under the Plan shall never exceed two percent
(2%) of the issued and outstanding shares of Company Common Stock.
3.02 Shares Subject to Terminated Options. In the event that any Option
------------------------------------
at any time granted under the Plan shall be surrendered to the Company, be
terminated or expire before it shall have been fully exercised, then all shares
formerly subject to such Option as to which such Option shall not have been
exercised shall be available for any Option subsequently granted in accordance
with the Plan.
3.03 Adjustments to Reflect Capital Changes.
--------------------------------------
(a) Recapitalization. The number and kind of shares subject to
----------------
outstanding Options, the Purchase Price for such shares, and the number and
kind of shares available for Options subsequently granted under the Plan
shall be appropriately adjusted to reflect any stock dividend, stock split,
reverse stock split, combination or classification of Company Common Stock
or any other increase or decrease in the number of issued shares of Company
Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the
Company shall not be deemed to have been "effected without receipt of
consideration." The Board shall have the power to determine the amount of
the adjustment to be made in each case and the Board's determination in
that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to,
the number or Purchase Price of shares of Company Common Stock subject to
an Option.
(b) Corporate Transactions. In the event of a Corporate Transaction,
----------------------
outstanding Options may be assumed or equivalent options may be substituted
by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable in accordance
with this Plan for so long as the Optionee serves as a Director or a
director of the Successor Corporation. Following such assumption or
substitution, if the Optionee's status as a Director or director of the
Successor Corporation, as applicable, is terminated other than upon a
voluntary resignation by the Optionee, the Option or option shall become
fully exercisable, including as to shares for which it would not otherwise
be exercisable. Thereafter, the Option or option shall remain exercisable
in accordance with Section 5.04.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully
vested and exercisable, including as to shares for which it would not
otherwise be exercisable. In such event, the Board shall notify the
Optionee that the Option shall be fully exercisable for a period of thirty
(30) days from the date of such notice, and upon the expiration of such
period the Option shall terminate.
For the purposes of this Section 3.03(b), an Option shall be
considered
-3-
<PAGE>
assumed, if at the time of issuance of the stock or other consideration
upon such Corporate Transaction, each Optionee would be entitled to receive
upon exercise of an Option the same number and kind of shares of stock or
the same amount of property, cash or securities as the Optionee would have
been entitled to receive upon the occurrence of such transaction if the
Optionee had been, immediately prior to such transaction, the holder of the
number of shares of Company Common Stock subject to the Option at such time
(after giving effect to any adjustments in the number of shares covered by
the Option as provided for in Section 3.03(a)); provided, however, that if
such consideration received in the Corporate Transaction is not solely
common stock of the Successor Corporation, the Board may, with the consent
of the Successor Corporation, provide for the consideration to be received
upon exercise of the Option, for each share of Company Common Stock subject
to the Option, to be solely common stock of the Successor Corporation equal
in fair market value to the per share consideration received by holders of
Company Common Stock in the Corporate Transaction.
Article IV.
Participation
-------------
4.01 Eligible Individuals. All Non-Employee Directors of the Company
--------------------
shall be eligible to receive Options under the Plan.
Article V.
Option Awards
-------------
5.01 Grant of Options. All grants of Options to Non-Employee Directors
----------------
under this Plan shall be automatic and non-discretionary and shall be made
strictly in accordance with the following provisions:
(a) Initial Options. On the date that this Plan is adopted by the
---------------
Board, each Non-Employee Director shall automatically receive a Non-
Qualified Stock Option to purchase the Option Shares, subject to adjustment
in accordance with Section 3.03 (the "Initial Option"). Thereafter, each
Non-Employee Director shall automatically receive the Initial Option on the
day he or she first becomes a Director. All Options under this Section
5.01(a) shall be evidenced by an Option Agreement.
(b) Annual Options. Each Non-Employee Director shall automatically
--------------
receive a Non-Qualified Stock Option to purchase the Option Shares, subject
to adjustment in accordance with Section 3.03 (the "Annual Option"), on the
date of each annual meeting of the Company's stockholders occurring after
the stockholders approve the Plan in accordance with Section 1.02, provided
he or she is then a Non-Employee Director and, as of such date, he or she
has served on the Board for at least six (6) months prior to the date of
such annual meeting. All Options granted under this Section 5.01(b) shall
be evidenced by an Option Agreement.
5.02 Purchase Price of Options. The Purchase Price of each share of
-------------------------
Company Common Stock which may be purchased upon exercise of an Option granted
under the Plan shall be 100% of the Fair Market Value on the Date of Grant.
5.03 Vesting of Options. No Option may be exercised prior to the date one
------------------
(1) year after the Date of Grant but each Option shall be fully (100%)
exercisable from and after the date one (1) year after the Date of Grant.
5.04 Duration of Options. Options granted under the Plan shall terminate
-------------------
after the first to occur of the following events:
-4-
<PAGE>
(a) Ten years from the Date of Grant.
(b) Three months after the Optionee ceases to be a Director, except
in the case of death, as described in (c) below.
(c) In the event of the death of an Optionee while a Director, the
right to exercise all unexpired Options shall be accelerated and shall
accrue as of the date of death, and the Optionee's Options may be exercised
by his Beneficiary at any time within one year after the date of the
Optionee's death. In the event of the death of an Optionee within the
ninety day period after he or she ceases to be a Director, the Optionee's
Beneficiary may exercise his or her Options, to the extent exercisable on
the date of death, within one year after the date of the Optionee's death.
5.05 Exercise Procedures. Each Option granted under the Plan may be
-------------------
exercised by written notice to the Company which must be received by the
Secretary of the Company on or before the Expiration Date of the Option. An
Option may not be exercised for a fraction of a share of Company Common Stock.
The Purchase Price of shares purchased upon exercise of an Option granted under
the Plan shall be paid by the Optionee at the time of exercise in the form of
(a) cash, (b) check, (c) other shares which (i) have been owned by the Optionee
for more than six (6) months on the date of surrender and (ii) have a Fair
Market Value on the date of surrender equal to the aggregate Purchase Price of
shares purchased upon exercise of the Option, (d) consideration received by the
Company under a cashless exercise program implemented by the Company in
connection with the Plan, (e) any combination of the foregoing methods of
payment, and/or (f) any other consideration or method of payment as shall be
permitted under applicable corporate law.
5.06 Rights as a Stockholder. The Optionee or any transferee of an Option
-----------------------
pursuant to Section 5.04(c) or Section 5.09 shall have no rights as a
stockholder with respect to any shares of Company Common Stock covered by an
Option until the Optionee or transferee shall have become the holder of record
of any such shares, and no adjustment shall be made for dividends and cash or
other property or distributions or other rights with respect to any such shares
of Company Common Stock for which the record date is prior to the date on which
the Optionee or a transferee of the Option shall have become the holder of
record of any such shares covered by the Option.
5.07 Plan Provisions Control Option Terms. The terms of the Plan shall
------------------------------------
govern all Options granted under the Plan. In the event any provision of any
Option granted under the Plan shall conflict with any term in the Plan as
constituted on the Date of Grant of such Option, the term in the Plan as
constituted on the Date of Grant of such Option shall control. Except as
provided in Section 3.03, (i) the terms of any Option granted under the Plan may
not be changed after the granting of such Option without the express approval of
the Optionee and (ii) no modification may be made to an Option granted under the
Plan except in compliance with Rule 16b-3.
5.08 Taxes. The Company shall be entitled, if the Company deems it
-----
necessary or desirable, to withhold (or secure payment from the Non-Employee
Director in lieu of withholding) the amount of any withholding or other tax
required by law to be withheld or paid by the Company with respect to any shares
issuable upon exercise of an Option, and the Company may defer issuance of the
stock upon exercise unless indemnified to its satisfaction against any liability
for such tax.
5.09 Limitations on Transfer. An Optionee's rights and interest under the
-----------------------
Plan may not be assigned or transferred other than by will or the laws of
descent and distribution.
-5-
<PAGE>
Notwithstanding the foregoing, or any other provision of this Plan, an Optionee
may transfer Options to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of one or more of
these individuals. Options so transferred may thereafter be transferred only to
the Optionee who originally received the Options or to an individual or trust to
whom the Optionee could have initially transferred the Option pursuant to this
Section 5.09. Options which are transferred pursuant to this Section 5.09 shall
be exercisable by the transferee according to the same terms and conditions as
applied to the Optionee.
5.10 Suspension or Termination of Option. If the Chief Executive Officer
-----------------------------------
or his or her designee reasonably believes that an Optionee has committed an act
of misconduct, such officer may suspend the Optionee's right to exercise any
Option pending a determination by the Board (excluding the Non-Employee Director
accused of such misconduct). If the Board (excluding the Non-Employee Director
accused of such misconduct) determines an Optionee has committed an act of
embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
fails to attend at least 50% of all Board meetings, engages in any conduct
constituting unfair competition or induces any Company customer to breach a
contract with the Company, neither the Optionee nor any Beneficiary shall be
entitled to exercise any Option whatsoever. In making such determination, the
Board (excluding the Non-Employee Director accused of such misconduct) shall act
fairly and shall give the Optionee an opportunity to appear and present evidence
on such Optionee's behalf at a hearing before the Board or a committee thereof.
Article VI.
General Provisions
------------------
6.01 Amendment and Termination of Plan.
---------------------------------
(a) Amendment. The Board shall have complete power and authority to
---------
amend the Plan at any time as it deems necessary or appropriate and no
approval by the stockholders of the Company or by any other person,
committee or entity of any kind shall be required to make any amendment;
provided, however, that the Board shall not, without the requisite
affirmative approval of stockholders of the Company, make any amendment
which requires stockholder approval under any applicable law, including
Rule 16b-3 or the Code, unless such compliance, if discretionary, is no
longer desired. No termination or amendment of the Plan may, without the
consent of the Non-Employee Director to whom any Option shall theretofore
have been granted under the Plan, adversely affect the right of such
individual under such Option. For the purposes of this section, an
amendment to the Plan shall be deemed to have the affirmative approval of
the stockholders of the Company if such amendment shall have been submitted
for a vote by the stockholders at a duly called meeting of such
stockholders at which a quorum was present and the majority of votes cast
with respect to such amendment at such meeting shall have been cast in
favor of such amendment, or if the holders of outstanding stock having not
less than a majority of the outstanding shares consent to such amendment in
writing in the manner provided under the Company's bylaws.
(b) Termination. The Board shall have the right and the power to
-----------
terminate the Plan at any time. If the Plan is not earlier terminated, the
Plan shall terminate when all shares authorized under the Plan have been
issued. No Option shall be granted under the Plan after the termination of
the Plan, but the termination of the Plan shall not have any other effect
and any Option outstanding at the time of the termination of the Plan may
be exercised after termination of the Plan at any time prior to the
expiration date of such Option to the same extent such award would have
been exercisable if the Plan had
-6-
<PAGE>
not been terminated.
6.02 No Right To Continue as Director. Neither the Plan nor any action
--------------------------------
taken hereunder shall be construed as giving any Non-Employee Director any right
to be retained as a Director, or to limit in any way the right of the
stockholders of the Company to remove such person as a Director.
6.03 Securities Law Restrictions. The shares of Company Common Stock
---------------------------
issuable pursuant to the terms of any Options granted under the Plan may not be
issued by the Company without registration or qualification of such shares under
the Securities Act of 1933, as amended, or under various state securities laws
or without an exemption from such registration requirements. Unless the shares
to be issued under the Plan have been registered and/or qualified as
appropriate, the Company shall be under no obligation to issue shares of Company
Common Stock upon exercise of an Option unless and until such time as there is
an appropriate exemption available from the registration or qualification
requirements of federal or state law as determined by the Company in its sole
discretion. The Company may require any person who is granted an award hereunder
to agree with the Company to represent and agree in writing that if such shares
are issuable under an exemption from registration requirements, the shares will
be "restricted" securities which may be resold only in compliance with
applicable securities laws, and that such person is acquiring the shares issued
upon exercise of the Option for investment, and not with the view toward
distribution.
6.04 General Restriction. Notwithstanding anything to the contrary
-------------------
herein, the Company shall have no obligation or liability to deliver any shares
of Company Common Stock under the Plan or to make any other distribution of
benefits under the Plan unless such delivery or distribution would comply with
all applicable laws, rules and regulations, including, without limitation, the
Securities Act of 1933, as amended, and the Exchange Act.
6.05 Non-Exclusivity of the Plan. Neither the adoption of the Plan by the
---------------------------
Board nor the submission of the Plan to the stockholders of the Company for
approval shall be construed as creating any limitations on the power of the
Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock or stock options otherwise
than under the Plan.
6.06 Captions. The captions (i.e., all section headings) used in the Plan
--------
are for convenience only, do not constitute a part of the Plan, and shall not be
deemed to limit, characterize or affect in any way any provisions of the Plan,
and all provisions of the Plan shall be construed as if no captions have been
used in the Plan.
6.07 Severability. Whenever possible, each provision in the Plan and
------------
every Option at any time granted under the Plan shall be interpreted in such a
manner as to be effective and valid under applicable law, but if any provision
of the Plan or any Option at any time granted under the Plan shall be held to be
prohibited or invalid under applicable law, then (a) such provision shall be
deemed amended to accomplish the objectives of the provision as originally
written to the fullest extent permitted by law and (b) all other provisions of
the Plan and every other Option at any time granted under the Plan shall remain
in full force and effect.
6.08 Choice of Law. All determinations made and actions taken pursuant to
-------------
the Plan shall be governed by the laws of Michigan and construed in accordance
therewith.
-7-
<PAGE>
EXHIBIT 10.5
CREDIT AGREEMENT
----------------
AGREEMENT made and entered into this 18th day of December, 1997, by and
between Interactive Coupon Marketing Group, Inc., hereinafter referred to as the
"Company", and Richard H. Rogel, Trustee of the Richard H. Rogel Revocable
Living Trust u/a dated March 21, 1990, as amended, hereinafter referred to as
the "Lender".
R E C I T A L S
The Company desires to apply to the Lender for the Lender's commitment,
subject to all the terms and conditions hereof, to make a revolving credit
available to the Company.
NOW THEREFORE, it is agreed to between the parties as follows:
Definitions
-----------
1. (a) The term "Note" or "Notes" shall mean all Revolving Credit Notes
evidencing loans made pursuant to this Credit Agreement.
(b) "Person" shall mean and include an individual, partnership,
corporation, trust, unincorporated organization, and a government or any
department or agency thereof.
(c) "Officer's Statement" shall mean a statement signed in the name of the
Company by its President, one of its Vice Presidents, its Treasurer, or its
Secretary.
(d) "Funded Debt" shall mean any obligation for borrowed money or the
deferred purchase price of property, real or personal, payable more than one
year from the date of the creation thereof, which under generally accepted
accounting principles is required to be shown on the balance sheet as a long-
term liability.
(e) "Current Debt" shall mean any obligation for borrowed money (and any
notes payable and drafts accepted representing extensions of credit whether or
not representing obligations for borrowed money) payable on demand or within a
period of one year from the date of the creation thereof; provided that any
obligation shall be treated as Funded Debt, regardless of its term, if such
obligation is renewable at the option of the Company, pursuant to the terms
thereof or of a revolving credit or similar agreement, to a date more than one
year after the date of the creation of such obligation.
(f) "Debt" shall mean Funded Debt and/or Current Debt.
(g) "Subsidiary" shall mean any corporation at least fifty-one (51%)
percent of the stock of every voting class of which shall, at the time as of
which any determination is being made, be owned by the Company and/or a
Subsidiary.
1
<PAGE>
(h) "Prime Lending Rate" shall mean the prime lending rate from time to
time established by Comerica Bank.
Revolving Credit
----------------
2. (a) The Revolving Credit shall not exceed Five Hundred Thousand Dollars
($500,000.00) in aggregate principal amount at any one time outstanding and
shall be available to the Company, and may be availed of by the Company in its
discretion from time to time, and may be repaid and used again during the period
from the date hereof to and including the earlier of either the date of the
conversion of all or any part of the Revolving Credit into the Term Credit
provided for in Paragraph 3, or December 31, 1998, at which time the commitment
of the Lender shall expire.
(b) Each loan under the Revolving Credit shall be in an amount of Ten
Thousand Dollars ($10,000.00), or a multiple thereof, and the Lender shall
receive a Revolving Credit Note of the Company payable to its order and
substantially in the form (with appropriate insertions) attached hereto as
Exhibit A to evidence such loan. Such Revolving Credit Notes shall be dated in
each case as of the date of the making of the particular loan evidenced thereby,
shall be expressed to mature not later than December 31, 1998, and shall be
expressed to bear interest prior to the maturity thereof (computed on the basis
of a year of 365 or 366 days, as the case may be, and payable at the maturity
thereof) on the principal amount thereof from time to time remaining unpaid
thereon at two (2%) percent in excess of the Prime Commercial Lending Rate (as
herein before defined) from time to time in effect (with any change in said
interest rate resulting from a change in said Prime Commercial Lending Rate to
be and become effective as and when such change in the Prime Commercial Lending
Rate shall become effective). The principal of all Revolving Credit Notes
remaining unpaid after the maturity thereof, whether by acceleration or
otherwise, shall be expressed to bear interest until paid at a rate per annum of
two (2%) percent above the rate applicable to such Revolving Credit Note on the
date of such maturity.
Manner of Borrowing
-------------------
3. The Company shall give the Lender at least three (3) business days' prior
notice of the date upon which it requests that a loan be made under the
Revolving Credit, and the Company shall specify the amount of such loan. The
proceeds of each loan hereunder shall be wire transferred to Company upon the
receipt by the Lender of the Revolving Credit Note, and other showings herein
provided for.
Grant of Warrants
-----------------
4. As additional consideration for extending the Line of Credit evidenced
hereby, the Company shall issue to Lender that number of Warrants to purchase
that number of shares of the Company's common stock, in the form attached hereto
as Exhibit "B", equal to the maximum
2
<PAGE>
amount drawn by the Company pursuant to this Line of Credit, divided by the sum
of One thousand five hundred and 00/100 ($1,500.00) dollars, and rounded to the
nearest whole number. Warrants shall be issued to Lender within thirty (30) days
of date the Company draws down the Line of Credit to a new maximum loan amount,
over the previous maximum loan amount.
Prepayments
-----------
5. The Company shall have the privilege of prepaying without premium or penalty
and in whole or in part the Notes at any time, such prepayment to be made by the
payment of the principal amount to be prepaid and accrued interest thereon to
the date fixed for prepayment. Any amount prepaid on the Notes may, subject to
the terms and conditions hereof, be borrowed, repaid, and borrowed again.
Termination
-----------
6. The Company shall have the right at any time and from time to time, upon
three (3) business days' prior notice to the Lender, to terminate without
premium or penalty and in whole or in part the Revolving Credit available
hereunder, any partial termination to be in an amount of Ten Thousand and 00/100
($10,000.00) Dollars, or a multiple thereof. No later than the termination date
stated in such notice, the Company shall make such payments as may be necessary
to reduce the aggregate principal amount of the Revolving Credit Notes then
outstanding to the amount to which the Revolving Credit has been so reduced, and
shall also pay the interest on such principal to such termination date.
Place and Application of Payments
---------------------------------
7. All payments of principal, interest, and delivery of warrants shall be made
to the Lender at P.O. Box 1659, Avon, Colorado 81620-1659. Prepayments
applicable to the Notes shall be applied on any outstanding Note selected by the
Company.
Representations and Warranties
------------------------------
8. The Company represents and warrants as follows:
(a) The Company, and each Subsidiary, is duly organized and existing under
the laws of its respective state of incorporation and is duly licensed or
qualified in each jurisdiction wherein it carries on a substantial portion of
its business or where there is located a substantial portion of its business and
assets; the Company has all necessary corporate power to carry on its present
business; and has full power, right, and authority to enter into this Agreement,
to make the borrowings herein provided for, to issue the Notes and to perform
each and all of the matters and things herein provided for; and this Agreement
does not, nor will the performance or observance by the Company of any of the
matters and things herein provided for contravene any provision of law or any
charter or bylaw provision of the Company, or any covenant, indenture, or
agreement of or affecting the Company or any Subsidiary or their respective
properties.
3
<PAGE>
Covenants
---------
9. The Company agrees that, so long as any credit is available to or in use by
the Company hereunder, except to the extent compliance in any case or cases is
waived in writing by the Lender:
(a) The Company will maintain, preserve, and keep its properties, and
equipment in good repair, working order, and condition, ordinary wear and tear
excepted, and will from time to time make all necessary and proper repairs,
renewals, replacements, additions, and improvements thereto so that at all times
the efficiency thereof shall be fully preserved and maintained, and will cause
each Subsidiary to do so in respect of property owned or used by it.
(b) The Company will duly pay and discharge all taxes, rates, assessments,
fees, and government charges upon the Company, except to the extent being
contested in good faith. The Company will insure and keep insured, and will
cause each Subsidiary to insure and keep insured, all insurable property owned
by it.
(c) The Company will maintain a standard and modern system of accounting in
accordance with sound accounting practice, and will furnish to the Lender and
its duly authorized representatives such information respecting the business and
financial condition of the Company and its Subsidiaries as may be reasonably
requested; and without any request will furnish the Lender:
(1) As soon as available, and in any event within sixty (60) days
after the close of each quarterly fiscal period of the Company (excluding
the last such period in each fiscal year), a copy of the balance sheet and
profit and loss statement on a consolidated basis for such period of the
Company and its Subsidiaries accompanied by a statement from a responsible
financial officer thereof to the effect that to his best knowledge and
belief such financial statements are true, correct, and complete;
(2) As soon as available, and in any event within ninety (90) days
after the close of each fiscal year, a copy of the balance sheet and profit
and loss statement on a consolidated and consolidating basis for such
fiscal year of the Company prepared in accordance with sound accounting
principals, accompanied by a statement from a responsible financial officer
thereof to the effect that to his best knowledge and belief such financial
statements are true, correct, and complete; and
(3) As soon as available, and in any event within ninety (90) days
after the close of each fiscal year, a copy of the audit report for such
year and accompanying financial statements, including balance sheet, profit
and loss statement, and statement of changes in financial position on a
consolidated basis for the Company, showing in comparative form the figures
for the previous fiscal year, as prepared and certified by independent
public accountants of recognized standing selected by the Company.
4
<PAGE>
(d) Except as approved by Lender in writing, the Company will not declare
or pay any dividends, except for dividends payable solely in capital stock of
the Company, nor make any distributions on or with respect to any of its capital
stock of any class or series, whether now or hereafter authorized and
outstanding, nor purchase, redeem, or otherwise acquire or retire any such
capital stock (except out of the proceeds of or in exchange for a substantially
concurrent issue and sale of capital stock of the Company in addition to that
now issued and outstanding) if, after giving effect thereto, the total amount of
all dividends, distributions, purchases, redemptions, acquisitions, and
retirements declared, paid or made after the date hereof, would cause the
Company to be insolvent.
(e) The Company will not, nor will it permit any Subsidiary to, issue,
incur, assume, or permit to remain outstanding any Debt other than:
(1) Debt represented by the Notes;
(2) Debt of any Subsidiary to the Company or to another Subsidiary;
(3) Current Debt of the Company or its domestic Subsidiaries not
exceeding
One Million Dollars ($1,000,000) in aggregate principal amount at any one
time outstanding;
(4) Debt incurred in connection with the purchase of real or personal
property, whether secured or unsecured, provided that such Debt is
permitted under this clause.
Events of Default
-----------------
10. Any one or more of the following shall constitute an event of default under
this Agreement:
(a) Delinquency for a period of ten (10) days in payment when due of
principal or interest on any Note, whether at the stated maturity thereof or at
any other time provided in this Agreement;
(b) Failure to observe or perform any other provision hereof when such
failure is not remedied within thirty (30) days after notice thereof to the
Company by the Lender or by the holder or holders of any Note then outstanding
hereunder;
(c) Any representation or warranty made by the Company herein, or in any
statement or certificate furnished by it pursuant hereto, or in connection with
any loan made hereunder, proves untrue in any material respect as of the date of
the issuance or making thereof, and shall not be made good within thirty (30)
days after notice thereof to the Company by the Lender or by the holder or
holders of any Note then outstanding hereunder;
(d) The Company, or any Subsidiary, becomes insolvent or bankrupt, or
admits in writing its inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors,
5
<PAGE>
or applies for or consents to the appointment of a trustee or receiver for it or
for the major part of its property;
(e) A trustee or receiver is appointed for the Company or any Subsidiary or
for the major part of its property and is not discharged within ninety (90) days
after such appointment; or
(f) Bankruptcy, reorganization, arrangement, insolvency, or liquidation
proceedings or other proceedings for relief under any bankruptcy law or laws for
the relief of debtors are instituted by or against the Company or any Subsidiary
and, if instituted against the Company or such Subsidiary, are consented to or
are not dismissed within ninety (90) days after such institution.
Remedies for Default
--------------------
11. (a) When any event of default described in subsections (a) through (c),
inclusive, of Paragraph 10 has occurred and is continuing, the Lender or the
holder of the Note may, by notice to the Company, either terminate the remaining
commitment hereunder of the Lender on the date (which may be the date thereof)
stated in such notice, or else declare the principal of and the accrued interest
on all outstanding Notes to be forthwith due and payable and thereupon all of
said Notes, including both principal and interest, shall be and become
immediately due and payable without further demand, presentment, protest, or
notice of any kind.
(b) When any event of default described in subsections (d) through (f),
inclusive, of Paragraph 10 hereof has occurred and is continuing, then all
outstanding Notes shall immediately become due and payable without presentment,
demand, protest, or notice of any kind, and the obligation of the Lender to
extend further credit pursuant to any of the terms hereof shall immediately
terminate.
(c) The Company agrees to pay to the Lender or any other holder of any Note
outstanding hereunder, all expenses incurred or paid by the Lender or any such
holder, including reasonable attorney's fees and court costs, in connection with
the enforcement of any of the terms hereof of the Notes.
Miscellaneous
-------------
12. (a) This Agreement and all of the covenants, warranties, and representations
of the Company, and all of the powers and rights of the Lender hereunder, shall
be in addition to and cumulative of all other covenants, representations, and
warranties of the Company and all other rights and powers of the Lender
contained in, or provided for in, any other instrument or document now or
hereafter executed and delivered by the Company to or in favor of the Lender. No
delay or failure on the part of the Lender in the exercise of any power or right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of the same preclude any other or further exercise thereof or the
exercise of any other power or right; and the rights and remedies of the Lender
are cumulative to and not exclusive of any rights or remedies which it would
otherwise have. No waiver, consent or modification, or amendment shall be
effective as against the Lender unless the same is in writing and signed by an
officer of the Lender. No such amendment, modification,
6
<PAGE>
waiver, or consent shall extend to or affect any obligation or right except to
the extent expressly provided for therein. All computations and determinations
of the assets and liabilities of the Company for the purpose of this Agreement
shall be made in accordance with generally accepted principles of accounting
consistently applied, except as may be otherwise specifically provided herein.
(b) All communications provided for herein shall be in writing and shall be
deemed to have been given when delivered personally or when deposited in the
United States mail, registered or certified, postage prepaid, addressed, if to
the Lender, at P.O. Box 1659, Avon, Colorado 81620-1659, or, if to the Company,
at 8755 West Higgins Road, Suite 100, Chicago, Illinois 60631.
(c) The Company agrees to pay and reimburse the Lender for all expenses and
damages paid or incurred by the Lender, including court costs and reasonable
attorney's fees, arising out of a default hereunder or the collection of the
Note or any other liability, or in preserving or protecting or exercising the
rights of the Lender hereunder or other liabilities, including all of the
foregoing, incurred in any bankruptcy, arrangement, or reorganization proceeding
involving the Company. Any or all indebtedness owing by the Lender to the
Company may at any time without notice or demand be offset and applied on any
indebtedness or liability of the Company to the Lender, whether or not then due.
(d) This Agreement shall be binding upon the Company and its successors and
assigns, and shall inure to the benefit of the Lender and its successors and
assigns, including any subsequent holder or holders of the Note or any interest
therein.
Governing Law
-------------
13. This Agreement shall be governed by the laws of the State of Michigan.
Executed at Birmingham, Michigan, on the day and year first above written.
"COMPANY"
INTERACTIVE COUPON MARKETING GROUP, INC.
By: /s/ Steven M. Golden
____________________________________
CEO
Its:____________________________________
"LENDER"
RICHARD H. ROGEL, TRUSTEE OF THE
RICHARD H. ROGEL REVOCABLE LIVING
TRUST u/a DATED MARCH 21, 1990,
7
<PAGE>
AS AMENDED
By: /s/ Richard H. Rogel
____________________________________
Richard H. Rogel, Trustee
8
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
This First Amendment to Credit Agreement made and entered into this 6th day
of February, 1998, by and between Interactive Coupon Marketing Group, Inc.,
hereinafter referred to as the "Company", and Richard H. Rogel, Trustee of the
Richard H. Rogel Revocable Living Trust u/a dated March 21, 1990, as amended,
hereinafter referred to as the "Lender".
R E C I T A L S
Whereas, the Company and Lender entered into a certain Credit Agreement on
December 18, 1997 ("Credit Agreement"); and
Whereas, the parties desire to amend the Credit Agreement.
NOW THEREFORE, effective as of the date hereof, the Credit Agreement shall
be amended as follows:
I. Section 2 (a) shall be amended and restated as follows:
"2. (a) The Revolving Credit shall not exceed One Million Dollars
($1,000,000.00) in aggregate principal amount at any one time outstanding
and shall be available to the Company, and may be availed of by the Company
in its discretion from time to time, and may be repaid and used again
during the period from the date hereof to December 31, 1998, at which time
the commitment of the Lender shall expire."
II. As security for the repayment of all sums loaned or to become due
pursuant pursuant hereto, the parties are simultaneously executing a
Security Agreement, evidencing the grant of a security interest in
certain patents and/or patent applications owned by the Company.
III. This Addendum and the Credit Agreement shall inure to and be
binding on the heirs, trustees, executors, administrators, successor
and assigns of each of the parties hereto.
IV. Except as specifically amended herein, the Credit Agreement is
not amended or modified in any manner whatsoever.
1
<PAGE>
IN WITNESS WHEREOF, the parties have caused this First Amendment to
Credit Agreement to be executed by their respective duly authorized officers and
trustee on the day and year first above appearing.
"COMPANY"
INTERACTIVE COUPON MARKETING GROUP, INC.
By: /s/ Steven M. Golden
____________________________________
Its: CEO
____________________________________
"LENDER"
RICHARD H. ROGEL, TRUSTEE OF THE
RICHARD H. ROGEL REVOCABLE LIVING
TRUST u/a DATED MARCH 21, 1990,
AS AMENDED
By: /s/ Richard H. Rogel
____________________________________
Richard H. Rogel, Trustee
2
<PAGE>
EXHIBIT 10.6
PROMISSORY NOTE
---------------
Chicago, Illinois,
March ___, 1999
For value received, the adequacy and sufficiency of which is hereby
acknowledged, the undersigned ("Maker") promises to pay to the order of
coolsavings.com inc. ("Holder"), the sum of ________________________________
($__________) Dollars (U.S.), plus accrued interest as provided below. All
unpaid indebtedness under this Promissory Note shall be payable to
coolsavings.com inc., at 8755 W. Higgins Road, Suite 100, Chicago, Illinois
60631 (unless otherwise notified in writing by the Holder) in lawful money of
the United States of America, and all principal indebtedness under this
promissory note ("Note") shall bear interest on the basis of a year of three
hundred sixty-five (365) days for the actual number of days elapsed at an
interest rate per annum equal to Four and 83/100 percent (4.83%) ("Loan Rate"),
before an Event of Default (as defined below) has occurred, and after an Event
of Default at the Loan Rate plus two (2%) percent. All principal and accrued
interest hereunder shall be paid to Holder as follows:
(1) On the first anniversary of this Promissory Note, and on each
anniversary thereafter until paid in full, the undersigned shall pay
to the Holder a sum equal to the accrued but unpaid interest under
this Note; and
(2) On or before the fourth anniversary of the making of this Promissory
Note, the undersigned shall pay to the Holder the entire outstanding
principal and accrued interest hereunder.
All payments made pursuant hereto shall be applied first towards interest
outstanding and the balance, if any, to principal. The undersigned has the right
to prepay this Note in full or in part at any time without penalty or premium.
Event of Default
- ----------------
Upon the occurrence of any of the following events of default ("Event of
Default"): (a) any failure by Maker to pay any installment of principal or
interest due hereunder within fifteen (15) days after receipt of written notice
from Holder of the amount owing; (b) the appointment of a receiver or custodian
over a material portion of Maker's assets, which receiver or custodian is not
discharged within sixty (60) days of such appointment; or (c) the commencement
of any voluntary or involuntary bankruptcy or insolvency proceedings by or
against Maker, which proceedings are not set aside within sixty (60) days from
the date of institution thereof; then, at the election of Holder and without
notice, demand or presentment, the entire principal balance of this Note,
together with all accrued and unpaid interest, shall become immediately due and
payable. All costs and expenses of collection, including, without limitation,
reasonable attorney's fees and expenses, shall be added to and become part of
the total indebtedness. Upon the occurrence of an Event of Default, Maker shall
pay upon demand all costs of collection, legal expenses and actual attorney fees
incurred or paid by the Holder in collecting or enforcing this Note.
Page 1 of 3
<PAGE>
Acceptance by Holder of any payment in an amount less than the amount then
due shall be deemed an acceptance on account only, and Maker's failure to pay
the entire amount then due by the applicable due date (i.e. after appropriate
notice and lapse of time as provided hereinabove) shall be and continue to be an
Event of Default. Upon the occurrence and continuance of any Event of Default,
neither the failure of Holder promptly to exercise its right to declare the
outstanding principal and accrued unpaid interest hereunder to be immediately
due and payable, nor the failure of Holder to demand strict performance of any
other obligation of Maker or any other person who may be liable hereunder, shall
constitute a waiver of any such rights, nor a waiver of such rights in
connection with any future default on the part of Maker or any other person who
may be liable hereunder.
Security Interest
- -----------------
By signature hereunder, Maker hereby grants to Holder (hereinafter also
referred to as "Secured Party"), a security interest in those certain fifty (50)
shares of Holder's common stock issued to Maker as evidenced by Certificate
Number 187 (the "Shares"), together with all proceeds and any and all property
rights which may derive from or accrue to the Shares (hereinafter collectively
"Collateral"), including, but not limited to, any additional shares of stock at
any time received by Maker as a stock dividend or stock distribution with
respect to the Shares ("Additional Shares"). Maker hereby delivers the
Collateral to Secured Party, and Secured Party acknowledges receipt of the
Collateral from Maker. Maker covenants to forthwith deliver to Secured Party any
after acquired shares of stock which would constitute Collateral. Further,
Maker hereby authorizes Holder and/or any of Holder's representatives to hold
the Certificates representing any Additional Shares for the purposes of
perfecting the security interest herein granted. The security interest is
granted to Secured Party for the purpose of securing payment of the obligations
evidenced by this Note.
So long as no Event of Default has occurred, Maker shall retain all other
rights and privileges appurtenant to ownership of the shares of stock pledged as
Collateral here, including the right to vote such shares. Maker covenants not
to sell, assign, transfer, pledge or otherwise permit any lien to attach to the
Collateral.
In addition to all other rights and remedies herein enumerated or otherwise
permitted by law, upon the occurrence of an Event of Default under this
Agreement, Secured Party shall have the following additional rights and
remedies: (a) the right to sell, assign, deliver, encumber, or otherwise dispose
of any of the Collateral at a private or public sale; and (b) the right to apply
the proceeds of such sale or disposition: first, to the reasonable expenses of
retaking, holding, preparing for sale or selling, or the like; second, to the
attorney's fees and legal expenses of Secured Party in connection with such sale
or disposition; third, to reduce the obligation evidenced by this Note. Only
after full payment of the Maker's obligations, and any other payments
contemplated in this Note, need the Secured Party account to Maker for any
surplus, or return to Maker any Collateral then remaining in the possession of
Secured Party.
Page 2 of 3
<PAGE>
Limited Recourse
- ----------------
Notwithstanding anything herein to the contrary, Maker's personal liability
on this Note is limited to the amount of Twenty-Four Thousand One Hundred
Eighty-Four and 40/100 ($24,184.40) Dollars (U.S.), plus all accrued interest
----
under the Note, plus all costs of collection, if any. Provided however, this
----
paragraph shall not be construed to interfere with or limit the Holder's right
to recover all or part of the outstanding liability under this Note from
disposition of the Collateral.
Other Provisions
- ----------------
As used in this Note, the word "Holder" shall mean the payee or other
endorsee of this Note, who is in possession of it, or the bearer of said Note,
if this Note is at the time payable to the bearer. The word "Maker" shall mean
each of the undersigned.
Each maker, surety, endorser, guarantor, and/or every other person at any
time liable for the payment of the debt evidenced herein, hereby waives notice
of presentment, demand of payment, demand and notice of dishonor or nonpayment,
protest or notice of protest of this Note, and does hereby consent and agree to
all extensions and renewals of this Note, without notice.
If, from any circumstance whatsoever, interest payable hereunder to the
Holder hereof is in excess of the maximum lawful amount, the interest payable to
the Holder hereof shall be reduced to the maximum amount permitted under
applicable law; and if from any circumstance the Holder hereof shall ever
receive anything of value deemed interest by applicable law in excess of the
maximum lawful amount, an amount equal to any excessive interest shall be
applied to the reduction of the principal hereof and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of principal
hereof, such excess shall be refunded to the undersigned. All interest paid or
agreed to be paid to the Holder hereof shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full period until payment in full of the principal so that the interest hereon
for such full period shall not exceed the maximum amount permitted by applicable
law.
This Note shall be binding upon Maker and his or her successors and
assigns, and the benefits hereof shall inure to Holder and its successors and
assigns. Headings contained herein are for convenience only, and shall not be
used to construe the terms of this Note. This Note shall be deemed to have been
executed in Chicago, Illinois and its interpretation and construction shall be
governed by the laws of the State of Illinois.
"Maker"
__________________________________
Page 3 of 3
<PAGE>
Exhibit 10.7
TERMINATION AGREEMENT
---------------------
This Agreement is entered into this 30th day of December, 1999, by and
between coolsavings.com inc., a Michigan corporation (hereinafter referred to as
"Employer"), and Hillel Levin, an individual ("hereinafter referred to as
"Employee").
W I T N E S S E T H:
WHEREAS, according to the terms of Employee's employment, such employment
is terminable at will by either party; and
WHEREAS, Employee voluntarily terminated his employment with Employer
effective as of December 31, 1999;
NOW, THEREFORE, in consideration of the representations, promises, and
agreements set forth herein, the adequacy, sufficiency and receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Termination of Employment. Employer and Employee hereby acknowledge and
-------------------------
confirm that: (i) Employee delivered his resignation, effective as of December
31, 1999, to the Company on or about September 10, 1999; and (ii) Employer
accepted Employee's resignation, effective as of December 31, 1999, on or about
September 10, 1999. Accordingly, Employee's employment with Employer shall
terminate at the close of business on December 31, 1999. Until such time,
Employer shall continue to pay Employee, when due (in accordance with Employer's
practices in effect for all employees), his salary compensation currently in
effect, less all applicable state and federal taxes. Further, in the event
Employee properly performs his duties from and after the date of this Agreement
through the close of business on December 31, 1999, then Employer shall pay
Employee, no later than January 15, 2000, a bonus for the services performed by
Employee during 1999 in the amount of Twenty Thousand and 00/100 ($20,000)
Dollars.
2. Severance Compensation. Employee hereby acknowledges that in accordance
----------------------
with Employer's usual and customary termination practices, Employee is not
entitled to receive any severance pay or other compensation.
3. Additional Consideration. In consideration of the covenants and
-------------------------
agreements set forth in this Agreement (including but not limited to the Release
contained in Section 5 herein and the covenants and restrictions contained in
Sections 6 and Section 7 herein), Employer hereby agrees to pay and/or allow
Employee the following additional benefits, all of which are beyond the scope of
Employer's usual and customary termination practices (the "Additional
Consideration"). Employer shall simultaneously with the execution of this
Agreement, enter into the following agreements with Employee:
(i) A First Amendment to each of the three (3) Non-Qualified Stock
Option Agreements currently in effect between Employee and Employer,
in form and
1
<PAGE>
substance as attached hereto, which Amendments Employee hereby agrees
materially amend, for Employee's benefit, Employee's rights under all
of said Non-Qualified Stock Option Agreements currently in effect with
Employer; and
(ii). A Consulting Agreement.
Employee acknowledges and agrees that the benefits granted by Employer
pursuant to this Section 3 are not, and shall not be construed as, compensation
to Employee, but rather as consideration for the covenants and agreements
contained herein (including but not limited to the Release contained in Section
5 herein and the covenants and restrictions contained in Sections 6 and Section
7 herein). Further, Employee acknowledges, understands and agrees that he is
solely responsible for the payment of any and all taxes incurred as a result of
all such benefits.
4. Representations and Warranties of Employee. Employee hereby represents
------------------------------------------
and warrants to Employer, as follows:
a. That on January 1, 2000 he will not be in possession of any work
product, trade secret, and/or other confidential written information of
Employer or any copies thereof, except such work product, trade secrets,
and/or other confidential written information of Employer that Employee
shall be entitled to possess under the terms of the Consulting Agreement.
b. That from and after January 1, 2000 he will not disclose any of
Employer's work product, trade secrets, the terms of this Agreement
(including, but not limited to, the type or nature of Additional
Consideration received hereunder), and/or other confidential information,
written or oral, to any third party, except as specifically permitted under
the terms of the Consulting Agreement; provided however that nothing
contained herein shall be construed to limit Employee's right to use
information which is common knowledge within the online and/or internet
industry or within the general public at large. Further, any and all skills
of Employee acquired during his employment with Employer may be used in
subsequent employment, subject to the terms of paragraph 6 herein, provided
same do not include the use of trade secrets acquired by reason of
Employee's confidential relationship with Employer.
c. That the signing of this Agreement by Employee evidences: (i)
Employee's understanding of the terms hereof, including but not limited to,
Sections 5, 6, 7, and 8; (ii) an acknowledgement by Employee that prior to
Employee signing this Agreement, Employee was advised by Employer in
writing to consult with an attorney; and (iii) a representation by Employee
to Employer that he did consult with an attorney and/or with others whom
Employee deemed it necessary or advisable to consult, prior to signing this
Agreement; and (iv) that Employee has taken a period of at least 21 days to
read, review, and consider the terms of this Agreement.
5. Release.
-------
a. In exchange for the Additional Consideration, Employee does hereby
agree not to sue Employer for, and does further remise, release and forever
discharge Employer from, any
2
<PAGE>
and all Claims (as defined in subsection c. below), known or unknown,
against Employer which Employee ever had, now has, or may or could have,
for or by reasons of any matter, cause or thing whatsoever, occurring at
any time prior to and including the date of this Agreement. HOWEVER, THIS
RELEASE DOES NOT CAUSE EMPLOYEE TO WAIVE ANY RIGHTS OR CLAIMS THAT MAY
---
ARISE AGAINST EMPLOYER AFTER THE DATE THIS AGREEMENT IS SIGNED BY EMPLOYEE.
-----
b. This Release includes, but is not limited to, all Claims arising out
-----------
of, in any way connected with or relating to Employee's employment, or the
--------------------------------------------------------------------------
termination of Employee's employment, with Employer. Such Claims include
------------------------------------
but are not limited to: breach of contract; impairment of economic
opportunity; intentional or negligent infliction of emotional harm or
distress or any other tort whatsoever; age discrimination (including but
not limited to, under the Age Discrimination in Employment Act of 1967, 42
U.S.C. Section 1985 and The Older Workers Benefit Protection Act); sex,
race, or religious discrimination; sexual harassment; all Claims under all
federal, state and municipal statutes and ordinances relating to
discrimination of any type whatsoever in employment or otherwise; and all
Claims Employee has asserted or may assert or could assert in any state or
federal forum (including but not limited to all courts and administrative
agencies) as a result of Employee's employment, or the termination of
Employee's employment, with Employer or otherwise. HOWEVER, THIS RELEASE
DOES NOT APPLY TO: EMPLOYEE'S RIGHTS UNDER EMPLOYER'S PENSION OR BENEFIT
PLANS; ANY PENDING OR POTENTIAL WORKERS COMPENSATION CLAIMS OF EMPLOYEE; OR
EMPLOYEE'S RIGHT TO INSTITUTE LEGAL ACTION FOR THE PURPOSE OF ENFORCING THE
PROVISIONS OF THIS AGREEMENT.
c. Notwithstanding anything contained in this Agreement to the contrary,
the following terms, as used in this Section 5, shall have the following
meanings:
(i) "Claims" shall mean any and all manners of actions, causes
of action, charges, obligations, suits, proceedings,
debts, dues, contracts, judgments, damages, attorney fees,
claims, and demands whatsoever, in law or equity.
(ii) "Employee" shall mean "Employee" as defined on page 1 of
this Agreement and his heirs, executors, administrators,
successors and assigns.
---
(iii) "Employer" shall mean "Employer" as defined on page 1 of
this Agreement and all of its officers, directors,
---
shareholders, agents and employees and any and all
affiliates and related entities, and their respective
heirs, executors, administrators, successors and assigns .
6. Confidentiality and Preservation of Corporate Opportunity.
----------------------------------------------------------
a. Employee agrees at all times during the term hereof and thereafter, to
hold in strictest confidence, and not to use, except for the benefit of
Employer, or to disclose to any person, firm or corporation without written
authorization of Employer, the Proprietary Information of Employer.
Employee understands that "Proprietary Information" means any Employer
proprietary information, technical data, trade secrets
3
<PAGE>
or know-how, including, but not limited to, research, product plans,
marketing plans, products, services, customer lists and customers
(including, but not limited to, customers of Employer on whom Employee may
call or with whom Employee becomes more acquainted during the term of this
Agreement or has become acquainted during any prior period in which he
performed services for Employer), software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, marketing, financial or other business
information disclosed to Employee by Employer either directly or indirectly
in writing, electronically, orally or by drawings or observation of parts
or equipment prior to or after the commencement of this Agreement.
In light of the highly competitive nature of the industry in which
Employer conducts its business, Employee agrees that all Proprietary
Information heretofore or in the future obtained by the Employee as a
result of the Employee's association with Employer shall be considered
confidential. In recognition of this fact, the Employee agrees that he
will not, except in the performance of his duties under the Consulting
Agreement, or, except as otherwise provided herein, during and after the
execution of this Agreement, disclose any of such Proprietary Information
to any person or entity for any reason or purpose whatsoever and he will
not make use of any Proprietary Information for his own purposes or for the
benefit of any person or entity (except Employer) under any circumstances.
The provisions contained in this Section 6 shall also apply to information
obtained by Employee with respect to any subsidiary of or company otherwise
affiliated with Employer.
In the event that Employee is requested or required (by oral
questions, interrogatories, requests for information or documents,
subpoena, civil investigative demand, any informal or formal investigation
by any government or governmental agency or authority or otherwise) to
disclose any of the Proprietary Information, Employee will notify Employer
promptly in writing so that Employer may seek a protective order or other
appropriate remedy or, in Employer's sole discretion, waive compliance with
the terms of this Agreement. Employee agrees not to oppose any action by
Employer to obtain a protective order or other appropriate remedy. In the
event that no such protective order or other remedy is obtained, or that
Employer waives compliance with the terms of this agreement, Employee will
furnish only that portion of the Proprietary Information which Employee is
advised in writing by counsel that he is legally required to furnish and
will exercise his reasonable best efforts, at Employer's expense, to obtain
reliable assurance that confidential treatment will be accorded to the
Proprietary Information.
b. In order to further protect the confidentiality of the Proprietary
Information and in recognition of the highly competitive nature of the
industries in which Employer conducts its business, and for the Additional
Consideration set forth in Section 3 herein, Employee further agrees as
follows:
(i) for the period commencing on the date hereof and ending on the
second anniversary of the effective date of Termination of the
Consulting Agreement (as hereinafter defined) (the "Preservation
Period"), Employee will not, directly or
4
<PAGE>
indirectly engage in any Business Activities (as hereinafter defined),
other than on behalf of Employer, whether such engagement is as an
officer, director, proprietor, employee, partner, investor (other than
as a holder of less than 3% of the outstanding capital stock of a
publicly traded corporation), consultant, advisor, agent or otherwise,
in any geographic area in which the products or services of Employer
have been distributed or provided by Employer during the period
commencing two years prior to the date hereof and ending on the
effective date of Termination of the Consulting Agreement.
As used in this Agreement: "Business Activities" shall mean the
providing of marketing services directly to consumers over the
Internet, including but not limited to, the distribution of coupons,
saving notices, gift certificates and other promotional incentives;
and "Termination of the Consulting Agreement" shall mean: (x) the
expiration of the Consulting Agreement or (y) any termination of the
Consulting Agreement in accordance with the terms of the Consulting
Agreement, prior to the expiration of the term then in effect under
the Consulting Agreement, by either Employee or Employer; whichever
occurs first.
(ii) Employee will not, during the Preservation Period, directly or
indirectly engage in any activities, provide any services or supply
any products (other than on behalf of Employer) which would constitute
Business Activities to any company or customer with whom Employer has
done any business during the period commencing two years prior to the
date hereof and ending on the effective date of Termination of the
Consulting Agreement, whether as an officer, director, proprietor,
employee, partner, investor (other than as a holder of less than 3% of
the outstanding capital stock of a publicly traded corporation),
consultant, advisor, agent or otherwise.
(iii) Employee will not, during the Preservation Period, directly or
indirectly assist others in engaging in any of the Business Activities
in the manner prohibited to Employee.
(iv) Employee will not, during the Preservation Period, directly or
indirectly induce employees of Employer or any of its subsidiaries to
engage in any activities hereby prohibited to Employee or to terminate
their employment.
It is expressly understood and agreed that although Employee and Employer
consider the restrictions contained in each of clauses (i) through (iv)
above to be reasonable for the purpose of preserving the goodwill,
proprietary rights and going concern value of Employer, if a final
judicial determination is made by a court having jurisdiction that the time
or territory or any other restriction contained in this Section 6 is an
unenforceable restriction on the activities of Employee, the provisions of
this Section 6 shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such other extent as
such court may judicially determine or indicate to be reasonable.
Alternatively, if the court referred to above finds that any restriction
contained in this Section 6 or any remedy provided in Section 8 of this
Agreement is
5
<PAGE>
unenforceable, and such restriction or remedy cannot be amended so as to
make it enforceable, such finding shall not affect the enforceability of
any of the other restrictions contained therein or the availability of any
other remedy. The provisions of this Section 6 shall in no respect limit or
otherwise affect the obligations of Employee under other agreements with
Employer, including but not limited to, the Consulting Agreement.
7. Designs, Inventions, Patents and Copyrights. Employee shall promptly
-------------------------------------------
disclose, grant and assign to Employer for its sole use and benefit any and all
designs, inventions, improvements, technical information, know-how and
technology and suggestions relating in any way to the products or services of
Employer or capable of beneficial use by customers to whom products or services
of Employer are sold or provided, which the Employee in his past association
with Employer, conceived, developed or acquired, during the Employee's
employment with Employer (whether or not during usual working hours), together
with all applications for copyrights, trademarks, design patents, patents,
divisions of pending patent applications, applications for reissue of patents
and specific assignments of such applications (and any copyrights, trademarks,
patents or design patents) (the "Intellectual Property") that may at any time be
granted for or upon any such designs, inventions, improvements, technical
information, know-how or technology. In connection therewith at all times after
the execution of this Agreement:
(i) Employee shall promptly execute and deliver such applications,
assignments, descriptions and other instruments as may be necessary or
proper in the opinion of Employer to vest in Employer title to the
Intellectual Property and to enable it to obtain and maintain the entire
right and title thereto throughout the world; and
(ii) Employee shall render to Employer at its expense all such assistance
as it may require in the prosecution of applications for said patents or
reissues thereof, in the prosecution or defense of interferences which may
be declared involving any of said applications or patents, and in any
litigation in which Employer and affiliates may be involved relating to the
Intellectual Property.
(iii) Employee agrees to, and hereby grants to Employer, title to all
copyrightable material first designed, produced or composed in the course
of or pursuant to Employee's employment with Employer, which material shall
be deemed "works made for hire" under Title 17, United States Code, Section
1.01 of the Copyright Act of 1976.
(iv) Employee agrees to and does hereby grant to Employer a royalty-free,
non-exclusive, and irrevocable license to reproduce, translate, publish,
use and dispose of, and to authorize others so to do, any and all
copyrighted or copyrightable material furnished as a result of Employee's
employment with Employer but not first produced or composed by Employee in
the performance of his employment with Employer, provided that the license
granted by this Section shall be only to the extent the Employee now has,
or under any later agreements with Employer relating to similar work may
acquire, the right to grant such licenses without Employer becoming liable
to pay compensation to others solely because of such grant.
6
<PAGE>
(v) This Section 7 does not apply to Intellectual Property for which no
equipment, supplies, facility or trade secret of Employer was used and
which was developed entirely on Employee's own time, and (1) which does
not relate (a) to the business of Employer, or (b) to Employer's actual or
demonstrably anticipated research or development, or (2) which does not
result from any work performed by Employee for Employer.
8. Remedies. Employee acknowledges and agrees that Employer's remedy at law
--------
for a breach or threatened breach of any of the provisions of Sections 6 or 7 of
this Agreement would be inadequate and that in the event of such breach or
threatened breach relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction or any other equitable
remedy which may then be available would be appropriate. It is understood and
agreed that the existence of such breach or threatened breach shall be
determined by a court of competent jurisdiction and nothing contained herein
shall be deemed an admission by Employee that such breach or threatened breach
has occurred. Nothing herein contained shall be construed as prohibiting
Employer from pursuing, in addition, any other remedies available to it for any
such breach or threatened breach. The waiver by Employer of a breach of any
provision of this Agreement by Employee shall not operate or be construed as a
waiver of a breach of any other provision of this Agreement or of any subsequent
breach by Employee.
9. Severability. It is further understood and agreed by the parties hereto
------------
that if any of the provisions of this Agreement shall contravene, or be invalid
under, the laws of the particular state, county, or jurisdiction where used,
such contravention or invalidity shall not invalidate the whole Agreement;
rather the Agreement shall be construed as if not containing the particular
provision or provisions held to be invalid, and the rights and obligations of
the parties shall be construed and enforced accordingly.
10. Notices. Except as may otherwise be provided in this Agreement, any
-------
notices required by or submitted in connection with the terms and conditions of
this Agreement shall be in writing and be deemed effective upon the first to
occur of: actual receipt; confirmation of facsimile transmission; or three (3)
days after deposit in the U.S. mail, certified mail, return receipt requested,
and addressed as follows:
CSI: Employee:
8755 West Higgins Road Hillel Levin
Suite 100 824 Park Avenue
Chicago, Illinois 60631 River Forest, Illinois 60305
Any party hereto may change its address for the purposes of this paragraph by
tendering notice of such change of address to the other party in the manner
herein provided for giving notice.
11. Governing Law. This Agreement shall be governed by and interpreted under
-------------
the laws, statutes and case decisions of the State of Illinois.
7
<PAGE>
12. Amendment/Waiver. No provision of this Agreement may be altered, amended
----------------
and/or waived, except by a written document signed by both parties hereto
setting forth such alteration, amendment, and/or waiver. The parties hereto
agree that the failure to enforce any provision or obligation under this
Agreement shall not constitute a waiver thereof or serve as a bar to the
subsequent enforcement of such provision or obligation or any other provisions
or obligations under this Agreement.
13. Successors and Assigns. This Agreement shall be binding upon and the
----------------------
benefits thereof, shall inure to the parties hereto and their respective legal
representatives, heirs, successors, and assigns.
14. Entire Agreement. Subject to Section 5 above, this Agreement resolves any
----------------
and all claims, disputes or causes of action which Employee may have against
Employer, its officers, directors, employees, partners, and any and all related
entities. Further, this Agreement constitutes the entire agreement between the
parties hereto and contains all of the agreements between said parties with
respect to the subject matter hereof. There is no statement, promise,
agreement, or obligation in existence which may conflict with the terms of this
Agreement or may modify, enlarge, or invalidate this Agreement or any provision
hereof. None of the prior and/or contemporaneous negotiations, preliminary
drafts, or prior versions of this Agreement leading up to its execution and not
set forth herein shall be used by any of the parties to construe or affect the
validity of this Agreement. Each party acknowledges that no representation,
inducement or condition not set forth herein has been made or relied upon by
either party. Further, this Agreement supersedes any and all other agreements,
either oral or in writing, between the parties hereto.
15. Draftsmanship. Each of the parties hereto has been represented by counsel
-------------
in negotiating this Agreement and the parties agree that there shall be no
presumption favoring or burdening any one or more parties hereto based upon
draftsmanship. Whenever necessary in this agreement the context would permit,
the singular term and the related pronoun shall include the plural, the
masculine and the feminine terms.
16. Employee's Right to Revoke. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
--------------------------
AGREEMENT WHICH CAN BE CONSTRUED TO THE CONTRARY, THIS AGREEMENT MAY BE REVOKED
BY EMPLOYEE AT ANY TIME WITHIN SEVEN (7) DAYS OF THE DATE EMPLOYEE SIGNS THIS
AGREEMENT. FURTHER, THIS AGREEMENT SHALL NOT BE EFFECTIVE UNTIL SAID SEVEN (7)
DAY PERIOD HAS EXPIRED. IN THE EVENT EMPLOYEE ELECTS TO REVOKE THIS AGREEMENT
WITHIN SAID TIME PERIOD, EMPLOYEE SHALL NOTIFY EMPLOYER OF SUCH REVOCATION IN
WRITING.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinbelow written.
Witnesses: EMPLOYER:
coolsavings.com inc.
By: /s/ Steven M. Golden
______________________ _____________________________
Its: CEO
______________________ ____________________________
Dated: December 30, 1999
__________________________
EMPLOYEE:
/s/ Hillel Levin
______________________ _________________________________
Hillel Levin
______________________ December 30, 1999
Dated:___________________________
9
<PAGE>
Exhibit 10.8
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT (hereinafter referred to as "Agreement") is
made and entered into effective as of January 1, 2000, by and between
coolsavings.com inc. ("CSI"), a Michigan corporation, and Hillel Levin
(hereinafter referred to as the "Consultant").
W I T N E S S E T H:
WHEREAS, CSI has developed and operates a system which enables
advertisers to advertise their products, and issue coupons, gift certificates,
rebates certificates and other certificates, via the internet and/or an online
service (the "Business"); and
WHEREAS, Consultant was an employee of CSI and voluntarily terminated
his employment with CSI effective December 31, 1999; and
WHEREAS, Consultant is familiar with CSI and the operation of its
Business; and
WHEREAS, CSI is desirous of engaging Consultant for use of
Consultant's services:
NOW THEREFORE, in consideration of the mutual covenants, promises,
representations and warranties contained herein, and for other valuable
consideration, the adequacy, sufficiency and receipt of which is hereby
acknowledged and agreed, the parties hereto hereby agree as follows:
1. Scope of Agreement. This Agreement shall apply to all services
------------------
provided by Consultant to CSI, as such services are from time to time requested
by CSI.
2. Independent Contractor Agreement. It is specifically agreed and
--------------------------------
understood that in performing the services herein specified, Consultant is
acting as an independent contractor and not as an agent or employee of CSI.
Further, nothing contained in this Agreement shall be construed to create the
relationship of principal and agent, partnership, joint venture or any other
relationship between the parties hereto other than the relationship of
independent contractors.
3. Consultant's Services/Authority. Consultant shall perform any
-------------------------------
and all services reasonably requested by CSI in the development or operation of
the Business, provided however, that in no event shall such time requirement
exceed twenty five (25) hours per week. Consultant shall have no authority to
execute contracts for or on behalf of CSI or otherwise to bind CSI to any legal
obligation.
1
<PAGE>
4. Term. This Agreement shall have a term of one (1) year from the
----
effective date hereof. CSI shall be permitted to terminate this Agreement at
any time for just cause by tendering thirty (30) days prior written notice of
----------
such termination and the reasons for same to Consultant. "Just Cause" as used
herein shall, by way of example, include but not be limited to: incompetence,
insubordination, misconduct, poor attendance, breach of any representation and
warranty set forth in the Termination Agreement by and between Consultant and
CSI dated December 30, 1999, conviction of a crime that: (a) has a direct or
indirect financial impact on CSI's business, (b) interferes with the
relationship with any customer, supplier, or other party with which CSI does
business, or (c) may cause embarrassment or bring negative publicity to CSI;
misfeasance, malfeasance, or otherwise failing to adhere to those standards of
job performance established from time to time by CSI (in the exercise of its
reasonable discretion and business judgment). In the event that Consultant (a)
neglects or poorly performs the duties assigned to Consultant by CSI, or (b) has
poor work attendance, CSI shall first advise Consultant, in writing, of
Consultant's actions or omissions, which CSI believes constitutes just cause.
Thereafter, CSI shall extend to Consultant a reasonable period of time, as
determined in the sole and uncontrolled discretion of CSI, in which Consultant
shall be afforded an opportunity to cure same. In the event that Consultant
fails to timely cure his performance to the reasonable satisfaction of CSI
within the time period set forth in such notice, then CSI may terminate
Consultant's services hereunder. Except for the notice requirement explicitly
referenced in the preceding three (3) sentences, no notice or cure period shall
be required with respect to any other basis for just cause termination
hereunder.
5. Consideration. In consideration for the services and other
-------------
covenants to be performed by Consultant pursuant to this Agreement, CSI shall
pay Consultant a yearly consulting fee in the amount of One Hundred Twenty
Thousand and 00/100 ($120,000.00) Dollars payable bi-weekly in equal
installments. Provided, however, that if Consultant shall perform more than One
Thousand Three Hundred (1,300) hours of services during the initial term hereof,
Consultant shall be compensated at the rate of One Hundred and 00/100 ($100.00)
Dollars per hour for services provided in excess of 1,300 hours during such
initial term. CSI shall reimburse the Consultant for all travel and other
related expenses which are reasonably necessary for Consultant to incur while
providing services to CSI under this Agreement and which have been approved in
advance by an authorized representative of CSI. Consultant shall submit accurate
invoices for all services rendered and all duly authorized expenses which have
been incurred. CSI shall pay the amounts due thereunder within thirty (30) days
of the receipt of such invoices and any reasonably requested back up therefor.
6. Medical Insurance. During the term hereof and only to the
----------------------------------------------------------
extent allowable under the medical insurance plan from time to time covering
- ---------------------------------------------------------------------------
CSI's employees ("Medical Plan"), CSI hereby agrees to provide medical
- -------------------------------
insurance benefits to Consultant upon the terms and conditions set forth in the
Medical Plan from time to time. Upon the expiration or termination of this
Agreement, or the inability of CSI to provide medical insurance coverage,
Consultant will be eligible for COBRA benefits as allowed pursuant to applicable
law. In the event that during the term of this Agreement, CSI is unable to
reasonably provide the medical insurance benefits to Consultant and the medical
Plan from time to time in existence, then CSI shall pay to Consultant, on a
monthly basis, an amount equal to the cost of his COBRA benefits, as allowed
pursuant to applicable law, plus an amount equal to the income tax payable by
Consultant which is attributable
2
<PAGE>
to the inclusion of such Cobra benefits' amount in Consultant's gross income.
7. Confidential Information.
-------------------------
A. CSI Information. Consultant agrees at all times during the term
---------------
hereof and thereafter, to hold in strictest confidence, and not to use, except
for the benefit of CSI, or to disclose to any person, firm or corporation
without written authorization of CSI, the Confidential Information of CSI.
Consultant understands that "Confidential Information" means any CSI proprietary
information, technical data, trade secrets or know-how, including, but not
limited to, research, product plans, marketing plans, products, services,
customer lists and customers (including, but not limited to, customers of CSI on
whom Consultant may call or with whom Consultant becomes more acquainted during
the term of this Agreement or has become acquainted during any prior period in
which he performed services for CSI), software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, marketing, financial or other business information
disclosed to Consultant by CSI either directly or indirectly in writing,
electronically, orally or by drawings or observation of parts or equipment prior
to or after the commencement of this Agreement.
In light of the highly competitive nature of the industry in which CSI
conducts its business, Consultant agrees that all Confidential Information
heretofore or in the future obtained by the Consultant as a result of the
Consultant's association with CSI shall be considered confidential. In
recognition of this fact, the Consultant agrees that he will not, except in the
performance of his duties under this Agreement or except as otherwise provided
===============================
herein, during and after the execution of this Agreement, disclose any of such
======
Confidential Information to any person or entity for any reason or purpose
whatsoever and he will not make use of any Confidential Information for his own
purposes or for the benefit of any person or entity (except CSI) under any
circumstances. The provisions contained in this paragraph shall also apply to
information obtained by Consultant with respect to any subsidiary of or company
otherwise affiliated with CSI.
In the event that Consultant is requested or required (by oral questions,
interrogatories, requests for information or documents, subpoena, civil
investigative demand, any informal or formal investigation by any government or
governmental agency or authority or otherwise) to disclose any of the
Confidential Information, Consultant will notify CSI promptly in writing so that
CSI may seek a protective order or other appropriate remedy or, in CSI's sole
discretion, waive compliance with the terms of this Agreement. Consultant agrees
not to oppose any action by CSI to obtain a protective order or other
appropriate remedy. In the event that no such protective order or other remedy
is obtained, or that CSI waives compliance with the terms of this agreement,
Consultant will furnish only that portion of the Confidential Information which
Consultant is advised in writing by counsel that he is legally required to
furnish and will exercise his reasonable best efforts, at CSI's expense, to
obtain reliable assurance that confidential treatment will be accorded to the
Confidential Information.
B. Former Employer Information. Consultant agrees not to
---------------------------
improperly use or disclose any proprietary information or trade secrets of any
former or concurrent employer or other person or entity or trade secrets of any
former or concurrent employer or other person or
3
<PAGE>
entity, and Consultant will not bring on the premises of the CSI any unpublished
document or proprietary information belonging to any such employer, person or
entity unless consented to in writing by such employer, person or entity.
C. Third Party Information. Consultant recognizes that CSI has
------------------------
received and in the future will receive from third parties their confidential or
proprietary information (such as, but not limited to, Member information and
software programs provided by license) subject to a duty on CSI's part to
maintain the confidentiality of such information and to use it only for certain
limited purposes. Consultant agrees to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to any person,
firm or corporation or to use it except as necessary in carrying out Consultant
work for CSI consistent with CSI's agreement with such third party. Consultant
agrees to comply with CSI's policies and procedures, as applicable from time to
time with respect to such information.
D. Competing Business. In order to further protect the
------------------
confidentiality of the Confidential Information and in recognition of the highly
competitive nature of the industries in which CSI conducts its business, and for
the consideration set forth in Sections 5 and 6 herein, Consultant further
agrees as follows:
(i) for the period commencing on the date hereof and ending on the
second anniversary of the effective date of Termination of this
Consulting Agreement (as hereinafter defined) (the "Preservation
Period"), Consultant will not, directly or indirectly engage in any
Business Activities (as hereinafter defined), other than on behalf of
CSI, whether such engagement is as an officer, director, proprietor,
employee, partner, investor (other than as a holder of less than 3% of
the outstanding capital stock of a publicly traded corporation),
consultant, advisor, agent or otherwise, in any geographic area in
which the products or services of CSI have been distributed or
provided by CSI during the period commencing two years prior to the
date hereof and ending on the effective date of Termination of this
Consulting Agreement.
As used in this Agreement: "Business Activities" shall mean the
providing of marketing services directly to consumers over the
Internet, including but not limited to, the distribution of coupons,
saving notices, gift certificates and other promotional incentives;
and "Termination of this Consulting Agreement" shall mean: (x) the
expiration of this Consulting Agreement; or (y) any termination of
this Consulting Agreement in accordance with the terms of this
Consulting Agreement, prior to the expiration of the term then in
effect under this Consulting Agreement, by either Consultant or CSI;
whichever occurs first.
(ii) Consultant will not, during the Preservation Period, directly or
indirectly engage in any activities, provide any services or supply
any products (other than on behalf of CSI) which would constitute
Business Activities to any company or customer with whom CSI has done
any business during the period commencing two years prior to the date
hereof and ending on the effective date of Termination of this
Consulting Agreement, whether as an officer, director, proprietor,
4
<PAGE>
employee, partner, investor (other than as a holder of less than 3% of
the outstanding capital stock of a publicly traded corporation),
consultant, advisor, agent or otherwise.
(iii) Consultant will not, during the Preservation Period, directly
or indirectly assist others in engaging in any of the Business
Activities in the manner prohibited to Consultant.
(iv) Consultant will not, during the Preservation Period, directly
or indirectly induce employees of CSI or any of its subsidiaries to
engage in any activities hereby prohibited to CSI or to terminate
their employment.
It is expressly understood and agreed that although Consultant and CSI
consider the restrictions contained in each of clauses (i) through (iv)
above to be reasonable for the purpose of preserving the goodwill,
proprietary rights and going concern value of CSI, if a final judicial
determination is made by a court having jurisdiction that the time or
territory or any other restriction contained in this Section 7 is an
unenforceable restriction on the activities of Consultant, the provisions
of this Section 7 shall not be rendered void but shall be deemed amended to
apply as to such maximum time and territory and to such other extent as
such court may judicially determine or indicate to be reasonable.
Alternatively, if the court referred to above finds that any restriction
contained in this Section 7 of this Agreement is unenforceable, and such
restriction or remedy cannot be amended so as to make it enforceable, such
finding shall not affect the enforceability of any of the other
restrictions contained therein or the availability of any other remedy.
8. Inventions
----------
A. This Section 8 does not apply to an invention for which no equipment,
----------------------------------------------------------------------
supplies, facility or trade secret of CSI was used and which was developed
- --------------------------------------------------------------------------
entirely on Consultant's own time, and (1) which does not relate (a) to the
- ---------------------------------------------------------------------------
business of CSI or (b) to CSI's actual or demonstrably anticipated research or
- ------------------------------------------------------------------------------
development, or (2) which does not result from any work performed by Consultant
- -------------------------------------------------------------------------------
for CSI.
- --------
B. Consultant agrees to fully and promptly disclose to CSI all Inventions
(the word "Inventions", as used in this Agreement, shall include Inventions,
discoveries, improvements, ideas, conceptions, developments and designs, whether
or not patentable, tested, reduced to practice, subject to copyright or other
rights or forms of protection, or relating to data processing communications,
computer software systems, programs and procedures) which Consultant may make,
conceive, discover, develop or reduce to practice, either solely or jointly with
others, during the term of this Agreement or during any prior period in which
Consultant performed services for or on behalf of CSI, whether or not during
usual working hours, which relate to, result from or are suggested by any
activities of CSI which Consultant is exposed to or any work Consultant may do
or have done for CSI. Consultant agrees that all such Inventions shall be and
remain the sole and exclusive property of CSI, and Consultant agrees to assign,
and hereby assigns, all Consultant's right, title and interest in and to any
such Inventions to CSI.
5
<PAGE>
C. Consultant agrees to fully and promptly disclose to CSI, in
confidence, all Inventions which Consultant may make, conceive, discover,
develop or reduce to practice, either solely or jointly with others, during the
term hereof, whether or not during usual working hours, for review by CSI to
determine whether such Inventions are subject to Section 7.B. hereof.
D. Consultant agrees to fully and promptly disclose and offer to CSI all
Inventions which Consultant may make, conceive, discover, develop or reduce to
practice, either solely or jointly with others, within one (1) year after the
last date that Consultant performs services for or on behalf of CSI, which
relate to, result from, are suggested by or based on (a) confidential
information of CSI to which Consultant had access during the term hereof, or (b)
activities of CSI to which Consultant was exposed or work Consultant did for
CSI. At the request of CSI, Consultant agrees to assign to CSI, Consultant's
entire right, title and interest in and to such Inventions and agrees to execute
and deliver all documents as CSI shall deem necessary and desirable to obtain
Letters Patent, Utility Models, Inventor's Certificates, Copyrights or other
appropriate legal rights of the United States and foreign countries as CSI may,
in its sole discretion, elect and to vest title thereto in CSI, its successor,
assignees or nominees.
E. Consultant agrees to assist CSI, or its designee, at CSI's expense in
every proper way to secure CSI's rights in the Inventions and any copyrights,
patents or other intellectual property rights relating thereto in any and all
countries, including the disclosure to CSI of all pertinent information and data
with respect thereto, the execution of all applications, specifications, oaths,
assignments and all other instruments (including, but not limited to Letters
Patent, Utility Models, Inventor's Certificates, Copyrights, Trademarks, etc.),
which CSI shall deem necessary in order to apply for and obtain such rights and
in order to assign and convey to CSI, its successors, assigns and nominees, the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. Consultant agrees that the obligations to execute or cause to
be executed, when it is in Consultant's power to do so, and such instrument or
papers shall continue after the expiration or termination of this Agreement. If
CSI is unable to secure Consultant's signature due to mental or physical
incapacity or if Consultant is otherwise unavailable or unable to sign or to
apply for or pursue any Inventions or original works of authorship assigned to
CSI as above, then Consultant hereby irrevocably designates and appoints CSI and
its duly authorized officers and agents as Consultant's agent and attorney in
fact, to act for and in Consultant's behalf and stead to execute and file any
such applications and to do all other lawfully permitted acts to further the
prosecution and issuance of letter patent or copyright resignations thereon with
the same legal force and effect as if executed by Consultant.
F. This agreement shall not embrace or include Inventions, applications
for and/or Letters Patent owned or controlled by Consultant prior to the date
Consultant first provided services to CSI as an Consultant ("Prior Inventions"),
all of which, if any, are fully identified on Exhibit "A" attached hereto, and
if no Exhibit "A" is attached, Consultant represents that there are no Prior
Inventions. If Consultant shall incorporate a Prior Invention into any CSI
software, product, process or machine, Consultant hereby grants to CSI a non-
exclusive, royalty free, irrevocable, perpetual, worldwide license to make, have
made, modify, use and sell such Prior Invention as part of or in connection with
such CSI software, product, process or machine.
6
<PAGE>
Consultant represents that Consultant is under no disability and has no
undisclosed obligation by reason of prior employment or otherwise, which might
in any way affect his ability to perform all of his obligations under this
agreement.
9. Returning Company Documents. Consultant agrees that, at such
---------------------------
time as Consultant is no longer providing services to CSI, or at the expiration
of this Agreement, whichever shall first occur, Consultant will deliver to CSI
(and will not keep in possession, recreate or deliver to anyone else) any and
all devices, records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings, blueprints, sketches, materials, equipment, other
documents or property, or reproductions of any aforementioned items developed by
Consultant pursuant to this Agreement or otherwise belonging to CSI, its
successors or assignees.
10. Solicitation of Employees. Consultant agrees that during the
-------------------------
period that Consultant is performing services for CSI, and for a period of
twelve (12) months immediately thereafter, Consultant shall not induce or
influence, or seek thereto, any person who is engaged as an employee, agent,
Consultant, or otherwise by CSI to terminate his or her engagement with CSI or
to engage or otherwise participate in business activity directly or indirectly
competitive with CSI's business.
11. Relief. Consultant agrees that it would be impossible or
------
inadequate to measure and calculate CSI's damages from any breach of the
covenants set forth in Sections 7, 8 and 9 herein. Accordingly, Consultant
agrees that upon breach of any of such Sections, CSI will have available, in
addition to any other right or remedy available, the right to obtain an
injunction from a court of competent jurisdiction restraining such breach of
threatened breach and to specific performance of any such provision of this
Agreement. Consultant further agrees that no bond or other surety shall be
required to obtain such relief and Consultant hereby consents to the issuance of
such injunction and to any order of specific performance.
12. Severability. If any provision of this Agreement is held
------------
invalid by any tribunal in a final decision from which no appeal is or can be
taken, such provision shall be deemed modified to eliminate the invalid element,
and, as so modified, such provision shall be deemed a part of this Agreement. If
it is not possible to modify any such provision to eliminate the invalid
element, such provision shall be deemed eliminated from this Agreement. The
invalidity of any provision of this Agreement shall not affect the force and
effect of the remaining provisions.
13. Captions. The captions or headings in this Agreement are for
--------
convenience only and in no way define, limit or describe the scope or intent of
any provisions or sections of this Agreement and the same shall not be deemed or
construed to affect the meaning or interpretation of this Agreement.
14. Notices. Except as may otherwise be provided in this Agreement,
-------
any notices required by or submitted in connection with the terms and conditions
of this Agreement shall be in writing and be deemed effective upon the first to
occur of: actual receipt; confirmation of facsimile transmission; or three (3)
days after deposit in the U.S. mail, certified mail, return receipt requested,
and addressed as follows:
7
<PAGE>
CSI: Consultant:
8755 West Higgins Road Hillel Levin
Suite 100 824 Park Avenue
Chicago, Illinois 60631 River Forest, Illinois 60305
Any party hereto may change its address for the purposes of this paragraph by
tendering notice of such change of address to the other party in the manner
herein provided for giving notice.
15. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Illinois. Consultant
expressly consents to the personal jurisdiction of the state and federal courts
located in the State of Illinois for any lawsuit filed there by CSI arising from
or relating to this Agreement.
16. Execution of Documents. Each of the parties hereto shall use
----------------------
its best efforts and take any and all action reasonably necessary, including,
but not limited to, upon request of the other, execution of any and all
documents necessary, to effectuate the intent and provisions of this Agreement.
17. Amendments and Modifications. This Agreement may not be amended,
----------------------------
changed, modified or altered except in writing signed by both of the parties
hereto, nor may any rights of either of the parties be waived except in writing
signed by Consultant and the President or Chairman of CSI.
18. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto and shall be deemed to supersede and cancel
any other agreements between the parties relating to the transactions herein
contemplated. None of the prior and/or contemporaneous negotiations, preliminary
drafts, or prior versions of this Agreement leading up to its execution and not
set forth herein shall be construed to, or otherwise affect the validity of this
Agreement. Each party acknowledges that no representation, inducement or
condition not set forth herein has been made or relied upon by either party.
19. Draftsmanship. Each of the parties hereto has been represented
-------------
by counsel in negotiating this Agreement, and the parties agree that there shall
be no presumption favoring or burdening any one or more parties hereto based
upon draftsmanship. Whenever necessary in this agreement the context would
permit, the singular term and the related pronoun shall include the plural, the
masculine and the feminine terms.
20. Assignment. This Agreement is for the personal services of
----------
Hillel Levin only, and not for any other individual or entity or of any other
entity which currently employs, or has employed, Hillel Levin. As such, this
Agreement is not assignable by Consultant under any circumstances whatsoever and
Consultant hereby agrees that this restriction is reasonable in view of the
special nature of the services to be performed by him (including but not limited
to, the existence and use of his business contacts).
8
<PAGE>
21. Successors. This Agreement shall be binding upon and the
----------
benefits thereof, shall inure to the parties hereto and their respective legal
representatives, heirs, successors, and assigns.
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement on the day and year above set forth.
Witnesses: "CSI"
coolsavings.com inc., a Michigan corporation
By: /s/ Steven M. Golden
_____________________________ ____________________________________
Its: CEO
_____________________________ ___________________________________
"CONSULTANT"
By:/s/ Hillel Levin
_____________________________ ____________________________________
Hillel Levin
_____________________________
9
<PAGE>
EXHIBIT "A"
-----------
Except as listed below, Consultant certifies that there are no Prior
Inventions (as such term is defined in the Independent Contractor Agreement):
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
CONSULTANT
By: /s/ Hillel Levin
__________________________
Hillel Levin
Dated: December 30, 1999
10
<PAGE>
Exhibit 10.11
================================================================================
LEASE AGREEMENT
BETWEEN
360 NORTH MICHIGAN TRUST, A DELAWARE BUSINESS TRUST,
AS LANDLORD,
AND
COOLSAVINGS.COM INC.,
A MICHIGAN CORPORATION,
AS TENANT
DATED: JANUARY 3, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
LEASE INFORMATION SUMMARY ............................................................. iv
1. LEASE GRANT ........................................................................ 1
2. TERM ............................................................................... 1
2.1. Commencement Date ............................................................. 1
2.2. Condition of Premises ......................................................... 1
2.3. INTENTIONALLY DELETED ......................................................... 1
3. RENT ............................................................................... 1
3.1. Base Rent ..................................................................... 1
3.2. Additional Rent ............................................................... 1
3.3. Payment ....................................................................... 4
3.4. Rent Abatement ................................................................ 5
4. SECURITY DEPOSIT ................................................................... 5
4.1. Cash .......................................................................... 5
4.2. Letter of Credit .............................................................. 5
4.3. INTENTIONALLY DELETED ......................................................... 6
5. LANDLORD'S OBLIGATIONS ............................................................. 6
5.1. Services ...................................................................... 6
5.2. Utilities ..................................................................... 7
5.3. Excess Utility Use ............................................................ 7
5.4. Restoration of Services ....................................................... 8
6. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE .................................... 8
6.1. Improvements; Alterations ..................................................... 8
6.2. Repairs and Maintenance ....................................................... 9
6.3. Performance of Work ........................................................... 9
6.4. Mechanic's Liens .............................................................. 9
6.5. Rooftop Communications Equipment .............................................. 10
6.6. Construction of Roof Deck ..................................................... 10
6.7. Installation of Electrical Generator(s) ....................................... 10
7. USE ................................................................................ 11
8. ASSIGNMENT AND SUBLETTING .......................................................... 11
8.1. Transfers; Consent ............................................................ 11
8.2. Recapture ..................................................................... 13
8.3. Additional Compensation ....................................................... 13
9. INSURANCE; WAIVERS; SUBROGATION; INDEMNITY ......................................... 13
9.1. Insurance ..................................................................... 13
9.2. Waiver of Negligence; No Subrogation .......................................... 14
9.3. Indemnity by Tenant ........................................................... 14
9.4. Indemnity by Landlord ......................................................... 15
10. SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE ......................... 15
10.1. Subordination ............................................................... 15
10.2. Attornment .................................................................. 15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
10.3. Notice to Landlord's Mortgagee .............................................. 15
11. RULES AND REGULATIONS ............................................................. 15
12. CONDEMNATION ...................................................................... 16
12.1. Total Taking ................................................................ 16
12.2. Partial Taking -- Tenant's Rights ........................................... 16
12.3. Partial Taking -- Landlord's Rights ......................................... 16
12.4. Award ....................................................................... 16
13. FIRE OR OTHER CASUALTY ............................................................. 17
13.1. Landlord's Rights ............................................................ 17
13.2. Repair Obligation ............................................................ 17
14. PERSONAL PROPERTY TAXES ............................................................ 17
15. DEFAULT ............................................................................ 18
15.1. Events of Default ............................................................ 18
15.2. Default Interest ............................................................. 19
16. REMEDIES ........................................................................... 19
16.1. Right To Terminate ........................................................... 19
16.2. Receipt Of Money After Termination ........................................... 19
16.3. Recovery Of Damages .......................................................... 19
16.4. Right To Re-Enter ............................................................ 19
16.5. Independent Covenant ......................................................... 20
16.6. Legal Expenses ............................................................... 20
17. PAYMENT BY TENANT; NON-WAIVER ...................................................... 20
17.1. Payment by Tenant ............................................................ 20
17.2. No Waiver .................................................................... 21
18. SURRENDER OF PREMISES .............................................................. 21
19. HOLDING OVER ....................................................................... 21
20. CERTAIN RIGHTS RESERVED BY LANDLORD ................................................ 22
21. MISCELLANEOUS ...................................................................... 23
21.1. Landlord Transfer ............................................................ 23
21.2. Landlord's Liability ......................................................... 24
21.3. Force Majeure ................................................................ 24
21.4. Brokerage .................................................................... 24
21.5. Estoppel Certificates ........................................................ 24
21.6. Notices ...................................................................... 25
21.7. Severability ................................................................. 25
21.8. Amendments; and Binding Effect ............................................... 25
21.9. Quiet Enjoyment .............................................................. 25
21.10. No Merger ................................................................... 25
21.11. No Offer .................................................................... 26
21.12. Entire Agreement ............................................................ 26
21.13. Calendar Days ............................................................... 26
21.14. Prohibition Against Leasehold Mortgages ..................................... 26
21.15. Waiver of Trial by Jury ..................................................... 26
21.16. Landlord's Remedies Cumulative .............................................. 26
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
21.17. Prohibition Against Recordation ............................. 27
21.18. Joint and Several Liability ................................. 27
21.19. Corporate Tenants ........................................... 27
21.20. Right of First Offer ........................................ 27
21.21. Right of First Refusal ...................................... 28
21.22. Option To Renew ............................................. 29
21.23. Tenant's First Expansion Option ............................. 29
21.24. Tenant's Second Expansion Option ............................ 30
21.25. Tenant's Third Expansion Option ............................. 31
21.26. Arbitration ................................................. 32
21.27. Tenant's Termination Right .................................. 33
</TABLE>
EXHIBIT A - OUTLINE OF PREMISES
EXHIBIT B - BUILDING RULES AND REGULATIONS
EXHIBIT C - LETTER OF CREDIT
EXHIBIT D - ESTOPPEL CERTIFICATE
EXHIBIT E - INTENTIONALLY DELETED
EXHIBIT F - WORKLETTER
EXHIBIT G - CERTIFICATE OF COMMENCEMENT DATE
EXHIBIT H - LANDLORD'S BASE BUILDING WORK
EXHIBIT I - SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
EXHIBIT J - SIGNAGE
iii
<PAGE>
LEASE INFORMATION SUMMARY
-------------------------
I. LEASE DATE January 3, 2000
----------
II PARTIES AND ADDRESSES
----------------------
A. Landlord: 360 North Michigan Trust, a Delaware business
trust
B. Landlord's Address for c/o Douglas Elliman-Beitler Management
Notices: Corporation
360 North Michigan Avenue
Chicago, Illinois 60601
Attention: General Manager
With copies to:
Mr. J. Paul Beitler
181 West Madison Street
Suite 3900
Chicago, Illinois 60602
And to:
Emmet, Marvin & Martin, LLP
120 Broadway
New York, New York 10271
Attention: Patrick A. McCartney, Esq.
And to:
Much Shelist Freed Denenberg Ament &
Rubenstein, P.C.
200 North LaSalle Street
Suite 2100
Chicago, Illinois 60601
Attention: Michael B. Sadoff, Esq.
C. Tenant: coolsavings.com inc., a Michigan corporation
D. Tenant's Address for 8755 West Higgins Road
Notices Prior to the Suite 100
Commencement Date: Chicago, Illinois 60631
Attention: President
With a copy to:
Golden & Gorman, P.C.
255 East Brown Street
Suite 110
Birmingham, Michigan 48009
Attention: Robert D. Gorman, Esq.
iv
<PAGE>
E. Tenant's Address for 360 North Michigan Avenue
Notices After the Suite 1800
Commencement Date: Chicago, Illinois 60601
Attention: President
With a copy to:
Golden & Gorman, P.C.
Suite 110
Birmingham, Michigan 48009
Attention: Robert D. Gorman, Esq.
F. Guarantor: None
III. PROPERTY INFORMATION
--------------------
A. Building: 360 North Michigan Avenue, Chicago, Illinois
60601, including all related land, landscaped
areas, driveways, parking facilities and
similar improvements to the extent applicable
B. Premises: Suite No. 1800 in the Building comprising
approximately forty-three thousand eight
hundred forty-nine (43,849) rentable square
feet on the 8/th/, 18/th/, 19/th/ and 21/st/
floors (Section 1)
IV. TERM
----
A. Term of Lease: Ten (10) years beginning on the Commencement
Date and ending on the Termination Date;
provided, however, if the Commencement Date
occurs on any date which is not the first day
of a calendar month, then the Term shall be
increased to ten (10) years plus a partial
month beginning on the Commencement Date
through and including the last day of the
calendar month in which the Commencement Date
occurs (Section 2)
B. Commencement Date: The later of (i) May 1, 2000, or (ii) seven
(7) days after Landlord notifies Tenant that
Landlord has substantially completed the
Premises, provided that if the Premises are
not substantially completed as defined in the
Workletter on or before August 1, 2000 for
any reason due to the fault of Landlord, then
Base Rent will abate until the Premises are
substantially completed, and once the Term
commences, Tenant will receive one (1) day of
free rent for each day after August 1, 1999
that the Premises were not substantially
completed (Section 2)
v
<PAGE>
C. Termination Date: The date preceding the tenth (10th)
anniversary of the Commencement Date, unless
the Commencement Date occurs on any date
which is not the first day of a calendar
month, in which event the Termination Date
shall be the last day of the calendar month
in which the tenth (10/th/) anniversary of
the Commencement Date falls, subject to
Tenant's right to extend the Term as set
forth in Section 21.22 of this Lease
(Section 2)
V. RENT
----
A. Base Rent: No Rent shall be due from Tenant during the
first month of the first lease year;
$24.85 per square foot, subject to $0.50 per
square foot annual escalations commencing in
the second lease year;
$1,089,647.60 per year ($90,803.97 per month;
$24.85 per sq. ft.) during the first lease
year;$1,111,572.10 per year ($92,631.01 per
month; $25.35 per sq. ft.) during the second
lease year;$1,133,496.60 per year ($94,458.05
per month; $25.85 per sq. ft.) during the
third lease year;$1,155,421.10 per year
($96,285.09 per month; $26.35 per sq. ft.)
during the fourth lease year; $1,177,345.60
per year ($98,112.13 per month; $26.85 per
sq. ft.) during the fifth lease
year;$1,199,270.10 per year ($99,939.18 per
month; $27.35 per sq. ft.) during the sixth
lease year;$1,221,194.60 per year
($101,766.21 per month; $27.85 per sq. ft.)
during the seventh lease year;$1,243,119.10
per year ($103,593.25 per month; $28.35 per
sq. ft.) during the eighth lease
year;$1,265,043.60 per year ($105,420.30 per
month; $28.85 per sq. ft.) during the ninth
lease year; and$1,286,968.10 per year
($107,247.34 per month; $29.35 per sq. ft.)
during the tenth lease year (Section 3.1)
B. Landlord's Address for Douglas Elliman-Beitler Management
Payment of Rent: Corporation A/A/F 360 North Michigan Trust
7516 Collections Center Drive Chicago,
Illinois 60693 (Sections 3.1 and 3.3)
C. Tenant's Proportionate sixteen and eighty-one one-hundredths percent
Share: (16.81%), which equals the percentage that
the rentable square footage of the Premises
(which is stipulated by the parties to be
43,849 square feet) bears to the total square
footage of all rentable office space in the
Building (which is stipulated by the parties
to be 260,823 square feet) (Section 3.2)
D. Base Year: 2001 (Section 3.2)
E. Operating Costs Tenant's Proportionate Share of the amount by
which
vi
<PAGE>
Adjustment: the Operating Costs incurred during any
calendar year during the Term exceed the
Operating Costs incurred during the Base
Year. (Section 3.2)
F. Tax Adjustment: Tenant's Proportionate Share of the amounts
by which the Taxes paid during any calendar
year of the Term exceed the Taxes paid during
the Base Year (Section 3.2)
VI. OTHER PROVISIONS
----------------
A. Security Deposit: Zero until the earlier of (i) the end of the
fifth (5/th/) lease year, or (ii) the date
the Letter of Credit described below is no
longer required by Landlord; $272,411.91 on
the earlier of (a) the first day of the sixth
(6/th/) lease year, or (b) the date the
Letter of Credit described below is no longer
required by Landlord, and continuing through
the Termination Date (Section 4.1); and
Letter of Credit in the following amounts:
$1,250,000.00 during the first lease year;
$1,250,000.00 during the second lease year;
$ 937,500.00 during the third lease year;
$ 625,000.00 during the fourth lease year;
$ 312,500.00 during the fifth lease year;
and
zero during the sixth (6/th/) through tenth
(10/th/) lease years.
Notwithstanding the foregoing, but subject to
the terms of Sections 21.20, 21.21, 21.23,
21.24, and 21.25 of the Lease, if at any time
during the first five (5) lease years Tenant
becomes a company whose stock is publicly
traded, and if Tenant demonstrates to
Landlord that Tenant has cash or cash
equivalents in an amount not less than
$30,000,000.00, then the amount of the letter
of credit shall be reduced to $500,000.00,
and thereafter the amount of the letter of
credit shall be further reduced by twenty-
five percent (25%) annually. In addition,
provided that within thirty (30) days before
or after the first, second and third
anniversary dates of the date that the amount
of the letter of credit was reduced to
$500,000.00 Tenant demonstrates to Landlord
that Tenant has cash or cash equivalents in
an amount not less than $30,000,00.00, then
the letter of credit will no longer be
required by Landlord, and the only security
deposit which Tenant shall be required to
maintain with Landlord shall be cash in an
amount equal to three (3) months of Rent at
the rental rate then being paid by Tenant
under this Lease (Section 4.2)
B. Electrical Usage Rate: Separately metered (Section 5.2)
vii
<PAGE>
C. Permitted Use: General office and administrative use and for
the operation of a computer internet company
and hosting related equipment (Section 7)
D. Landlord's Broker: Douglas Elliman-Beitler Management
Corporation (Section 21.4)
E. Tenant's Broker: Julien J. Studley, Inc. (Section 21.4)
The summary of lease information set forth above and any addendum and/or
exhibit(s) attached to this Lease are incorporated into and made a part of the
following Lease. Each reference in this Lease to any of the lease information
set forth above means the respective information above, including all of the
terms provided under the particular section of this Lease pertaining to such
information. In the event of any conflict between the summary of lease
information and the provisions of this Lease, the latter will control. All
section references in this summary refer to the sections of the Lease where such
provision is described.
LANDLORD:
---------
360 NORTH MICHIGAN TRUST,
a Delaware business trust
By: DOUGLAS ELLIMAN-BEITLER
MANAGEMENT CORPORATION, an Illinois
corporation, its agent
By /s/ J. Paul Beitler
_____________________________________
Its: President
___________________________________
TENANT:
-------
coolsavings.com inc.,
a Michigan corporation
By /s/ Steven M. Golden
_____________________________________
Its: CEO
___________________________________
viii
<PAGE>
THIS LEASE AGREEMENT (the "Lease") is made and entered into as of the Lease
Date between Landlord and Tenant. All capitalized terms not otherwise defined in
the body of the Lease have the meanings established in the Lease Information
Summary above.
1. LEASE GRANT.
Subject to the terms of this Lease, Landlord leases to Tenant and Tenant
rents from Landlord the Premises in the Building. The Premises are outlined on
the floor plan attached to this Lease as Exhibit A.
---------
2. TERM.
2.1. Commencement Date.
The term of this Lease (the "Term") will commence on the Commencement Date
and will end on the Termination Date, unless earlier terminated in accordance
with the terms of Section 21.27 below. Upon taking occupancy of the Premises,
Tenant agrees to sign the Certificate of Commencement Date attached to this
Lease as Exhibit G confirming the Commencement Date and the Termination Date.
---------
2.2. Condition of Premises.
Tenant's acceptance of possession of any portion of the Premises will be
deemed conclusive evidence that Tenant has approved and accepted that portion of
the Premises in its "AS-IS" condition on the date Tenant accepts possession,
subject to the completion of normal punchlist items. Landlord has no obligation
to make any changes or improvements to the Premises except as set forth in
Section 6.1 below. The cost of any other changes and/or improvements will be
paid for by Tenant.
2.3. INTENTIONALLY DELETED.
3. RENT.
3.1. Base Rent.
Base Rent is payable by Tenant throughout the Term in the amounts and at
the times set forth in the Lease Information Summary above. The first monthly
installment of Base Rent is due and payable contemporaneously with the execution
of this Lease; subsequently, Base Rent is payable no later than the first day of
each month beginning on the second full calendar month of the Term. The monthly
Base Rent for any partial month at the beginning of the Term will equal the
product of 1/365 of the annual Base Rent in effect during the partial month
multiplied by the number of days in the partial month from and after the
Commencement Date.
3.2. Additional Rent.
(a) Payment of Additional Rent. Commencing on January 1/st/ of the
--------------------------
calendar year immediately following the Base Year, Tenant will pay to
Landlord as Additional Rent ("Additional Rent") the Operating Costs
Adjustment and the Tax Adjustment, which will be calculated and determined
by Landlord as set forth below.
(b) Definition - Operating Costs. The term "Operating Costs" means
----------------------------
all expenses and disbursements (subject to the limitations set forth below)
that Landlord incurs in connection with the ownership, operation,
maintenance and management of the Building, determined in accordance with
sound accounting principles consistently
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applied, including, but not limited to, the following costs: (1) wages and
salaries (including management fees and reimbursements of expenses incurred
by Landlord's management agent) of all employees engaged in the operation,
maintenance, and security of the Building, including taxes, insurance and
benefits relating to such costs; (2) all uniforms, supplies, tools and
materials used in the operation, supervision, maintenance, repair,
replacement and security of the Building; (3) costs for improvements made
to the Building which, although capital in nature, are reasonably expected
to reduce the normal operating costs of the Building, as well as capital
improvements made in order to comply with any law, statute, ordinance,
code, regulation or insurance requirement(s) promulgated by any
governmental authority and which is enacted or amended after the date of
this Lease, as amortized over the useful economic life of such improvements
as determined by Landlord in its reasonable discretion; (4) cost of all
utilities, except the cost of utilities reimbursable to Landlord by the
Building's tenants; (5) insurance expenses; (6) repairs, replacements, and
general maintenance of the Building, including costs of inspecting and
depreciation of machinery and equipment; (7) service or maintenance
contracts and/or agreements for the operation, maintenance, repair,
replacement, or security of the Building (including, without limitation,
alarm service, window washing, landscaping, elevator maintenance, HVAC
system maintenance, security, cleaning, trash removal, sweeping and snow
removal); (8) legal, accounting, engineering and other professional fees
and expenses relating to managing and maintaining the Building; (9) costs,
including reasonable attorney's fees, incurred in contesting, protesting,
attempting to reduce and/or attempting to restrict increases in taxes; and
(10) all other costs properly constituting operating costs according to
sound accounting principles consistently applied.
(c) Exclusions From Operation Costs. Operating Costs do not include
-------------------------------
costs for (1) capital improvements made to the Building (except capital
improvements described in Section 3.2(b)(3) above; (2) repair, replacements
and general maintenance paid by proceeds of insurance or by Tenant or other
third parties; (3) interest, principal, amortization, costs, fees, expenses
or other payments relating to any loan(s) made to Landlord which is(are)
secured by the Building, except for interest payments made in connection
with Subsection 3.2(b)(3) above; (4) depreciation; (5) real estate
brokerage and/or leasing commissions; and (6) renovations, alterations or
improvements to the space of other tenants or occupants of the Building or
vacant space in the Building; (7) any tenant work performed or alteration
of space leased to Tenant or other tenants or occupants of the Building,
whether such work or alteration is performed for the initial occupancy by
such tenants or occupants or thereafter; (8) any cash or other
consideration paid by Landlord on account of, with respect to or in lieu of
the tenant work or alterations described in clause (7) above; (9) ground
rent; (10) repairs necessitated by the negligence of Landlord or required
to cure violations of laws in effect on the Lease execution date and any
penalties or interest incurred or accumulated for any such violations; (11)
legal fees and costs associated with the negotiating, entering into and or
enforcement of any leases (other than enforcement of rules and
regulations); (12)compensation paid to officers or executives of Landlord;
(13) leasing commissions and advertising and promotional expenses; (14) the
cost of repairs incurred by reason of fire or other casualty or
condemnation to the extent that either (i) Landlord is compensated therefor
through proceeds of insurance or condemnation awards, (ii) Landlord failed
to obtain insurance against such fire or casualty, if insurance was
available at a commercially reasonable rate, against a risk of such nature
at the time of
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same (except to the extent of a commercially reasonable insurance
deductible amount or except to the extent of Landlord's payment up to the
amount of such deductible), or (iii) Landlord is not fully compensated
therefor due to the coinsurance provisions of its insurance policies on
account of Landlord's failure to obtain a sufficient amount of coverage
against such risk (except to the extent of a commercially reasonable
insurance deductible amount or except to the extent of Landlord's payment
up to the amount of such deductible); (15) overtime HVAC costs or
electricity costs if charged separately to Building tenants; (16) the cost
of performing additional services or installation to or for tenants to the
extent that such service exceeds that provided by Landlord to Tenant
without charge hereunder; (17) "takeover expenses" (i.e., expenses incurred
by Landlord with respect to space located in another building of any kind
or nature in connection with the leasing of space in the Building); (18)
any amounts payable by Landlord by way of indemnity or for damages or which
constitute a fine, interest or penalty, including interest or penalties for
any late payments of operating costs; (19) any improvement installed or
work performed or any other cost or expense incurred by Landlord in order
to comply with the requirements for the obtaining or renewal of a
certificate of occupancy for the Building or any space therein; (20) any
cost representing an amount paid for services or materials to a related
person, firm or entity to the extent such amount exceeds the amount that
would be paid for such services or materials at the then existing market
rates to an unrelated person, firm or corporation; (21) expenses
attributable to the parking garage or the storage space, the operating
costs incurred by Landlord relative to retail stores and any specialty
service in the Building; (22) the cost of correcting defects in
construction which occur or of which Landlord becomes aware within one (1)
year of the completion of such construction; and (23) the cost of overtime
or other expenses to Landlord in curing its defaults under this Lease.
(d) Definition - Taxes. The term "Taxes" means all taxes,
------------------
assessments, and governmental charges payable in a calendar year,
regardless when such Taxes become a lien upon the Building, including but
not limited to all real estate and transit district taxes and assessments,
sewer charges, sales and use taxes, ad valorem taxes, personal property
taxes, the Illinois Property Replacement Tax and any other taxes and
assessments attributable to the Building (or its operation), the grounds,
parking areas, driveways, and alleys around the Building, but excluding any
federal and state taxes on the income of Landlord from the operation of the
Building. If the present method of taxation changes so that in lieu of the
whole or any part of any Taxes, there is levied on Landlord a capital tax
directly on the rents received from the Building or a franchise tax,
assessment, or charge based, in whole or in part, upon such rents for the
Building, then all such taxes, assessments, or charges, or the part of such
taxes so based, will be deemed to be included within the term "Taxes" for
purposes of this Lease.
(e) Payment of Additional Rent. Landlord will make a good faith
--------------------------
estimate of the Additional Rent to be due from Tenant for all or part of
any calendar year during the Term, and Tenant agrees to pay to Landlord, on
January 1, 2002 and on the first day of each subsequent calendar month
during the Term, an amount equal to 1/12/th/ of the estimated Additional
Rent for such full or partial calendar year. From time to time, Landlord
may estimate and re-estimate the Additional Rent to be due from Tenant and
deliver a copy of the estimate or re-estimate to Tenant. Subsequently, the
monthly installments of Additional Rent payable by Tenant will be
appropriately adjusted in accordance with Landlord's estimations so that by
the end of the calendar year in question Tenant will have paid all of the
Additional Rent as estimated by Landlord. By
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April 1 of each calendar year, or as soon after that date as practicable,
Landlord will furnish to Tenant a statement of Operating Costs paid for the
previous year, adjusted as provided in Section 3.2(f) below (the "Operating
Costs Statement"). By September 1 of each calendar year, or as soon after
that date as practicable, Landlord will furnish to Tenant a statement of
the Taxes paid for the previous year, adjusted as provided in Section
3.2(f) below (the "Tax Statement"). If the Operating Costs Statement and/or
the Tax Statement reveal(s) that Tenant paid more in Operating Costs
Adjustment or Tax Adjustment than the actual amount for the year for which
such statement was prepared, then Landlord will either credit Tenant for
such excess within thirty (30) days or refund such excess amount to Tenant
if this Lease has expired or been terminated. Likewise, if Tenant paid less
in Operating Costs Adjustment than the actual amount for the year for which
such statement was prepared, then Tenant shall pay such deficiency to
Landlord within ten (10) days after Landlord's demand. This provision will
survive the Termination Date of this Lease.
(f) Occupancy and Tax Adjustment. With respect to any calendar year
----------------------------
or partial calendar year in which the Building is not fully occupied, the
Operating Costs and/or Taxes for such period will, for the purposes of this
Lease, be increased to the amount which would have been incurred had the
Building been fully occupied.
(g) Audit of Books and Records. Landlord shall maintain books and
--------------------------
records with respect to Operating Costs and Taxes in accordance with sound
accounting and management practices. Tenant shall have the right to examine
such books and records showing the Operating Costs and Taxes upon
reasonable prior notice to Landlord and during normal business hours within
sixty (60) days following the delivery of the Operating Costs Statement and
the Tax Statement described in Section 3.2(e) above. Unless Tenant takes
written exception to any item of Operating Costs or Taxes and specifies to
Landlord in detail the reasons for such exception as to a particular item
within sixty (60) days after the delivery of the Operating Costs Statement
and the Tax Statement, the Operating Costs Statement and the Tax Statement
shall be considered as final and accepted by Tenant. Notwithstanding any
exception made by Tenant, Tenant shall pay to Landlord the full amount of
the Operating Costs Adjustment and the Tax Adjustment, subject to
readjustment at such time as any such exception may be resolved. If Tenant
takes exception to the Operating Costs Adjustment and/or the Tax Adjustment
and so notifies Landlord in writing prior to the expiration of said sixty
(60) day period, then Landlord will seek certification from Landlord's
independent certified public accountant or consultant as to the proper
amount of the Operating Costs Adjustment and/or the Tax Adjustment. In such
event, the certification obtained by Landlord shall be considered final and
binding on both Landlord and Tenant and Tenant shall reimburse Landlord
immediately upon demand for the cost of obtaining such certification,
unless the certification reveals that the Operating Costs Adjustment and/or
the Tax Adjustment were overstated by at least five percent (5%), in which
event the cost of obtaining such certification shall be borne by Landlord.
3.3. Payment.
Tenant agrees to timely pay to Landlord during the Term Base Rent,
Additional Rent and all additional sums to be paid by Tenant to Landlord under
this Lease (collectively the "Rent"), without notice, demand, abatement,
deduction, setoff or counterclaim, at Landlord's Address for Payment of Rent or
as otherwise specified by Landlord. Tenant further agrees to pay a late fee
equal to two percent (2%) of any delinquent payment which is more than five (5)
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days late to reimburse Landlord for its cost and inconvenience incurred as a
consequence of Tenant's delinquency. In no event, however, will the charges
permitted under this Section 3.3 or elsewhere in this Lease, to the extent they
are considered to be interest under law, exceed the maximum lawful rate of
interest.
3.4. Rent Abatement.
In the event any of the Base Building Work described on Exhibit H attached
---------
hereto which Landlord is required to perform under this Lease is not
substantially completed on or before the end of the first lease year of the Term
for any reason other than force majeure or a delay caused by Tenant, then the
Base Rent due from Tenant beginning in the second lease year shall remain equal
to the Base Rent owed by Tenant hereunder during the first lease year, and there
will be no escalation of Base Rent until said items are substantially completed.
Tenant acknowledges that it shall have no other remedy against Landlord relating
to or resulting from any delay(s) in the substantial completion of said items
unless the Base Building Work described in Exhibit H is not completed on or
---------
before December 31, 2000, in which event Tenant may bring an action for specific
performance to enforce the terms of this Lease.
4. SECURITY DEPOSIT.
4.1. Cash.
Tenant shall pay, in cash, simultaneously with the execution of this Lease,
the amount of the Security Deposit which will be held by Landlord to secure
Tenant's performance of its obligations under this Lease. Landlord will have no
obligation to pay any interest on the Security Deposit to Tenant. The Security
Deposit is not an advance payment of Rent nor a measure or limit of Landlord's
damages upon an Event of Default (as defined in Section 15 below). Landlord may,
from time to time and without prejudice to any other remedy, use all or a part
of the Security Deposit to perform any obligation Tenant fails to perform under
this Lease. Following any such application of the Security Deposit, Tenant
agrees to pay to Landlord on demand the amount so applied in order to restore
the Security Deposit to its original amount. Provided that Tenant has performed
all of its obligations under this Lease, Landlord will, within thirty (30) days
after the end of the Term, return to Tenant the portion of the Security Deposit
which was not applied to satisfy Tenant's obligations. If Landlord transfers its
interest in the Premises and the transferee assumes Landlord's obligations under
this Lease, then Landlord will deliver or credit the Security Deposit to the
transferee and Landlord subsequently will have no further liability for the
return of the Security Deposit.
4.2. Letter of Credit.
At any time prior to the end of the fifth (5/th/) lease year of the Term,
upon notice from Landlord to Tenant that Landlord is prepared to enter into a
contract with its general contractor to perform the "Work" (as defined in the
Workletter), Tenant shall promptly deliver to Landlord a letter of credit (the
"Letter of Credit") in the applicable amounts and for the time periods set forth
in Article VI of the Lease Information Summary above as security for the prompt,
full and faithful performance by Tenant of the terms and provisions of this
Lease, subject to the following provisions:
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(a) Form and Issuer. The Letter of Credit must be a clean,
---------------
unconditional, stand-by, irrevocable Letter of Credit in favor of Landlord in
substantially the form attached as Exhibit C, issued by a federally insured
---------
national banking association located in Chicago, Illinois which is acceptable to
Landlord in all respects.
(b) Expiration; Extension or Replacement. The Letter of Credit must:
------------------------------------
(i) have an expiration date no earlier than the Termination Date of this Lease,
or (ii) be renewed annually through the Termination Date, in which event Tenant
must submit to Landlord original amendments extending the Letter of Credit
expiration date (or replacement Letters of Credit with extended expiration
dates), on an annual basis no later than thirty (30) days prior to the
expiration date of the Letter of Credit then in effect. Failure to so extend the
expiration date of the Letter of Credit in the foregoing manner will, in
addition to all of Landlord's other remedies, entitle Landlord to draw down the
Letter of Credit without notice to Tenant and to hold or apply the proceeds as
provided in this Lease.
(c) Draws. If Tenant violates this Lease, Landlord, without notice
-----
to Tenant, may but is not obligated to draw down on the Letter of Credit in an
amount equal to the extent of the default by Tenant and apply the proceeds to
the payment of any sum owing or any other sum which Landlord may be required or
deems necessary to spend or incur by reason of such violation. Following any
such application of the Security Deposit as described above, Tenant agrees to
provide Landlord with a replacement or amended Letter of Credit or pay to
Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. Provided that Tenant has performed all of its
obligations under this Lease, Landlord will, within thirty (30) days after the
end of the Term, return the Letter of Credit to Tenant. If Landlord transfers
its interest in the Premises and the transferee assumes Landlord's obligations
under this Lease, then Landlord will assign the Security Deposit to the
transferee and Landlord subsequently will have no further liability for the
return of the Letter of Credit.
4.3. INTENTIONALLY DELETED.
5. LANDLORD'S OBLIGATIONS.
5.1. Services.
Landlord will furnish to the Premises (1) water at those points of supply
provided for general use of tenants of the Building; (2) heating and air
conditioning between 8:00 a.m. and 6:00 p.m. on weekdays and from 8:00 a.m. to
1:00 p.m. on Saturdays (collectively "Normal Business Hours"); (3) janitorial
service to the Premises on weekdays, other than holidays, for Building-standard
installations and such window washing as may, from time to time, be reasonably
required; (4) passenger elevators for ingress and egress, provided that Landlord
may reasonably limit the number of operating elevators during non-business hours
and holidays; and (5) electrical current for Tenant's equipment in a sufficient
quantity to meet Tenant's Permitted Use in accordance with the terms of Exhibit
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H attached hereto, provided that Tenant will be responsible for the cost of any
- -
additional electrical requirements beyond the usage contemplated under this
Lease in accordance with Section 5.3 below. At the request of Tenant, Landlord
will perform routine maintenance in the Premises (i.e. changing light bulbs,
repairing door handles, etc.) and upon demand from Landlord, Tenant will
promptly pay to Landlord the cost of such repairs and/or services at rates
determined by Landlord from time to time. Landlord will maintain the common
areas of the Building in reasonably good order and condition, except for damage
caused by Tenant, or its employees, agents or invitees. If Tenant desires any
heating or air conditioning at any time other than during Normal Business Hours,
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then such services will be supplied to Tenant upon the written request of Tenant
delivered to Landlord not less than twenty-four (24) hours prior to the business
day preceding such extra usage, and Tenant, upon demand from Landlord, will pay
Landlord for such services, at rates determined by Landlord from time to time,
which rate is currently Thirty Dollars ($30.00) per hour. Landlord and Tenant
acknowledge that Tenant has access to the Building twenty-four (24) hours a day,
seven (7) days a week.
5.2. Utilities.
Tenant shall pay directly to the provider of electricity to the Premises
the cost of such electricity used or consumed at, on or in the Premises as and
when the charges for the same become due and payable. If Tenant fails to pay for
such electricity when the same becomes due and payable, then Landlord will have
the right but not the duty to pay the same, which amount so paid will be deemed
Rent and will be payable immediately upon demand from Landlord. Tenant agrees to
(i) keep and cause to be kept closed all windows in the Premises, (ii) at all
times cooperate fully with Landlord in the operation of the heating and air
conditioning systems, and (iii) abide by all reasonable regulations and
requirements which Landlord may prescribe to permit the proper functioning and
protection of the heating and air conditioning systems.
5.3. Excess Utility Use.
Landlord is not required to furnish electrical current for equipment whose
electrical energy consumption exceeds Tenant's Permitted Use as set forth on
Tenant's electrical and HVAC plans described in the Workletter, except that
Landlord will provide seven (7) watts per foot on floors 18 and above and five
(5) watts per foot on floors 17 and below. If Tenant's requirements for or
consumption of electricity exceed the electricity to be provided by Landlord as
described in Section 5.1 above, Landlord will, at Tenant's expense, make
reasonable efforts to supply such service through the then-existing feeders and
risers serving the Building and the Premises, and Tenant agrees to pay to
Landlord the cost of such service within ten days after Landlord has delivered
to Tenant an invoice for such services. Landlord may determine the amount of
such additional consumption and potential consumption by any verifiable method,
including installation of a separate meter in the Premises installed,
maintained, and read by Landlord, at Tenant's expense. Tenant may not install
any electrical equipment requiring special wiring or requiring voltage in excess
of normal office usage or otherwise exceeding Building capacity unless approved
in advance and in writing by Landlord, which approval will not be unreasonably
withheld. Tenant agrees not to use electricity in the Premises which exceeds the
capacity of existing feeders and risers to or wiring in the Premises. If
approved by Landlord, any risers or wiring required to meet Tenant's excess
electrical requirements will be installed by Landlord, upon Tenant's request and
at Tenant's cost, if, in Landlord's judgment, the same are necessary and will
not cause permanent damage to the Building or the Premises, cause or create a
dangerous or hazardous condition, entail excessive or unreasonable alterations
or repairs, or expenses, or interfere with or disturb other tenants of the
Building. If Tenant uses machines or equipment in the Premises which affect the
temperature otherwise maintained by the air conditioning system or otherwise
overload any utility, Landlord may install supplemental air conditioning units
or other supplemental equipment in the Premises, and such cost, including the
cost of installation, operation, use, and maintenance, will be paid by Tenant to
Landlord within ten (10) days after Landlord has delivered to Tenant an invoice
for such cost.
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5.4. Restoration of Services.
Landlord agrees to use reasonable efforts to restore any service that
becomes unavailable. Except as specifically set forth below, such unavailability
will not, however, render Landlord liable for any damages, be a constructive
eviction of Tenant, constitute a breach of any implied warranty, or entitle
Tenant to any abatement of Tenant's obligations under this Lease.
Notwithstanding anything in this Section 5.4 to the contrary, (i) in the event
that a disruption in any service which is within the reasonable control of
Landlord results in the Premises becoming untenantable for the Permitted Use for
fifteen (15) consecutive days, then commencing on the sixteenth (16/th/) day
Base Rent shall abate until such services are restored; and (ii) in the event
that a disruption in any service which is within the reasonable control of
Landlord results in the Premises becoming untenantable for the Permitted Use for
ninety (90) consecutive days, then at anytime after the ninety-first (91/st/)
day Tenant shall have the right to terminate this Lease effective thirty (30)
days following Tenant's notice of termination to Landlord.
6. IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE.
6.1. Improvements; Alterations.
Landlord will, at its own expense, perform the base building work as
described on Exhibit H attached hereto. In addition, Landlord will afford
---------
Tenant an allowance of approximately $40.456 per rentable square foot to cover
the cost of construction of certain non-structural, tenant improvements to be
made to the Premises, including but not limited to architectural, mechanical,
plumbing and engineering fees. Tenant acknowledges and agrees that no more than
$4.00 per rentable square foot of said allowance may be used towards
telephone/data systems and moving expenses. Tenant shall have the right to
submit to Landlord the names of two (2) prospective general contractors
acceptable to Landlord to perform the tenant improvements to the Premises,
Landlord shall submit to Tenant the names of two (2) additional general
contractors acceptable to Landlord to perform the tenant improvements to the
Premises. From such group of general contractors, Landlord shall select one (1)
of said contractors to perform the work based on the lowest bid, unless
otherwise directed by Tenant. The cost of any tenant improvements and all fees
and expenses relating thereto in excess of the amount of said allowance shall be
borne and paid for by Tenant. No alterations or physical additions in or to the
Premises may be made without Landlord's prior written consent. Landlord may
withhold its consent to any alteration or addition that could affect the
Building's structure or its HVAC, plumbing, electrical or mechanical systems.
Tenant may not paint or install lighting, signs, window or door lettering, or
advertising media of any type on or about the Premises without the prior written
consent of Landlord. Landlord may withhold its consent to any such painting or
installation which could affect the appearance of the exterior of the Building
or of any common areas of the Building. All alterations, additions, and
improvements installed in the Premises must be (i) performed at Tenant's expense
and only in accordance with plans and specifications which have been previously
submitted to and approved in writing by Landlord, and (ii) constructed,
maintained and used by Tenant at its own risk and expense in accordance with all
laws. Landlord's approval of the plans and specifications is not a
representation by Landlord that such alterations, additions, or improvements
comply with any law. Tenant agrees that it will remove or cause its
contractor(s) to remove all waste and debris from the Premises upon the
completion of any alterations, additions or improvements which are performed by
Tenant. Notwithstanding anything in this Section 6.1 to the contrary, Tenant
shall have the right to make alterations, additions or
8
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improvements to the Premises without the consent of Landlord so long as (i) such
alterations, additions or improvements do not affect the mechanical systems or
structural components of the Building and (ii) the cost of such alterations,
additions or improvements made in any twelve (12) consecutive month period do
not exceed the sum of One Hundred Thousand Dollars ($100,000.00). Prior to
commencing any of such alterations, additions or improvements, Tenant will
notify Landlord of such work.
6.2. Repairs and Maintenance.
Subject to Landlord's duties under Section 5.1 above, Tenant agrees to
maintain the Premises in a clean, safe, and operable condition, and will not
permit or allow to remain any waste or damage to any portion of the Premises.
Tenant agrees to pay for the cost of repairing or replacing, subject to
Landlord's direction and supervision, any damage to the Premises and the
Building caused by Tenant, Tenant's employees, Tenant's transferees, or their
respective agents, contractors, or invitees. If Tenant fails to make such
repairs or replacements within fifteen (15) days after the occurrence of such
damage, then Landlord may make the same at Tenant's cost. If any such damage
occurs outside of the Premises, then Landlord may elect to repair such damage at
Tenant's expense, rather than having Tenant repair such damage. The cost of all
repair or replacement work performed by Landlord under this Section 6.2 must be
paid by Tenant to Landlord within ten (10) days after Landlord has invoiced
Tenant for such cost and will constitute Rent under this Lease.
6.3. Performance of Work.
Only Landlord or contractors and subcontractors approved in writing by
Landlord may perform the work described in this Section 6. Tenant will cause
all contractors and subcontractors to procure and maintain insurance coverage
naming Landlord as an additional insured against such risks, in such amounts,
and with such companies as Landlord may reasonably require. All such work must
be performed in accordance with all applicable governmental requirements and in
a good and workmanlike manner so as not to damage the Premises, the Building or
the components of the Building. Tenant agrees to defend, indemnify and hold
Landlord, its trustees, beneficiaries, employees, successors and assigns
harmless from and against any claims, liabilities, damages, losses, costs and
expenses, including but not limited to attorney's fees and court costs, suffered
or incurred by Landlord arising from any of Tenant's alterations, additions or
improvements to the Premises.
6.4. Mechanic's Liens.
Tenant must not permit any mechanic's lien(s) to be filed against the
Premises or the Building for any work performed, materials furnished, or
obligations incurred by or at the request of Tenant, unless caused by the
failure of the Landlord to timely pay the allowance. If such a lien is filed,
then, within ten (10) days after Landlord has delivered notice of the filing to
Tenant, Tenant must either pay the amount of the lien or diligently contest such
lien and deliver to Landlord a bond or other security reasonably satisfactory to
Landlord. If Tenant fails to timely take either such action, then Landlord may
pay the lien claim, and any amounts so paid, including expenses and interest,
will constitute Rent payable by Tenant to Landlord within ten (10) days after
Landlord has invoiced Tenant for such payment. Tenant agrees to defend,
indemnify and hold Landlord, its trustees, beneficiaries, employees, successors
and assigns harmless from and against any claims, liabilities, direct damages,
losses, costs and expenses, including but not limited to attorney's fees and
court costs, suffered or incurred by Landlord arising from the presence or
removal of any mechanic's lien(s) affecting the Premises and/or
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the Building relating to any work performed, materials furnished or obligations
incurred by or at the request of Tenant.
6.5. Rooftop Communications Equipment.
Tenant shall have the right, at its sole cost and expense, only after
obtaining Landlord's prior written approval, which approval shall not be
unreasonably withheld or delayed, to cause certain data and communications
equipment to be professionally installed on the roof of the Building subject to
and in compliance with all applicable federal, state and local statutes, laws,
ordinances, codes, rules and regulations (collectively "Laws"), provided that
(i) Landlord may oversee such installation, (ii) the location of such equipment
must be approved in advance by Landlord, (iii) Tenant will be responsible for
obtaining all necessary licenses and permits and complying with all City of
Chicago zoning and building codes and ordinances applicable to said equipment,
and (iv) upon Landlord's request, Tenant will cause said equipment to be removed
from the roof and repair any damage thereto upon the expiration or earlier
termination of this Lease. Tenant agrees to defend, indemnify and hold Landlord,
its trustees, beneficiaries, employees, agents, successors and assigns harmless
from and against any and all claims, liabilities, direct damages, causes of
action, suits, judgments, losses, costs and expenses (including attorneys' fees
and court costs) incurred or suffered by Landlord relating to the installation
of such equipment and/or the violation of any Laws arising from the presence or
use of such equipment. This indemnity provision will survive the termination or
expiration of this Lease.
6.6. Construction of Roof Deck.
Tenant shall have the right, at its sole cost and expense, only after
obtaining Landlord's prior written approval, which approval shall not be
unreasonably withheld or delayed, to cause a deck to be constructed on a portion
of the roof of the Building subject to and in compliance with all Laws, provided
that (i) Landlord may oversee such installation, (ii) the location of the deck
and the hours and dates when the deck may be used must be approved in advance by
Landlord, (iii) Tenant will be responsible for obtaining all necessary licenses
and permits and complying with all City of Chicago zoning and building codes and
ordinances applicable to said deck, and (iv) at Landlord's request, Tenant will
remove the deck from the roof and repair any damage thereto upon the expiration
or earlier termination of this Lease. Tenant acknowledges and agrees that
Landlord makes no representation or warranty with respect to the design of the
deck, nor shall Landlord be liable or responsible for any defects in the design
or construction of the deck. Tenant agrees to defend, indemnify and hold
Landlord, its trustees, beneficiaries, employees, agents, successors and assigns
harmless from and against any and all claims, liabilities, direct damages,
causes of action, suits, judgments, losses, costs and expenses (including
attorneys' fees and court costs) incurred or suffered by Landlord relating to
the installation of such deck and/or the violation of any Laws arising from the
presence or use of such deck. This indemnity provision will survive the
termination or expiration of this Lease.
6.7. Installation of Electrical Generator(s).
Tenant may, at its sole cost and expense, only after obtaining Landlord's
prior written consent, cause an electrical generator(s) to be professionally
installed in the Building, subject to and in compliance with all Laws, provided
that (i) Landlord may oversee such installation, (ii) the location of the
generator(s) must be approved in advance by Landlord, (iii) Tenant will be
responsible for obtaining all necessary licenses and permits and complying with
all City of Chicago zoning and building codes and ordinances applicable to said
generator(s), and (iv) upon Landlord's request, Tenant will cause said
generator(s) to be removed and repair any
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damage therefrom upon the expiration or earlier termination of this Lease.
Tenant agrees to defend, indemnify and hold Landlord, its trustees,
beneficiaries, employees, agents, successors and assigns harmless from and
against any and all claims, liabilities, direct damages, causes of action,
suits, judgments, losses, costs and expenses (including attorneys' fees and
court costs) incurred or suffered by Landlord relating to the installation of
any generator(s) and/or the violation of any Laws arising from the presence or
use of such generator(s). This indemnity provision will survive the termination
or expiration of this Lease.
7. USE.
Tenant may use the Premises only for the Permitted Use, and must comply
with all applicable statutes, laws, ordinances, codes, orders, rules and
regulations, as well as all requirements of any of Landlord's insurance
providers, relating to the use, condition and occupancy of the Premises. The
Premises may not be used for any use other than the Permitted Use which (i) is
disreputable, creates fire hazards, or results in an increased rate of insurance
on the Building or its contents; (ii) would violate any covenant, agreement,
term, provision or condition of this Lease or is in contravention of the
certificate of occupancy or zoning ordinances pertaining to the Building; (iii)
would alter, affect or interfere with or would overload the electrical,
mechanical or HVAC systems or any other component of the Building, or would
exceed the floor load per square foot which the floor was designed to carry and
which is allowed by law; or (iv) would, in Landlord's reasonable judgment, in
any way impair or tend to impair or exceed the design criteria, structural
integrity, character, reputation or appearance of the Building. Tenant will not
conduct or permit the generation, transportation, storage, installation,
treatment or disposal, either in the Building or in the Premises, of any
hazardous or toxic materials (other than those customarily used by office
tenants in the normal course of business), and Tenant will keep the Building and
the Premises free of any lien or claim imposed under any federal, state or local
environmental statute, law, ordinance, code, rule or regulation. If, because of
Tenant's acts (which are outside of the Permitted Use and have not been approved
in writing by Landlord), the rate of insurance on the Building or its contents
increases, then such acts will constitute an Event of Default, Tenant must pay
to Landlord the amount of such increase on demand, and acceptance of such
payment will not waive any of Landlord's other rights. Tenant agrees to conduct
its business and control its agents, employees, and invitees in such a manner as
not to create any nuisance or unreasonably interfere with other tenants or
Landlord in its management of the Building.
8. ASSIGNMENT AND SUBLETTING.
8.1. Transfers; Consent.
(a) Transfers. Tenant may not, without the prior written consent of
Landlord, which consent, subject to the provisions of Section 8.1(b) below,
shall not be unreasonably withheld or delayed, do any of the following:
(i) assign, transfer, or encumber this Lease or any estate
or interest in this Lease, whether directly or by operation of law;
(ii) permit any other entity to become Tenant under this Lease by
merger, consolidation, or other reorganization; provided, however,
Tenant does not need to obtain Landlord's consent if, after giving
effect to such merger, consolidation or other reorganization, the
minimum tangible net worth of such new entity is the same as that of
Tenant at the beginning of this Lease;
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(iii) sublet any portion of the Premises;
(iv) grant any license, concession, or other right of occupancy
of any portion of the Premises; or
(v) permit the use of the Premises by any parties other
than Tenant.
Any of the events listed in Section 8.1(a)(i) through 8.1(a)(vi)
above are referred to as a "Transfer".
(b) Consent. Without limiting Landlord's right to reasonably
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withhold its consent, Tenant acknowledges and agrees that Landlord's
withholding of such consent will be deemed reasonable if:
(i) In the reasonable judgment of Landlord, the proposed
subtenant or assignee or the individual or principal owners or
operators of the proposed subtenant or assignee (A) is not of
reputable character or is engaged in a business or proposes to use the
Premises in a manner which is not in keeping with the Permitted Use or
the standards of Landlord for the Building, or (B) has an unfavorable
credit standing or poor business history;
(ii) Either the area of the Premises to be sublet or the
remaining area of the Premises is not regular in shape with
appropriate means of ingress and egress suitable for normal renting
purposes;
(iii) Tenant is in default under this Lease;
(iv) The proposed sublessee or assignee is a local, state or
federal governmental agency; or
(v) The proposed sublessee or assignee is already a tenant in
the Building and is leasing space on any floor which is neither
vertically nor horizontally adjacent to any portion of the Premises.
(c) Procedure to Obtain Consent. If Tenant requests Landlord's
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consent to a Transfer, then Tenant must provide Landlord with a written
description of all terms and conditions of the proposed Transfer, copies of
the proposed documentation, and the following information about the
proposed transferee: name and address; reasonably satisfactory information
about its business and business history; its proposed use of the Premises;
banking, financial, and other credit information that Landlord may request;
and general references sufficient to enable Landlord to determine the
proposed transferee's creditworthiness and character. Landlord will attempt
to provide Tenant with a written response to such Transfer request as soon
as possible but not later than fifteen (15) days after Landlord's receipt
of Tenant's written request. Concurrently with Tenant's request for consent
to a Transfer, Tenant agrees to (i) pay to Landlord an assignment fee in
the amount of Five Hundred and 00/100 Dollars ($500.00), and (ii) reimburse
Landlord immediately upon its request for all of its reasonable out-of-
pocket expenses (including but not limited to attorneys' fees and
administrative fees) incurred in connection with considering any request
for consent to a Transfer. Nothing in this Section 8.1(c) may be construed
as granting to any third party the rights of a third-party beneficiary, so
as to entitle such third party to seek to enforce any of the above
provisions.
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(d) Obligations After Transfer. If Landlord consents to a proposed
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transfer, then both Tenant and the proposed transferee must (i) deliver to
Landlord a written agreement acceptable in all respects to Landlord under
which the proposed transferee expressly assumes all of Tenant's obligations
under this Lease, and (ii) if requested by Landlord, execute the consent
form required by Landlord. Landlord's consent to a Transfer will not
release Tenant from its obligations under this Lease, but rather Tenant and
its transferee will be jointly and severally liable for such obligations.
Landlord's consent to any Transfer does not waive Landlord's rights as to
any subsequent Transfers. If an Event of Default occurs while the Premises
or any part of the Premises are subject to a Transfer, then Landlord, in
addition to its other remedies, may collect rent due and owing directly
from such transferee and apply such rent against Rent. Tenant authorizes
its transferees to make payments of rent directly to Landlord upon receipt
of notice from Landlord to do so.
8.2. Recapture.
In the event Tenant causes or seeks to cause a Transfer of either (a) the
entire Premises, or (b) any portion of the Premises for the remainder of the
Term of this Lease, Landlord may elect to terminate this Lease and recapture the
applicable space (i) as of the date the proposed Transfer is to be effective, or
(ii) within thirty (30) days after the date of Landlord's discovery of the
Transfer, as the case may be. Landlord may exercise this termination right
within thirty (30) days after Landlord's receipt of Tenant's written request for
Landlord's consent, or within thirty (30) days after learning of such Transfer
if Landlord's consent has not been requested by Tenant. Notwithstanding anything
above to the contrary, in the event Landlord exercises its right to terminate
this lease and recapture the applicable space under clause (i) of the first
sentence of this Section 8.2, then within five (5) days of receipt of Landlord's
notice Tenant may rescind its proposal for the Transfer and the Lease shall
continue as if such proposal for the Transfer had never occurred If Landlord
terminates this Lease as provided above, then this Lease will cease as to the
portion of the Premises recaptured by Landlord and Tenant shall pay to Landlord
all Rent accrued through the date the Lease ceases. Subsequently, Landlord may
lease the Premises to the prospective transferee (or to any other person)
without liability to Tenant.
8.3. Additional Compensation.
Tenant agrees to pay to Landlord, immediately upon receipt, fifty (50%) of
all funds received by Tenant (net of Tenant's reasonable expenses to relet) for
a Transfer in excess of the Rent allocable to the Premises.
8.4 Injunctive Relief.
Notwithstanding anything in this Lease to the contrary, in the event
Landlord wrongfully prevents a Transfer by Tenant, or if Landlord commits any
other default under this Section 8, Tenant's sole remedy will be limited to an
action for injunctive relief to permit the Transfer to occur.
9. INSURANCE; WAIVERS; SUBROGATION; INDEMNITY.
9.1. Insurance.
Tenant agrees to maintain throughout the Term the following insurance
policies:
(a) comprehensive general liability insurance in amounts of not less
than a combined single limit of $2,000,000 or such other amounts as
Landlord may, from time
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to time, reasonably require, insuring Tenant, Landlord, Landlord's agents
and their respective affiliates against all liability for injury to or
death of a person or persons or damage to property arising from the use and
occupancy of the Premises;
(b) insurance covering the full value of Tenant's property and
improvements, and other property (including property of others) in the
Premises;
(c) contractual liability insurance sufficient to cover Tenant's
indemnity obligations under this Lease;
(d) worker's compensation insurance, containing a waiver of
subrogation endorsement acceptable to Landlord; and
(e) business interruption insurance.
Tenant will, prior to taking possession of the Premises and prior to the
commencement of any work in the Premises, furnish Landlord with certificates of
such insurance and such other evidence satisfactory to Landlord confirming
Tenant's maintenance of all insurance coverages required under this Lease and
naming Landlord and any other parties requested by Landlord as additional
insured(s). Each certificate must contain a written obligation on the part of
each insurance company to notify Landlord at least thirty (30) days before
cancellation or a material change of any such insurance policies. All such
insurance policies must be (i) issued by insurers authorized to do business in
the State of Illinois and which are rated at least A+XII in Best's Key Rating
Guide, and (ii) issued by companies and be in form and substance reasonably
satisfactory to Landlord. The term "affiliate" means any person or entity,
directly or indirectly, controlling, controlled by, or under common control with
the party in question. Tenant acknowledges and agrees that it is not permitted
to self-insure under this Lease.
9.2. Waiver of Negligence; No Subrogation.
Landlord and Tenant each waives any claim it might have against the other
for damage to or theft, destruction, loss, or loss of use of any property (a
"Loss"), to the extent the same is insured against under any insurance policy
that covers the Building, the Premises, Landlord's or Tenant's fixtures,
personal property, leasehold improvements, or business, or with respect to such
matters as are required to be insured against under the terms of this Section 9,
regardless of whether the negligence of the other party caused such loss. Each
party's waiver under this Section 9.2 will not, however, include any deductible
amounts on insurance policies carried by either party or to any coinsurance
penalty which either party may sustain. Each party will cause its insurance
carrier to endorse all applicable policies waiving the carrier's rights of
recovery under subrogation or otherwise against the other party.
9.3. Indemnity by Tenant.
Subject to the provisions of Section 9.2 above, and except to the extent
any Loss is caused solely by the negligence or willful misconduct of Landlord or
its agents, Tenant agrees to defend, indemnify and hold Landlord, its trustees,
beneficiaries, employees and agents harmless from and against (i) all claims,
demands, liabilities, causes of action, suits, judgments, and expenses
(including attorneys' fees) for any Loss arising from any occurrence on the
Premises and the Building caused or contributed to by Tenant, its subtenants,
licensees, employees, invitees, contractors and/or agents (collectively
"Tenant's Affiliates"), and (ii) Tenant's or any of Tenant's Affiliates' failure
to perform its obligations under this Lease. This indemnity provision will
survive the termination or expiration of this Lease.
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9.4. Indemnity by Landlord.
Landlord agrees to defend, indemnify and hold Tenant harmless from and
against any loss or damage (including reasonable attorneys' fees) suffered by
Tenant resulting from Landlord's negligence to the extent such loss or damage is
not covered by Tenant's insurance.
10. SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE.
10.1. Subordination.
Provided Landlord furnishes Tenant with a subordination, nondisturbance and
attornment agreement (the "SNDA") in form and substance customarily given by the
current "Landlord's Mortgagee" (as defined below), this Lease is automatically
subordinate to any deed of trust, mortgage, other security instrument, ground
lease, master lease or primary lease that now or subsequently covers all or any
part of the Building without any further action or writing of the parties (the
mortgagee under any such mortgage or the lessor under any such lease is referred
to below as a "Landlord's Mortgagee"). However, any Landlord's Mortgagee may at
any time unilaterally elect to make this Lease superior to its mortgage, ground
lease or other interest in the Premises by so notifying Tenant in writing. Not
later than sixty (60) days after the execution of this Lease, Landlord shall
deliver to Tenant an SNDA from the current Landlord's Mortgagee in the form
attached hereto as Exhibit I.
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10.2. Attornment.
Tenant agrees to attorn to any party succeeding to Landlord's interest in
the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, attornment, termination of lease, or otherwise. Within ten (10)
days after such party's written request, Tenant will execute and deliver to the
requesting party a written agreement(s) confirming such attornment. If Tenant
fails to deliver the attornment agreement(s) described herein within the ten
(10) day period, Tenant acknowledges and agrees that Landlord is authorized to
act as Tenant's attorney-in-fact to execute the agreement(s) on behalf of
Tenant, and Tenant will be bound by the commercially reasonable terms of the
agreement(s) executed by Landlord.
10.3. Notice to Landlord's Mortgagee.
Tenant may not seek to enforce any remedy it may have for any default on
the part of the Landlord without first giving written notice by certified mail,
return receipt requested, specifying the default in reasonable detail, to any
Landlord's Mortgagee whose address has been given to Tenant, and affording such
Landlord's Mortgagee a reasonable opportunity to perform Landlord's obligations
under this Lease.
11. RULES AND REGULATIONS.
Tenant must comply with the rules and regulations of the Building which are
attached as Exhibit B. Landlord may, from time to time by notifying Tenant in
---------
writing of such changes, change such rules and regulations for the safety, care,
or cleanliness of the Building and related facilities, provided that such
changes will not unreasonably interfere with Tenant's use of the Premises.
Tenant is responsible for the compliance with such rules and regulations by its
employees, agents, and invitees.
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12. CONDEMNATION.
12.1. Total Taking.
If the entire Building or Premises is taken by right of eminent domain or
conveyed in lieu of eminent domain (a "Taking"), this Lease will terminate and
Rent will be apportioned as of the date of the Taking, and Tenant will have no
claim against Landlord for the value of the unexpired Term.
12.2. Partial Taking -- Tenant's Rights.
If any part of the Building becomes subject to a Taking and such Taking
will prevent Tenant from conducting its business in the Premises in a manner
reasonably comparable to that conducted immediately before such Taking for a
period of more than one hundred eighty (180) days, then Tenant may terminate
this Lease as of the date of such Taking by giving written notice to Landlord
within thirty (30) days after the Taking, and Rent will be apportioned as of the
date of such Taking. If Tenant does not terminate this Lease, then Rent will
abate on a basis reasonably determined by Landlord as to that portion of the
Premises rendered untenantable by the Taking.
12.3. Partial Taking -- Landlord's Rights.
If any material portion but less than all of the Building becomes subject
to a Taking and Landlord makes a good faith determination that (i) such Taking
will prevent Tenant from conducting its business in the Premises in a manner
reasonably comparable to that conducted immediately before such Taking for a
period of more than one hundred eighty (180) days, (ii) restoring the Premises
would be uneconomical, (iii) the condemnation award is insufficient to rebuild
or restore the Building or the Premises, or (iv) Landlord is required to pay any
condemnation award arising from the Taking to any Landlord's Mortgagee, then
Landlord may terminate this Lease by delivering written notice to Tenant within
forty-five (45) days after such Taking (or on such earlier date as Landlord is
required to surrender the Building or the Premises pursuant to the terms of the
Taking). Tenant shall vacate the Premises on or before the earlier of (a) one
hundred twenty (120) days after its receipt of Landlord's notice, or (b) the
date when Landlord is required to surrender the Building or the Premises to the
condemning authority, and Rent will be apportioned as of the date Tenant vacates
the Building. If Landlord does not so terminate this Lease, then this Lease
will continue, but if any portion of the Premises has been taken, Rent will
abate as provided in the last sentence of Section 12.2 above.
12.4. Award.
If any Taking occurs, then Landlord is entitled to receive the entire award
or other compensation for the land on which the Building is situated, the
Building, and other improvements taken, and Tenant may separately pursue a claim
against the condemnor for the value of Tenant's personal property which Tenant
is entitled to remove under this Lease (but because of the condemnation is
unable to move such property), moving costs, unamortized portion of any tenant
improvements paid for by Tenant, and other claims it may have so long as such
claim does not diminish Landlord's award. In no event may Tenant seek or file
any claim against Landlord.
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13. FIRE OR OTHER CASUALTY.
13.1. Landlord's Rights.
If all or any material portion of the Building and/or the Premises is(are)
damaged by fire or other casualty (a "Casualty"), and if Landlord makes a good
faith determination that (i) restoring the Premises would be uneconomical, (ii)
there are insufficient insurance proceeds to rebuild or restore the Building or
the Premises, or (iii) Landlord is required to pay any insurance proceeds
arising out of the Casualty to any Landlord's Mortgagee, then Landlord may
terminate this Lease by giving Tenant written notice of Landlord's election to
terminate (the "Casualty Termination Notice") within one hundred twenty (120)
days after the Casualty (the "Casualty Determination Period") has occurred, and
Base Rent and Additional Rent will abate as of the date of the Casualty, unless
such damage is due to the gross negligence or willful misconduct of Tenant or
Tenant's Affiliates, in which event Tenant shall continue to pay Rent without
abatement. Such termination shall be effective ninety (90) days after the date
of the Casualty Termination Notice so long as the Building is tenantable.
13.2. Repair Obligation.
If Landlord elects not to terminate this Lease following a Casualty
pursuant to the terms of Section 13.1 above, Landlord shall, prior to the
expiration of the Casualty Termination Period, notify Tenant of Landlord's good
faith determination (the "Restoration Estimate Notice") of the time period
required to restore the Building and/or Premises. In the event such time period
exceeds one (1) year from the date of the Casualty, Tenant shall have the right
to terminate this Lease within thirty (30) days after receipt of the Restoration
Estimate Notice. If neither Landlord nor Tenant elects to terminate this Lease,
as set forth above, then Landlord will proceed with reasonable diligence to
repair, restore or rehabilitate the Building and/or the Premises, as the case
may be, to substantially the same condition as they existed immediately before
such Casualty. However, Landlord will not be required to repair or replace any
of the furniture, equipment, fixtures, and other leasehold improvements which
may have been placed by or at the request of Tenant or other occupants in the
Building or the Premises and required to be insured by Tenant or other tenants.
In the event that Landlord elects not to terminate the Lease and Landlord
proceeds to repair the Building and/or the Premises, then Tenant must apply to
the replacement or restoration of the furniture, equipment, fixtures and other
improvements in the Premises (if replacement or restoration is necessary because
of the Casualty) any proceeds of insurance that it may have received from its
policy(ies) on account of the Casualty allocable to such fixtures and other
improvements. During such repair or rebuilding of the Building and/or the
Premises, Rent for the portion of the Premises rendered untenantable by the
damage will be abated on a reasonable basis determined by Landlord from the date
of damage until the completion of the repair, restoration or rehabilitation,
unless the Casualty was caused by Tenant or any of Tenant's Affiliates, in which
event Tenant shall continue to pay Rent without abatement.
In the event Landlord fails to substantially complete the restoration of
the Building and/or the Premises within one (1) year from the date of the
Casualty, Tenant shall have the right to terminate this Lease at any time after
the expiration of such one (1) year period.
14. PERSONAL PROPERTY TAXES.
Tenant is liable for all taxes based upon this Lease or the receipt of Rent
due under this Lease and all taxes levied or assessed against any personal
property, furniture or fixtures
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placed by Tenant in the Premises. If any taxes for which Tenant is liable are
levied or assessed against Landlord or Landlord's property and Landlord elects
to pay the same, or if the assessed value of Landlord's property is increased by
inclusion of such personal property, furniture or fixtures and Landlord elects
to pay the taxes based on such increase, then Tenant shall pay to Landlord as
Rent, upon demand, the part of such taxes for which Tenant is primarily liable
under this Lease. Landlord may not, however, pay such amount if Tenant notifies
Landlord that it will contest the validity or amount of such taxes before
Landlord makes such payment, and subsequently diligently proceeds with such
contest in accordance with law and if the non-payment does not pose a threat of
lien or other cloud on Landlord's title to the Building, or threat of loss or
seizure of the Building or interest of Landlord in the Building.
15. DEFAULT.
15.1. Events of Default.
Each of the following occurrences will constitute an "Event of Default":
(a) Tenant's failure to pay Rent on or before the date when due;
provided, however, not more than two (2) times in any calendar year during
the Term, Landlord agrees to give Tenant notice and Tenant shall have five
(5) days after its receipt of such notice to cure such failure to pay rent,
which, if cured in a timely manner, will not constitute an Event of
Default.
(b) Tenant's failure to perform, comply with, or observe any other
agreement or obligation of Tenant under this Lease and the continuance of
such failure for a period of more than thirty (30) days after Landlord has
delivered to Tenant written notice, provided that if such default is
incapable of being cured within said thirty (30) day period, then Tenant
shall have up to an additional sixty (60) days after the initial thirty
(30) day period to cure the default so long as Tenant is at all times
diligently proceeding to cure the default;
(c) The filing of a petition by or against Tenant (the term "Tenant"
includes, for the purpose of this Section 15(c), any guarantor of the
Tenant's obligations under this Lease) (1) in any bankruptcy or other
insolvency proceeding; (2) seeking any relief under any state or federal
debtor relief law; (3) for the appointment of a liquidator or receiver for
all or substantially all of Tenant's property or for Tenant's interest in
this Lease; or (4) for the reorganization or modification of Tenant's
capital structure in any bankruptcy proceeding or under any State or
Federal debtor relief law. If, however, such a petition is filed against
Tenant, then such filing will not be an Event of Default unless Tenant
fails to have the proceedings initiated by such petition dismissed within
sixty (60) days after such filing;
(d) The failure by Tenant to take possession of the Premises in
accordance with the terms of this Lease;
(e) The discontinuance of its business by Tenant for thirty (30) or
more consecutive days unless the Premises are untenantable;
(f) The failure of any guarantor(s) of this Lease to comply with the
terms and conditions of its(their) guaranty.
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15.2. Default Interest.
All past due Rent and any other payments required of Tenant under this
Lease will be deemed Rent and interest will accrue from the date due until paid
at the rate of interest equal to two percent (2%) over the corporate base rate
or so-called "prime rate" as announced from time to time by Bank One
Corporation.
16. REMEDIES.
Upon any Event of Default, Landlord may, at its election, in addition to
all other rights and remedies afforded Landlord under this Lease or by law or
equity, take any one or more of the following actions:
16.1. Right To Terminate.
Upon the occurrence of an Event of Default, Landlord has the right to
terminate the Lease and obtain possession of the Premises. Landlord may make its
election to terminate known to Tenant by delivery of a notice of termination.
Such termination is immediately effective and Landlord, if necessary, is
entitled to commence immediately an action in summary proceedings to recover
possession of the Premises.
16.2. Receipt Of Money After Termination.
No receipt of money by the Landlord from the Tenant after the termination
of this Lease acts to reinstate, continue or extend the Term, nor affect or
waive any notice given by the Landlord to the Tenant prior to such receipt of
money.
16.3. Recovery Of Damages.
Landlord agrees to use commercially reasonable efforts to mitigate damages
caused by a default or breach of Tenant. If Landlord at any time terminates
this Lease upon the occurrence of an Event of Default, then in addition to any
other remedies it may have, Landlord may recover from Tenant by reason of such
breach all Rent and Additional Rent accrued and unpaid for the period up to and
including such termination date, as well as all other additional sums payable by
Tenant under this Lease. In addition, upon the occurrence of an Event of
Default, Landlord may recover as damages for loss of the bargain and not as a
penalty the sum of (i) the unamortized cost to Landlord, computed and determined
in accordance with generally accepted accounting principles, of any tenant
improvements provided by Landlord at its expense, (ii) the aggregate sum which
at the time of such termination represents the excess, if any, of the present
value of the aggregate Rent and Additional Rent at the same annual rate for the
remainder of the Term as then in effect over the then present value of the then
aggregate fair rental value of the Premises for the balance of the Term
immediately prior to such termination, such present worth to be computed in each
case on the basis of a five percent (5%) per annum discount from the respective
dates upon which Rent would have been payable under this Lease had the Term not
been terminated, and (iii) any additional damages, including any costs or
expenditures to fit the Premises to the needs of Tenant, reasonable attorneys'
fees and court costs which Landlord sustains by reason of the breach of any of
the covenants of this Lease other than for the payment of Base Rent and
Additional Rent.
16.4. Right To Re-Enter.
If the Event of Default is the nonpayment of Rent, Landlord may, as an
alternative to terminating the Lease, serve a written demand for possession or
payment. Unless the Rent is paid in accordance with the demand for possession or
payment, Landlord is entitled to
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possession of the premises and Tenant will then have no further right to
possession under the Lease. Tenant remains liable to Landlord for the payment of
all Rent and other charges which Tenant has agreed to pay under this Lease
throughout the remainder of its Term. If Landlord elects to re-enter, as
provided, it may from time to time, without terminating this Lease, make such
alterations and repairs as may be necessary in order to relet the Premises, and
relet all or any part of such Premises for such term or terms (which may be for
a term extending beyond the Term of this Lease) and at such rental or rentals
and upon such other terms and conditions as Landlord in its reasonable
discretion may deem advisable. Upon each such reletting all rentals and other
sums received by Landlord from such reletting are applied, first, to the payment
of any indebtedness other than rent due under this Lease from Tenant to
Landlord; second, to the payment of any costs and expenses of such reletting,
including reasonable brokerage fees and attorneys' fees and of costs of such
alterations and repairs; third, to the payment of Rent and other charges due
from Tenant, and the residue, if any, will be held by Landlord and applied in
payment of future rent as the same may become due and payable. If such rentals
and other sums received from such reletting during any month are insufficient to
pay the Rent and other charges due from Tenant, Tenant agrees to pay such
deficiency to Landlord. Such deficiency will be calculated and paid monthly. No
such re-entry or taking possession of such premises by Landlord may be construed
as an election on its part to terminate this Lease. Notwithstanding any such
reletting without termination, Landlord may at any time elect to terminate this
Lease for such previous breach.
16.5. Independent Covenant.
Tenant acknowledges and agrees that its obligation to pay Rent under this
Lease is an independent covenant and that such obligation to pay rent is not
subject to setoff or recoupment in connection with any action for summary
proceedings to recover possession of the Premises.
16.6. Legal Expenses.
If Landlord or Tenant brings an action arising out of the covenants, terms,
conditions or provisions of this Lease, or if Landlord undertakes an action for
summary proceedings to recover possession of the Premises, the prevailing party
will be reimbursed by the other party for such reasonable costs and attorneys'
fees as the prevailing party may incur in connection with such action.
17. PAYMENT BY TENANT; NON-WAIVER.
17.1. Payment by Tenant.
Upon any Event of Default, Tenant agrees to pay to Landlord all costs
incurred by Landlord (including court costs and reasonable attorneys' fees and
expenses) in (1) obtaining possession of the Premises, (2) removing and storing
Tenant's or any other occupant's property, (3) repairing, restoring,
commercially reasonably altering, commercially reasonably remodeling or
otherwise putting the Premises into a condition acceptable to a new tenant, (4)
if Tenant is dispossessed of the Premises and this Lease is not terminated,
reletting all or any part of the Premises (including brokerage commissions,
commercially reasonable costs of tenant finish work and other costs incidental
to such reletting), (5) performing Tenant's obligations which Tenant failed to
perform, and (6) enforcing its rights, remedies, and recourses arising out of
the Event of Default or in obtaining advice about same. To the full extent
permitted by law, Landlord and Tenant agree the federal and state courts of the
state in which
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the Premises and Building are located have exclusive jurisdiction over any
matter relating to or arising from this Lease and the parties' rights and
obligations under this Lease.
17.2. No Waiver.
Landlord's acceptance of any payment from Tenant following an Event of
Default will be deemed Rent and will not waive Landlord's rights regarding such
Event of Default. No waiver by Landlord of any violation or breach of any of
the terms contained in this Lease will waive Landlord's rights regarding any
future violation of such term. Landlord's acceptance of any partial payment of
Rent will not waive Landlord's rights with regard to the remaining portion of
the Rent that is due, regardless of any endorsement or other statement on any
instrument delivered in payment of Rent or any writing delivered in connection
with such Rent. Accordingly, Landlord's acceptance of a partial payment of Rent
will not constitute an accord and satisfaction of the full amount of the Rent
that is due.
18. SURRENDER OF PREMISES.
No act by Landlord will be deemed an acceptance of a surrender of the
Premises, and no agreement to accept a surrender of the Premises will be valid
unless it is in writing and signed by Landlord. At the expiration or
termination of this Lease, Tenant must deliver to Landlord the Premises with all
improvements in good repair and condition, broom-clean, except for reasonable
wear and tear (and condemnation and Casualty damage not caused by Tenant, as to
which Sections 12 and 13 above control). All alterations, additions,
improvements, equipment, wiring and furniture made in or upon the Premises (but
excluding all of the Work contemplated under the Workletter and excluding any
other alterations, additions, etc. for which Landlord's consent is required
under this Lease and which Landlord does not specifically require removal at the
time of such consent) must, at Landlord's option upon notice to Tenant, either
be removed by Tenant (and Tenant must repair all damage caused by such removal)
or remain on the Premises without compensation to Tenant. Tenant must also
deliver to Landlord all keys to the Premises. Provided that Tenant has
performed all of its obligations under this Lease, Tenant may remove all
unattached trade fixtures and personal property placed in the Premises by
Tenant. Tenant is obligated to repair all damage caused by such removal. All
items not so removed will be deemed to have been abandoned by Tenant and may be
appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord
without notice to Tenant and without any obligation to account for such items.
The provisions of this Section 18 will survive the end of the Term.
19. HOLDING OVER.
If Tenant fails to vacate the Premises at the end of the Term, then Tenant
will be a tenant-at-will and, in addition to all other damages and remedies to
which Landlord may be entitled for such holding over, Tenant must pay to
Landlord a monthly Base Rent for all or any part of a month equal to 150% of the
aggregate Base Rent plus all other Rent payable during the last month of the
Term. Tenant is also responsible for all direct damages, and if Tenant holds
over for more than thirty (30) days, Tenant is responsible for consequential
damages incurred or sustained by Landlord by reason of such retention, together
with all costs incurred by Landlord (including but not limited to reasonable
attorneys' fees) in connection with such holdover. In addition, Landlord may
elect, upon notice to Tenant, that such holding over will constitute a renewal
of this Lease on a month-to-month term at the stated holdover rate, but
acceptance by Landlord of Rent after such termination will not in and of itself
constitute a
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renewal. Nothing contained in this Section 19, however, will be construed or
operate as a waiver of Landlord's right of re-entry or any other right of
Landlord.
20. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights which may be exercised without
notice (except as otherwise expressly provided below) and without liability to
Tenant for damage or injury to property, person or business, and without
effecting an eviction or disturbance of Tenant's use or possession of the
Premises, nor giving rise to any claim for setoff or abatement or Rent or
affecting any of Tenant's obligations under this Lease:
(a) To decorate (other than elevator lobbies on the full floors
occupied by Tenant which shall be solely determined by and shall be the
responsibility of Tenant) and to make inspections, repairs, alterations,
additions, changes, or improvements, whether structural or otherwise, in
and about the Building during ordinary business hours, and if Tenant
desires to have such work done during other than business hours, Tenant
agrees to pay all overtime and additional expenses resulting from such
work; to enter upon the Premises and, during the continuance of any such
work, to temporarily close doors, entryways, public space, and corridors in
the Building; and to interrupt or temporarily suspend Building services and
facilities agreed to be furnished by Landlord, all without the same
constituting an eviction of Tenant in whole or in part and without
abatement of Rent by reason of loss or interruption of the business of
Tenant or otherwise and without in any manner rendering Landlord liable for
damages or relieving Tenant from the performance of Tenant's obligations
under this Lease; provided, however, that reasonable access to the Premises
will be maintained and the business of Tenant may not be interfered with
unreasonably;
(b) To change the name and street address of the Building (but not the
suite number(s) of the Premises); and to change the arrangement and
location of entrances or passageways, doors, and doorways, corridors,
elevators, stairs, restrooms, or other public parts of the Building, in
which event Landlord will reimburse Tenant for the cost of replacing its
stationary in an amount not to exceed Five Thousand and 00/100 Dollars
($5,000.00);
(c) To take such reasonable measures as Landlord deems advisable for
the security of the Building and its occupants; evacuating the Building for
cause, suspected cause, or for drill purposes; temporarily denying access
to the Building for safety or other commercially reasonable measures; and
closing the Building after normal business hours and on Sundays and
holidays, subject, however, to Tenant's right to enter when the Building is
closed after normal business hours under such reasonable regulations as
Landlord may prescribe from time to time for application to and for the
benefit and protection of all tenants of the Building;
(d) Upon reasonable prior oral notice to Tenant, to enter the Premises
during reasonable business hours (i) at any time during the Term to show
the Premises to prospective purchasers or lenders, or (ii) during the last
twelve (12) months of the Term to show the Premises to prospective tenants,
and to decorate, remodel, repair, alter or otherwise prepare the Premises
for reoccupancy at any time after Tenant vacates or abandons the Premises;
(e) INTENTIONALLY DELETED;
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(f) To maintain within the lobby of the Building a directory
containing a standard listing with Tenant's name;
(g) To install and maintain signs on the exterior and interior of the
Building and to approve any signs which Tenant desires to install on the
exterior of the Building, provided that Landlord agrees to install a sign
on the northeast corner of the exterior of the Building bearing Tenant's
name in the manner depicted on Exhibit J attached hereto;
---------
(h) To prescribe and approve in advance the location and style of any
suite number and identification sign or lettering on the door to the
Premises occupied by Tenant, the cost of which signage shall be borne by
Tenant;
(i) To retain at all times and to use in appropriate instances pass
keys to the Premises;
(j) To grant to anyone the right to conduct any business or render any
service in the Building, whether or not it is the same as or similar to the
use expressly permitted to Tenant in Section 7 above;
(k) To have access for Landlord and other tenants of the Building to
all mail chutes according to the rules of the United States Post Office;
(l) To enter the Premises at any time for reasonable purposes,
including and supplying janitor service or other service to be provided to
Tenant under this Lease;
(m) To require all persons entering or leaving the Building during
such hours as Landlord may from time to time determine to identify
themselves to watchmen or security personnel by registration or otherwise,
and to establish their right to enter or leave the Building; provided
Landlord will not be liable in damages for any error with respect to
admission to or eviction or exclusion of any person from the Building. In
case of fire, invasion, insurrection, mob, riot, civil disorder, public
excitement or other commotion, or threat thereof, Landlord reserves the
right to limit or prevent access to the Building during the continuance of
same, shut down elevator service, activate elevator emergency controls, or
otherwise take such action or preventive measures deemed necessary by
Landlord for the safety of the tenants or other occupants of the Building
or the protection of the Building and the property in the Building. Tenant
agrees to cooperate in any reasonable safety program developed by Landlord;
and
(n) From time to time to make and adopt such reasonable rules and
regulations, in addition to or other than or by way of amendment or
modification of the rules and regulations contained in Exhibit B attached
---------
to this Lease or other sections of this Lease, for the protection and
welfare of the Building, its tenants and occupants, as Landlord may
determine, and Tenant agrees to abide by all such rules and regulations
upon receiving a written copy of the same.
21. MISCELLANEOUS.
21.1. Landlord Transfer.
Landlord may transfer any portion of the Building and any of its rights
under this Lease. If Landlord assigns its rights under this Lease, then Landlord
will be released from any further obligations under this Lease, provided that
the assignee assumes Landlord's obligations under this Lease in writing.
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21.2. Landlord's Liability.
The liability of Landlord and Landlord's Affiliates (as defined below) to
Tenant for any default by Landlord under the terms of this Lease will be
recoverable only from the interest of Landlord in the Building, and any
insurance covering the Building or Landlord to which Landlord is entitled and
Tenant agrees to look solely to Landlord's interest in the Building and any
insurance covering the Building or Landlord to which Landlord is entitled, for
the enforcement of any judgment, award, order or other remedy under or in
connection with this Lease. Under no circumstances will Landlord or Landlord's
Affiliates have any personal liability for any of the foregoing matters. The
term "Landlord's Affiliates" means collectively Landlord's property manager and
its and Landlord's respective current and future affiliates, trustees,
beneficiaries, principals, investors, directors, officers, general or limited
partners, shareholders, managers, employees, agents, representatives, successors
and assigns.
21.3. Force Majeure.
Other than for Tenant's obligations under this Lease that can be performed
by the payment of money (e.g., payment of Rent and maintenance of insurance),
whenever a period of time is prescribed for action to be taken by either party,
such party will not be liable or responsible for, and there will be excluded
from the computation of any such period of time, any delays due to strikes,
riots, acts of God, shortages of labor or materials, war, governmental laws,
regulations, or restrictions, or any other causes of any kind whatsoever which
are beyond the reasonable control of such party.
21.4. Brokerage.
Tenant has not dealt with any broker or agent in connection with the
negotiation or execution of this Lease, other than Landlord's Broker and
Tenant's Broker, whose commissions are payable by Landlord. Tenant agrees to
defend, indemnify and hold Landlord harmless from and against all claims,
damages, costs, expenses, attorneys' fees and other liabilities for commissions
or other compensation claimed by any other broker or agent.
21.5. Estoppel Certificates.
From time to time, Tenant agrees to furnish to Landlord, Landlord's
Mortgagee or any third party designated by Landlord, within ten (10) days after
Landlord has made a request, a written estoppel certificate signed by Tenant or
an authorized signatory of Tenant in the form attached as Exhibit D, confirming
---------
and certifying to such party, as of the date of such estoppel certificate, to
the extent factual or known, (i) that Tenant is in possession of the Premises,
(ii) that this Lease is unmodified and in full force and effect (or if there
have been modifications, that this Lease is in full force and effect as modified
and setting forth such modification); (iii) that Tenant has no offsets, claims
or defenses against Rent or the enforcement of any right or remedy of Landlord,
or any duty or obligation of Tenant under this Lease (and, if so, specifying the
same in detail); (iv) the dates through which Base Rent and Additional Rent have
been paid; (v) that Tenant has no knowledge of any then uncured defaults on the
part of Landlord under this Lease (or if Tenant has knowledge of any such
uncured defaults, specifying the same in detail); (vi) that Tenant having made
due investigation has no knowledge of any event having occurred that authorizes
the termination of this Lease by Tenant (or if Tenant has such knowledge,
specifying the same in detail): (vii) the amount of any Security Deposit held by
Landlord; (viii) that there are no actions, whether voluntary or otherwise,
pending against Tenant; and (ix) other matters reasonably requested by Landlord
or such other party. If Tenant fails to deliver the estoppel certificate
described above within such ten (10) day period, Tenant
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acknowledges and agrees that Landlord is authorized to act as Tenant's attorney-
in-fact to execute the estoppel certificate on behalf of Tenant, and Tenant will
be bound by the terms of the estoppel certificate prepared and executed by
Landlord, provided the terms of such certificate are factually true and correct.
21.6. Notices.
All notices and other communications given pursuant to this Lease must be
in writing and must be sent to the parties listed in the Lease Information
Summary above by (1) first class mail, United States Mail, postage prepaid,
certified, with return receipt requested, and addressed to the parties at the
address specified next to their signature block, (2) a nationally recognized
overnight courier, (3) personal delivery to the intended address, or (4) prepaid
telegram, cable, facsimile transmission or telex with confirmation of successful
transmission followed by a confirmatory letter. All notices will be effective
upon delivery to the address of the addressee, or, if the addressee refuses
delivery, then delivery will be deemed effective as of the date of the attempted
delivery. The parties may change their addresses by giving notice of such
change to the other party in conformity with this provision.
21.7. Severability.
If any clause or provision of this Lease is illegal, invalid, or
unenforceable under present or future laws, then the remainder of this Lease
will not be affected, and in lieu of such clause or provision, a clause or
provision as similar in terms to such illegal, invalid, or unenforceable clause
or provision will be deemed added to this Lease as may be possible and be legal,
valid, and enforceable.
21.8. Amendments; and Binding Effect.
This Lease may not be amended except by instrument in writing signed by
Landlord and Tenant. No provision of this Lease will be deemed to have been
modified or waived by Landlord unless such modification or waiver is in writing
signed by the party against whom such modification is to be enforced. No custom
or practice which may evolve between the parties in the administration of the
terms of this Lease will waive or diminish the right of Landlord to insist upon
the performance by Tenant in strict accordance with the terms of this Lease,
except as expressly modified in writing signed by Landlord and Tenant. The terms
and conditions contained in this Lease will inure to the benefit of and be
binding upon the parties, and upon their respective successors in interest and
legal representatives, except as otherwise expressly provided. This Lease is for
the sole benefit of Landlord and Tenant, and, other than Landlord's Mortgagee,
no third party may be deemed a third party beneficiary.
21.9. Quiet Enjoyment.
Provided Tenant has performed all of its obligations under this Lease,
Tenant may peaceably and quietly hold and enjoy the Premises for the Term,
without hindrance from Landlord or any party claiming by, through, or under
Landlord, subject to the terms and conditions of this Lease.
21.10. No Merger.
No merger of the leasehold estate created under this Lease with the fee
estate in all or any part of the Premises will occur if the same person acquires
or holds, directly or indirectly, this Lease or any interest in this Lease and
the fee estate in the leasehold Premises or any interest in such fee estate.
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21.11. No Offer.
The submission of this Lease to Tenant may not be construed as an offer,
and Tenant will have no rights under this Lease unless Landlord executes a copy
of this Lease and delivers it to Tenant.
21.12. Entire Agreement.
This Lease constitutes the entire agreement between Landlord and Tenant
regarding the subject matter of this Lease and supersedes all prior related oral
statements and writings. Except for those set forth in this Lease, no
representations, warranties, or agreements have been made by Landlord or Tenant
to the other with respect to this Lease or the obligations of Landlord or Tenant
in connection with this Lease.
21.13. Calendar Days.
All references in this Agreement to a certain number of days will be deemed
to mean calendar days, unless otherwise expressly stated.
21.14. Prohibition Against Leasehold Mortgages.
Tenant will not mortgage, pledge or otherwise encumber its interest in this
Lease or in the Premises during the Term.
21.15. Waiver of Trial by Jury.
Landlord and Tenant mutually, knowingly, irrevocably, voluntarily and
intentionally waive the right to a trial by jury in any action, proceeding or
counterclaim brought by either of the parties against the other in connection
with this Lease. Each party further warrants and represents that it has
reviewed this waiver with its legal counsel and that each has waived its jury
trial rights following consultation with legal counsel. This waiver applies to
any and all subsequent amendments and any other agreements relating to this
Lease. In the event of litigation, this Lease may be filed as a written consent
to a trial by the court sitting without a jury. Tenant further agrees that in
the event Landlord commences any summary proceeding for non-payment of Rent,
Tenant will not interpose any counterclaim of any nature or description in such
proceeding.
21.16. Landlord's Remedies Cumulative.
No reference to any specific right or remedy will preclude Landlord from
exercising any other right, having any other remedy or maintaining any action to
which it may otherwise be entitled at law or in equity. No failure by Landlord
to insist upon the strict performance of any agreement, term, covenant or
condition of this Lease, or to exercise any right or remedy consequent upon a
breach thereof, and no acceptance of full or partial Rent during the continuance
of any such breach will constitute a waiver of any such breach, agreement, term,
covenant or condition. No waiver by Landlord of any breach by Tenant under this
Lease or of any breach by any other tenant under any other lease or any portion
of the Building will affect or alter this Lease in any way whatsoever. No
covenant, term or condition of this Lease will be deemed waived by Landlord
unless such waiver is in writing and executed by Landlord. Landlord may accept
a partial payment of Rent or other sums due under this Lease without such
acceptance constituting an accord and satisfaction and without prejudice to
Landlord's right to demand the balance of such Rent or other sum,
notwithstanding any notation on a check or letter accompanying such partial
payment, unless Landlord expressly waives its right to such balance in writing.
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21.17. Prohibition Against Recordation.
Tenant may not record all or any part of this Lease or any memorandum of
this Lease. Any recording by Tenant of all or any part of this Lease or any
memorandum of this Lease will be in violation of this Lease and will be void,
and Tenant agrees to indemnify Landlord, its trustees, beneficiaries, agents,
successors and assigns for any losses, damages or expenses of any nature
whatsoever incurred by reason of such recording. In the event Tenant records or
causes all or any part of this Lease or any memorandum of this Lease to be
recorded, Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in-
fact, coupled with an interest, to execute and record a certificate to clear any
cloud on the title to the Building created by the improper recordation.
21.18. Joint and Several Liability.
If two (2) or more individuals, corporations, partnerships or other
business associations (or any combination of two (2) or more thereof) sign this
Lease as Tenant, the liability of each such individual, corporation, partnership
or other business association to pay Rent and perform all of Tenant's other
obligations under this Lease are deemed to be joint and several.
21.19. Corporate Tenants.
If Tenant is a corporation, the persons executing this Lease on behalf of
Tenant hereby covenant and warrant that Tenant is a duly constituted corporation
qualified to do business in the State of Illinois; all of Tenant's franchise and
corporate taxes have been paid to date; all future forms, reports, fees and
other documents necessary for Tenant to comply with all applicable laws will be
filed by Tenant when due; and such persons are duly authorized by the board of
directors of such corporation to execute and deliver this Lease on behalf of
Tenant.
21.20. Right of First Offer.
Provided that as of the date Tenant notifies Landlord of its desire to
exercise its "Right of First Offer" (as defined below) (i) Tenant is not in
default under the terms and conditions of this Lease, (ii) no event has occurred
but for the passage of time or the giving of notice, or both, that would
constitute a material default under this Lease which has not been cured or
waived, and (iii) Tenant is then occupying the Premises, during the initial Term
of this Lease Tenant shall have an ongoing right of first offer (the "Right of
First Offer") to rent any available space on the 20/th/ floor of the Building
(the "ROFO Premises"), subject to the terms and conditions set forth below.
Prior to submitting any proposal to a third party with respect to the leasing of
the ROFO Premises, Landlord agrees to notify Tenant in writing as to the date in
the future (the "Availability Date") when the ROFO Premises can be made
available to Tenant ("Landlord's Notice"). Tenant must notify Landlord in
writing within ten (10) business days after Tenant's receipt of Landlord's
Notice whether Tenant desires to exercise its Right of First Offer. Tenant's
Right of First Offer must be exercised as to one hundred percent (100%) of the
ROFO Premises. If Tenant does not notify Landlord of its election to exercise
its Right of First Offer with respect to the ROFO Premises within said ten (10)
business period, then Tenant will be deemed to have elected not to exercise its
Right of First Offer with respect to the ROFO Premises and to have waived its
Right of First Offer with respect to the ROFO Premises until such time as
Landlord presents another proposal to an entirely new third party with respect
to the ROFO Premises. If Tenant elects to exercise its Right of First Offer and
so notifies Landlord within said ten (10) business day period, then Landlord
will, at its own expense, perform the base building work in the ROFO Premises
consistent with the terms of Exhibit H attached hereto, and Tenant will accept
---------
the ROFO Premises as of the Availability Date in its
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then "AS-IS" condition and subject to the same terms and conditions contained in
the Lease, except that (a) the Base Rent for the ROFO Premises will be the then
prevailing market rental rate (taking into account then prevailing market
concessions, if any) for buildings of a similar size and class located in the
downtown Chicago area as determined jointly by Landlord and Tenant, failing
which the Base Rent for the ROFO Premises shall be determined in accordance with
the terms of Section 21.26 below; (b) the term "Premises" for all purposes of
this Lease will include the ROFO Premises; (c) the numerator of Tenant's
Proportionate Share will increase by the amount of rentable square feet
contained within the ROFO Premises; (d) Tenant's lease of the ROFO Premises will
be coterminous with the Term of this Lease; and (e) on or before the
Availability Date Tenant will cause the Security Deposit (be it cash or the
Letter of Credit) to be increased by an amount equal to sixty percent (60%) of
the cost of any tenant improvements in the ROFO Premises to be performed or paid
for by Landlord; provided, however, if Tenant's stock is publicly traded as of
the Availability Date, and so long as Tenant has satisfied the requirements of
Section A of Article VI of the Lease Information Summary with respect to cash or
cash equivalents, then instead of increasing the Security Deposit as described
above, Tenant shall, on or before the Availability Date, deposit with Landlord a
new Letter of Credit in conformity with the terms and provisions of Section 4.2
above and in an amount equal to the product of Eleven and 40/100 Dollars
($11.40) multiplied by the square footage of the ROFO Premises being leased by
Tenant on the Availability Date, which Letter of Credit shall be reduced in the
same manner described in Section A of Article VI of the Lease Information
Summary. Tenant will commence paying Rent for the ROFO Premises on the
Availability Date in the manner provided in Section 3.1 above.
21.21. Right of First Refusal.
Subject to the right(s) of any tenant(s) of the Building existing on the
date of this Lease to lease the "Additional Premises" (as defined below) or any
portion of the Additional Premises, and provided Tenant has continuously
occupied the Premises and is not in default under any terms and conditions of
this Lease as of the date Tenant notifies Landlord of its desire to exercise its
"Right of First Refusal" (as defined below), and so long as no event has
occurred but for the passage of time or the giving of notice, or both, that
would constitute a default under this Lease which has not been cured or waived,
during the first five (5) lease years Tenant shall have a right of first refusal
(the "Right of First Refusal") to rent any contiguous space which comprises more
than 7,500 rentable square feet and which is situated no lower than the twelfth
(12/th/) floor and no higher than the twentieth (20/th/) floor of the Building
(the "Additional Premises"), subject to the terms and conditions set forth
below. Prior to entering into any lease or other agreement with a third party
with respect to the Additional Premises during the first five (5) years of the
Term, Landlord will give Tenant written notice ("Landlord's Notice") of the
terms upon which a third party is willing to rent the Additional Premises.
Tenant must notify Landlord in writing within ten (10) business days after
Tenant's receipt of Landlord's Notice whether Tenant desires to exercise its
Right of First Refusal. Tenant's Right of First Refusal may only be exercised
as to the entire Additional Premises and on the same terms as offered by
Landlord to the third party. If Tenant does not notify Landlord of its election
to exercise its Right of First Refusal for the Additional Premises within the
ten (10) business day period described herein, then Tenant will be deemed to
have waived and elected not to exercise its Right of First Refusal with respect
to the Additional Premises, and Landlord may enter into a lease or other
agreement with any third party for the Additional Premises on the same terms and
conditions set forth in Landlord's Notice. However, if Landlord does not enter
into a lease or other agreement with a third party for the Additional Premises
on the same terms and conditions set forth in Landlord's Notice within six (6)
months after the expiration of said ten (10)
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business day period, or if Landlord intends to enter into a lease with a third
party for the Additional Premises on terms materially different from the terms
and conditions set forth in Landlord's Notice, then Landlord must first give
Tenant a new Landlord's Notice and another opportunity to exercise its Right of
First Refusal in accordance with this Section 21.21. If Tenant elects to
exercise its Right of First Refusal and so notifies Landlord within such ten
(10) business day period, then Tenant will accept the Additional Premises in
"AS-IS" condition and subject to the same terms and conditions as offered to the
third party, including the payment of Rent, except that (i) the term "Premises"
for all purposes of this Lease will thereafter include the Additional Premises,
(ii) the numerator of Tenant's Proportionate Share will increase by the amount
of rentable square feet contained within the Additional Premises, (iii) Tenant's
Lease of the Additional Premises will be coterminous within the Term of this
Lease, including any extensions of the Term; and (iv) on or before taking
possession of the Additional Premises Tenant will cause the Security Deposit (be
it cash or the Letter of Credit) to be increased by an amount equal to sixty
percent (60%) of the cost of any tenant improvements in the Additional Premises
to be performed or paid for by Landlord; provided, however, if Tenant's stock is
publicly traded as of the date Tenant takes possession of the Additional
Premises, and so long as Tenant has satisfied the requirements of Section A of
Article VI of the Lease Information Summary with respect to cash or cash
equivalents, then instead of increasing the Security Deposit as described above,
Tenant shall, on or before the date Tenant takes possession of the Additional
Premises, deposit with Landlord a new Letter of Credit in conformity with the
terms and provisions of Section 4.2 above and in an amount equal to the product
of Eleven and 40/100 Dollars ($11.40) multiplied by the square footage of the
Additional Premises being leased by Tenant on the date Tenant takes possession
of the Additional Premises, which Letter of Credit shall be reduced in the same
manner described in Section A of Article VI of the Lease Information Summary.
21.22. Option To Renew.
Provided Tenant has continuously occupied the Premises and is not in
default under the terms and conditions of this Lease, and so long as no event
has occurred but for the passage of time or the giving of notice, or both, would
constitute a default under this Lease which has not been cured or waived, Tenant
has the option (the "Renewal Option") to extend the Term of this Lease for one
(1) additional five (5) year period (the "Renewal Period"). If Tenant desires
to exercise the Renewal Option, Tenant must deliver written notice (the "Renewal
Notice") to Landlord not less than fourteen (14) months prior to the scheduled
expiration of the Term. The same terms and conditions as contained in this
Lease will apply during the Renewal Period, except the Base Rent will be equal
to ninety-five percent (95%) of the then prevailing market rental rate (taking
into account then prevailing market concessions, if any) for buildings of
similar size and class located in the downtown Chicago area as determined
pursuant to the terms of Section 21.26 below. Any attempt by Tenant to exercise
the Renewal Option by any method, at any time or in any circumstances, except as
specifically set forth herein, will be null and void and of no force or effect
at the sole option and discretion of Landlord.
21.23. Tenant's First Expansion Option.
Provided Tenant has continuously occupied the Premises and is not in
default under the terms and conditions of this Lease, and so long as no event
has occurred but for the passage of time or the giving of notice, or both, that
would constitute a default under this Lease which has not been cured or waived,
Tenant shall have the option to rent certain additional space in
29
<PAGE>
the Building to be designated by Landlord comprising not less than 8,500
rentable square feet and not more than 11,500 rentable square feet (the "First
Expansion Space") commencing on the first day of the second (2/nd/) lease year
of the Term (the "First Expansion Space Commencement Date") by giving Landlord
not less than six (6) months prior written notice of Tenant's election to rent
the First Expansion Space. Landlord agrees that in no event will the First
Expansion Space comprise more than two thousand (2,000) square feet in excess of
the additional space requested by Tenant, and that if the First Expansion Space
comprises more than five hundred (500) square feet in excess of the additional
space requested by Tenant, then Tenant shall be entitled to three (3) months of
gross Rent abatement only with respect to that portion of the First Expansion
Space which comprises more than five hundred (500) square feet in excess of the
additional space requested by Tenant. If Tenant exercises its option to rent the
First Expansion Space in the manner described herein, then Landlord will, at its
own expense, perform the base building work in the First Expansion Space
consistent with the terms of Exhibit H attached hereto and deliver the First
---------
Expansion Space to Tenant not less than sixty (60) days prior to the First
Expansion Space Commencement Date to enable Tenant to complete its tenant
improvements, and Tenant will accept the First Expansion Space in its then "AS-
IS" condition and subject to the same terms and conditions contained in the
Lease, except that beginning on the First Expansion Space Commencement Date (i)
Tenant will pay to Landlord Base Rent for the First Expansion Space in the
manner provided in Section 3.1 above at the same rate of Base Rent then being
paid by Tenant for the Premises under this Lease; (ii) the term "Premises" for
all purposes of this Lease will include the First Expansion Space; (iii) the
numerator of Tenant's Proportionate Share will increase by the rentable square
feet contained within the First Expansion Space; (iv) Landlord will afford
Tenant an allowance to cover the cost of certain non-structural, tenant
improvements to be made to the First Expansion Space (including but not limited
to architectural, mechanical, plumbing and engineering fees), which allowance
shall equal the product of $40.00 per square foot of the First Expansion Space
multiplied by a fraction, the numerator of which is the number of months
remaining from and after the First Expansion Space Commencement Date until the
end of the Term and the denominator of which is 120; and (v) Tenant will cause
the Security Deposit (be it cash or the Letter of Credit) to be increased by an
amount equal to sixty percent (60%) of the cost of any tenant improvements in
the First Expansion Space to be performed or paid for by Landlord; provided,
however, if Tenant's stock is publicly traded as of the First Expansion Space
Commencement Date, and so long as Tenant has satisfied the requirements of
Section A of Article VI of the Lease Information Summary with respect to cash or
cash equivalents, then instead of increasing the Security Deposit as described
above, Tenant shall, on or before the First Expansion Space Commencement Date,
deposit with Landlord a new Letter of Credit in conformity with the terms and
provisions of Section 4.2 above and in an amount equal to the product of Eleven
and 40/100 Dollars ($11.40) multiplied by the square footage of the First
Expansion Space being leased by Tenant on the First Expansion Space Commencement
Date, which Letter of Credit shall be reduced in the same manner described in
Section A of Article VI of the Lease Information Summary.
21.24. Tenant's Second Expansion Option.
Provided Tenant has continuously occupied the Premises and is not in
default under the terms and conditions of this Lease, and so long as no event
has occurred but for the passage of time or the giving of notice, or both, that
would constitute a default under this Lease which has not been cured or waived.
Tenant shall have the option to rent certain additional space in the Building to
be designated by Landlord comprising not less than 8,500 rentable square feet
30
<PAGE>
and not more than 11,500 rentable square feet (the "Second Expansion Space")
commencing on the earlier of (a) the date Landlord delivers possession of the
Second Expansion Space with all tenant improvements having been completed to
Tenant, or (b) the first day of the fourth (4/th/) month of the third (3/rd/)
lease year of the Term (such earlier date being the "Second Expansion Space
Commencement Date") by giving Landlord not less than nine (9) months prior
written notice of Tenant's election to rent the Second Expansion Space.
Landlord agrees that in no event will the Second Expansion Space comprise more
than two thousand (2,000) square feet in excess of the additional space
requested by Tenant, and that if the Second Expansion Space comprises more than
five hundred (500) square feet in excess of the additional space requested by
Tenant, then Tenant shall be entitled to three (3) months of gross Rent
abatement only with respect to that portion of the Second Expansion Space which
comprises more than five hundred (500) square feet in excess of the additional
space requested by Tenant. If Tenant exercises its option to rent the Second
Expansion Space in the manner described herein, then Landlord will, at its own
expense, perform the base building work in the Second Expansion Space consistent
with the terms of Exhibit H attached hereto and deliver the Second Expansion
---------
Space to Tenant not less than sixty (60) days prior to the Second Expansion
Space Commencement Date to enable Tenant to complete its tenant improvements,
and Tenant will accept the Second Expansion Space in its then "AS-IS" condition
and subject to the same terms and conditions contained in the Lease, except that
beginning on the Second Expansion Space Commencement Date (i) Tenant will pay to
Landlord Base Rent for the Second Expansion Space in the manner provided in
Section 3.1 above at the same rate of Base Rent then being paid by Tenant for
the Premises under this Lease; (ii) the term "Premises" for all purposes of this
Lease will include the Second Expansion Space; (iii) the numerator of Tenant's
Proportionate Share will increase by the rentable square feet contained within
the Second Expansion Space; (iv) Landlord will afford Tenant an allowance to
cover the cost of certain non-structural, tenant improvements to be made to the
Second Expansion Space (including but not limited to architectural, mechanical,
plumbing and engineering fees), which allowance shall equal the product of
$40.00 per square foot of the Second Expansion Space multiplied by a fraction,
the numerator of which is the number of months remaining from and after the
Second Expansion Space Commencement Date until the end of the Term and the
denominator of which is 120; and (v) Tenant will cause the Security Deposit (be
it cash or the Letter of Credit) to be increased by an amount equal to sixty
percent (60%) of the cost of any tenant improvements in the Second Expansion
Space to be performed or paid for by Landlord; provided, however, if Tenant's
stock is publicly traded as of the Second Expansion Space Commencement Date, and
so long as Tenant has satisfied the requirements of Section A of Article VI of
the Lease Information Summary with respect to cash or cash equivalents, then
instead of increasing the Security Deposit as described above, Tenant shall, on
or before the Second Expansion Space Commencement Date, deposit with Landlord a
new Letter of Credit in conformity with the terms and provisions of Section 4.2
above and in an amount equal to the product of Eleven and 40/100 Dollars
($11.40) multiplied by the square footage of the Second Expansion Space being
leased by Tenant on the Second Expansion Space Commencement Date, which Letter
of Credit shall be reduced in the same manner described in Section A of Article
VI of the Lease Information Summary.
21.25. Tenant's Third Expansion Option.
Provided Tenant has continuously occupied the Premises and is not in
default under the terms and conditions of this Lease, and so long as no event
has occurred but for the passage of time or the giving of notice, or both, would
constitute a default under this Lease, Tenant shall
31
<PAGE>
have the option to rent certain additional space in the Building to be
designated by Landlord comprising not less than 8,500 rentable square feet and
not more than 11,500 rentable square feet (the "Third Expansion Space")
commencing on the earlier of (a) the date Landlord delivers possession of the
Third Expansion Space with all tenant improvements having been completed to
Tenant, or (b) the first day of the sixth (6/th/) lease year of the Term (such
earlier date being the "Third Expansion Space Commencement Date") by giving
Landlord not less than fifteen (15) months prior written notice of Tenant's
election to rent the Third Expansion Space. Landlord agrees that in no event
will the Third Expansion Space comprise more than two thousand (2,000) square
feet in excess of the additional space requested by Tenant, and that if the
Third Expansion Space comprises more than five hundred (500) square feet in
excess of the additional space requested by Tenant, then Tenant shall be
entitled to three (3) months of gross Rent abatement only with respect to that
portion of the Third Expansion Space which comprises more than five hundred
(500) square feet in excess of the additional space requested by Tenant. If
Tenant exercises its option to rent the Third Expansion Space in the manner
described herein, then Landlord will, at its own expense, perform the base
building work in the Third Expansion Space consistent with the terms of
Exhibit H attached hereto and deliver the Third Expansion Space to Tenant not
- ---------
less than sixty (60) days prior to the Third Expansion Space Commencement Date
to enable Tenant to complete its tenant improvements, and Tenant will accept the
Third Expansion Space in its then "AS-IS" condition and subject to the same
terms and conditions contained in the Lease, except that beginning on the Third
Expansion Space Commencement Date (i) Tenant will pay to Landlord Base Rent for
the Third Expansion Space in the manner provided in Section 3.1 above at the
same rate of Base Rent then being paid by Tenant for the Premises under this
Lease; (ii) the term "Premises" for all purposes of this Lease will include the
Third Expansion Space; (iii) the numerator of Tenant's Proportionate Share will
increase by the rentable square feet contained within the Third Expansion Space;
(iv) Landlord will afford Tenant an allowance to cover the cost of certain non-
structural, tenant improvements to be made to the Third Expansion Space
(including but not limited to architectural, mechanical, plumbing and
engineering fees), which allowance shall equal the product of $40.00 per square
foot of the Third Expansion Space multiplied by a fraction, the numerator of
which is the number of months remaining from and after the Third Expansion Space
Commencement Date until the end of the Term and the denominator of which is 120;
and (v) Tenant will cause the Security Deposit (be it cash or the Letter of
Credit) to be increased by an amount equal to sixty percent (60%) of the cost of
any tenant improvements in the Third Expansion Space to be performed or paid for
by Landlord; provided, however, if Tenant's stock is publicly traded as of the
Third Expansion Space Commencement Date, and so long as Tenant has satisfied the
requirements of Section A of Article VI of the Lease Information Summary with
respect to cash or cash equivalents, then instead of increasing the Security
Deposit as described above, Tenant shall, on or before the Third Expansion Space
Commencement Date, deposit with Landlord a new Letter of Credit in conformity
with the terms and provisions of Section 4.2 above and in an amount equal to the
product of Eleven and 40/100 Dollars ($11.40) multiplied by the square footage
of the Third Expansion Space being leased by Tenant on the Third Expansion Space
Commencement Date, which Letter of Credit shall be reduced in the same manner
described in Section A of Article VI of the Lease Information Summary.
21.26. Arbitration.
In the event Tenant disputes Landlord's determination of the prevailing
market rental rate under this Lease, and if the parties cannot mutually agree on
the prevailing market rental
32
<PAGE>
rate within thirty (30) days thereafter, then either party may notify the other
party in writing (the "Arbitration Notice") that it intends to arbitrate the
dispute, in which event within ten (10) business days after the recipient's
receipt of the Arbitration Notice, Landlord and Tenant shall each designate a
commercial real estate broker licensed in the State of Illinois and each being
experienced in determining rental rates for office buildings comparable to the
Building. If the brokers so designated fail to agree upon the prevailing market
rental rate of the Premises within twenty (20) days after their designation,
then the two (2) named brokers shall promptly and jointly select a third
commercial broker licensed in the State of Illinois and experienced in
determining rental rates for office buildings comparable to the Building, and
the third broker shall then determine conclusively the then prevailing market
rental rate for the Premises, which decision shall be binding on both Landlord
and Tenant. If either party fails to designate its respective broker within the
time allowed, then the broker designated by the other party shall act alone.
21.27. Tenant's Termination Right.
Notwithstanding anything to the contrary contained in this Lease, Tenant
shall have a one (1) time option to terminate this Lease at the end of the
seventh (7/th/) lease year of the Term by giving Landlord written notice of
Tenant's election to terminate this Lease on or before the last day of the sixth
(6/th/) month of the sixth (6/th/) lease year, which notice must be accompanied
by payment of a termination fee to Landlord in an amount equal to the total Rent
due from Tenant to Landlord during the seventh (7/th/) lease year. Tenant
agrees to vacate and surrender possession of the Premises to Landlord at the end
of the seventh (7/th/) lease year. This right of termination is reserved to
Tenant and will not inure to the benefit of any assignees, sublessees,
transferees, successors and/or assigns of Tenant.
LANDLORD:
---------
360 NORTH MICHIGAN TRUST,
a Delaware business trust
By: DOUGLAS ELLIMAN-BEITLER
MANAGEMENT CORPORATION, an
Illinois corporation, its
agent
By: /s/ J. Paul Beitter
--------------------------
Its: President
-------------------------
TENANT:
-------
coolsavings.com inc.,
a Michigan corporation
By: /s/ Steven M. Golden
-------------------------------
Its: CEO
------------------------------
33
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated June 7, 1999 relating to the financial statements and financial
statement schedule of coolsavings.com inc., which appears in such Registration
Statement. We also consent to the reference to us under the headings "Experts"
and "Selected Financial Data" in such Registration Statement.
PricewaterhouseCoopers LLP
Chicago, IL
January 14, 2000
<PAGE>
Exhibit 23.3
Consent of Niro, Scavone, Haller & Niro
---------------------------------------
We hereby consent to the use of our name wherever it appears in this
Registration Statement.
Dated: January 13, 2000
/s/ Niro, Scavone, Haller & Niro
<TABLE> <S> <C>
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 5,294,944 4,895,139
<SECURITIES> 0 0
<RECEIVABLES> 2,242,817 281,800
<ALLOWANCES> 54,099 13,500
<INVENTORY> 0 0
<CURRENT-ASSETS> 11,072,564 5,329,542
<PP&E> 2,938,261 1,041,102
<DEPRECIATION> (673,476) (284,568)
<TOTAL-ASSETS> 14,275,379 6,370,644
<CURRENT-LIABILITIES> 7,131,971 1,541,400
<BONDS> 0 0
0 0
0 0
<COMMON> 27,824,658 13,500,865
<OTHER-SE> (21,510,176) (8,907,195)
<TOTAL-LIABILITY-AND-EQUITY> 14,275,379 6,370,644
<SALES> 0 0
<TOTAL-REVENUES> 6,240,401 1,142,819
<CGS> 1,043,860 427,769
<TOTAL-COSTS> 15,231,791 6,061,221
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 79,298 483,411
<INCOME-PRETAX> (9,785,689) (5,741,260)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (9,785,689) (5,741,260)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,785,689) (5,741,260)
<EPS-BASIC> (355.21) (306.42)
<EPS-DILUTED> (355.21) (306.42)
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